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Facts
The assessee claimed TDS credit for Rs. 2,83,650/- in their return for AY 2020-21. However, the CPC processed the return under Section 143(1) and restricted the TDS credit to Rs. 2,13,150/-, denying Rs. 70,500/- because it was not reflected in Form 26AS.
Held
The Tribunal held that Section 205 of the Income Tax Act bars recovery of tax from the assessee once it has been deducted at source by the deductor, irrespective of whether the deductor deposited the tax. The AO was directed to allow the TDS credit after verification of documents.
Key Issues
Whether TDS credit can be denied solely on the ground that it is not reflected in Form 26AS, when it is otherwise evidenced that the tax was deducted at source and the income offered to tax.
Sections Cited
143(1), 15, 17, 192, 199, 200, 201, 203, 205, 221, 276B
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Income Tax Appellate Tribunal, “J (SMC
Before: SHRI AMIT SHUKLA, JM &
Appellant /Assessee by : Shri Dhananjay Rawal, AR : Shri Asif Karmali, Sr. DR Revenue / Respondent by : 11.02.2025 Date of Hearing Date of Pronouncement : 21.02.2025 O R D E R
Per Padmavathy S, AM:
This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC)- Delhi [for short 'the CIT(A)] dated 27.03.2023 for the AY 2020-21. The only issue contended by the assessee through various grounds is that the AO has not been given the credit towards tax deducted on the payments received by the assessee for the reason that the same is not appear in the Form-26AS.
The assessee an individual is a creative director by profession and filed the return of income for AY 2020-21 on 14.12.2020 declaring a total income of Rs. 16,81,030/-. The assessee in the return has claimed a TDS credit of Rs. 2,83,650/-. The return was processed by CPC under section 143(1) and in the intimation under section 143(1) dated 23.04.2021, the credit for TDS claimed was restricted to Rs. 2,13,150/- thereby short granting the TDS credit to the tune of Rs. 70,500/-. Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) directed the AO to verify the details and allow the credit of TDS as per Form- 26AS against the income of the assessee. The assessee is before the Tribunal contending that the TDS credit cannot be denied merely for the reason that the same is not reflected in Form 26AS filed by the payer.
There is a considerable delay of 583 days in filing the appeal before the Tribunal. The assessee has filed an affidavit in this regard stating that the assessee being not aware of the process appellate remedy, instead had approached the Pr. Commissioner of Income Tax by filing the letter seeking intervention in the matter. It is further stated by the assessee in the affidavit that the PCIT has clarified that he will not be in a position to resolve the issue and directed the assessee to approach the Tribunal against the order of the CIT(A). The assessee has accordingly submitted that substantial time has elapsed in pursuing this alternate course of remedy to get relief and that there is no wilful on the part of the assessee. Therefore the assessee prayed that the delay may be condoned.
Having heard both the parties and perused the material on record, we are of the view that there is a reasonable and sufficient cause for the delay in filing the appeal before the Tribunal. Therefore following the Hon’ble Supreme Court decision in the case of Collector, Land Acquisition Vs. MST.Katiji & Ors., (167 ITR 471) (SC) we condone the delay of 583 days in filing the appeal and admit the appeal for adjudication.
The assessee submitted that the entire income received from the parties who have deducted the impugned tax has already been offered as income while filing the return and therefore, the assessee is entitled to claim credit for the tax deducted there from. The assessee further submitted that all the relevant documents evidencing that the payments have been received net of TDS have been submitted before the lower authorities which have not been considered. The assessee also submitted that he has sent repeated reminders to the parties who have deducted the tax seeking clarification as to why the TDS is not appearing in Form 26AS though the same is withheld in the payments to the assessee. The assessee submitted that no response has been received from the parties and that he cannot be held responsible for the non-compliance on the part of the deductor. The assessee further submitted that the he cannot be punished for a non-compliance on the part of the payer which is beyond the control of the assessee. Accordingly, the assessee prayed for a direction to the AO in this regard.
The ld DR on the other hand submitted that unless the TDS is reflected in the Form 26AS, there is no way in which the AO can allow the credit to the assessee. Accordingly the ld DR submitted that the CIT(A) has correctly given direction to allow credit as per Form 26AS.
7. We heard the assessee and the ld. DR. In assessee's case, the credit for TDS deducted by the following 3 parties has not been given to the assessee for the reason that the same is not reflecting in Form 26AS
Sr. Name of the Company (along with TAN) TDS as per TDS as per No. ROI 26AS 1. Associated Advertising Pvt. Ltd. 65,000/- 0/- (HYDA01923F) 2. Bucketlist Advertisement Pvt. Ltd. 4,000/- 0/- 3. Eye Candy Visuals Pvt. Ltd. (DELE04713C) 1,500/- 0/- TOTAL 75,500/- 0/-
8. We in this regard notice that the assessee has submitted the following documents during the appellate proceedings, to substantiate the claim that the amount received from the above parties is net of TDS and that the assessee has been writing to the parties as to why the tax deducted from his payments are not reflecting in Form 26AS due to which he is denied the credit “a. Acknowledgement of return filed for the A.Υ.2020-21 b. Computation of Total Income for the A.Y.2020-21 c. Financials for F.Y. 2019-20 d. Form 26AS for the A.Υ.2020-21 e. Copy of invoices raised in this regard. f. Copies of mails written to the deductor whose TDS credit has not been given requesting them for clarification for non availability of TDS credit in 26AS. g. Relevant pages of bank statement showing receipt of payment net of TDS h. Reconciliation & Summary of income prepared on the basis of credits of professional fees appearing in bank statement which shows entire income of professional received has been offered to tax which also matches with the income of professional fees shown in the Profit & Loss Account”
9. From the perusal of the above, it is clear that the assessee has submitted the sufficient documentary evidence with regard to tax having been deducted from the payments made and that the income has been offered on gross basis to tax while filing the return of income. We also notice that the assessee has take efforts to get the clarification from the payers as to why the amount deducted is not reflecting in Form 26AS. The revenue in this case has not recorded any adverse findings with regard to the documentary evidences submitted by the assessee. Further revenue has also not disputed the fact that the assessee has received only the net amount and that the relevant income on which tax is deducted has been offered to tax. The only reason for revenue to deny the credit is that the TDS is not reflected in the Form 26AS filed by the payer. The ld DR during the course of hearing could not substantiate whether any action has been taken against the payers for having deducted the tax and not paid the amount to government account which may be the reason as to why the TDS is not reflecting in Form 26AS. We also notice that other than denying the TDS credit quoting the technical reason of amount not reflecting 26AS, the revenue has not taken any further step to help the assessee who has made a genuine claim which is sufficiently evidenced.
We in this regard notice that a similar issue has been considered by the coordinate bench in the case of Kiran S. Patel vs ADIT CPC (I.T.A. No.233/Mum/2022 dated 13.07.2022) where it has been held that –
We have heard the parties and perused the record. We note that the assessee served as a captain in the Jet Airways during the relevant period and filed his return of income showing salary income of Rs.1,32,46,545/- inclusive of three (3) month salary from January 2019 to March 2019 to the tune of Rs.31,70,690/- which according to him has not been paid by Jet Airways. According to the assessee, though the said amount of Rs.31,70,690/- (salary from January to March 2019) was not paid, the employer Jet airways had reported that they had duly deducted the TDS on such salary due. According to him, though he did not receive the salary for this three (3) months, it was offered to tax in terms of Section 15 of the Act since the salary had fallen due and that employer had also reportedly recovered the corresponding TDS thereon. The assessee thus contended that he is entitled to the credit of the said TDS, which was also reflected in the salary slip issued to the assessee. The main grievance of the assessee is that by not giving him the credit of TDS to the tune of Rs.15,85,989/- which had already been deducted by the said employer, the AO/CPC was effectively collecting the said tax from him, which was actually payable by the employer who had unjustly withheld the said amount but did not deposit it to the Government. The Ld. CIT(A) had upheld this action of AO/CPC because he was of the view that since the Jet Airways/employer has not deposited the TDS of Rs.15,85,989/-, the assessee could not be allowed its credit.
It is noted that the assessee had offered to tax his entire salary income which was due to him, in terms of Section 15 to 17 of the Act although he had not received three months salary from his employer. Based on the salary slips issued to him, which reflected the amount of TDS deducted by the employer, the assessee had claimed credit of TDS in the return of income. The employer however did not pay the full taxes withheld by them to the credit of the Government. Hence the question before us is whether the AO/CPC was right in denying the credit of the TDS to the employee to the extent not paid by the employer (which was deducted from the salary of the employee). In this regard, we note that Chapter XVII of the Act provides for collection and recovery of taxes via two modes viz., (a) directly from assessee (advance tax/ self assessment tax) or (b) indirectly be deduction/collection at source (TDS/TCS). Section 192 of the Act casts the responsibility on the employer for deducting and paying taxes on the salary paid to the employees. Section 200 of the Act provides that the TDS amount collected is required to be paid to the Government within the time limit prescribed. Section 199 of the Act provides that, any tax deducted at source under the provisions of Chapter XVII and paid to Central Government shall be treated as payment of tax on behalf of the person from whose income the deduction was made and the credit shall be given to him for the amount so deducted. Section 205 of the Act provides that where the tax is deductible at the source under Chapter XVII, the payee shall not be called upon to pay the tax himself to the extent to which tax has been deducted. The relevant extracts of the provision is as follows: 205 - Where tax is deductible at the source under the foregoing provisions of this Chapter], the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.
From the language employed in Section 205 of the Act, it is clear that once the payer has deducted tax at source, then the same tax cannot be levied and collected from the payee as it would amount payment of tax twice (as the payee has already suffered deduction). Hence, if the employer has defaulted in payment of tax which he has already deducted from the salary, then such tax cannot be recovered from the employee. This view finds support from the decision of the Hon’ble Bombay High Court in the case of Puskhar P.C. Jain Vs UOI (262 taxman 118). In the decided case also the payer had deducted tax from the sale consideration due to the payee which was not paid to the Central Government. The payee had filed the return of income wherein he had claimed credit for such taxes deducted at source by the payer. In the intimation issued u/s 143(1) of the Act, the AO/CPC had denied the credit of such taxes and raised demand for the same on the payee for which recovery was also initiated. This action of AO/CPC was challenged in writ petition, which was decided in his favour. The relevant findings of the Hon’ble High Court is as follows: 6. Facts on record are not seriously in dispute. As noted, the petitioner sold an immovable property for sale consideration of Rs.9 crores. The purchasers paid only Rs.8 crores 91 lakhs retaining Rs.9 lakhs towards TDS. The department does not argue that this amount of Rs.9 lakhs so deducted is not in tune with the statutory requirements. It appears undisputed that the deductors did not depositing such amount in the Government revenue. Under the circumstances, the petitioner is asked to pay the said sum again, since the department has not recognized this TDS credit in favour of the petitioner.
7. Section 205 of the Act carries the caption "Bar against direct demand on assessee". The section provides that where tax is deducted at the source under the provisions of Chapter XVII, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income. This provision came up for consideration before division bench of this Court in case of Yashpal Sahni v. Rekha Hajarnavis Asstt. CIT [2007] 165Taxman 144/293 ITR 539. It was a case where the employer while paying salary to the employee had deducted tax at source Rs.6.66 lakhs. Subsequently, disputes arose between the employer and employee due to which service of the employee was terminated. The employee filed the return of income claiming credit of TDS of Rs.6.66 lakhs. The Assessing Officer issued intimation under Section 143(1)(a) of the Act denying credit of TDS of Rs.6.66 lakhs on the ground that such amount was not deposited by the employer. This Court in such background after referring to Section 205 of the Act held and observed as under:— "20. From the language of Section 205, it is clear that once the tax is deducted at source, the same cannot be levied once again on the assessee who has suffered the deduction. Once it is established that the tax has been deducted at source from the salary of the employee, the bar under Section 205 of the Act comes into operation and it is immaterial as to whether the tax deducted at source has been paid to the Central Government or not, because elaborate provisions are made under the Act for recovery of tax deducted at source from the person who has deducted such tax.
In the present case, the petitioner assessee has furnished monthly pay slips and bank statements to show that from his salary tax was deducted at source by the employer - respondent No. 6. Authenticity of the said pay slips and bank statements have not been disputed by the revenue. Thus, it is clear that the tax has been deducted at source by the respondent No. 6 from the salary paid to the petitioner. Therefore, the only question to be considered is, if the employer-respondent No. 6 has failed to deposit the tax deducted at source from the salary income of the petitioner to the credit of the Central Government, whether the revenue can recover the TDS amount with interest once again from the petitioner? 22. In the present case, though the respondent No. 6 has deducted the tax at source from the salary income of the petitioner, the respondent No. 6 has not issued the TDS certificate in Form No. 16 to the petitioner. As a result, the petitioner is not entitled to avail credit of the tax deducted at source. However, once it is established that the tax has been deducted at source, the bar under Section 205 of the Act comes into operation and the revenue is barred from recovering the TDS amount once again from the employee from whose income, TDS amount has been deducted. It is pertinent to note that the purpose of issuing TDS certificate under Section 203 of the Act is to enable the assessee to avail credit of the tax deducted at source in the relevant assessment year. If the TDS certificate is not issued, then under Section 199 of the Act, the assessee from whose income, tax has been deducted at source will not be entitled to take credit of the said amount. In that event, on account of the non availability of the credit, the assessee would be liable to pay tax once again even though the tax was deducted at source. Thus, it would be a case of double taxation which is not permissible in law. To avoid such anomaly, Section 205 has been enacted, to the effect that, once the tax is deducted at source by the employer-company, then, the person from whose income, the tax has been deducted at source shall not be called to pay the said tax again. From the language of Section of 205 of the Act, it is clear that the bar operates as soon as it is established that the tax has been deducted at source and it is wholly irrelevant as to whether the tax deducted at source is paid to the credit of Central Government or not and whether TDS certificate in Form No. 16 has been issued or not. Also the mere fact that the employer may not issue TDS certificate to the employee does not mean that the liability of the employer ceases. The liability to pay income tax if deducted at source is upon the employer.
As held by the Gauhati High Court in the course of Omprakash Gattani (supra), once the mode of collecting tax by deduction at source is adopted, that mode alone is to be adopted for recovery of tax deducted at source. Although it is obligatory on the part of the person collecting tax at source to pay the said TDS amount to the credit of the Central Government within the stipulated time, if such person fails to pay the TDS amount within the stipulated time, then, Section 201 of the Act provides that such person shall be deemed to be an assessee in default and the revenue will be entitled to recover the TDS amount with interest at 12% p.a. and till the said TDS amount with interest is recovered there shall be a charge on all the assets of such person or the company. Penalty under Section 221 of the Act and rigorous imprisonment under Section 276B of the Act can also be imposed upon such defaulting person or the company. Thus, complete machinery is provided under the Act for recovery of tax deducted at source from the person who has deducted such tax at source and the revenue is barred from recovering the TDS amount from the person from whose income, tax has been deducted at source. Therefore, the fact that the revenue is unable to recover the tax deducted at source from the person who has deducted such tax would not entitle the revenue to recover the said amount once again from the employeeassessee, in view of the specific bar contained in Section 205 of the Act.
As stated earlier, in the present case the petitioner-assessee has established that from his salary income, tax has been deducted at source by the employer-respondent No. 6 and, therefore, the revenue has to recover the said TDS amount with interest and penalty from the respondent No. 6 alone and the revenue cannot seek to recover the said amount from the petitioner-assessee in view of the specific bar contained under Section 205 of the Act. The fact that the petitioner is not entitled to the credit of the tax deducted at source for the non issuance of the TDS certificate by the respondent No. 6, cannot be a ground to recover the amount of tax deducted at source from the petitioner. In other words, even if the credit of the TDS amount is not available to the petitioner assessee for want of TDS certificate, the fact that the tax has been deducted at source from salary income of the petitioner would be sufficient to hold that as per Section 205 of the Act, the revenue cannot recover the TDS amount with interest from the petitioner once again." 8. The situation arising in the present petition is similar. The department does not contend that the petitioner did not suffer deduction of tax at source at the hands of payer, but contends that the same has not been deposited with the Government revenue. As provided under Section 205 of the Act and as elaborated by this Court in case of Yashpal Sahni (supra) under such circumstances the petitioner cannot be asked to pay the same again. It is always open for the department and infact the Act contains sufficient provisions, to make coercive recovery of such unpaid tax from the payer whose primary responsibility is to deposit the same with the Government revenue scrupulously and promptly. If the payer after deducting the tax fails to deposit it in the Government revenue, measures can always be initiated against such payers [emphasis given] 10. Similar issue also came up for consideration before the Hon’ble Gujarat High Court in the case of Sumit D Rajani Vs ACIT (49 taxmann.com 31). In the instant case also, the employer had withheld tax on the salary but failed to deposit it with the Government. Consequently since the TDS did not appear in Form 26AS, the AO/CPC denied credit for the same and resultantly raised tax demand on the assessee. This order of the CPC was challenged in writ before the Hon’ble High Court, which directed the AO to grant credit of TDS based on the Form 16A produced by the assessee evidencing deduction of tax at source. The relevant extracts of the said judgment is as follows: “….It is also the case on behalf of the petitioner that out of total salary of Rs.21,60,000/- to be received from M/s. Amar Remedies Limited - deductor he has received salary after deducting the amount of tax at source by the deductor for which form no.16 A has been issued i.e. he has received Rs. 5,86,606/-and on account of said amount deducted at source by the M/s. Amar Remedies Limited. Under the circumstances and considering Sections 204 and 205 when the deductor who is liable to deduct the tax at source under Chapter XVII deducts the TDS and issued form no.16A the assessee - deductee shall be entitled to credit of the same. As stated above and as per Section 205 of the Act whether tax is deductible at the source under Chapter XVII, the assessee shall not be called upon to pay the tax himself to the extent of which tax has been deducted from that income. Meaning thereby, the assessee / deductee is entitled to credit of such amount of TDS. Assuming that in a given case the deductor after deducting the TDS may not have deposited with the department. However, in such situation, the department is to recover the said amount from the deductor and assessee- deductee cannot deny the credit of the same. ---- 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. [emphasis given] 11. In the light of the above judicial precedents and the discussion (supra), the action of the lower authorities cannot be countenanced. We accordingly set aside the impugned order of the Ld. CIT(A) and direct the assessee to furnish relevant documents before the AO evidencing that the TDS of Rs.15,85,989/- had been deducted on his salary due for the period January 2019 to March 2019. After verification, the AO shall grant credit for the same. Needless to say, the AO shall allow sufficient opportunity to the assessee and pass a speaking order in this regard. It is further clarified that if the Department is of the opinion that the employer-deductor has not deposited the said amount of tax deducted at source from the salary of the assessee, then it will be open for the Department to recover the same from the deductor.
In the result, the appeal of the assessee is allowed for statistical purposes.
The ratio laid down in the above judicial precedence is that the once the tax is deducted at source then the same cannot be recovered from assessee and that the fact that the revenue is unable to recover the tax deducted at source from the person who has deducted such tax would not entitle the revenue to recover the said amount once again from the assessee. Further the provisions of Section 205, specifically bars such recovery directly from the assessee to the extent to which tax has been deducted from that income. In assessee's case, the revenue has not disputed the fact that tax has been deducted from the payments made to the assessee towards professional charges which has been offered to tax by the assessee and these facts are also evidenced by the supporting documents furnished by the assessee. Therefore in our considered view, the ratio laid down in the above judicial precedence is applicable in assessee's case also. Accordingly we direct the AO to examine the relevant documents furnished by the assessee and allow the credit for TDS deducted on the income offered to tax by the assessee accordingly. Needless to say that the assessee be given a reasonable opportunity of being heard. Before parting we wish to add that if verification results in the finding that payers have not deposited the tax deducted from the payments made to the assessee then it is open for the revenue to recover the same from the payers and also to take suitable course of action as per law. It is ordered accordingly
12. In result, the appeal of assessee is allowed.