TCS Credit Cannot Be Denied for Default of Collector: ITAT Pune Ruling
Understanding the ITAT Pune Decision on TCS Credit
The Income Tax Appellate Tribunal (ITAT) Pune has delivered a landmark ruling stating that Tax Collected at Source (TCS) credit cannot be denied to the assessee merely because the collector failed to deposit the collected tax with the government. This decision emphasizes that once TCS is validly collected from the assessee, the buyer retains the right to claim credit, irrespective of the collector’s subsequent default.[1][7]
In the case under review, the tribunal held that Section 205 of the Income Tax Act, which bars credit for tax not deposited, does not apply to penalize the assessee for the collector’s lapse. The assessee had duly paid the TCS to the collector, fulfilling their obligation. Holding the assessee responsible would be unjust, as they cannot control the collector’s compliance.[7]
Key Facts of the Case
- The assessee purchased goods subject to TCS provisions.
- TCS was collected by the seller but not deposited timely or accurately.
- Tax authorities denied TCS credit to the assessee citing the collector’s default.
- ITAT Pune overturned this, prioritizing the assessee’s payment over collector’s deposit failure.
Legal Implications Under Section 205 and Related Provisions
Section 205 of the Income Tax Act provides that credit for tax deducted or collected at source shall not be given unless the tax is paid to the Central Government. However, judicial interpretations, including this ITAT ruling, clarify that this bar applies primarily to the deductor/collector, not the assessee from whom tax was collected.[7]
This aligns with broader principles seen in TDS cases, where courts have ruled that deductees should not suffer for deductors’ defaults. For instance, experts note that once tax is deducted, credit cannot be denied if evidence like Form 16/16A exists, even if the deductor fails to deposit.[5] Similarly, in TCS scenarios involving property sales or other transactions, assessees face undue hardship from mismatched reporting.[6]
The ruling reinforces accountability: the collector bears responsibility for remittance failures, facing penalties under sections like 271CA, while the assessee’s credit remains protected.[3]
Comparison with GST ITC Precedents
- In GST, courts like Gauhati HC have read down provisions denying Input Tax Credit (ITC) due to supplier defaults, protecting bona fide buyers.[1][4]
- Allahabad HC quashed ITC denial, holding buyers not liable for sellers’ non-filing or non-deposit.[4]
- Parallel to ITAT Pune: Buyer/purchaser cannot ensure seller/collector’s compliance.
Practical Guidance for Taxpayers and Collectors
For assessees claiming TCS credit, retain robust documentation: purchase invoices showing TCS collection, payment proofs (e.g., bank statements), and seller acknowledgments. Even if Form 27D or deposit mismatches occur, tribunals prioritize evidence of collection over deposit status.[7]
Collectors must note strict timelines under Rule 37CA for TCS deposits (up to 7 days, with interest for delays). Non-compliance risks penalties, but does not jeopardize the buyer’s credit entitlement.[3][6]
Taxpayers facing credit denials should appeal, citing this precedent. Suggested reforms include rules allowing credit on deductee evidence (payslips, forms) when collectors default, mirroring TDS suggestions.[5][6]
Steps to Safeguard TCS Credit Claims
- Verify seller’s TAN and compliance history before large transactions.
- Insist on TCS receipts and match with Form 26AS/27D.
- File ITR with supporting documents; claim credit provisionally if mismatches.
- Approach AO or appeal to ITAT if denied, referencing Section 205 interpretations.
This ITAT Pune verdict promotes fairness, ensuring assessees are not doubly taxed due to third-party lapses. It sets a precedent for future disputes, urging revenue authorities to target defaulters directly rather than penalizing compliant payers.
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