Denial of TDS Credit Is Unjustified Once Corresponding Receipts Form 26AS Are Fully Taxed in Reassessment Proceedings

By | June 6, 2026
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Denial of TDS Credit Is Unjustified Once Corresponding Receipts Form 26AS Are Fully Taxed in Reassessment Proceedings

Issue

Whether an assessee can be denied credit for Tax Deducted at Source (TDS) on technical grounds when the corresponding income/receipts reflected in Form 26AS have been explicitly brought to tax by the Assessing Officer in reassessment proceedings under Sections 147 and 148, following an ex-parte assessment.

Facts

  • Assessment Year: The case involves the Assessment Year (AY) 2011-12.

  • Non-Filing of Return: The assessee initially did not file any statutory return of income for the relevant assessment year.

  • Reopening of Assessment: The Assessing Officer (AO) reopened the case under Section 147 of the Income-tax Act, 1961, based on information obtained from the Annual Information Return (AIR) and Form 26AS, which showed specific financial receipts in the name of the assessee.

  • Ex-Parte Assessment: The AO completed the assessment ex-parte under Section 144, treating the entire gross receipts reflected in Form 26AS as the taxable income of the assessee.

  • Denial of TDS Credit: Despite taxing the entire receipt amount, the tax department denied the assessee the benefit of the corresponding TDS credit on those very receipts, citing technical non-compliance or procedural omissions (such as the non-filing of the original return).

Decision

  • Credit is Consequential and Co-terminus: The Tribunal held that the grant of credit for TDS under Section 199 is consequential and co-terminus with the assessment of the corresponding income. If the income is taxed, the credit for the tax paid on it must follow.

  • No Denial on Technical Grounds: Once the revenue department chooses to bring the receipts reflected in Form 26AS to tax under reassessment proceedings (Sections 147/148), it cannot switch stances and deny credit for taxes already deducted and deposited into the Central Government’s account on those identical receipts merely on technicalities.

  • Entlement to Credit: Accordingly, the assessee was held to be fully entitled to the credit of the TDS attached to the receipts, subject to the mechanical verification and correlation of the relevant TDS entries. The issue was decided in favour of the assessee.

Key Takeaways

1. Income and TDS Credit Go Hand-in-Hand

Under Section 199, TDS credit is inextricably linked to the taxability of the income. The Revenue cannot adopt a double standard by taxing the gross receipts shown in Form 26AS while simultaneously refusing to grant credit for the tax deducted on those exact same receipts.

2. Substance Over Technicality in Reassessments

Even if an assessee fails to file an initial return of income, if the department creates a tax liability through an ex-parte or reassessment order based on Form 26AS data, they are legally bound to give due credit for the taxes already collected by the government on that data.

3. Absolute Prerequisite of Verification

While the entitlement to TDS credit is absolute once the income is taxed, the actual benefit remains subject to administrative verification to ensure the data matches the government’s portal and has not been claimed elsewhere.

IN THE ITAT MUMBAI BENCH ‘SMC’
Manoj Kumar Soman
v.
Circle*
Beena Pillai, Judicial Member
and ARUN KHODPIA, Accountant Member
IT Appeal No.1583 (MUM) of 2026
[Assessment year 2011-12]
MAY  14, 2026
Nikhil Natekar, AR for the Appellant. Smt. B. Brahma Vidya, SR DR for the Respondent.
ORDER
Beena Pillai, Judicial Member.- Present appeal is filed by the assessee against the order passed by NFAC, Delhi [hereinafter to as the “Ld.CIT(A)”] dated 19/12/2025, for A.Y. 2011-12.
2. Brief Facts of the case are as under:
The assessee did not file the regular return of income for the year under consideration. Subsequently, the case was reopened under section 147 of the Act on the basis of information received through AIR/Form 26AS reflecting certain receipts in the name of the assessee.
2.1. In response to notice issued under section 148 of the Act, the assessee again failed to file any return of income or furnish requisite details before the Ld.AO. Consequently, the Ld.AO completed the assessment ex parte and treated the entire receipts reflected in Form 26AS as taxable income of the assessee. However, while computing the tax liability, credit for tax deducted at source appearing in Form 26AS was not granted.
Aggrieved, by the assessment order, the assessee preferred appeal before the Ld.CIT(A).
2.2. Various notices were issued by the Ld.CIT(A). However, no compliance was made on behalf of the assessee. Accordingly, the Ld.CIT(A) confirmed the action of the Ld.AO.
3. Before us, the Ld.AR submitted that the Ld.AO erred in not granting credit of TDS though the corresponding receipts reflected in Form 26AS had been treated as income of the assessee. It was contended that once the receipts were brought to tax, denial of credit for taxes already deducted therefrom would result in unjust enrichment of the Revenue and double taxation to that extent. The Ld. AR accordingly prayed that appropriate directions may be issued to grant due credit of TDS after verification from departmental records.
3.1. Per contra, the Ld. DR supported the orders of the lower authorities and submitted that the assessee neither filed the original return of income nor complied with the notice issued under section 148 of the Act. It was contended that in the absence of any return of income, no valid claim for TDS credit was made before the Ld.AO and, therefore, no infirmity could be found in the action of the Revenue authorities.
We have considered the submissions advanced by both sides in light of records placed before us.
4. It is an undisputed position that the assessment was reopened on the basis of AIR information and, despite issuance of notice under section 148 of the Act, the assessee did not file any return of income. The Ld.AO, therefore, proceeded to complete the assessment ex parte by treating the receipts reflected in Form 26AS as income of the assessee. It is further observed that though tax had admittedly been deducted at source on such receipts, corresponding credit of TDS was not granted while computing the demand.
4.1. At the same time, we also take note of the contention of the Ld. DR that in the absence of a return of income, the assessee had not formally made a claim for grant of TDS credit. However, once the income corresponding to the receipts reflected in Form 26AS has been brought to tax, the taxes already deducted and deposited to the credit of the Central Government on such income cannot be denied merely on technical grounds. Grant of credit for TDS is consequential and co-terminus with assessment of the corresponding income, subject of course to verification of the relevant TDS entries and correlation thereof. We, therefore, set aside this limited issue to the file of the Ld.AO with a direction to verify the claim of TDS from Form 26AS / departmental records and grant due credit in accordance with law after providing reasonable opportunity of being heard to the assessee.
Accordingly, the grounds raised by the assessee are allowed for statistical purposes.
In the result, appeal filed by assessee is allowed for statistical purposes.