TDS CREDIT FOR INCOME RECEIVED NOW
This query is : Resolved
25 December 2009
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 maturity 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
Assessee is maintaining books of account on cash basis.
He has received actual interest and booked income on Govt Bond on maturity 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
27 July 2025
This is a common issue where TDS certificate shows tax deducted in a financial year (FY 2006-07), but the assessee, following **cash basis accounting**, recognizes the income and receives the amount in the next FY (2007-08). The assessing officer disallows the TDS credit for FY 2007-08 since the TDS was deducted in FY 2006-07.
---
### Key Points and Remedies:
#### 1. **Accounting Method (Cash Basis)**
* If your client consistently follows **cash basis accounting**, income should be recognized only when actually received.
* Courts and IT authorities have accepted that the accounting method regularly employed by the assessee must be followed.
#### 2. **TDS Credit & Assessment Year**
* Normally, TDS credit is allowed in the year in which tax is deducted and reflected in Form 26AS.
* But if income is recorded in a different year due to cash basis accounting, a mismatch occurs.
#### 3. **Legal Precedents Supporting Cash Basis**
* **CIT vs G.K. Kapoor (1979) 118 ITR 101 (SC):**
Income should be recognized according to the regular accounting practice.
* **Deputy CIT vs Vasunathan & Co. (1992) 199 ITR 156 (Mad):**
TDS credit is allowed based on the year tax is deducted.
* **CIT vs Karur Vysya Bank Ltd. (2008) 308 ITR 207 (SC):**
TDS credit is allowable in the year of deduction.
---
### Recommended Approach:
1. **Explain the Accounting Method to the AO:**
* Submit evidence (books of accounts, bank statements) showing income receipt in FY 2007-08.
* Argue that since income is recognized in FY 2007-08 on cash basis, TDS credit should also be allowed for this year.
2. **File Appeal / Rectification:**
* If disallowance persists, file an appeal with CIT (Appeals).
* Alternatively, file a rectification application under **Section 154** if the mistake is apparent.
3. **Claim Refund if Necessary:**
* If TDS credit is disallowed for FY 2007-08 and no income is shown for FY 2006-07, consider filing return/claim refund for FY 2006-07, if feasible.
---
### Sample Submission to AO:
> *“The assessee maintains accounts on a consistent cash basis, and the income on Government bond redemption was actually received and accounted for in FY 2007-08. The TDS certificate reflects deduction for FY 2006-07 because the bonds were sent for redemption in that year. However, income recognition and taxability is governed by the accounting method, and hence the credit of TDS should be allowed for FY 2007-08.”*
---
Would you like me to help draft a detailed letter/appeal for submission to the assessing officer?
---
### Key Points and Remedies:
#### 1. **Accounting Method (Cash Basis)**
* If your client consistently follows **cash basis accounting**, income should be recognized only when actually received.
* Courts and IT authorities have accepted that the accounting method regularly employed by the assessee must be followed.
#### 2. **TDS Credit & Assessment Year**
* Normally, TDS credit is allowed in the year in which tax is deducted and reflected in Form 26AS.
* But if income is recorded in a different year due to cash basis accounting, a mismatch occurs.
#### 3. **Legal Precedents Supporting Cash Basis**
* **CIT vs G.K. Kapoor (1979) 118 ITR 101 (SC):**
Income should be recognized according to the regular accounting practice.
* **Deputy CIT vs Vasunathan & Co. (1992) 199 ITR 156 (Mad):**
TDS credit is allowed based on the year tax is deducted.
* **CIT vs Karur Vysya Bank Ltd. (2008) 308 ITR 207 (SC):**
TDS credit is allowable in the year of deduction.
---
### Recommended Approach:
1. **Explain the Accounting Method to the AO:**
* Submit evidence (books of accounts, bank statements) showing income receipt in FY 2007-08.
* Argue that since income is recognized in FY 2007-08 on cash basis, TDS credit should also be allowed for this year.
2. **File Appeal / Rectification:**
* If disallowance persists, file an appeal with CIT (Appeals).
* Alternatively, file a rectification application under **Section 154** if the mistake is apparent.
3. **Claim Refund if Necessary:**
* If TDS credit is disallowed for FY 2007-08 and no income is shown for FY 2006-07, consider filing return/claim refund for FY 2006-07, if feasible.
---
### Sample Submission to AO:
> *“The assessee maintains accounts on a consistent cash basis, and the income on Government bond redemption was actually received and accounted for in FY 2007-08. The TDS certificate reflects deduction for FY 2006-07 because the bonds were sent for redemption in that year. However, income recognition and taxability is governed by the accounting method, and hence the credit of TDS should be allowed for FY 2007-08.”*
---
Would you like me to help draft a detailed letter/appeal for submission to the assessing officer?
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