Facts of the Case

The assessee, M/s Relcom, was engaged in the business of erection, commissioning, and installation of towers on contract basis. For Assessment Year 2009-10, the assessee filed its return of income which was processed under Section 143(1) of the Income Tax Act.

During assessment proceedings, the Assessing Officer noticed a discrepancy between the receipts disclosed by the assessee and the receipts reflected in Form 26AS. The assessee had declared receipts of approximately Rs. 6.20 crore, whereas Form 26AS reflected receipts of approximately Rs. 19.08 crore with corresponding TDS credit of Rs. 1.20 crore.

The assessee explained that a vendor had raised invoices upon its sister concern, M/s Relcom Engineering Pvt. Ltd. (REPL), but inadvertently mentioned the assessee’s PAN in the TDS certificates. Consequently, the TDS credit got reflected in the assessee’s Form 26AS due to PAN-based reporting.

The assessee further clarified that the benefit of such TDS had not been claimed by REPL and taxes corresponding to the receipts had already been discharged by REPL. However, the Assessing Officer restricted the TDS credit only to the extent relatable to the assessee’s disclosed receipts and denied the balance claim.

Issues Involved

  1. Whether TDS credit under Section 199 of the Income Tax Act can be allowed where the TDS certificate contains the incorrect PAN due to a vendor’s mistake.
  2. Whether the assessee can claim TDS credit without offering the corresponding income in its own return of income.
  3. Whether denial of TDS credit would be justified when the income corresponding to such TDS has already suffered taxation in the hands of a sister concern.

Petitioner’s Arguments (Revenue)

The Revenue contended that:

  • Under Section 199 of the Income Tax Act, TDS credit can only be granted to the person from whose income tax has actually been deducted.
  • Since the receipts of Rs. 19.08 crore did not belong to the assessee but pertained to M/s REPL, the assessee was not legally entitled to claim the corresponding TDS credit.
  • The assessee had not offered the corresponding receipts for taxation in its own return of income.
  • The assessee should have obtained corrected TDS certificates from the vendor instead of claiming the disputed TDS credit.
  • Therefore, only TDS relatable to the assessee’s disclosed receipts of Rs. 6.20 crore was allowable and the remaining TDS claim deserved disallowance.

Respondent’s Arguments (Assessee)

The assessee submitted that:

  • The incorrect reflection of TDS in Form 26AS occurred solely because of the vendor’s inadvertent PAN error.
  • The corresponding income had already been taxed in the hands of M/s REPL.
  • M/s REPL had not separately claimed the benefit of such TDS credit.
  • Both concerns belonged to the same group and there was no loss of revenue to the department.
  • Denial of TDS credit in such circumstances would result in undue hardship and unjust enrichment of the Revenue despite taxes already being paid.

Court Findings / Observations

The Delhi High Court upheld the orders of the CIT(A) and the ITAT and ruled in favour of the assessee.

The Court observed that:

  • The assessee had consistently admitted that the receipts belonged to M/s REPL and had also clarified that REPL had not availed the TDS credit.
  • The Revenue had already assessed the corresponding income in the hands of M/s REPL.
  • Denial of TDS credit merely on technical grounds would defeat the purpose of justice.
  • Procedure cannot override substantive justice, particularly where there is no revenue loss to the department.
  • Rule 37BA of the Income Tax Rules also recognizes situations where TDS credit may be granted to a person other than the deductee.

The Court further relied upon the judgment of the Andhra Pradesh High Court in CIT vs Bhooratnam (2013) 357 ITR 196 (AP) and emphasized that the Revenue cannot retain TDS without granting credit to any person.

Court Order

The Delhi High Court dismissed the Revenue’s appeal and answered the question of law against the Revenue. The Court held that the assessee was entitled to the TDS credit despite the PAN mismatch and despite the corresponding income being assessed in the hands of its sister concern.

Important Clarification

The Court clarified that:

  • Rule 37BA was not directly applicable to the facts of the case but demonstrated legislative recognition that TDS credit may, in appropriate circumstances, be granted to a person other than the deductee.
  • Technical procedural defects should not obstruct legitimate tax credit where substantive taxes have already been paid.
  • Revenue authorities cannot unjustly retain TDS where no double claim exists and the taxes have already been accounted for.

Sections Involved

  • Section 199 of the Income Tax Act, 1961
  • Section 143(1) of the Income Tax Act, 1961
  • Rule 37BA of the Income Tax Rules, 1962

Link to download the order:https://delhihighcourt.nic.in/app/case_number_pdf/2015:DHC:479-DB/SRB16012015ITA262015.pdf

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