TDS Mismatches- Section 199 Prodigy disturbing in nature

Today it is almost that 26AS has got supremacy over the income tax return submitted by an assessee. He who prepares his income tax return after hard work of maintaining books of account on his best judgement and actual business transactions is made to receive demands only because of differences and mismatches in his return claims with the 26AS statement. And then starts the unending battle and rigmarole of reconciling such differences by submissing affidavits, forms, bank statements etc. which sometimes turns out to be a herculean task and sheer a wasteful exercise. Often does the differences arise due to following  reasons:

1. Payee/client making a provision in its books without reporting this fact to the vendor

Thisgos without saying the obligation to deduct tax arise at the time of making provision or at the time of making payment, whichever is earliest in disregard of the year to which such provision or payment actually pertains to. For instance the Chartered Accountant who is engaged to conduct audit of accounts goes on to complete his activity after the financial year ends yet the client in its books would make a provision and make payment of TDS. Now in this situation whereas the amount of audit fee and TDS thereon would appear in 26AS statement of preceding year while the chartered accountant  may end up booking such income and TDS thereon in the current year. As he would also deposit service tax in current year it would be desirable for him to state such income in the current year income tax return. Now at the time of processing the CPC window would find a mismatch in the claimas not being made in accordance with 26AS statement of current year and that would mean an infructuous demand upon the chartered accountant.

Now in this situation whereas the client would claim deduction of expenditure in preceding year the chartered accountant would end up booking such income in current year. At the time of assessment the following situations could emerge:

1. The AO of the client may take a stand that the expenditure actually pertains to next year and disallow the same;
2. The AO of the chartered accountant would tax the income and disallow the credit having not been paid in the current year and even further decline to grant such credit in preceding year in the absence of income being recorded corresponding to the same in the preceding year.

This sounds pretty illogical though but could become the actual real life instance and thus one would be perturbed with this phenomenon.

In one such case of Sumit Devendra Rajani v. ACIT (2014) 369ITR673 when the TDS claim made by an assessee went unreported/misreported  in 26AS statement of current year the AO went on to gather information from the deductor and found the following disorder:

1. That the amount of tax is deposited by the deductor u/s 192 on much later dates in succeeding assessment year
2. That there was wrong mention of PAN in the system

In this case a question is posed to the Gujarat High Court whether in case the deductor had deducted the TDS and for the same Form No. 16A has been issued by the deductor, the credit of the same can be denied to the assessee and the deductee solely on the ground that such credit does not appear on the ITD system of the Department and/ or the same does not match with the ITD system of the Department and the Court replied that credit must be given on the basis of production of Form 16A no matter mismatch of the claim made with the ITD.

In this case perhaps since the Form 16/16A are relating to the year of claim these got allowed but one would wonder when the Form16 issued by the client in above situation pertains to preceding Assessment Year how would the been claimable in current year.

Even in the Press Note No. 402/92/2006-MC, dated April 17, 2014 it is stated that tax credit can be denied even when it is so appearing in 26AS statement in following kind of situations:

1. quoting of invalid/incorrect TAN ;
2. quoting of only one TAN against more than one TAN tax credit ;

• furnishing information in wrong TDS Schedules in the Return Form ;

1. furnishing wrong challan particulars in respect of advance tax, self-assessment tax payments, etc.

In the above situations therefore a rsolve is provided to the assessee to forward an online application for rectification or otherwise submit to the AO who then is authorized to make rectifications.

However there is no authority under the law to the SO to grant credit of TDS of one year in the other year. On top of it it is proper for him to disallow the expenditure if not pertaining to the relevant year or declined credit when not so declared in accordance with the requirements of section 199.

Suggestion

It is in the interest of all deductees to offer as disallowance all provisions for income tax computation and prefer claims on ly in the year in which the bills are actually received from the vendor. Further the deductees may so claim TDS only in the financial year in which it is reported in his Form 26AS and also offer the income corresponding to that in the same year.

2. Payee/client not making a provision in its books and report invoice in succeeding year on receipt

This is ideal situation for deductor of tax when his obligation to deduct tax would arise only at the time of receipt of invoice and the deductee in this situation shall therefore claim TDS only in the succeeding financial year in which it is reported in his Form 26AS and also offer the income corresponding to that in the same year.

Now that section 199 specifically allow for credit only on payment of tax by the deductor it is wise that the deductee should avail of it only in the year it is so reported in his Form 26AS. Further that rule 37BA since it also necessitate that income corresponding to the credit is also so reported it is desirable for the deductee to submit a return/revised return to offer income and corresponding TDS in the year it is so reported in his Form 26AS.

Gopal Nathani

FCA