In a significant ruling, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the Income Tax Department cannot deny tax deducted at source (TDS) benefit once the corresponding income has been taxed. This ruling has been reported by TOI in its article dated November 22, 2024. The article states that a Navi Mumbai taxpayer by name Soman had his entire income for financial year 2010-11 taxed while reassessment proceedings were conducted on the basis of entire income shown in Form 26AS being taxed while TDS credit was not being granted to him on the principal reason that return of income for said financial year had not been filed by taxpayer.

Reassessment based on Form 26AS and AIR data

The case of Shri Soman, a Navi Mumbai resident and taxpayer for the Assessment Year 2011-12, pertains to financial year 2010-11. Reassessments were carried out in his case on the basis of annual information return (AIR) and Form 26AS. As per the AIR and Form 26AS, there were certain receipts credited into taxpayer’s account but the nature of receipts were not mentioned in the order. Since taxpayer did not file return of income and also did not respond to notices issued under Section 148 of the IT Act, the assessment was completed by assessing officer ex-parte. As per the assessing officer, all the receipts which were reflected in Form 26AS were treated as taxable income of taxpayer.

The taxpayer never filed his income tax return and also never responded to the summons issued under Section 148 of the Income Tax Act 1961 by the Assessing Officer. In these circumstances, the Assessing Officer held entire of the receipts in dispute as shown and taxed in the Form 26AS to be of tax-able nature and completed the assessment of taxpayer’s case ex-parte.

Tribunal rejects denial of TDS credit

As no claim was being made by taxpayer for permit of TDS credit as no return of income had been filed by him on one hand, his argument on other hand would fall flat as taxpayer’s argument was that once the income was taxed, denying him TDS credit would amount to his being doubly taxed and revenue’s being unjustly enriched.

The ITAT observed that since the Income Tax Department had already included the entire income in assessment and tax thereon already recovered by including same in tax paid as reflected in Form 26AS and thereby already taxed same, denying TDS Credit already deducted and credited in account of taxpayer and already reflected in Form 26AS, would amount to double taxation and also cause unjust enrichment of Revenue. As per the ITAT, the TDS Credit is consequential and co-terminal with assessment of corresponding income, and therefore, Taxes already deducted and credited by taxpayer in his account and already reflected in Form 26AS cannot be disallowed by Assessing Officer on mere technical grounds. The Assessing Officer is required to verify the TDS Credit as reflected in Form 26AS and allow the same.

Principle reinforced on linkage of income and TDS

The decision of ITAT would further strengthen the Principle of Linkage of Income with TDS which had been introduced through the use of Form 26AS in assessment of tax liability. The principle still remains relevant even after replacement of Form 26AS with Annual Information Statement in Form No. 168 under the Income Tax Act, 2025. When income of assessee is assessed by Department on basis of data generated in Form 26AS, TDS credit of same amount reflected in Form 26AS also must be given. Taxes deducted and subsequently deposited in account of Government, cannot be ignored while determining tax liability of assessee.