Direct Tax Updates & Recent Judgements for Income Tax Advisory Professionals

1. TDS credit can’t be denied merely for non-reflection in Form 26AS

Form 26AS is an annual tax statement prepared by the Income Tax Department that acts like your official tax ledger for the year. It shows all the tax that has been deducted from your income by others, such as your employer, clients, banks, or any payer, and deposited with the government in your name. It also reflects any tax you have paid directly, such as advance tax or self-assessment tax, along with any tax refunds issued to you. In some cases, it may also include details of high-value financial transactions reported by banks or institutions. In simple terms, Form 26AS helps ensure that you get credit for all taxes already paid so that the same income is not taxed twice.

Facts of the Case

1. The assessee, law firm, was engaged in providing legal services. The assessee received payments from clients which were net of tax deducted at source, the deductors having withheld the applicable TDS before releasing amounts. The assessee while filing return claimed credit for such deductions while offering the entire gross receipts to tax.
2. The Assessing Officer denied credit of TDS solely on the ground that such amounts did not feature in Form No. 26AS. Consequently, a demand was raised comprising the disallowed TDS together with interest under section 234B and under section 234C.
3. On appeal, the Commissioner (Appeals) upheld the denial of credit, holding that unless the deduction appeared in Form 26AS, the assessee could not be allowed relief. As regards levy of interest under sections 234B and 234C, the Commissioner (Appeals) held the same to be consequential and mandatory.

Judgement

• The Assessing Officer shall give effect to this order by granting due credit of TDS on verification of the material on record and by deleting the consequential interest, in accordance with law.

Conclusion

The ITAT held that once the assessee proves that tax was actually deducted from its receipts, supported by invoices, TDS advices, and bank statements, the credit of such TDS cannot be denied merely because it does not appear in Form 26AS. Section 205 bars recovery from the deductee where tax has been deducted, and CBDT’s binding instructions also prohibit raising demands in cases of TDS mismatch due to deductor default. The Tribunal therefore set aside the CPC and CIT (A) orders and directed the AO to verify the assessee’s evidence and grant full TDS credit. Consequently, interest under sections 234B and 234C was also deleted, as no default in payment of advance tax existed. The assessee’s appeal was allowed in full.

2. No denial of sec. 54 exemption if delay in construction of new house was due to delay on part of authority

Section 54 allows exemption from long-term capital gains tax when an individual or HUF sells a residential house and reinvests the gains in another residential property within the prescribed time. The exemption is subject to conditions such as purchase within 1 year before or 2 years after sale, or construction within 3 years, ensuring relief when gains are reinvested in a new home.

Facts of the Case

1. The assessee and his two brothers had jointly inherited residential property. The property was sold and the assessee and his two brothers computed their 1/3rd share each in the LTCG on sale of the property and included the same in their tax returns filed for the year. The assessee computed his 1/3rd share of LTCG on sale of the property and claimed the indexed cost of improvement and expense on sales while computing the LTCG. He also claimed deduction under section 54.
2. The Assessing Officer reopened the assessment on the grounds that the assessee had not provided proof of his share of the indexed renovation expense. The claim of the assessee regarding the Cost of Acquisition, cost of improvement and Exemption claimed under section 54 were needed to be ascertained.
3. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer.
4. On appeal, to the Tribunal: The additions were deleted, and ruled in favour of the assessee.

Judgement

The Tribunal examined the issues raised for AY 2012-13 and found that the additions sustained by the lower authorities were not supported by adequate evidence or proper appreciation of facts. After considering the assessee’s submissions and the material on record, the ITAT held that the assessment suffered from factual and legal infirmities. The disputed additions were therefore deleted/modified, and the matter was decided in favour of the assessee.

Conclusion

The ITAT held that the additions sustained by the lower authorities were not justified in the absence of proper factual verification and directed appropriate relief to the assessee. Accordingly, the appeal was decided in favour of the assessee for AY 2012-13.

3. CBDT notifies amendment in Capital Gains Account Scheme to allow deposit of capital gain by electronic mode

1. Sectional Coverage Expanded: The Scheme now expressly includes section 54GA across multiple clauses, bringing it at par with other capital gains exemption sections.
2. Wider Definition of Deposit Office: Deposit Office now includes any authorised branch of SBI, nationalised banks, or any banking company notified by the Central Government.
3. Electronic Payments Recognised: A new clause defines “electronic mode” to include payments via credit/debit card, net banking, UPI, IMPS, RTGS, NEFT, BHIM-Aadhaar Pay, etc.
4. Deposit Date Clarified: For deposits made via cheque, draft, or electronic mode, the effective date will be the date of receipt at the Deposit Office, subject to realisation.
5. Electronic Statements Permitted: References to passbooks now also include electronic statements of account, allowing digital records.
6. Electronic Closure Introduced: From 1 April 2027, closure of CGAS accounts (Form G/H) must be filed electronically using digital signature or EVC.
7. System Directorate Empowered: DGIT(Systems) will prescribe procedures for filing, verification, forwarding, and security of electronic forms (G/H).
8. Forms Updated: Forms A and C have been updated to include:

• Section 54GA
• Option for payment by electronic mode
• Capture of RTGS/IMPS/NEFT transaction numbers

9. Digital Transition: Overall, the amendments modernise the CGAS by enabling digital payments, digital documentation, and digital closures, reducing physical dependency.

4 Commission agent entitled to full TDS credit u/s 194Q even if income doesn’t match sales value on which TDS was deducted

Section 194Q deals with TDS on the purchase of goods. It applies when a buyer’s turnover exceeds ₹10 crore in the preceding financial year and the value of goods purchased from a resident seller crosses ₹50 lakh in a year. In such cases, the buyer must deduct TDS at 0.1% on the amount exceeding ₹50 lakh at the time of credit or payment, whichever is earlier. On the other hand, Section 194A covers TDS on interest payments (other than interest on securities) made to residents. Banks and financial institutions must deduct TDS at 10% when interest paid exceeds the prescribed limits, such as ₹40,000 for most individuals and ₹50,000 for senior citizens. For other payers, TDS is required when interest exceeds ₹5,000 in a financial year. Both provisions aim to ensure timely collection of tax at source on business transactions and interest income.

Facts of the Case

1. The assessee was a licensed commission agent operating in the Agricultural Market Committee Yard in Guntur, Andhra Pradesh, with a valid certificate of license, as a commission agent, under rule 49 and section 7(1)(b) of the Andhra Pradesh Agricultural Produce and Livestock Market Act, 1966. As per AMC regulations, the assessee received 2 per cent commission from farmers on sales to purchasers/traders/exporters, and the same had been offered as income in the financial statements and paid relevant taxes.
2. The buyers/traders/exporters deducted TDS under section 194Q in respect of sales on the total sale value and reported in the PAN number of the assessee. Similarly, the buyers/traders/exporters had deducted TDS under section 194A in respect of interest payment on delayed payments and reported in the PAN number of the assessee.
3. Since the assessee had considered only commission income as its income and, after relevant expenditure, offered net profit for taxation, it claimed credit for TDS as deducted by the traders in terms of sections 194Q and 194A. The Assessing Officer allowed proportionate credit for TDS on the ground that the assessee had offered only the part of the income, whereas it claimed TDS on the entire sales value.

Judgement

The ITAT Visakhapatnam Bench examined the additions made by the Assessing Officer for AYs 2022-23 and 2023-24, which mainly related to alleged non-compliance with TDS provisions. After reviewing the assessee’s submissions, books of account and supporting records, the Tribunal found that the Assessing Officer had made the disallowances without proper factual verification and had misapplied the relevant provisions. Accordingly, the ITAT set aside the additions and granted relief to the assessee, allowing both appeals in favour of Sri Lakshmi General Stores.

Conclusion

In the Income Tax Advisory practice, the Tribunal found that the additions/disallowances made by the Assessing Officer were not supported by proper verification or evidence and therefore could not be sustained. After examining the material placed on record, the ITAT granted appropriate relief and decided the appeals for AYs 2022-23 and 2023-24 in favour of the assessee.