Assessee Entitled to TDS Credit on Disclosed Income Despite

Assessee Entitled to TDS Credit on Disclosed Income Despite Deductor’s Subsequent Revision in Form 26AS

Issue

Whether the revenue authorities (CPC / CIT(A)) can deny TDS credit to an assessee under section 199 for an assessment year in which the corresponding interest income was fully declared, solely because the deductor subsequently modified its TDS statement resulting in reduced credit in Form 26AS.

Facts

The assessee received interest on enhanced compensation and offered the entire interest income to tax in Assessment Year 2017-18.
At the time of filing the return of income, the full TDS deducted was reflected in the assessee’s Form No. 26AS, and credit was claimed accordingly.
Subsequently, the deductor modified its TDS statement, which led to a reduction in the TDS amount reflected against the assessee in Form 26AS.
The Central Processing Centre (CPC) issued a notice under section 154 proposing to reduce the TDS credit based on the updated Form 26AS.
CPC subsequently passed a rectification order under section 154 reducing the TDS credit, which resulted in a tax demand along with consequential interest under sections 234B and 234C.
The Commissioner (Appeals) upheld the reduction of TDS credit made by the CPC.

Decision

Entitlement to TDS Credit: In favour of the assessee; once the assessee offers the full interest income to tax in the relevant assessment year, it is entitled to the benefit of the corresponding TDS deducted.
Unilateral Modification by Deductor: In favour of the assessee; a subsequent modification or revision of the TDS statement by the deductor cannot be a valid ground for CPC or CIT(A) to deny the corresponding TDS credit.
Remand for Verification: In favour of the assessee; the assessee is entitled to the TDS credit subject to verification by the Assessing Officer that the TDS pertained to the interest income offered to tax in the year under consideration.

KeyTakeaways

Income-TDS Matching Principle: Under Section 199, TDS credit follows the assessment year in which the underlying income is offered to tax by the assessee.
Protection Against Deductor Actions: An assessee who has legitimately declared income cannot be penalized with credit withdrawal or statutory interest (sections 234B/234C) due to subsequent revised filings or errors by the deductor in Form 26AS.
Scope of Section 154 Rectification: Rectification proceedings cannot be used to summarily disallow TDS credits when the taxpayer has fully disclosed the underlying income and met statutory compliance obligations.

IN THE ITAT CHANDIGARH BENCH ‘SMC’

Karan Vahi

Income-tax Officer

Laliet Kumar, Judicial Member

IT Appeal No. 114 (CHD) of 2026
[Assessment year 2017-18]

OCTOBER 6, 2026

Vineet Krishan, Adv. for the Appellant. Vivek Vardhan, Addl. CIT, Sr. DR for the Respondent.

ORDER

1. This appeal by the assessee is directed against the order dated 05.12.2025 passed by the learned Addl./JCIT(A), Agra, under section 250 of the Income-tax Act, 1961 (“the Act”), whereby the appeal of the assessee against the rectification order passed under section 154 of the Act by the ADIT, CPC, Bengaluru, for Assessment Year 2017-18 was dismissed. The impugned appellate order records that the original return was processed under section 143(1) and that, subsequently, the CPC issued notice under section 154 proposing reduction of TDS credit

2. The brief facts of the case are that the assessee filed his return of income on 27.07.2017, declaring total income of Rs.49,80,620/-. In the return, the assessee claimed TDS credit of Rs.7,05,307/-. The relevant income included interest of Rs.70,53,072/- received on enhanced compensation, which was offered to tax in the year under consideration. At the time of filing of the return, TDS of Rs.7,05,307/- was reflected in Form No. 26AS. Subsequently, the CPC issued notice under section 154 dated 30.09.2020 proposing to reduce the TDS credit from Rs.7,05,307/- – to Rs.2,46,858/-, on the basis of the subsequently updated Form No. 26AS. The updated Form No. 26AS reflected TDS of only Rs.2,46,858/- in respect of the interest on enhanced compensation. Consequently, the credit of TDS was reduced by Rs.4,58,449/- – and consequential interest under sections 234B and 234C was also computed. The assessee challenged the aforesaid action before the learned CIT(A).

3. The assessee raised various grounds challenging the reduction of TDS credit, the exercise of jurisdiction under section 154, failure to consider the objections raised by the assessee, and the consequential levy of interest under sections 234B and 234C. The principal grievance of the assessee was against reduction of TDS credit from Rs.7,05,307/- to Rs.2,46,858/-, resulting in denial of credit of Rs.4,58,449/-.

4. The effective issue before me is, therefore, whether the assessee is entitled to credit of the TDS deducted on the interest on enhanced compensation in the assessment year in which the corresponding interest income was offered to tax, notwithstanding the subsequent modification made by the deductor in its TDS statement.

5. The learned CIT(A) clubbed Grounds Nos. 1 to 5 and held that the TDS credit could be granted only to the extent of the tax actually reflected in the departmental system/Form No. 26AS. According to the learned CIT(A), the updated Form No. 26AS reflected TDS of only Rs.2,46,858/ – and the mismatch between the TDS claimed and the TDS reflected in the departmental records constituted a mistake apparent from the record, which could be rectified under section 154.

6. The learned CIT(A) further observed that the assessee had not produced conclusive documentary evidence establishing that the balance TDS of Rs.4,58,449/- continued to be credited to the Government account. It was accordingly held that the assessee could not be granted TDS credit exceeding the amount reflected in the departmental records. Grounds Nos. 1 to 5 were consequently rejected. With regard to the assessee’s contention that, if TDS credit was restricted to Rs.2,46,858/-, the corresponding interest income should also be reduced, the learned CIT(A) held that TDS operates independently of computation of income and rejected the said ground.

7. Before me, the learned AR submitted that the controversy is essentially with regard to the year in which credit for TDS is to be allowed. It was submitted that the assessee had received interest on enhanced compensation and had offered the entire interest income of Rs.70,53,072/- to tax in the year under consideration. The deductor had, at the relevant point of time, deducted TDS of Rs.7,05,307/-, which was reflected in Form No. 26AS. Accordingly, the assessee claimed credit of the said amount in the return of income. It was submitted that subsequently the deductor, in its own wisdom, modified the TDS statement and bifurcated/reported the TDS differently between the relevant years, as a consequence of which the TDS reflected in Form No. 26AS for the year under consideration stood reduced to Rs.2,46,858/-. The learned AR submitted that the assessee had no control whatsoever over the action of the deductor. The assessee had correctly disclosed the interest income in the year in which it was received and had also claimed the TDS corresponding to that income. Several representations were thereafter made to the TDS authorities seeking correction of the mismatch.

8. It was further submitted that by the time the subsequent modification was made by the deductor, the period for modification/rectification of the return filed by the assessee had already elapsed. Therefore, the assessee could not be faulted for an act committed by the deductor subsequent to the filing of the return. The learned AR accordingly submitted that once the corresponding interest income has been taxed in the year under consideration, the TDS deducted in respect of that very income ought to receive credit in the same year. The subsequent modification made by the deductor cannot be a ground to deny the assessee the corresponding TDS credit.

9. The learned DR supported the orders of the lower authorities. It was submitted that the grant of TDS credit is governed by the statutory mechanism and that credit could be allowed only to the extent the TDS was reflected in the departmental system/Form No. 26AS. It was submitted that the revised Form No. 26AS reflected TDS of only Rs.2,46,858/- and that the assessee had failed to establish, through conclusive documentary evidence, that the balance amount of Rs.4,58,449/- continued to stand credited to the account of the Central Government. The learned DR, accordingly, supported the action of the CPC as well as the findings of the learned CIT(A).

10. I have considered the rival submissions and perused the material available on record. At the outset, I find that the controversy in the present appeal is narrow. The issue before me is essentially the year in which the benefit of TDS deducted on the interest received by the assessee on enhanced compensation is to be allowed. There is no dispute that the assessee received interest on enhanced compensation and that the entire interest of Rs.70,53,072/- – was offered to tax in the assessment year under consideration. It is also not in dispute that, at the relevant point of time, the deductor had deducted TDS of Rs.7,05,307/-, which was reflected in Form No. 26AS and was accordingly claimed by the assessee in the return. The settled position, as applicable to the facts before me, is that interest on enhanced compensation is taxable in the year in which it is received. Once the corresponding interest income is taxable in the year of receipt, the TDS deducted in relation to such payment has to be considered with reference to that income.

11. In the present case, the assessee had discharged his obligation by offering the entire interest income to tax in the year under consideration. The assessee had also claimed the TDS on the basis of the Form No. 26AS then available. Thereafter, the deductor modified its TDS statement and the TDS reflected against the assessee was reduced to Rs.2,46,858/-. The assessee had no role in, or control over, such subsequent modification. In my considered view, the assessee cannot be made to suffer on account of an act of the deductor over which the assessee had no control. The assessee had disclosed the income in the correct assessment year and had claimed the corresponding TDS credit. The subsequent action of the deductor in bifurcating or modifying the TDS reporting cannot alter the year in which the corresponding income has already been offered to tax.

12. The situation can also be viewed from another perspective. If the entire interest income of Rs.70,53,072/ – is accepted as taxable in the year under consideration, the TDS deducted with reference to such interest cannot, merely because of a subsequent reporting modification by the deductor, be detached from the corresponding income and denied to the assessee in that year. I also note that the assessee did not remain passive. The record shows that representations were made before the TDS authorities seeking correction of the mismatch. Thus, the assessee had taken steps to have the subsequent discrepancy corrected.

13. The learned CIT(A) proceeded primarily on the basis that the revised Form No. 26AS reflected TDS of only Rs.2,46,858/- – and that TDS credit could not be allowed beyond the amount reflected therein. While Form No. 26AS is undoubtedly relevant for determining TDS credit, the peculiar factual situation before me cannot be decided merely by looking at the subsequently modified figure in isolation. The corresponding income has admittedly been offered to tax in the year under consideration, and the original TDS of Rs.7,05,307/- was reported by the deductor and reflected in Form No. 26AS when the assessee filed the return. The subsequent modification by the deductor cannot result in the assessee being deprived of the benefit of TDS corresponding to income which has already suffered taxation in the same year.

14. I, therefore, hold that once the assessee has disclosed the interest income in the year under consideration and the corresponding TDS had been deducted by the deductor, the assessee is entitled to the benefit of such TDS in the same assessment year. The subsequent modification made by the deductor cannot be a valid ground either for the CPC or for the learned CIT(A) to deny the corresponding TDS credit to the assessee. Accordingly, the assessee is entitled to credit of TDS of Rs.7,05,307/- – in the assessment year under consideration, subject to verification by the Assessing Officer that the said TDS pertains to the interest income of Rs.70,53,072/- offered to tax by the assessee in this year.

15. Since the principal grievance of the assessee is allowed, the consequential interest charged under sections 234B and 234C shall also be recomputed accordingly.

16. In view of the foregoing discussion, the order passed by the learned CIT(A) is set aside to the extent it restricts the TDS credit to Rs.2,46,858/-. The Assessing Officer/CPC is directed to allow TDS credit of Rs.7,05,307/- in the assessment year under consideration, in accordance with the observations made hereinabove, and consequentially recompute the interest, if any, chargeable under sections 234B and 234C.