TDS Credit Denied to Agents if Underlying Income Belongs to the Principal/Farmer.

The Dispute: The Agent, The Farmer, and the Missing Income

The Scenario:

The assessee is a commission agent at an APMC (Agricultural Produce Market Committee). He facilitates auctions where traders buy produce from farmers.

The Transaction: Traders purchased agricultural produce. Under Section 194Q, these purchasers deducted TDS (0.1%) on the purchase value.
The Error: The purchasers erroneously deducted the tax against the PAN of the Commission Agent (the assessee) instead of the actual sellers (the farmers).
The Claim: The assessee saw ₹0.53 lakhs of TDS in his Form 26AS and claimed it as a tax credit in his return.

The Revenue’s Objection:

The Assessing Officer (AO) noted that the assessee’s total turnover/income in the return did not include the gross sale value of the farmers’ produce (which was in the crores), but only his commission. Since the income (sale proceeds) was not “assessable” in the agent’s hands, the TDS credit was disallowed under the matching principle.

The Judicial Verdict: The “Matching Principle” (Section 199)

The Commissioner (Appeals) and the Tribunal ruled in favour of the Revenue, upholding the disallowance based on these legal pillars:

1. Section 199 & Rule 37BA (The Nexus Rule)

Under Section 199 (now Section 390 of the 2025 Act), credit for TDS is given only to the person in whose hands the corresponding income is assessable.

The Finding: The assessee admitted the sales belonged to the farmers. Since the sales income was not the agent’s income, he cannot claim the tax deducted on those sales.

2. Incorrect PAN Usage

The Court held that the TDS was wrongly deposited in the agent’s PAN. The agent is merely a “facilitator.” The purchasers should have deducted tax in the names of the actual beneficiaries (the farmers).

3. The Solution: Correction, Not Credit

The Court clarified that the assessee’s remedy was not to claim the credit in his return, but to:

Ask the deductors (purchasers) to revise their TDS returns.
Transfer the credit to the PANs of the actual beneficiaries (the farmers) using the procedure provided in Rule 37BA(2).

Strategic Takeaways for Agents & Intermediaries in 2026

Audit Your Form 26AS/AIS: If you see TDS under Section 194Q (Purchases) or 194J/194C that relates to “Pass-through” costs or principal-to-principal trades where you are only an agent, do not claim it as your own tax credit.
The “Income-Credit” Link: Always ensure that for every ₹1 of TDS credit you claim, the corresponding gross income is reflected in your Profit & Loss account. If the income is missing, the CPC (and the 2025 Act’s automated systems) will likely flag it for disallowance.
Utilizing Rule 184 (New Act): Under the Income-tax Rules, 2026, if TDS is deducted in your name but belongs to another, you must file a declaration with the deductor before the credit is processed to ensure it is reported against the correct PAN.
APMC Compliance: Commission agents should provide traders with the PAN details of the farmers or ensure that the invoice clearly distinguishes between “Sale Value” (Farmer’s Income) and “Commission” (Agent’s Income).

IN THE ITAT AHMEDABAD BENCH ‘SMC’

Jivanbhai Somabhai Patel

Deputy Commissioner of Income-tax, CPC, Bengaluru^*

Ms. Suchitra Kamble, Judicial Member

IT Appeal No. 2196 (Ahd) of 2025
[Assessment year 2022-23]

APRIL 9, 2026

P F Jain, AR for the Appellant. Umesh Kumar Agarwal, Sr. D.R. for the Respondent.

ORDER

1. The appeal filed by the assessee is against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), ADDL/JCIT(A)-6, Delhi on 14.02.2025 for A.Y. 2022-23.

2. The grounds of appeal raised by the assessee are as under:

“1 . The Ld. CIT(A) has erred in law and on facts in upholding the non-grant of TDS credit claimed u/s 194Q of Rs. 52,663/- without properly appreciating the facts and submission made by the appellant for granting of said credit.

2. He has further erred in law and on facts in not appreciating the facts of appellant being agent Adatiya registered with APMC engaged in the activity of facilitating sales of agriculture produce of farmers to the traders in the auction held in open market of APMC.

3. He has erred in law and on facts in not properly appreciating circular No. 13 of 2021 dated 30.06.2021 issued CBIC.

4. On the facts of the appellant TDS credit of Rs. 52,663/- u/s 194Q ought to have been allowed and by not allowing TDS credit it is submitted to have resulted into unjust enrichment by the department.

5. The appellant craves leave to add alter and or modify any ground of appeal.”

3. The brief facts of the case are that the assesse filed his return of income for the year under consideration on 15.11.2022 declaring total income of Rs. 5,26,460/-. The assessee had calimed TDS of Rs. 1,47,522/-. However, while processing the ITR, the CPC allowed TDS of Rs. 5,777/- only as against Rs. 1,47,511/- claimed by the assessee in his return of income.

4. The assessee filed appeal before CIT(A). The CIT(A) partly allowed the appeal of the assessee.

5. There is a delay of 204 days in filing the present appeal before the Tribunal for which the assessee has filed condonation of delay along with Affidavit. The reasons stated by the assessee appears to be genuine, hence, the delay is condoned.

6. The Ld. AR submitted that the CIT(A) erred in holding that the nongrant of TDS credit claimed under Section194Q of Rs. 52,663/- was without proper verification of the details filed by the assessee. The Ld. AR submitted that the assessee being agent Arathiya registered with APMC engaged in the activity of facilitating sales of agriculture produce of farmers to the traders in the auction held in open market of APMC. The Ld. AR relied upon the CBIC Circular No. 13/2021 dated 30.06.2021. the Ld. AR submitted that the Revenue should have allowed the TDS credit under Section 194Q as nonallowance of the said TDS credit resulted into unjust enrichment and deprive the assessee of its right for claiming the refund.

7. The Ld. DR relied upon the order under Section 143(1) dated 31.05.2023 and the order passed by the CIT(A).

8. I have heard both the parties and perused all the relevant materials available on record. The claim of the assessee / Ld. AR that only 01% commission income should be charged as the assessee is a licensed commission agent of APMC does not have a support as the assessee himself has accepted / admitted that the TDS made by the purchasers are not his sales, that of the agriculturist / farmer. Hence, the TDS had been made wrongly in the PAN of the assessee and the credit thereof ought not have been claimed by the assessee in the return. Para 5.5 (iii) and (iv) categorically mentioned by the CIT(A) as follows:

“iii) As per the provisions of Section 199 of the Act and Rule 37BA(2) of the Rules, h income and TDS are to be considered in the hands of the same person. It is an admitted fact that the TDS made by the purchaser are not his sales but that of the agriculturist/farmer. Hence, the TDS had been made wrongly in the PAN of the appellant and the credit thereof ought not to have been claimed by the appellant in the return. Instead, as provided u/s 199 and Rule 37BA(2) of the Act, the appellant ought to have filed the declaration with the deductor that the sales are not his sales and he is merely a commission agent facilitating the sale and purchase transactions. The appellant ought to have got the TDS certificates issued in the name of the clients on whose behalf he claims to have acted as an agent, or in the alternative, ought to have got appropriate corrections carried out in the TDS statements filed by the deductor, by filing with the deductor the necessary declarations requesting that TDS be issued in the name of clients. Despite the deficiency letter issued by the AO, CPC, no such action has been carried out by the appellant and the TDS continues to appear in his own PAN without offering the corresponding income.

(iv) As on the date ofprocessing, the impugned income was appearing in Form 3AS of the appellant’s PAN but was not included in computing the total income in the return filed by the appellant, creditfor such TDS was not allowed proportionately and necessary adjustments u/s 143(1)(a) have been carried out by CPC as per the Act which is found to be tenable on facts and in law.”

9. Therefore, the CIT(A) has rightly concluded that assessee is at liberty of seeking appropriate remedy in respect of any mismatch in TDS as per the return filed by the deductor, the same cannot be rectified by getting appropriate correction statement filed by the deductor. On the issue of granting of credit for TDS under Section 194Q, there is no infirmity in the action of the AO, CPC and therefore, no interference is needed, thus, there is no need to interfere with the findings of the CIT(A), hence, the appeal of the assessee is dismissed.

10. In result, the appeal of the assessee is dismissed.