ITAT Says TDS Credit Cannot Be Denied Even Without Filing Income Tax Return

The Income Tax Appellate Tribunal (ITAT) has clarified that taxpayers cannot be denied credit for Tax Deducted at Source (TDS) merely because an income tax return was not filed. The ruling came during a reassessment case involving a resident of Navi Mumbai.

According to the tribunal, once the Income Tax Department decides to tax income reflected in official records such as Form 26AS, it must also provide the related TDS credit. The bench observed that taxes already deducted and deposited with the government cannot be ignored due to procedural or technical issues.

The matter arose after the taxpayer’s assessment for the financial year 2010-11 was reopened under Section 147 on the basis of information available in the Annual Information Return (AIR) and Form 26AS. Since the taxpayer did not respond to notices issued under Section 148 and had not filed an income tax return, the assessing officer completed the assessment ex-parte and treated the entire receipts shown in Form 26AS as taxable income.

However, while taxing the income, the department refused to grant TDS credit on the ground that no formal return claiming such credit had been filed.

Challenging this action before the ITAT, the taxpayer argued that taxing the income without allowing TDS credit would effectively amount to double taxation. The tribunal agreed with this view and ruled that TDS credit is directly linked to the assessment of corresponding income.

The ITAT further directed the assessing officer to verify the TDS entries appearing in Form 26AS and allow the eligible credit accordingly.

Tax professionals believe the ruling strengthens the principle that if the department relies on Form 26AS or similar records to assess taxable income, it must also recognise the taxes already deducted against that income. Although Form 26AS has now been replaced by the Annual Information Statement under the Income Tax Act, 2025, the tribunal’s reasoning is expected to remain relevant in future cases as well.