Tds vs. cash system of book keeping

As per the Income Tax Act, books of accounts can be maintained either in cash/mercantile system w.r.t professional Income received. But, for one of my client, TDS has been deducted in the previous year (mar 10) but the same amount has been received in the current year. (say July 10), wherein huge tax with interest is coming. As far as I know, we can claim the TDS only if the corresponding income is offered to tax. But in this Case, since the proessional income is not yet received for the previous year, and since the books of accounts are maintained under cash system, I can not account this towards income. Since, both of the above concepts are contradicting (Method of book keeping vs. offering income based on TDS deduction), kindly let me know if there is any other way where I can offer the income on receipt basis. (Kindly provide relevant section/case laws regarding to this). Also, Please let me know the practicle procedure to file the tax return as at the time of offering income to tax (A-yr 11-12), I can not import TDS from 26AS as it would be reflecting in the A-yr 10-11.

Regards

Lakshmi Devanand

Ms.Lakshmi Devanand ACA

Please refer to sub-section (3) of Section 199 of Income-tax Act, 1961 and Rule 37BA(3)(i) of Income-tax Rules 1962.

Sub-section (3) of Section 199 reads as under:

(3) The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and subsection (2) and also the assessment year for which such credit may be given.]

and Rule 37BA(3)(i) reads as under:

(3) (i) Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable.

As per the books of account maintained by the assessee the income can be offered on cash basis and TDS relating to the said income can be claimed as prepaid tax. As you said in Form No.26AS the same picture will not be reflected. The assessment year mentioned on the TDS certificate also is a different assessment year other than the assessment year in which the income is offered to tax. In such circumstances you will face the inconvenience of non-credit for the prepaid taxes though you have claimed in the return of income with all TDS details with TAN numbers PAN numbers of the deductors. If the order is passed without considering the credit for TDS you can move an application u/s 154 asking for credit of TDS as per the provisions of section 199 r.w.r. 37BA.

You can make a representation to the concerned Assessing Officer after filing the return of income and before completion of the assessment explaining the pecularities of your case and ask for credit for TDS as per the provisions of section 199 r.w.r. 37BA

Best Wishes

Sathikonda