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Facts
The assessee claimed credit for TDS deducted by their employer which was not deposited by the employer. The CPC disallowed this credit. The CIT(A) directed the AO to allow the claim.
Held
The Tribunal held that the assessee cannot be denied credit for TDS deducted, even if the deductor failed to deposit it with the government, following established judicial precedents. The directions of the CIT(A) were found to be correct.
Key Issues
Whether an assessee can be denied credit for TDS deducted by the employer when the employer has failed to deposit the TDS with the government.
Sections Cited
250, 37BA, 195, 205, 221(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘C’: NEW DELHI
Before: SHRI MAHAVIR SINGH & SHRI MANISH AGARWAL
(ASSESSMENT YEAR: 2016-17) Vinod Kumar Mourya, DCIT, House No.1215, Cicrle-70(1), Sector-3, Vasundhra, Vs. Delhi-110002 Ghaziabad-201010, Uttar Pradesh. PAN-AFTPM7350K (Appellant) (Respondent) Assessee by None Department by Shri Om Prakash, Sr. DR Date of Hearing 13/05/2025 Date of Pronouncement 13/05/2025 O R D E R PER MANISH AGARWAL, AM: Both appeals filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals), New Delhi, dated 28.11.2024 passed u/s 250 of the Income Tax Act, 1961 for Assessment Years 2015-16 and 2016-17. Since the issue involved in both the appeals is common, thus both the appeals are taken together and decided by a common order.
At the outset it is seen that assessee has filed return of income for AY 2015-16 declaring total income of Rs.54,51,900/- on 29.03.2016 and claimed credit for TDS and TCS of Rs.15,04,388/-. While processing the return, the CPC has not allowed the credit of Rs.4,11,615/- in respect of TDS deducted by M/s Era Infra Engineering Limited. The assessee was an employee of M/s Era Infra Engineering Limited and tax was deducted out of salary paid to him and the assessee was in receipt of salary net of TDS. It is an admitted fact that the employer had deducted tax at source and had not deposited it to the state exchequer, therefore, the amount was not appearing in 26AS statement of the assessee. The assessee has also filed salary slips for the TDS deducted. He, therefore, prayed for allowed the TDS which is credited of the TDS which was not allowed by CPC.
4. From the perusal of the order of Ld. CIT(A), we find that CIT(A) has directed the AO to allow the claim of the assessee as per Rule 37BA and the CBDT instructions directing the AO not to enforce demands created on account of mismatch of credit due to non- payment of TDS amount to the credit of Government by the deductor. It is also seen that the Co-ordinate Bench of Tribunal in the case of Jagjit Singh vs ITO in while allowing the appeal of the assessee has made following observations: 10. By applying the aforesaid provisions contained u/ss 195 and 205 of the Act, ld. CIT (A) reached the conclusion that the assessee cannot be treated as "assessee in default" irrespective of non- deposit of TDS by the deductor, & 653/Del/2025 Vinod Kumar Mourya vs. DCIT Koutons Group. But ld. CIT (A) has erred in holding that, "the credit of TDS cannot be given to the assessee because TDS so deducted has not been deposited by the Koutons Group with the state exchequer.
11. Legislative intent of sections 195 and 205 of the Act, pursuant to which office memorandum (supra) has been issued by ITA No.4097/Del./2016 the CBDT, is that the assessee whose tax has been deducted by the deductor u/s 195 of the Act, he (assessee) shall not be treated as "assessee in default" and fresh demand on account of mismatch of credit due to non- deposit of TDS amount by the deductor shall not be enforced and credit of TDS deducted shall be given to him irrespective of the fact that TDS so deducted has not been deposited with the state exchequer by the deductor.
Hon'ble High Court of Gujarat in case of Devarsh Pravinbhai Patel vs. ACIT, Circle 5(1)(1) judgment dated 24.09.2018 dealt with the identical issue by returning following findings: "3. We have heard learned counsel for the parties and perused documents on record. Basic facts are not in dispute. In case of the petitioner the employer for the assessment year 201213 while paying salary had deducted tax at source to the tune of Rs.2,68,498/ but had not deposited such tax with the Government revenue. The short question is under such circumstances can the Department seek to recover such amount from the petitioner or whether the petitioner is correct in contending that he had already suffered the deduction of tax, the mere fact that the deductee did not deposit such tax with the Government revenue could not permit the Income tax Department to recover such amount from the petitioner.
The issue is no longer res integra. The Division Bench of this Court in case of Sumit Devendra Rajani (Supra) examined the statutory provisions and in ITA No.4097/Del./2016 particular Section 205 of the Income-tax Act, 1961. The Court concurred with the view of the Bombay High Court in case of Asst. CIT VS. Om Prakash Gattani, reported in (2000) 242 ITR 638 and observed as under : "10. We are in complete agreement with the view taken by the Bombay High Court and Gauhati High Court. Applying the aforesaid two decisions of the Bombay High Court as well as Gauhati High Court, the facts of the case on hand and even considering Section 205 of the Act action of the respondent in not giving the credit of the tax deducted at source for which form no.16 A have been produced by the assessee - deductee and consequently impugned demand notice issued under Section 221(1) of the Act cannot be sustained. Concerned respondent therefore, is required to be directed to give credit of tax deducted at source to the assessee deductee of the amount for which form no.16 A have been produced.
In view of the above and for the reasons stated petition succeeds. It is held that the petitioner assessee deductee is entitled & 653/Del/2025 Vinod Kumar Mourya vs. DCIT to credit of the tax deducted at source with respect to amount of TDS for which Form No.16A issued by the employer deductor - M/s. Amar Remedies Limited has been produced and consequently department is directed to give credit of tax deducted at source to the petitioner assessee - deductee to the extent form no.16 A issued by the deductor have been issued. Consequently, the impugned demand notice dated 6.1.2012 (Annexure D) is quashed and set aside. However, it is clarified and observed that if the department is of the opinion deductor has not deposited the said amount of tax deducted at source, it will always been open for the department to recover ITA No.4097/Del./2016 the same from the deductor. Rule is made absolutely to the aforesaid extent. In the facts and circumstances of the case, there shall be no order as to costs."
Facts in both case are very similar. Under the circumstances, by allowing these petitions we hold that the Department cannot deny the benefit of tax deducted at source by the employer of the petitioner during the relevant financial years. Credit of such tax would be given to the petitioner for the respective years. If there has been any recovery or adjustment out of the refunds of the later years, the same shall be returned to the petitioner with statutory interest."
Following the decision rendered by the Hon'ble Gujarat High Court discussed in the preceding para and in view of the statutory provisions contained under sections 195 and 205 of the Act, we are of the considered view that when Revenue Department has accepted the fact that the TDS to the tune of Rs.2,04,96,655/- of the assessee was deducted by the deductor, though not deposited with the state exchequer, assessee cannot be considered as "assessee in default". So, at the same time, Revenue cannot deny the assessee benefit of tax deducted at source because Income-tax Act is a complete code in itself. Revenue Department is under statutory obligation to recover TDS deducted by Koutons Group by resorting to coercive method, if need be.
5. As observed above, the Ld. CIT(A) has directed the AO to allow the credit of the TDS after making verification of the claim made by the assessee that the TDS was made out of the payment of salaries by M/s Era Infra Engineers Ltd and if so the same is to be allowed.
We find no infirmity in these directions given by ld. CIT(A) which duly covered the grievance of the assessee and is in accordance with the judicial pronouncements as stated above. Therefore, the present & 653/Del/2025 Vinod Kumar Mourya vs. DCIT appeal before us challenging such directions is hereby dismissed. It is also made clear that we have not reverted the directions given by the Ld. CIT(A) and, therefore, such directions are to be complied by the AO and allow the credit of TDS to the assessee accordingly.
AY 2016-17 7. Since in this appeal facts are identical to the facts in AY 2015-16 which fact has been accepted by both the parties. Therefore, in view of the observations made in above, in assessee’s own case for Assessment Year 2015-16 which are applied mutatis mutandis, thus by following the same appeal of the assessee for this year is dismissed. 8. In the result, both appeals filed by the assessee are dismissed. Order pronounced in the open court on 13.05.2025.