The Income Tax Appellate Tribunal, Mumbai, has clarified that an assessee is entitled to claim TDS credit based on a valid Form 16A issued by a deductor, even when the corresponding amount is not reflected in Form 26AS due to the deductor’s failure to file the TDS return. This ruling reinforces the primacy of documentary evidence over automated system records in tax credit claims.
Background & Facts
The Dispute
The assessee, Quality Heightcon Private Limited, sought rectification of an order passed by the Income Tax Appellate Tribunal on 07.05.2025 in ITA No. 1489/Mum/2025 for Assessment Year 2010-11. The dispute centered on the denial of TDS credit of Rs. 5,60,041/-, which had been deducted by the Director General Naval Project under the Ministry of Defence but was not reflected in Form 26AS.
Key Facts
- The assessee received payments from the Director General Naval Project during the financial year 2009-10.
- The deductor, a Central Government office, deducted TDS of Rs. 5,60,041/- from these payments.
- The deductor issued Form 16A to the assessee evidencing the TDS deduction.
- The TDS amount did not appear in the assessee’s Form 26AS because the deductor had not filed the TDS return for the relevant quarter.
- The deductor, in a letter dated 29.11.2012, explained that as a Central Government entity under the Ministry of Defence, it did not deposit TDS through challans but used internal book adjustments with numerical codes.
- The deductor began filing e-TDS returns only w.e.f. 01.04.2012, after receiving an AIN from the Income Tax Department on 04.09.2012.
- The assessee submitted copies of Form 16A and the 29.11.2012 letter as proof of deduction.
Procedural History
- 07.05.2025: Tribunal passed order in ITA No. 1489/Mum/2025, directing the Assessing Officer to grant TDS credit as per Form 26AS.
- 27.03.2026: Application for rectification filed under Section 254(2) of the Income Tax Act, 1961, seeking correction of the order.
- 01.04.2026: Tribunal pronounced order allowing the rectification application.
The Parties' Positions
For the Assessee
The assessee contended that the TDS certificate (Form 16A) issued by the deductor was conclusive proof of tax deduction under Circular No. 5/2013 dated 08.07.2013 issued by the CBDT. The absence of the amount in Form 26AS was due to the deductor’s administrative failure, not the assessee’s fault. The assessee relied on the principle that the burden of proving non-deduction lies with the Revenue, not the assessee.
For the Department
The Departmental Representative did not dispute the authenticity of the Form 16A or the letter from the deductor. He conceded that the claim could be verified by the Assessing Officer but did not oppose the rectification.
Relief Sought
The assessee sought modification of paragraph 10 of the Tribunal’s order dated 07.05.2025 to explicitly direct the Assessing Officer to grant TDS credit of Rs. 5,60,041/- upon factual verification of Form 16A and communication from the deductor.
The Legal Issue
Can an assessee claim TDS credit based on a valid Form 16A issued by a deductor, even when the amount is not reflected in Form 26AS due to the deductor’s failure to file the TDS return?
Arguments Presented
For the Appellant
The assessee relied on Circular No. 5/2013 dated 08.07.2013, which states that if a TDS certificate in Form 16A or 16B is issued by the deductor, the assessee is entitled to claim credit of the tax deducted, irrespective of whether the amount appears in Form 26AS. The circular clarifies that discrepancies between Form 26AS and Form 16A must be resolved in favor of the assessee if the certificate is genuine. The assessee further emphasized that the deductor was a Central Government entity with unique accounting procedures, and its failure to file returns was not attributable to the assessee.
For the Respondent
The Departmental Representative did not contest the legal position advanced by the assessee. He acknowledged that the Assessing Officer could verify the claim and did not oppose the rectification sought.
The Court's Analysis
The Tribunal examined the nature of the deductor - a Central Government office under the Ministry of Defence - and its unique mechanism for TDS accounting. It noted that the deductor had issued Form 16A and provided a written explanation that TDS was accounted for internally through book adjustments, and that e-TDS filing commenced only from 01.04.2012. The Tribunal held that the assessee had discharged its burden by producing credible documentary evidence: the Form 16A and the official letter from the deductor.
"The contents of the letter referred to above clearly demonstrate that the TDS amount claimed by the assessee, in fact, was deducted from assessee's payments."
The Tribunal further observed that Circular No. 5/2013 was binding on the Revenue and explicitly protects the assessee’s right to claim credit based on the TDS certificate. The absence of the amount in Form 26AS was attributed to the deductor’s procedural lapse, not any deficiency in the assessee’s claim. The Tribunal held that the original order’s direction to rely solely on Form 26AS was legally incomplete and failed to account for the statutory protection afforded by the CBDT circular.
The Tribunal modified paragraph 10 of its earlier order to explicitly direct the Assessing Officer to grant the credit after verifying the Form 16A and contacting the deductor, thereby aligning the order with the law as clarified in the circular.
The Verdict
The application was allowed. The Tribunal modified paragraph 10 of its order dated 07.05.2025 to direct the Assessing Officer to grant TDS credit of Rs. 5,60,041/- to the assessee after factual verification of the Form 16A issued by the Director General Naval Project and making necessary enquiries with the deductor. The order was declared part of the original appellate order. No further directions on interest or costs were issued.
What This Means For Similar Cases
TDS Certificate Supersedes Form 26AS Discrepancies
- Practitioners must now argue that Form 16A issued by a legitimate deductor is sufficient proof of TDS deduction, even if Form 26AS is silent.
- The burden shifts to the Revenue to prove non-deduction or fraud - not to the assessee to prove system compliance.
Central Government Deductors Require Special Handling
- For deductors like Defence, Railways, or other Central Ministries with non-standard TDS procedures, practitioners must obtain and submit official letters explaining the accounting method.
- These letters, when corroborated by Form 16A, constitute admissible evidence under Circular No. 5/2013.
Rectification Applications Are Strategic Tools
- Where appellate orders contain legally incomplete directions (e.g., reliance only on Form 26AS), a rectification application under Section 254(2) can be used to correct the error without filing a fresh appeal.
- This is particularly useful when the error arises from misinterpretation of CBDT circulars or failure to consider documentary evidence.
