Mumbai ITAT allows TDS Credit to the Payee - TDS Credit must be available despite Deductor’s default or misreporting

 The Hon’ble Mumbai ITAT (‘Tribunal’) has ruled that TDS credit cannot be denied to a taxpayer merely because the deductor failed to deposit the tax or correctly report it to the Government.

Background

• The taxpayer received payments after deduction of TDS and offered the entire income to tax. However, certain TDS amounts did not appear in Form 26AS because the deductors either had not deposited the tax or had filed incorrect TDS statements.
• The AO denied credit for such TDS amounts and levied interest, relying solely on Form 26AS. The learned CIT(A) upheld this view and suggested that the taxpayer should approach the deductors for rectification of their e-TDS statements.

Issue Before Tribunal
Whether the taxpayer can be denied TDS credit merely because the deduction does not appear in Form 26AS.

Tribunal’s Observations and Decision

• The Tribunal noted that the taxpayer submitted invoices, TDS advices, and bank statements showing receipt of payments net of TDS.
• The mismatch with Form 26AS was due to the deductors’ failure to deposit tax or file correct e-TDS statements, not any fault of the taxpayer.
• Section 205 of the Income-tax Act creates a clear bar against demanding tax from the taxpayer to the extent tax has been deducted at source.
• The Tribunal held that such demands ought not be enforced against the deductee, as the deductee cannot be penalized for the deductor’s default. The responsibility lies with the deductor, therefore, coercive measures must be directed only against them.
• The Tribunal emphasized that Form 26AS is a departmental statement reflecting the deductor’s compliance. It does not form part of the taxpayer’s books, and treating it as the sole criterion elevates form over substance, which is not supported by law.

Key Takeaway:
The ruling sets out a simple but significant proposition: TDS credit is available if tax has been deducted at source from the taxpayer’s income. Non-reflection in Form 26AS due to the deductor’s default does not justify denial of credit or levy of interest, provided the taxpayer has brought the income to tax and can substantiate the deduction with primary evidence.