TDS CREDIT DISALLAOWED WHILE GIVING REFUND

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

28 February 2010 Can you please give remedy on following case:-

Assessee is maintaining books of account on cash basis.

He has received actual interest and booked income on Govt Bond on redumption in FY 2007-08 (Actual receipt in Apr 07)

However On TDS certificate received, period mentioned is for FY 2006-07 being bond send for redeemption in that FY.

But actual amount received in next FY i.e 2007-08.

Income Tax officer is now disallowing this TDS in assesment of return of FY 2007-08 on the ground that FY mentioned on TDS is 2006-07

Deepak Goel

Deepak Goel (Expert)
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28 February 2010 You should have to consider interest income in which year income is due even you are adopting cash basis.

Querist : Anonymous

Querist : Anonymous (Querist)

01 March 2010 SIR ! I do not agree with you! As per Income tax act Hybrid system of accounting is not allowed. Either cash or mercantile basis to be followed. According to yr opinion Income tax dept will enjoy the TDS amt. That TDS amt belongs to assessee which he has not claimed in earlier any return also.

M Prabhakar Menon

M Prabhakar Menon (Expert)
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03 March 2010 If the amount involved is substantial u may file an appeal within 30 days from the date of the AO before the CIT (Appeals)Alternatvely submit an application u/s 154 for rectification of mistake apparent from record this will give u one more opportunity to be heard.

Querist : Anonymous

Querist : Anonymous (Querist)

03 March 2010 Can you give some Case Law or any other reference to go for appeal. As application u/s 154 already filed.

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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27 July 2025 Here’s a breakdown of the issue and some guidance along with relevant case law you can consider for appeal or rectification:

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### 📝 **Issue Summary**

* Assessee uses **cash basis accounting** and has booked interest income **in FY 2007-08** when actually received.
* TDS certificate, however, shows the TDS period as **FY 2006-07** because the bond was sent for redemption in that FY.
* AO is **disallowing TDS credit** in AY 2007-08 (corresponding to FY 2007-08) since the TDS credit belongs to AY 2009-10 (FY 2006-07).
* Assessee insists TDS credit should be allowed because income recognized on cash basis only in FY 2007-08.

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### ⚖️ **Legal Provisions & Principles**

1. **Section 199(3) and Rule 37BA** — TDS credit allowed for the assessment year in which income is taxable and reported.
2. **Cash vs Mercantile Basis** — Income tax generally follows the **mercantile system** except where cash basis is specifically allowed or used (e.g., individuals, small businesses).
3. The **TDS credit can only be claimed for the year in which the tax is deducted and reflected in Form 26AS.**

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### 📚 **Key Case Laws**

1. **CIT vs. G.K. Kapoor (1979) 118 ITR 101 (SC)**

* Income has to be recognized according to the method of accounting regularly employed by the assessee.
* If cash basis is followed consistently, income should be taken on receipt.

2. **Deputy CIT vs. Vasunathan & Co. (1992) 199 ITR 156 (Mad)**

* TDS credit is available only in the year in which TDS is reflected in the return (year of deduction).

3. **CIT vs. Sugunabai Ammal (1954) 26 ITR 557 (Mad)**

* Income is taxed in the year it is received (cash basis recognized).

4. **CIT vs. Karur Vysya Bank Ltd. (2008) 308 ITR 207 (SC)**

* Confirmed that TDS credit is allowable only in the year in which it is deducted and deposited.

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### 💡 **Possible Remedies**

1. **File Appeal before CIT (Appeals):**

* Emphasize your accounting method (cash basis).
* Argue TDS credit should be allowed in the year income is reported and actually received.
* Submit TDS certificate as evidence.

2. **Application under Section 154 (Rectification):**

* Since already filed, if rejected, use it to challenge before CIT (Appeals).

3. **Letter of Explanation:**

* Attach a detailed explanation of the accounting method and request to allow TDS credit.

4. **Alternative: Claim Refund in Year TDS is Reflected**

* If AO holds strictly to TDS year, you may claim TDS credit/refund in FY 2006-07 (AY 2007-08) if return can be revised or through rectification.

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### 📝 **Sample Argument for Appeal**

> *“The assessee maintains accounts on a consistent cash basis. Interest income was received and accounted in FY 2007-08, as supported by bank statements and ledger accounts. Although the TDS certificate mentions FY 2006-07, the actual receipt of income falls in FY 2007-08; hence, credit of TDS should be allowed in the year of receipt as per the accounting method regularly employed by the assessee and recognized by the Income Tax Act.”*

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If you want, I can help draft a formal appeal letter or rectification application based on these points. Would you like that?

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