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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLE
PER AMIT SHUKLA (JM)
The aforesaid appeal has been filed by the assessee against order dated 30.06.2022 passed by Learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (in short ‘Ld. CIT(A)’) for the Assessment Year 2016-17 against intimation/order passed u/s 143(1) of the Income Tax Act, 1961 (in short ‘the Act’).
2 ITA No. 2144/Mum/2022 Amit Prakash Mehta 2. The sole ground raised by the assessee is that Ld. CIT(A) has erred in confirming action of the Assessing Officer in not allowing TDS credit being TDS deducted but not paid to the credit of the Central Government by the employer. Brief facts are that assessee is an individual having salary income. For the relevant assessment year, he has filed return of income on 05.08.2016 declaring income of Rs.37,34,291/- determining the tax liability at Rs.9,40,087/- out of which TDS was of Rs.6,50,656/-, advance tax of Rs.1,50,000/- and self- assessment tax of Rs.1,39,431/-. In the intimation u/s 143(1) of the Act, the tax liability was determined at Rs.8,55,510/-, which included interest u/s 234A, 234B and 234C of the Act.
Before the Ld. CIT(A), assessee stated that he was working with a company named as M/s. Shrenuj & Co. Ltd. and drew salary of Rs.26,20,320/-. On the said salary income, employer has deducted TDS of Rs.6,50,656/-. Considering that employer has deducted TDS, assessee claimed TDS in his return of income filed on 05.08.2016, however, in the intimation, credit of TDS has not been given. He further submitted that already TDS has been deducted from his salary by the employer and hence same should not be recovered again from the appellant. It is gathered from the appellate order that the employer company has defaulted in paying the TDS deducted to the credit of Central Government. The Ld. CIT(A) has denied credit of TDS on the ground that assessee could not establish by documents/evidences that his employer had deducted TDS from his salary u/s 192 of the Act, which he has failed to deposit to the credit of Central
3 ITA No. 2144/Mum/2022 Amit Prakash Mehta Government. Hence, the bar under section 205 of the Act does not come into operation. Otherwise also, there is no means to verify that the TDS from salary amounting to Rs.5,55,998/- claimed by the appellant has been deducted by the employer.
After hearing the Ld. DR and on perusal of the relevant findings in the impugned order, it is seen that it is not in dispute that assessee had drawn salary of Rs.26,20,320/- from his employer company, M/s. Shrenuj & Co. Ltd. The computation of income shows that the employer had deducted TDS of Rs.6,50,656/- based on which assessee had claimed credit of TDS in his return of income. It appears that the employer has defaulted in paying the TDS deducted to the credit of Central Government. It is the obligation of the person who has deducted tax at source u/s 200 of the Act to pay the same to the credit of Government within the prescribed limit and if he fails to do so, the Act empowers recovery of same from the said person u/s 201 of the Act along with interest on the amount deducted but not paid. Such a defaulter is also penalised u/s 221 of the Act. Section 205 of the Act provides bar against direct demand on assessee stipulating that where tax is deducted at source, the assessee cannot be called upon to pay the tax himself to the extent which tax has been deducted from his income. In other words, if the tax has been deducted but not paid to the Government, it cannot be collected once again from the assessee who has suffered the deduction. Even the CBDT OM dated 11.03.2016 bearing no. F.No. 275/29/2014-IT(B) reads as under :-
4 ITA No. 2144/Mum/2022 Amit Prakash Mehta
“Sub: Non-deposit of tax deducted at source by the deductor- Recovery of demand against the deductee assessee. Vide letter of even number dated 01.06.2015, the Board had issued directions to the field officers that in case of an assessee whose tax has been deducted at source but not deposited to the Government's account by the deductor, the deductee assessee shall not be called upon to pay the demand to the extent tax has been deducted from his income. It was further specified that section 205 of the Income-tax Act, 1961 puts a bar on direct demand against the assessee in such cases and the demand on account of tax credit mismatch in such situations cannot be enforced coercively. 2. However, instances have come to the notice of the Board that these directions are not being strictly followed by the field officers. 3. In view of the above, the Board hereby reiterates the instructions contained in its letter dated 01.06.2015 and directs the assessing officers not to enforce demands created on account of mismatch of credit due to non-payment of TDS amount to the credit of the Government by the deductor. These instructions may be brought to the notice of all assessing officers in your Region for compliance. This issues with the approval of Member (Revenue &TPS).”
Thus, as per the aforesaid Circular, the TDS amount if deducted by the deductor cannot be recovered from the assessee.
5 ITA No. 2144/Mum/2022 Amit Prakash Mehta Moreover, this issue is covered by the decision of Hon’ble Bombay High Court in the case of Yashpal Sahni v. ACIT, (2007) 293 ITR 539 (Bom) wherein the Hon’ble Court has held 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?
6 ITA No. 2144/Mum/2022 Amit Prakash Mehta 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
7 ITA No. 2144/Mum/2022 Amit Prakash Mehta 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 liabilty 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
8 ITA No. 2144/Mum/2022 Amit Prakash Mehta recover the said amount once again from the employee-assessee, 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.”
Similarly, the issue has been decided by the Hon’ble Gujarat High Court in the case of Devarsh Pravinbhai Patel v. ACIT (R/Special Civil Application No. 12965 of 2018 – Guj) wherein the Hon’ble Court has observed as under :-
HC "3. We have heard learned counsel for the parties and perused documents on record. Basic facts are not in dispute. In
9 ITA No. 2144/Mum/2022 Amit Prakash Mehta case of the petitioner the employer for the assessment year 2012-13 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 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 v. Om Prakash Gattani, reported in (2000) 242 ITR 638 and observed as under:
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 Jater years, the same shall be returned to the petitioner with statutory interest."
10 ITA No. 2144/Mum/2022 Amit Prakash Mehta 6. Similarly, there are other judgments which have been quoted in the impugned order itself. Thus, in view of the aforesaid judicial pronouncements we hold that tax on account of TDS should not be recovered from the assessee and credit of TDS deducted should be given to the assessee.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 30.09.2022
Sd/- Sd/- (S. RIFAUR RAHMAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai /Dated 30/09/2022
SSL Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER
(Asstt.Registrar/Sr. Private Secretary) ITAT, Mumbai