Hyderabad ITAT affirms TDS credit denial over income-year reconciliation issues

The Hyderabad bench of the Income Tax Appellate Tribunal has upheld the denial of part of a company’s tax deducted at source credit, emphasising the importance of matching TDS to the income assessment year amidst a series of recent taxpayer-friendly rulings.

The Hyderabad bench of the Income Tax Appellate Tribunal has upheld the denial of part of a company’s tax deducted at source credit after finding that the assessee failed to show that the income tied to that tax had been offered in the same assessment year. In the case of M/s Ashoka Developers & Builders Ltd, a construction company, the Centralised Processing Centre allowed only ₹36.18 lakh of the ₹67.37 lakh TDS credit claimed for assessment year 2023-24, leaving a balance of ₹31.19 lakh disallowed.

The company challenged the restriction after its rectification plea under Section 154 was rejected and the Commissioner of Income Tax (Appeals) backed the CPC’s view. Its counsel argued that the full credit had been allowed in earlier years and again in assessment year 2024-25, saying the principle of consistency should apply. The company also relied on Form 26AS, the annual tax statement that records tax deducted at source, to support its claim for the remaining credit.

But the department argued that TDS credit must track the year in which the related income is taxable, as required by Section 199 of the Income Tax Act and Rule 37BA of the Income-tax Rules. The tribunal agreed, noting that credit for TDS is to be given in the assessment year when the corresponding income is assessable and, where income spreads across more than one year, the credit must be split accordingly. Because the company did not provide a proper reconciliation showing that the disputed tax had been linked to income offered in the relevant year, the bench said the denial was justified.

The ruling sits alongside a series of recent Hyderabad ITAT orders that have taken a more taxpayer-friendly view where the underlying income and the tax deduction can be properly matched. In one matter reported by The TaxCorp, the tribunal said TDS credit should follow the year in which income is taxable, even if Form 26AS does not line up perfectly. TaxTalk reported a similar outcome where timing differences between deduction and income recognition did not, by themselves, justify denial. Taxscan and TaxGuru have also reported decisions in which the tribunal allowed credit after reconciliation or verification, including cases where credit had not been claimed in the original return or where the deductor had not remitted the tax.