The Income Tax Appellate Tribunal (ITAT) Mumbai has set aside a Rs 1 crore tax demand raised solely due to a TDS mismatch in Form 26AS, ruling that such denial violates Section 205 of the Income Tax Act, which bars the Revenue from recovering tax once it has been deducted at source.
The Tribunal reaffirmed that TDS credit must be allowed based on primary evidence such as payment advices, invoices and bank statements, not merely on entries appearing in Form 26AS.
Background of the Case
The case involved a taxpayer with income exceeding Rs 20 crore and TDS claims worth over Rs 4.8 crore. However, the Central Processing Centre (CPC) disallowed nearly Rs 96 lakh of TDS credit, contending that the amount did not reflect in the taxpayer's Form 26AS, leading to a tax demand exceeding Rs 1 crore, including interest under Sections 234B and 234C.
When the matter reached the Commissioner of Income Tax (Appeals), the authority upheld CPC's stance, holding that TDS credit could only be granted if it appeared in Form 26AS.
Tribunal's Ruling: Substance Over Form
The ITAT Mumbai bench rejected this interpretation as "legally unsustainable", observing that the Income Tax Act nowhere prescribes Form 26AS as a mandatory prerequisite for TDS credit.
"The statute does not impose such a precondition. The deductee has neither control over nor access to the deductor's filings. The insistence effectively makes the assessee hostage to another's compliance and empties Section 205 of content," the Tribunal noted.
The bench emphasized that the correct and lawful approach is for tax authorities to verify the assessee's primary evidence of TDS deduction and allow credit accordingly, while taking appropriate action against defaulting deductors.
Legal Basis and Precedents
The Tribunal drew strength from earlier High Court rulings, including Yashpal Sahni v. Rekha Hajarnavis, which held that once TDS deduction is proved, Section 205 prevents the department from demanding the same tax again from the assessee.
The ITAT reiterated that a taxpayer cannot be made to "bear the burden twice" - once through deduction and again through denial of credit.
"Form 26AS is a departmental statement. To insist on its reflection as a precondition for credit is to elevate form over substance. The statute does not so provide," the order stated.
CBDT Instructions and Administrative Practice
The decision also aligns with CBDT's 2015 and 2016 circulars, which directed tax officers not to initiate coercive recovery in cases where TDS mismatches arise due to deductor non-compliance.
The Tribunal observed that Section 205 is a legislative safeguard and the Board's instructions are administrative mechanisms to uphold that protection.
Outcome and Directions
The ITAT noted that the taxpayer had furnished ample documentary evidence including invoices, bank statements, reconciliations and ITRs confirming legitimate TDS deduction.
Accordingly, it directed the Assessing Officer to:
- Grant full TDS credit after verifying the primary records; and
- Delete all consequential interest charges imposed under Sections 234B and 234C.
The ruling reinforces the principle that taxpayers should not suffer for defaults committed by deductors, and that Form 26AS is only a facilitative tool, not a statutory determinant of TDS credit entitlement.
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