Whether, while processing the return of income under section 143(1) of the Income-tax Act, 1961, the Centralised Processing Centre was justified in restricting the credit of tax deducted at source (TDS) claimed by the assessee, despite the TDS being duly reflected in Form 26AS, and whether such restriction is permissible in light of section 199 read with Rule 37BA, which governs the grant and timing of TDS credit.

 

Case Citation:-ACIT, Panvel Circle, Panvel v. Gateway Terminals India Pvt. Ltd. (and Vice-Versa)

Income Tax Appellate Tribunal, Pune Bench

ITA Nos. 691 to 693/PUN/2025 and CO Nos. 46 to 48/PUN/2025

Assessment Years: 2021-22, 2022-23 and 2023-24

Order dated: 15 December 2025

 

Facts:-The assessee, a private limited company engaged in the business of building, constructing, operating and maintaining a container port terminal under a licence agreement with the Government of India through JNPT, filed its return of income for Assessment Year 2021-22 declaring total income of Rs. 44.51 crore and claiming TDS credit of Rs. 14.53 crore.

 

The return was processed under section 143(1) and an intimation dated 22.09.2022 was issued by the CPC, wherein the TDS credit was restricted to Rs. 9.07 crore. The restriction was made on the assumption that the revenue reflected in Form 26AS was higher than the revenue disclosed in the financial statements and the return of income.

 

Aggrieved, the assessee filed an appeal before the Ld. Addl./JCIT(A), contending that it was entitled to full credit of TDS as reflected in Form 26AS, since the revenue recognised in the books of account was, in fact, higher than the receipts reported by the deductors in Form 26AS. The assessee submitted that the restriction of TDS credit at the processing stage was contrary to law and beyond the scope of section 143(1).

 

The Ld. Addl./JCIT(A) accepted the assessee’s contention, held the restriction of TDS credit to be erroneous and unsustainable, and directed the Assessing Officer to allow full TDS credit as reflected in Form 26AS after due verification in accordance with section 199 read with Rule 37BA. The Revenue carried the matter in appeal before the Tribunal.

 

Statutory Provision – Scope of Section 143(1) and Section 199 read with Rule 37BA

Section 143(1) permits processing of a return of income by making only limited, prima facie adjustments, such as correction of arithmetical errors or disallowance of incorrect claims apparent from the return itself. The provision does not authorise the Assessing Officer or CPC to undertake a detailed factual verification or to adjudicate debatable issues requiring examination of records and reconciliation of data.

 

Section 199 provides that any tax deducted at source shall be treated as payment of tax on behalf of the person from whose income the deduction has been made, and credit shall be given to such person for the assessment year for which such income is assessable. Rule 37BA prescribes the manner and timing for granting such credit and mandates that TDS credit shall be allowed to the person to whom the income is assessable, even if the deduction is reported differently by the deductor, subject to verification.

 

A conjoint reading of section 199 and Rule 37BA makes it clear that TDS credit cannot be denied or curtailed merely because of a mismatch or perceived difference between the income reflected in Form 26AS and the income offered in the return, so long as the income corresponding to such TDS is assessable in the hands of the assessee. Any verification required for this purpose necessarily falls outside the limited scope of adjustments under section 143(1).

 

ITAT Finding and Decision

The Tribunal observed that the Ld. Addl./JCIT(A) had not granted automatic or unconditional relief to the assessee. Instead, the issue was restored to the file of the Assessing Officer with a specific direction to allow full credit of TDS as reflected in Form 26AS, subject to due verification of proper deduction and compliance with section 199 read with Rule 37BA.

 

The Tribunal held that, in such circumstances, the Revenue could not have any legitimate grievance, as the direction merely ensured that the assessee’s statutory right to TDS credit was examined and granted in accordance with law. It was further noted that restriction of TDS credit at the stage of processing under section 143(1), when the claim is supported by Form 26AS and requires factual verification, is not sustainable.

 

Accordingly, the Tribunal dismissed all the appeals filed by the Revenue for Assessment Years 2021-22, 2022-23 and 2023-24. The cross-objections filed by the assessee were dismissed as not pressed.