Introduction

The Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘F’, delivered a significant verdict in the case of Prakash Sunrise Healthcare Limited vs. Circle-1(2)(1), Meerut, bearing case number ITA No. 778/DEL/2022 for the assessment year 2018-19. This analysis delves into the crux of the matter, the arguments presented by both parties, the legal principles involved, and the final verdict of the tribunal.

Background

Prakash Sunrise Healthcare Limited, based in Meerut, challenged an order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, contesting a disallowance pertaining to the Tax Deducted at Source (TDS) credit. The case touches upon crucial aspects of mismatch in TDS credits, accounting methodologies, and the rightful claim of TDS credits under the Indian Income Tax Act, 1961.

Grievance of the Appellant

The appellant, Prakash Sunrise Healthcare Limited, contended that the disallowance of TDS credit of Rs. 5,60,390, based on the mismatch of income offered in earlier years against TDS appearing in Form 26AS, was unjust. The appellant argued that this mismatch arose due to the adoption of different accounting methodologies between them and the deductors, primarily government departments adhering to the cash system of accounting.

Proceedings and Submissions

Detailed submissions were made by both parties during the proceedings. The appellant argued that under the accrual system of accounting, income is recognized when it is earned regardless of when it is received, leading to discrepancies between the income declared and TDS credited in Form 26AS. The issue was compounded by the fact that government entities, the main source of the appellant’s income, deduct TDS based on the cash system of accounting, leading to a misalignment in the timing of income recognition and TDS deduction.

Legal Framework

The case brought forth discussions on Section 199 of the Income Tax Act, 1961, and Rule 37BA of the Income Tax Rules, 1962. The fundamental question was whether the appellant could claim TDS credit in the year it appears in Form 26AS or in the year the income was earned, as per their accounting methodology.

Judicial Precedents

The tribunal referenced judicial precedents and rulings, particularly the High Court of Delhi’s decision in ‘Court On Its Own Motion vs. CIT’, recognizing the hardships faced by assessees due to mismatches arising from differing accounting practices.

The Tribunal’s Decision

The tribunal acknowledged the merits of the appellant’s plea and directed a remand back to the Assessing Officer for a detailed verification of the claims. It was ordered that credit for TDS should be given in the year in which the corresponding income was declared by the appellant or in the year in which the TDS was actually deducted and paid, subject to verification.

Conclusion

This case highlights the complexities and challenges faced by taxpayers in claiming TDS credits, especially when discrepancies arise due to differences in accounting practices. The tribunal’s decision illustrates a move towards acknowledging these challenges and attempting to mitigate the hardships faced by taxpayers, ensuring fairness and justice in tax administration.

In a landmark judgment, the tribunal allowed the appeal for statistical purposes, emphasizing the importance of a judicious approach to handling TDS credit mismatches and setting a precedent for similar cases in the future.

Case Analysis: Prakash Sunrise Healthcare Limited vs. Circle-1(2)(1), Meerut – ITA No. 778/DEL/2022