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.

HIGH COURT OF MADRAS

Tvl. Fathima Traders

Deputy Commercial Tax Officer, Chennai

Senthilkumar Ramamoorthy, J.

WP Nos. 22419, 22420, & 22422 OF 2023
WMP Nos. 21825, 21826, 21827, 21828, 21832 & 21833, of 2023

JUNE 12, 2026

D. Vijayakumar for the Petitioner. L. Gokulraj, Government Counsel (Tax) for the Respondent.

ORDER

1. Orders dated 05.06.2023 pertaining to three distinct assessment periods are assailed in these writ petitions primarily on the ground that the supplier was a registered person on the date when the relevant transactions took place.

2. Learned counsel for the petitioner refers to the impugned orders and points out that Input Tax Credit was denied to the petitioner solely on the ground that the supplier’s GST registration was cancelled with retrospective effect from 01.07.2017. Relying on an earlier order of this Court dated 15.02.2024 in W.P.No.3505 of 2024 Engineering Tools Corporation v. Asstt. Commissioner (ST) [2024] 102 GST 981/84 GSTL 69 (Madras), he contends that orders impugned therein were set aside in substantially similar facts and circumstances.

3. In response, Mr.L.Gokulraj, learned Government Counsel (Tax), submits that some of the invoices from the petitioner’s supplier were issued after the actual cancellation date. He also submits that the petitioner did not submit documents to establish that the supplies were genuinely received.

4. In the order relied upon by learned counsel for the petitioner, it was recorded, in relevant part, as under:

“From the above extract, it is abundantly clear that the contentions of the petitioner were rejected entirely on the ground that the petitioner should have proved the existence of M/s.Shikhar Technologies. The petitioner purchased goods in 2017-2018 and, at the highest, the petitioner may be called upon to produce evidence of the existence of the supplier at the relevant point of time. In addition, the petitioner may be called upon to prove that the transaction was genuine by providing relevant documents such as tax invoices, e-way bills, lorry receipts, delivery challans, proof for payment and the like. In the case at hand, it appears that the petitioner submitted such documents but these documents were disregarded. The impugned assessment order is unsustainable in the facts and circumstances.

6. Hence, the impugned assessment order is quashed and the matter is remanded for reconsideration. The assessing officer is directed to consider whether the transaction was genuine by examining all relevant documents in that regard. The ITC claim shall not be rejected upon such reconsideration solely on the ground that the supplier’s GST registration was cancelled with retrospective effect and a fresh assessment order shall be issued upon reconsideration, after providing a reasonable opportunity to the petitioner, within a maximum period of two months from the date of receipt of a copy of this order.”

5. In the case at hand, it is admitted by the respondent, at paragraph 8 of the counter, that the registration of the petitioner’s supplier was cancelled by order dated 06.12.2022. The orders impugned herein record the date of supply. Most of the transactions are prior thereto. The impugned orders also reject the Input Tax Credit claim of the petitioner solely on the ground of the retrospective cancellation of the petitioner’s supplier’s registration. For reasons set out in the earlier order dated 15.02.2024, the impugned orders cannot be sustained. In other words, without examining as to whether the petitioner had established supply of goods by submitting invoices, e-way bills, lorry receipts and the like, the petitioner’s claim should not have been rejected solely on the ground of the retrospective cancellation of the suppliers registration.

6. Hence, orders impugned herein are set aside and the matter is remanded for re-consideration. After providing a reasonable opportunity to the petitioner, fresh order shall be issued within three months from the date of receipt of a copy of this order.

7. These writ petitions are disposed of on the above terms. No costs. Consequently, the connected writ miscellaneous petitions are closed.