TDS can’t be denied where assessee offered income from NHAI contracts in earlier years but TDS had been deducted in subsequent assessment years
In a recent judgment, ITAT Delhi has held that TDS cant be denied in a situation wherein, the assessee had offered income from NHAI contracts in earlier years but TDS had been deducted in subsequent assessment years
ABCAUS Case Law Citation:
4284 (2024) (10) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the NFAC/CIT(A) in confirming the action of CPC in denying TDS credit u/s 199 of the Act read with Rule 37BA of the Income Tax Rules.
The appellant assessee was a Special Purpose Vehicle (SPV) formed to undertake a road construction project on Hybrid Annuity Mode (HAM) as per contracts awarded by the National Highway Authority of India (NHAI). In terms of the tender documents, the successful bidder was required to incorporate a Special Purpose Vehicle (SPV) (the appellant assessee company) for undertaking the project.
The assessee company had recognised its income from construction projects in terms of ICDS III which requires following of Percentage of Completion Method (POCM) and assessee offered income to tax accordingly. However, the payments were made by NHAI as per the payment schedule contemplated under the agreement.
By very nature, HAM contracts require assessee to construct using its own funds and consideration becomes payable by NHAI on deferred basis. In other words, amount received from NHAI was less than the revenue recognised.
As a result, till the relevant Assessment Year, the assessee had offered more income to tax as against the receipts from NHAI. Tax had been deducted at source by NHAI only on amounts paid to the assessee company. Because of the deferred payment schedule adopted by NHAI, it had resulted in a situation wherein, the assessee had offered income from contracts in earlier years but TDS had been done in subsequent assessment year.
The CPC issued order u/s 143(1) of the Act denying TDS credit to the assessee by applying the provisions of section 199 of the Act read with Rule 37BA of the Rules by stating that TDS credit could be granted only to the extent of income offered during the year under consideration. This action of the AO CPC was upheld by the NFAC.
The Tribunal observed that the issue in dispute is no longer res integra in view of the decision of the Co-ordinate Bench of Ahmedabad Tribunal wherein the issue was same, i.e. AO issued notice under section 139(2) of the Act for the reason that credit of TDS has been claimed, but the corresponding receipts/income has been omitted to be offered for taxation. The Tribunal held that if the income had been offered by the assessee by following the percentage completion method, in the current year or in any of the earlier years, while TDS had been deducted subsequently by the buyer/purchase at the time of execution of sale deed and the assessee is able to produce the requisite certificates to substantiate that TDS has been deducted on the income which has been offered to tax by the assessee either in the current/earlier years (since income is being offered to tax following the percent completion method while TDS was deducted at the time of education of sale deed, the income presumably would be offered to tax either in the same year or in any of the earlier years) and the assessee is able to correlate the income offered to tax with the TDS deducted, the assessee is eligible for credit of TDS.
It was also noted by the Co-ordinate Bench that the ITAT Hyderabad had held that where TDS was deducted from mobilisation advance paid to assessee-erection contractor, credit of same was to be allowed, even if no income was assessable to tax as contract was not fully executed in relevant year. Also, Punjab & Haryana High Court had held that where relevant income had been accounted in earlier assessment year but TDS certificate was issued late in subsequent year, credit for TDS would be allowed in subsequent year.
Following the judicial precedent the Tribunal held that the ratio of the said decision squarely applies to the facts of the instant case. Accordingly, the case was remitted to the file of AO for granting credit of TDS after carrying out necessary verification in the year when tax had been deducted subject to assessee producing the correlation that such income has been offered to tax either during the current year or any of the earlier previous years, given the peculiar business model of the assessee.
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