TDS Credit Cannot Be Denied To Assessee When Deducted

TDS Credit Cannot Be Denied To Assessee When Deducted And Deposited Under Their PAN

Issue

Whether an assessee, acting as a Kaccha Arahtia/commission agent, is entitled to full credit of TDS deducted under Section 194Q by purchasers and deposited into the Government Treasury under their PAN, even if the corresponding gross turnover was not taxable in their hands.

Facts

Role of Assessee: The assessee operated as a Kaccha Arahtia (commission agent), facilitating the sale of agricultural produce for farmers and earning only commission income.
Return Filing & TDS Claim: For Assessment Year 2022-23, the assessee filed a return declaring the commission income and claimed total TDS credit as reflected in Form 26AS (which included deductions under Sections 194Q, 194H, and 194A).
TDS under Section 194Q: Purchasers deducted TDS under Section 194Q on the full transaction value of agricultural produce and deposited it against the assessee’s PAN.
CPC Adjustment: The Central Processing Centre (CPC) allowed TDS credit only proportionate to the declared commission income, withholding the remaining credit because the corresponding gross sales receipts were not shown in the return.
CIT(A) Ruling: The CIT(A) upheld the partial denial of TDS credit under Section 194Q, relying on Section 199 read with Rule 37BA(2) to hold that income and TDS credit must belong to the same person.

Decision

Held in Favor of Assessee: The Tribunal held that since tax was deducted from the payments and duly deposited into the Government Treasury under the assessee’s PAN, the assessee is entitled to claim the full benefit of the TDS credit in their return of income.
TDS Validity: The credit of tax deducted at source cannot be denied to the assessee merely on technical grounds or because the purchaser mistakenly or wrongfully deducted TDS under Section 194Q on the gross value instead of the agent’s commission.

Key Takeaways

Credit Follows Deposit: Once tax is deducted and remitted to the Government Treasury under an assessee’s PAN, the revenue cannot retain the money while simultaneously denying credit to the assessee.
Kaccha Arahtia Operations: Since commission agents do not own the goods sold and only account for commission as income, requiring them to show the gross turnover of farmers to claim TDS credit is legally unsustainable.
Harmonious Reading of Rule 37BA & Section 199: Technical mismatches between Form 26AS and declared taxable income should not result in the forfeiture of legitimate TDS credits deposited with the government.

IN THE ITAT JAIPUR BENCH ‘SMC’

Bhandari Bros

Income-tax Officer

Smt. Annapurna Gupta, Accountant Member

IT Appeal Nos. 1820 and 1831 (JPR) of 2025
[Assessment year 2022-23]

JUNE 25, 2026

C.P. Chawla, ITP for the Appellant. Mrs. Aarti Rawat, Addl. CIT for the Respondent.

ORDER

1. Both the present appeals have been filed by the assessee against the same order passed by the Office of the Commissioner of Income Tax, Appeal Addl/ JCIT (A)-09, Mumbai (hereinafter referred to as “Ld. CIT(A)”), dated 25.10.2025 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

2. At the outset, Id. Counsel for the assessee stated that since both the appeals of the assessee are against the same order of the Ld. CIT(A), therefore, he seeks to withdraw the assessee’s appeal in ITA No.1820/JPR/2025. An application to this fact was filed before me.

3. Ld. DR fairly agreed to the same.

4. In view of the same, the assessee’s appeal in ITA No.1820/JPR/2025 stands dismissed as withdrawn.

5. Taking up the assessee’s appeal in ITA No.1831/JPR/2025.

6. The brief facts relating to the case are that the return of income filed by the assessee for the impugned assessment year, A.Y 2022-23,was processed u/s 143(1)(a) of the Act and TDS claimed by the assessee to the tune of Rs.2,37,479/- was restricted to Rs.10,037/-. The reason for the same was that the assessee being a KacchhaArahtia, which involved primarily facilitating the sale of agricultural produce on behalf of the farmers, was earning income in form of Adat/commission for the services rendered in arranging these sales transactions, and had declared commission receipts of Rs.2,94,975/- in the return of income originally filed u/s 139(1) of the Act. The assessee had claimed the benefit of TDS deduction on his income amounting to Rs.2,37,479/- u/s 194Q, 194H and 194A of the Act. The CPC however, considered only the commission receipt for the purpose of giving credit of TDS and accordingly gave proportionate credit of TDS of Rs.10,000/- out of actual TDS of Rs.2,37,479/-. The intimation made u/s 143(1)(a) of the Act was confirmed by the Ld. CIT(A) in the appeal filed by the assessee. Aggrieved, by which the assessee has come up in appeal before me, raising following grounds of appeal:-

On the facts and in the circumstances of the case and in law the Ld. Addl./JCIT(Appeals) -9 Mumbai, is not justified in upholding the action of the Assessing Officer in denying credit of tax deducted at source under section 194Q of the Income-tax Act, 1961, at Rs.74,072/-as per the provisions of rule 37BA of the Income Tax Rules, 1962, while passing an order u/s 143(1) and 154 of the Act, on 17/02/2023, 25/07/2023 respectively, on the ground that no corresponding receipts had been shown in the return of income, without appreciating that the assessee, being a kaccha arahtiya, is not required to disclose the entire turnover as appearing in form 26AS, in the return of income and the assessee had duly accounted for the commission income on which tax had been deducted u/s 194Q of the Act.

The Ld. Addl./JCIT(Appeals) -9 Mumbai, erred in law and facts in directing the Jurisdictional Assessing Officer (JAO) to verify the corresponding income offered for taxation, relating to tax deducted under sections 194A and 194H, at Rs. 32,341/- and Rs.1,31,066/- respectively and thereafter, allow said credit of TDS as claimed in the return notwithstanding the fact that such corresponding incomes were duly disclosed in the return of income and fully reconciled with Form 26AS despite that the ld. AO had allowed credit of tax deducted at source u/s 194A/194H of the Act at Rs. 10,037/-only.

The Ld. Addl./JCIT(Appeals) -9 Mumbai, erred in holding/noting. that the judicial precedents relied upon by the assessee were not relevant to tax deducted under section 194Q of the Income Tax Act, 1961 (as mentioned on page no. 12 of the appellate order -para no. .5.2.8) notwithstanding the fact that the decisions cited specifically dealt with credit of TDS under section 194Q of the Act.

The appellant craves the right to add, amend, alter, and DLEETE the ground of appeal before OR at the date of the hearing.

7. I have gone through the order of the Ld. CIT(A).His findings on the issue are contained at para 5 to 5.2.9 of the order as under:-

“5. FINDINGS AND DECISION:

5.1 The facts of the case, the grounds of appeal and the submissions are perused.

5.2 Ground No. 3.1 pertains to the issue of non-grant of amount of TDS to the tune of Rs. 2,27,442/-. I have carefully considered Form No. 35, statement of facts, order u/s 143(1) and 154, submission/details uploaded in the system and the grounds of appeal raised and find that the issue of TDS is hinged on TDS deducted under various sections. The appeal is being disposed of accordingly.

5.2.1 TDS u/s 194Q: It is the appellant’s contention that he is a commission agent(KachhaArahtiya) and the turnover related to the Arahtiya is not included in his turnover. In this regard, appellant has relied on CBDT Circular no. 452 dated17/03/1986. Hence, it is claimed that credit for entire TDS should be given even though the corresponding income is limited to a fraction there of which is offered by way of commission is his hands.

5.2.2 The issue of credit of TDS and taxing the corresponding income are governed by the provisions of section 199 of the Income Tax Act, 1961 and Rule37BA of Income Tax Rules, 1962 (hereinafter referred to as the Rules), extracted

“199. (1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or of the depositor or of the owner of property or of the unit-holder, or of the shareholder, as the case may be.

(2) Any sum referred to in sub-section (1A) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made.

(3) The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub-section (2) and also the assessment year for which such credit may be given.”

Credit for tax deducted at source for the purposes of section 199.

“37BA. (1) Credit for lax deducted at source and paid to the Central Government in accordance with the provisions of Chapter XVII, shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority.

(2) [(i) Where under any provisions of the Act, the whole or any part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee:

Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub-rule (1).)

(ii) The declaration filed by the deductee under clause (i) shall contain the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person.

(iii) The deductor shall issue the certificate for deduction of tax at source in the name of the person in whose name credit is shown in the information relating to deduction of tax referred to in sub-rule (1) and shall keep the declaration in his safe custody

(3) (i) Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable

(ii) Where tax has been deducted at source and paid to the Central Government and the Income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax

1[(3A) Notwithstanding anything contained in sub-rule (1), sub-rule (2) or sub-rule(3). for the purposes of section 194N, credit for tax deducted at source shall be given to the person from whose account tax is deducted and paid to the Central Government account for the assessment year relevant to the previous year in which such tax deduction is made.]

(4) Credit for tax deducted at source and paid to the account of the Central Government shall be granted on the basis of-

(i) the information relating to deduction of tax furnished by the deductor to the income tax authority or the person authorised by such authority, and

(ii) the information in the return of income in respect of the claim for the credit, subject to verification in accordance with the risk management strategy formulated by the Board from time to time J

5.2.3. Further, the Finance Act, 2021 inserted a new section 194Q to the Act which took effect from 1st day of July, 2021, which reads as under.

‘Deduction of tax at source on payment of certain sum for purchase of goods.

194Q. (1) Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees as income-tax.

Explanation. For the purposes of this sub-section, “buyer” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

(2) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax.

(5) The provisions of this section shall not apply to a transaction on which-

(a) tax is deductible under any of the provisions of this Act; and

(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.

The provision of section 194Q of the Act applies to any buyer/purchaser for purchase of any goods whose value or aggregate of value exceeds fifty lakh rupees in any previous year. The buyer, at the time of credit of such sum to the account of the seller or at the time of payment, whichever is earlier, is required to deduct an amount equal to 0.1% of such sum exceeding fifty lakh rupees as income tax. The Buyer has been defined as a person whose total sales or gross receipts or turnover from the business carried on by him exceeds ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out.

5.2.4 The appellant has submitted that in view of CBDT circular no. 452 dated 17/03/1986 has not included the sales on which TDS has been made u/s. 194Q by the purchaser. A perusal of the circular, it is clear that the remuneration/reward of kachhaarahtiya consists solely of commission and therefore his turnover comprises of only the commission income and not the sales effected for which he has received the commission.

5.2.5 As per the provisions of Section 199 of the Act and Rule 37BA(2) of the Rules, both 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.

5.2.6 As on the date of processing, the impugned income was appearing in Form 26AS of the appellant’s PAN but was not included in computing the total income in the return filed by the appellant, credit for 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.

5.2.7 The short credit of TDS granted in respect of TDS deducted against his own PAN is dependent upon the filing of TDS statement by the deductor as mandated u/s 199 and rule 37BA(1). If there is any mismatch in the TDS claim as per the return vis a vis the TDS statement filed by the deductor, the same can be rectified by getting appropriate correction statement filed by the deductor. Appellant is at liberty of seek appropriate remedy thereafter.

5.2.8 In view of the above facts and discussions, on the issue of granting ofcredit for TDS, there is no infirmity in the action of the A.O., CPC and therefore nointerference is warranted. In the order u/s 143(1) of the Act TDS credit of Rs.2,27,442/- has been withheld by AO, CPC. Further It is noted that the facts of the decisions of various ITAT relied upon by the appellant is different from the facts of the appellant as they do not pertain to TDS deducted u/s 194Q and the equivalent receipts not being reported.

5.2.9 TDS u/s 194A and other sections: In the order u/s 143(1) and 154 TDS credit of Rs. 10,037/- was allowed as against the appellant’s claim of Rs. 2,37,479/-. Since TDS credit of Rs. 74,072/-has been rightly withheld by AO, CPC, out of balance TDS of Rs. 1,63,407/- the AO, CPC has allowed credit of Rs 10,037/-. Hence the TDS credit in dispute is Rs. 1,53,370/-. Since the TDS credit claimed by the appellant u/s194A and other sections is required to be verified along with the corresponding income offered for taxation, the Jurisdictional A.O. (JAO) is directed to verify that the corresponding income has been offered to tax and thereafter allow the TDS claimed u/s 194A and other sections. Hence, Ground No. 3.1 is partly allowed for statistical purpose. “

8. A perusal of the order of Ld. CIT(A) reveals that he has noted following facts in the present case.

That the assessee is a commission agent and it is only commission income earned by him, which is liable to tax and not the total turnover on which he earns commission income. This fact is noted at para 5.2.1. of his order as above.

The Ld. CIT(A) has further, noted the fact that TDS has been deducted in his case in terms of provisions of Section 194Q of the Act, as per which TDS is deducted by purchaser, who is responsible for paying any sum for purchase of any goods to the seller. This fact is noted at para 5.2.4. of the order.

Thereafter, the Ld. CIT(A) has noted that, the TDS made by the purchaser in the hands of the assessee has been wrongly made, that the said TDS ought to have been made in the hands of the agriculturalist or the farmer who was the seller of the goods and not the assessee, who was a mere commission agent. This fact is noted at para 5.2.5 of the order.

9. Considering the above facts, it is clear and undisputed that the assessee is a mere commission agent and TDS to the extent claimed by the assessee u/s 194Q of the Act and as reported in 26AS has been deducted by the purchaser and deposited to the Government Treasury in the PAN of the assessee. Since the tax deduction already stands made from his income by the purchaser, as reported in Form 26AS I see no reason why the assessee be denied the benefit of credit of TDS in his return of income ,even if wrongly deducted in his hands. The CIT(A)s reasoning for denying the benefit of credit of TDS is that as per Section 199 read with Rule 37BA(2) both income and TDS are to be considered in the hands of the same person and in the case of the assessee, while TDS has been deducted in the hands of the assessee, the income in relation to the same applies to somebody else, i.e. the farmer. I do not find any merit in this reasoning of the Ld. CIT(A). The fact that TDS has been deducted in the hands of the assessee rightly or wrongly is not disputed and as long as an amount has been deducted from the income of the assessee and paid to the Government Treasury as tax on behalf of the assessee, the assessee is entitled to claim benefit of the same by way of credit of taxation paid in advance. It cannot be denied for the reason that, the TDS ought to have been deducted in the hands of some other person and not the assessee. The deduction has been made from the income of the assessee and paid also to the Government Treasury. It tantamount therefore, to tax paid on behalf of the assessee, as TDS. At the most, it is a case of excess amount of tax being deducted, more than that required by law, in the case of the assessee. But since the amount has been deducted from assessee’s income and paid to the Government Treasury, the assessee is well within his rights to claim benefit of the tax so deducted at source.

10. In view of the same, I hold that the Ld. CIT(A)s order in denying the assessee the benefit of TDS deducted u/s 194Q of the Act, is not in accordance with law and the assessee is entitled to claim benefit of the same.

11. The appeal of the assessee is accordingly allowed.

12. In effect the appeal of the assessee in ITA No.1820/JPR/2025 is dismissed. While the appeal of the assessee in ITA No.1831/JPR/2025 is allowed.