Addition of income cannot be made by AO merely on the grounds of taking tax credit by the Assessee

The Assessee was following cash system of accounting. He had received certain amount as professional receipts after deduction of tax under Section 194J and 194A of the Income tax Act, 1961 (the “Act”).

The Assessee claimed credit of TDS even on Future income which would have been taxable on cash system and filed the return of income for Assessment Year (“AY”) 2011-12.

On assessment, revenue authorities made addition of professional receipt for excess credit of TDS claimed by Assessee.

Hon’ble ITAT Held that
Revenue authorities contended that the assessee had violated the provisions of Rule 378A of the Income tax Rules which states that credit for TDS and paid to the Central Government is to be given for the AY for which such income is assessable. Accordingly Revenue has made addition of income based on corresponding credit of TDS against such income.

Provisions of Rule 378A can be invoked to disallow the credit of tax erroneously claimed by the Assessee but there is no deeming provision in Rule 378A to bring such income to tax merely on excess claim of TDS.

It was concluded that Assessee had distorted provisions of Section 199 of the Act read with Rule 378A and claimed excess credit but Revenue has also erred in interpreting provisions of Rule 378A to make such addition of income.

ITAT thus remanded the matter back to the Assessing Officer to re-compute the income of the Assessee in accordance with cash system of accounting and to give credit for prepaid taxes as per provisions of Section 199 of the Act read with Rule 378A.

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