Tax credit to be granted in the year in which income is assessed

Last updated: 17 March 2020

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Quick Summary

This ruling clarifies that tax credit should be granted in the assessment year the income is declared, even if the tax deduction and deposit by the customer occurred in a later financial year. The Pune Tribunal found that while tax deduction details are usually based on the deductor's information, the specific rule for granting credit states it should align with the assessment year of the income. This decision prevents hardship for taxpayers by allowing credit in the correct year, avoiding blocked working capital.

Court :
ITA No. 1288/PUN/2017

Brief :
Many a times, we come across cases where the invoice has been raised close to the cut-off date, i.e. closer to the end of a financial year and the customer has accounted for and paid the invoice amount, as well as deducted and deposited the tax at applicable rates in the subsequent financial year. More often than not, a conservative stand is adopted, to get the benefit of tax credit in the subsequent year, though the invoice forms part of the turnover for the preceding year, so as to avoid disallowance during regular assessment/scrutiny by the Assessing Officer. However, this causes undue hardship to the taxpayer, by blocking of working capital due to the disallowance of credit in the preceding year, resulting in higher payment of tax in cash.

Citation :
M/s. Mahesh Software Systems Pvt. Ltd., v. Assistant Commissioner of Income Tax, Pune

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