Mumbai ITAT has held that genuine TDS reflected against income already offered to tax cannot be denied merely because it was not claimed in the original or revised return, and such credit can be granted even at the order giving effect (OGE) / rectification stage with consequential interest.
Factual Matrix of the Case
In Daiwa Capital Markets India Pvt. Ltd. vs ACIT (ITA No. 5338/Mum/2025, AY 2013–14), the assessee had duly offered the underlying income to tax in the return of income but did not claim corresponding TDS of about INR 73.24 lakh because the requisite information from the deductor was not available at the time of filing. The omission continued even in the revised return, and the claim was raised only when the assessment order was being given effect to / in subsequent rectification proceedings.
The AO refused to allow the TDS credit on the ground that no claim was made in the original or revised return and relied on Rule 37BA and limitation under Section 239, which in his view required a separate refund claim within prescribed time. CIT(A) also upheld the denial on a technical view that the assessee had not made the claim in the manner and time contemplated by the Act and Rules.
Core Legal Issues
The litigation raised three core questions:
- Whether TDS credit is in the nature of a substantive right akin to advance tax such that it cannot be defeated merely for want of a formal claim in the return.
- Whether Rule 37BA and Section 239 (refund claim limitation) can override the statutory mandate of Sections 190–199, 205 and the constitutional bar in Article 265 (no tax except by authority of law).
- Whether the AO, while giving effect to an appellate order or while exercising powers under Sections 143(1)/154/155, can and must grant TDS credit when it is verifiable from Form 26AS / TDS certificates and the corresponding income is on record.
Tribunal’s Reasoning
The Mumbai ITAT held that tax deducted at source is only a mode of collection and, in substance, is on the same footing as advance tax or self‑assessment tax paid by the assessee. Once the corresponding income has been subjected to tax in the assessment and the TDS is evidenced on record (Form 26AS / TDS certificates), denial of credit results in double taxation and unjust enrichment of the Revenue, which is impermissible under Article 265.
The Tribunal reiterated the settled principle that “rules are handmaids of justice” and cannot be used to deny a substantive statutory and constitutional right. Rule 37BA (procedural apportionment provisions) and Section 239 (procedure for separate refund claims) cannot be interpreted to nullify Sections 199 and 205, which require that once tax is deducted at source in respect of an income already assessed, the assessee cannot again be called upon to bear that tax.
Reliance on Key Precedents
The ITAT placed strong reliance on Court on Its Own Motion vs CIT (Delhi HC, 352 ITR 273), where the High Court directed the department to ensure that legitimate TDS credit is granted on the basis of Form 26AS / TDS certificates and other evidence, and that procedural or system‑related mismatches cannot be a ground to deny such credit. The Delhi High Court in that case issued broad directions to the CBDT and field officers to treat TDS as a trust money and avoid harassment through denial of credit on account of deductor‑side defaults or reporting errors.
The Tribunal further drew support from decisions such as Rakesh Kumar Gupta (Allahabad HC) and other rulings where courts have consistently held that genuine TDS reflected in departmental systems must be given credit, and that section 205 bars recovery of tax from the deductee to the extent tax has been deducted from the income, regardless of subsequent procedural lapses. Mumbai benches in cases like Damco India Pvt. Ltd. have also allowed TDS / prepaid tax credit in rectification / OGE proceedings where tax payment was evident but mechanically not processed in earlier proceedings, treating such non‑grant as a mistake apparent from the record.
Treatment of TDS as Advance Tax
On an integrated reading of Sections 190–199, 205 and 209, the Tribunal viewed TDS as part of “prepaid taxes” similar to advance tax and tax collected at source. Accordingly, if advance tax duly paid but inadvertently not claimed in the return is required to be allowed by the AO as a matter of course once it is on record, the same approach must apply to TDS also, particularly where the income is already brought to tax and there is no allegation of concealment or double claim.
Several earlier Mumbai ITAT decisions have adopted this approach, holding that once Form 26AS / challan data on the ITD system clearly evidences the payment of advance tax / TDS, the AO is “bound” to grant credit and the omission to do so is rectifiable under Sections 143(1) / 154 / 155, independent of whether the assessee has made a precise numerical claim in the return.
Interplay with Rule 37BA and Section 239
Rule 37BA essentially prescribes the manner and year of giving TDS credit but does not create any embargo on granting credit merely because the assessee failed to put a figure in the return or because a separate refund application under Section 239 was not filed. Section 239, in turn, operates in the field of independent refund claims; it cannot be invoked to deny mandatory set‑off of prepaid taxes which the Act itself directs the AO to give at the time of regular assessment / intimation.
The ITAT thus rejected the Revenue’s argument that limitation under Section 239 bars consideration of additional TDS claims at the OGE / rectification stage. The Tribunal clarified that where assessment is still alive through appellate or rectificatory proceedings and the tax payment is clearly borne out from the record, grant of TDS credit is part of computing the correct tax liability under Sections 143/250/254 and not a time‑barred “fresh refund” under Section 239.
Direction to Grant Credit and Interest
Having accepted the substantive entitlement, the Tribunal directed the AO to verify the TDS figures with reference to Form 26AS / certificates and grant full credit of the unclaimed TDS of INR 73.24 lakh. Consequentially, the AO was also directed to recompute refund and allow interest under Section 244A on such additional refund amount, recognizing that withholding of TDS credit beyond the due date amounts to withholding of tax lawfully belonging to the assessee.
The ruling also echoes a growing line of authority (Delhi HC, ITAT benches across India) that where the assessee’s tax has in substance already been collected by the government, any delay or denial in granting corresponding credit must be rectified, and the assessee compensated through statutory interest, unless there is clear fraud, misrepresentation or double‑claim.
Practical Takeaways for Taxpayers
- Substantive right over form: Where income is fully offered to tax and TDS appears in Form 26AS or is otherwise provable, credit cannot be denied merely because it was not claimed in the ITR or was claimed late during assessment / OGE / rectification.
- Use of rectification / OGE route: Even after processing under Section 143(1) or completion of assessment, taxpayers can pursue additional TDS / advance tax credit through rectification under Sections 154/155 or at the time of giving effect to appellate orders, treating non‑grant as a mistake apparent from the record.
- Evidence and reconciliation: Maintaining robust documentation—Form 26AS downloads, Form 16/16A, TDS certificates, TRACE statements, deductor confirmations—is critical to substantiate genuine claims, especially where there are mismatches or late reporting by the deductor.
- Protection under Section 205: Once tax has been deducted at source from a payment, the department cannot demand that component again from the deductee due to deductor‑side failures such as non‑deposit or non‑reporting; multiple recent High Court and ITAT decisions reinforce this shield.
For practitioners, the Daiwa Capital Markets ruling strengthens the jurisprudence that tax administration must prioritize substantial justice and constitutional principles over hyper‑technical objections, ensuring that genuine prepaid taxes—whether TDS or advance tax—are fully recognized and refunded with due interest, even if the assessee’s original return claim was procedurally imperfect
FCA, CWM (AAFM-US), CBV, CIFRS, R-ID, B.COM (H), RV* (IBBI)
Practising Chartered Accountant in Delhi NCR Since 2011. He can be contacted at ankitgulgulia@gmail.com or +91-9811653975.