HEALTH & HAPPINESS PRIVATE LIMITED,GURGAON V. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 10(1), CR BUILDING, NEW DELHI

ITA 1990/DEL/2025

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Health & Happiness Private Limited appealed against the order of the Learned Commissioner of Income Tax (Appeals), Aurangabad, which had confirmed the action of the Deputy Director of Income Tax, Central Processing Centre, Bengaluru, in denying TDS credit of Rs.28,76,295. The denial was based on discrepancies between the turnover reported in the income tax return and Form 26AS. The Tribunal examined whether the adjustments made by the CPC were permissible under section 143(1) of the Income Tax Act, 1961, and found that such adjustments required detailed verification, which is beyond the scope of summary processing under section 143(1). The Tribunal also noted that the income related to the TDS credit was offered to tax in the relevant assessment year, and thus, the TDS credit should be allowed as per Form 26AS.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 839856 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2023-2024
• Appeal Filed On: 28-03-2025
• Other Referred Cases: Faurecia Emission Control Technologies India Pvt. Limited vs. Assistant Commissioner, Haft Propbuild Private Limited vs ITO, DCIT Circle vs Adidas India Marketing Pvt. Ltd, Vinod Malik vs ADIT, CPC Faridabad, OM Yash Projects Pvt. Ltd vs. Income Tax Officer, Shri Gopikishan Pallod Hyderabad Vs. Income Tax Officer Ward 7(1), Hyderabad, Savadika Retail Private Limited vs DDIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARIHANT TATAR
• Keywords: Set aside; Business income; Principle of natural justice; TDS; FORM 26AS
• Section: 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘G’: NEW DELHI BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No.1990/Del/2025 (ASSESSMENT YEAR 2023-24) Health & Happiness Private Limited, Unit No.1001, 10th Floor, Park Centra Sector-30, Gurgaon, Haryana-122 001. PAN-AADCH8449J Vs. Deputy Director of Income Tax, Central Processing Centre, Bengaluru, Karnataka. (Appellant) (Respondent) Assessee by Shri Arihant Tatar, Adv. and Shri Vibhor Sharma, Adv. Department by Shri Manish Gupta, Sr. DR Date of Hearing 27.11.2025 Date of Pronouncement 23.02.2026 O R D E R PER VIMAL KUMAR, JM: This appeal filed by the Assessee is against the order dated 29.01.2025 of Learned Commissioner of Income Tax (Appeals), Aurangabad [hereinafter referred to as ‘the Ld. CIT(A)’] passed u/s 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’), arising out of assessment order dated 30.03.2024 of Ld. Assessing Officer/CPC, Bengaluru u/s 143(1) of the Act [hereinafter referred as ‘the Ld. AO’] for Assessment Year 2023-24. 2. Brief facts of the case are that the assessee company was incorporated on 24.02.2016. The assessee company filed its return of income on 14.08.2023 declaring total income of Rs.3,34,10,190/- with total tax liability of Rs.84,08,677/- Printed from counselvise.com 2 ITA No.1990/Del/2025 Health & Happiness Private Limited vs. DCIT claiming a refund of Rs.5,98,21,640/- under the provisions of section 115BAA of the Act. The return was processed by CPC and notice u/s 139(9) of the Act dated 13.02.2024 proposing to treat the return filed by the assessee as defective on the ground that the gross receipts shown in Form 26AS, on which the TDS Credit it claimed, is higher than the total of the receipts shown under the heads of income in the return of income. The assessee filed Explanation dated 22.02.2024 mentioning that the difference is due to the fact that the e-commerce operator have withheld taxes on gross amount while he had recorded Revenue after considering adjustment on mercantile basis as per the IGAAP. On completion of proceedings, the Ld. AO vide order dated 30.03.2024 restricted TDS credit to Rs.6,52,94,495/- (from Rs.6,81,70,790/-) on account of mismatch between the receipts as per Form 26AS and the return of income, thereby resulting in short of refund of Rs.28,76,295/-. 3. Against order dated 30.03.2024 of Ld. AO, the assessee filed appeal before the Ld. CIT(A) which was dismissed vide order dated 29.01.2025. 4. Being aggrieved appellant assessee preferred present appeal on following grounds: “1. On the facts and in the circumstances of the case and in law, the Ed. Additional/Joint Commissioner of Income Tax (Appeal) (\"CIT(A)\") has erred in passing the Impugned Order dated 29.01.2025 without appreciating and considering the relevant material and documents placed on record. The Appellant prays before Your Honor that the Impugned Order is perverse and bad-in-law and therefore deserves to be quashed. 2. On the facts and circumstances of the case and in law, the CIT(A) has erred in restricting the TDS credit based on turnover discrepancies between return of income and Form 26AS, even though the assessee has claimed TDS correctly as per Form 26AS. This action is contrary to the provisions of the Income Tax Act, 1961 (\"the Act\") which mandates granting TDS credit as per Form 26AS. Printed from counselvise.com 3 ITA No.1990/Del/2025 Health & Happiness Private Limited vs. DCIT 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of CPC by denying the TDS credit of Rs. 28,76,295/- without appreciating that: 3.1. The CPC denied the credit of TDS deducted while processing the return of the Appellant under section 143(1) of the Income Tax Act, 1961 (\"Act\") on 30.03.2024. However, the adjustment of TDS credit is not covered by any of the clauses mentioned under section 143(1)(a) of the Act and is therefore statutorily impermissible. Therefore, the CPC had no power to restrict / deny the TDS credit under section 143(1) of the Act. The Ld. CIT(A) has failed to consider this jurisdictional aspect while confirming the adjudication order. 3.2. Under section 143(1)(a)(vi) read with third proviso, with respect to income reflected in Form 26AS, no adjustment can be made in income tax return furnished for the assessment year commencing after 01.04.2018. The Ld. CIT(A) failed to consider that any adjustment of income, due to mismatch in Form 26AS and Income Tax Return (ITR) was precluded under the third proviso to section 143(1) for AY 2023-24. Consequently, the denial of TDS credit while processing the return under section 143(1) on account of mismatch between Form 26AS and income tax return can also not be permitted under section 143(1). 3.3. Under first proviso read with second proviso to Section 143(1)(a) of the Act, before effecting any adjustment the assessing officer is required to give notice to the assessee and response, if any, of such assessee must be considered. No proposal for adjustments u/s 143(1)(a) was issued by the CPC prior to making the subject adjustments to the returned income. Failure to issue prior notice renders the adjustment and consequent intimation order under Section 143(1)(a), bad-in-law as held in DCIT Circle (1) vs Adidas India Marketing Pvt. Ltd (ITA No. 648/Del/2023). 3.4. The CPC has acted beyond its jurisdiction by proportionately denying claim of TDS credit under Section 143(1) of the Act as such claim requires detailed verification and examination which falls within the scope of scrutiny assessment under section 143(3) rather than summary processing under section 143(1). The Ld. CIT(A) also failed to appreciate this jurisdictional issue. Reliance in this regard may be placed in the case of OM Yash Projects Pvt. Ltd vs. Income Tax Officer [2025 (3) TMI 717-ITAT Ahmedabad). 4. On the facts, circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the sales returns are akin to the contract of service, cancelled subsequently, and in DCIT, Central Circle, Hyderabad vs M/s BI Mining Pvt. Ltd. [2024 (11) TMI 1260-ITAT Hyderabad] the Hon'ble Tribunal held that since the contract is cancelled, no income accrues in the assessment year from such contract, Printed from counselvise.com 4 ITA No.1990/Del/2025 Health & Happiness Private Limited vs. DCIT and therefore, the assessee is eligible to claim credit of tax deducted on amount received under such contract before its cancellation. 5. On the facts, circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the Appellant has neither claimed excess TDS nor underreported turnover in its books. Even if it is presumed that there is excess deduction of TDS in the hands of the deductor or the deductor failed to adjust the same in subsequent transaction(s) (if any), the same cannot be used as tool to penalize the assessee. 6. On the facts, circumstances of the case and in law, the Ld. CIT(A) failed to consider the detailed submissions and reconciliation furnished by the Appellant. Hence, the Impugned Order is in violation of principles of natural justice. 7. On the facts, circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the CPC by denying the TDS credit of Rs. 28,76,295/- on the wrongful premise that the corresponding income, for which TDS credit is claimed, has not been offered to tax. Without prejudice to any other grounds, the Ld. CIT(A) failed to consider that: 7.1. The income from sales transactions was offered to tax after adjustments as per Indian Accounting Standards and mercantile accounting system regularly employed by the Appellant. 7.2. Once tax is deducted and deposited with the Government, TDS credit is allowed even if-(i) assessee failed to disclose the corresponding income in income tax return on the presumption that such income is not assessable to tax, and/or (ii) assessee has not directly offered the income to tax. 7.3. The nexus between TDS credit and corresponding income is notional and no specific co-relation is required between the two under Section 199 of the Act. The Impugned Order is contrary to the settled legal position of law as well as judicial precedents and therefore, bad-in-law. 8. On the facts, circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the CPC by denying the TDS credit of Rs. 28,76,295/- on the ground that tax deducted under Section 1940 on sales return, could have been adjusted in the same financial year by the e- commerce operator (deductor) against subsequent sales transaction effected by the Appellant. The Ld. CIT(A) failed to appreciate that: 8.1. The sales returns don't qualify as 'income' and therefore are not chargeable to tax under Section 5 of the Act. Therefore, TDS on sales return is a tax collected without any authority of law and in violation of Article 265 of the Constitution of India. Printed from counselvise.com 5 ITA No.1990/Del/2025 Health & Happiness Private Limited vs. DCIT 8.2. The Ld. CIT(A) wrongly referred to Rule 37BA of the Income Tax Rules, 1962 (\"TT Rules\") allows TDS credit in the years when income is assessable. Further, where income is assessable over a number of years, proportionate TDS credit is allowed across those years. Rule 37BA does not apply to a case of sales return. In the present case, the CIT(A) failed to consider that the tax has been deducted on sales return. Therefore, even if tax is deducted there is no corresponding income which can be offered to tax in any assessment year. 8.3. The CIT(A) has failed to consider judicial precedents where it has been held that TDS credit cannot be denied to an assessee due to errors or discrepancies in Form 26AS arising from deductor-side issues (if any). 9. On the facts, circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the CPC by denying the TDS credit of Rs. 28,76,295/- without appreciating that under Rule 37BA(3)(i) of the IT Rules, TDS credit is allowed in the year for which the income is assessable. The Appellant has offered the income from sales transactions after adjustments and corresponding TDS credit has been claimed accordingly. Therefore, the denial of TDS credit by CPC is bad in law. 10. The Appellant prays that the Hon'ble ITAT be pleased to direct the revenue authorities to grant full TDS credit as claimed in the return of income, as the demand raised and the proportionate reduction of TDS are not justified under law. The above Grounds of Appeal are without prejudice to each other. The Appellant craves leave to add, alter, amend, substitute, add/ modify in any manner, whatsoever all or any of the foregoing Grounds of Appeal before or during the hearing.” 5. Ld. Authorized Representative submitted that Ld. CIT(A) erred in confirming the action of Ld.AO denying TDS credit of Rs.28,76,295/- without appreciating the fact that Ld.AO had no power to restrict/denying TDS credit u/s 143(1) of the Act. No intimation was served on assessee under first proviso to section 143 prior to sought grant of TDS credit in violation of principle of natural justice. Although an intimation u/s 139(9) page 6 of PB was issued alleging return to be defecting the same was wholly unrelated to the issue of TDS credit which was denied. Both Sections 139(9) and section 143(1) operate in different fields. Reliance was placed on following decisions: Printed from counselvise.com 6 ITA No.1990/Del/2025 Health & Happiness Private Limited vs. DCIT  Faurecia Emission Control Technologies India Pvt. Limited vs. Assistant Commissioner [ITA No.1223/Chny/ 2025 (Order dated 14.11.2025 (Para 6.7)  Haft Propbuild Private Limited vs ITO [ITA No.8910/Del/2019] (Order dated 03.08.2022) (Para 7)  DCIT Circle vs Adidas India Marketing Pvt. Ltd. [ITA No.648/Del/2023 (Para 7)  Vinod Malik vs ADIT, CPC Faridabad [ITA No.1635/Del/2021] 5.1 Denial of TDS credit on account of alleged difference between Form 26AS and ITR is not permissible under Section 143(1)-the same falls within the scope of scrutiny assessment under Section 143(3), Adjustment made under Section 143(1) on account of alleged difference between revenue/ receipts reflected in ITR and Form 26AS is beyond the scope of permissible adjustments under the six clauses contemplated under Section 143(1)(a). The scope of processing ITR under Section 143(1) is limited to prima facie adjustment and not which requires detailed verification. Examination of TDS credit etc. would fall within the scope of scrutiny assessment under Section 143(3). Reliance in this regard is placed on case of Coforge Limited vs DCIT, Circle 4(2) (2025 (10) TMI 150 (ITAT Delhi)] (Para 11), it was held that - \"we observe that the proposed additions are not falling in any of the clauses mentioned uls 143(1)(a) of the Act. Therefore, proposing any addition which is outside the provisions of section 143(1)(a) is bad in law and outside the jurisdiction of provisions of section 143(1)(a) of the Act. It is settled position of law under section 143(1) of the Act that it is restricted to arithmetical errors or an incorrect claim apparent from the record and not otherwise. The debatable issues are outside the purview of section 143(1)(a) of the Act.\" Printed from counselvise.com 7 ITA No.1990/Del/2025 Health & Happiness Private Limited vs. DCIT 5.2. The Appellant is eligible to claim credit of TDS reflected in Form 26AS. Entire TDS amount claimed by the Appellant is duly reflected in Form 26AS for the relevant assessment year and the same is not the subject matter of dispute. In accordance with Section 199 read with Rule 37BA, credit of tax deducted at source is to be granted to the person in whose hands the related income is assessable. Since TDS credit is duly available in the Form 26AS, denial of TDS credit is legally unsustainable. Reliance was placed on decision of Hyderabad Bench in the case of Gopikishan Pallod Hyderabad vs ITO [2025 (6) TMI 1931 (ITAT Hyderabad)] (Para 4 and 10) in identical facts wherein the Hon'ble Tribunal has set aside the order of the Ld. CIT(A) and direct the Assessing Officer to allow the credit for TDS as per Form 26AS. Similar view has been taken in identical facts by the co-ordinate Bench in the case of Savadika Retail Private Limited vs DDIT [ITA No. 2753/ Del/ 2025 (Order dated 07.11.2025)] 6. Ld. Departmental Representative submitted that in view of the provisions of the tax, it has been clarified in respect of sales return that the tax is required to be deducted at the time of payment of credit whichever is earlier. Thus, before sales return happens the tax must have already been deducted under section 194-O of the Act on those sales. If that is the case and against this sales return the money is refunded by the purchaser, then this tax deducted may be adjusted against the next sales against the same purchaser. No adjustment is required if the sales return is replaced by the goods by the purchaser as in that case the seller on which tax was deducted under section 194-O of the Act has been completed with goods replaced. Printed from counselvise.com 8 ITA No.1990/Del/2025 Health & Happiness Private Limited vs. DCIT 7. From examination of record in light of aforesaid rival contention, it is crystal clear that Ld. CIT(A) vide order dated 29.01.2025 confirmed action of Ld. AO dated 30.03.2024 denying TDS credit of Rs.28,76,295/- u/s 143(1) of the Act. 7.1 No intimation was served on assessee under first proviso of section 143(1) prior to passing the amount action. Intimation u/s 139(9) was issued alleging return to be defective (Page 6 of PB). 7.2. A Co-ordinate Bench in ITA No.2753/Del/2025 titled as Savadiak Retail Private Ltd. vs. DCIT order dated 07.11.2025 in para 4 held as under: “4. We have heard both the parties and perused the material available on record. The Assessee was carrying principal activity of wholesale and retail goods. In both the Appeals the CPC, Bengaluru restricted the TDS credit on the ground that there was turnover discrepancies between return of income and Form No. 26AS. It is the specific case of the Assessee that the Assessee has claimed the TDS correctly as per 26AS. The Co-ordinate Bench of the Tribunal Hyderabad Bench in an identical situation, and similarly placed assessee vide order dated 25/06/2025 in ITA No. 568/Hyd/2025, in the case of Shri Gopikishan Pallod Hyderabad Vs. Income Tax Officer Ward 7(1), Hyderabad held as under:- \"9. We have heard the rival contentions, perused the relevant material available on record and gone through the orders of the authorities below. Provisions of section 194 O of the Act deals with payment of certain sums by e-commerce operators to e-commerce participants. As per the said provision, where sale of goods or provision of service of an e-commerce participant is facilitated by e-commerce operator, such e-commerce operator at the time of credit of amount or at the time of payment whichever is earlier deduct income tax @ 1% of the gross amount of such sale or service of goods. In the present case, the appellant is an ecommerce participant and selling goods through Amazon Seller Services (P) Ltd and Reliance Retail Ltd etc., The appellant has made a turnover of Rs. 1,39,42,905.95 through e-commerce operators on which TDS @ 1% has been deducted by the ecommerce platform operators. Out of the above sale, the assessee has shown sales return of Rs. 23,87,202.48 and the net sales turnover declared by the assessee for the year under consideration was at Rs.1,15,55,703.47. The assessee has claimed TDS credit of Rs.1,62,412/ on the basis of Form No.26AS. The Assessing Officer CPC, allowed the proportionate credit for TDS at Rs. 1,38,211/- and according to the Assessing Officer CPC as per Printed from counselvise.com 9 ITA No.1990/Del/2025 Health & Happiness Private Limited vs. DCIT Rule 37BA of the I.T Rules, 1962 credit for TDS shall be allowed in the year in which income relatable to said TDS has been declared. 10. We find that, the assessee has reported the income relatable to TDS credit of Rs.1,62,412/- for the year consideration. However, the Assessing Officer misunderstood the facts and observed that the assessee has reported only part of the turnover and not entire turnover on which TDS has been deducted, only on the basis of the turnover reported in financial statement, even though the assessee has reconciled the said turnover with sales return. The assessee has reported sales return of Rs. 23,87,202/-on which TDS has been deducted by the ecommerce platform operators. If we consider gross sales, sales return and net sales declared by the assessee, it tallies with the total sales achieved through e-commerce platform operators on which TDS has been deducted. Therefore, we are of the considered view that the Assessing Officer is erred in allowing credit for TDS on proportionate basis, even though the assessee has offered the income in total for the year under consideration. The reasons for the Assessing Officer to allow proportionate TDS is difference in turnover as per Form 26AS and turnover reported in the books. The assessee has explained the said difference with the sales return. If we consider sale return, then the turnover declared by the assessee tallies with the turnover reported in Form 26AS with reference to TDS credit as per section 194 O of the Act. Although, these facts has been explained to the learned CIT (A), but the learned CIT (A) based on assumption and presumption rejected the explanation of the assessee on the ground that if at all sales turnover is there, then the assessee must have replaced with other goods or refund gross amount including TDS amount. In our considered view, the TDS has been deducted by the e-platform operators at the time of sales whereas the money is returned to the buyer after e-platform operators deducted TDS. Therefore, in our considered view, the reasons given by the learned CIT (A) to reject the explanation of the assessee is on assumption and presumption, but not based on fact. Since the assessee has explained the reasons for difference in turnover and further made out a case that the total income pertains to TDS credit of Rs.1,62,412/ has been offered to tax for the year under consideration, in our considered view, the Assessing Officer ought to have allowed TDS of Rs. 1,62,412/- as per Form 26AS. The learned CIT (A) without considering the relevant facts, has simply upheld the order of the Assessing Officer. Thus, we set aside the order of the learned CIT (A) and direct the Assessing Officer to allow credit for TDS of Rs. 1,62,412/- as per Form No.26AS filed by the assessee.\" By respectfully following the order of the Tribunal in the case of Shri Gopikishan Pallod (supra), thus, we set aside the order of the Ld. CIT(A) and direct the Assessing Officer to allow credit for TDS as per Form No. 26AS filed by the Assessee in both the Assessment Years under consideration.” Printed from counselvise.com 10 ITA No.1990/Del/2025 Health & Happiness Private Limited vs. DCIT 7.3 In view of the above materials facts, respectfully following the judicial precedent, the impugned action of Ld. CIT(A) and Ld. AO denying TDS credit on account of alleged difference between Form 26AS and ITR is being illegal u/s 143(1) of the Act are set aside. Grounds of appeal No. 1 to 10 are accepted. 8. In the result, the appeal filed by the assessee is allowed. Order is pronounced in the Open Court 23.02. 2026. Sd/-/- Sd/-/- / (S. RIFAUR RAHMAN) (VIMAL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 23.02.2026 *PK, Sr. Ps* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI Printed from counselvise.com "