TDS Credit Can’t Be Restrict Due to Mismatch Between Form 26AS and ITR While Processing Return: ITAT

The Income Tax Appellate Tribunal (ITAT), Delhi Bench has held that the Central Processing Centre (CPC) cannot deny or proportionately restrict Tax Deducted at Source (TDS) credit merely due to a mismatch between receipts reflected in Form 26AS and the turnover declared in the income tax return while processing the return under Section 143(1) of the Income Tax Act. The bench of Vimal Kumar (Judicial Member) and S. Rifaur Rahman (Accountant Member) has observed that the CPC had restricted the TDS credit on the ground of mismatch between turnover reported in the return and the receipts appearing in Form 26AS. The bench observed that such an adjustment does not fall within the permissible scope of adjustments under Section 143(1). The Tribunal reiterated that processing of returns under Section 143(1) is limited to prima facie adjustments and cannot involve issues that require detailed examination. Health & Happiness Private Limited filed its income tax return on 14 August 2023, declaring total income of ₹3.34 croreand claiming a refund of ₹5.98 crore under the concessional corporate tax regime provided under Section 115BAA of the Income Tax Act. During processing of the return, the CPC issued a notice under Section 139(9) proposing to treat the return as defective. The CPC noted that the gross receipts appearing in Form 26AS, on which TDS credit had been claimed, were higher than the receipts reported in the return of income. The company explained that the difference arose because e-commerce operators deducted TDS on the gross transaction value, whereas the company recorded revenue in its books after accounting for sales returns and adjustments under the mercantile accounting system in accordance with Indian GAAP. Despite the explanation, the CPC passed an order dated 30 March 2024 restricting the TDS credit from ₹6.81 crore to ₹6.52 crore, resulting in a short grant of refund amounting to ₹28.76 lakh. The first appellate authority, CIT(A), upheld the CPC’s action on 29 January 2025, prompting the company to approach the ITAT. The assessee contended that the denial of TDS credit was legally impermissible under Section 143(1). It argued that the CPC had exceeded its jurisdiction by making adjustments that require detailed verification. The company submitted that Section 143(1) permits only limited adjustments such as arithmetical errors or incorrect claims apparent from the record. Restricting TDS credit due to a mismatch between Form 26AS and the income tax return requires factual verification and therefore falls within the scope of scrutiny assessment under Section 143(3). No valid prior intimation under Section 143(1)(a) was issued before making the adjustment, which violated the principles of natural justice. The assessee also emphasized that the entire TDS claimed was duly reflected in Form 26AS and that the difference in turnover was fully reconciled through sales returns from e-commerce transactions. The Tribunal also noted that the assessee had explained the difference as arising from sales returns in e-commerce transactions, where TDS had already been deducted by the platform operators on gross sales before the goods were returned by customers. While deciding the matter, the ITAT relied on earlier coordinate bench decisions including Savadiak Retail Pvt. Ltd. vs DCIT and Gopikishan Pallod vs ITO, where similar issues relating to TDS deduction under Section 194-O on e-commerce transactions and sales returns were considered. In those cases, the Tribunal had held that once the assessee demonstrates that the income relating to the TDS has been offered to tax and the TDS is reflected in Form 26AS, the credit cannot be denied merely due to a difference in reported turnover arising from sales returns. The Tribunal concluded that the action of the CPC and the CIT(A) in denying TDS credit of ₹28.76 lakh was illegal and beyond the scope of Section 143(1). The ITAT set aside the orders of the lower authorities and directed the Assessing Officer to grant the full TDS credit as reflected in Form 26AS. Case Details Case Title: Health & Happiness Private Limited Versus Deputy Director of Income Tax Citation: JURISHOUR-387-ITA-2026(DEL) Case No.: ITA No.1990/Del/2025 Date: 23.02.2026 Counsel For Appellant: Arihant Tatar, Adv. Counsel For Respondent: Manish Gupta, Sr. DR Click Here To Read Order Read More: Extended Limitation Can’t Be Invoked for SAD Demand on FTWZ–DTA Stock Transfers: CESTAT

TDS Credit Can’t Be Restrict Due to Mismatch Between Form 26AS and ITR While Processing Return: ITAT

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