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Facts
The assessee filed its return of income for AY 2019-20, declaring total income of ₹2,78,41,125/-. The processing of the return under Section 143(1) did not grant TDS credit of ₹27,14,806/- and charged interest under Section 234A. The assessee's rectification application was rejected.
Held
The Tribunal held that the assessee should be granted the TDS credit of ₹27,14,806/- as claimed, setting aside the order of the CIT(A)/NFAC and directing the AO to grant the credit. The Tribunal also directed the deletion of interest charged under Section 234A.
Key Issues
Whether the assessee is eligible for TDS credit when the deductor failed to deposit the TDS amount, and whether interest under Section 234A is leviable when the return was filed within the due date.
Sections Cited
143(1), 234A, 154, 139(1), 199, 37BA, 205, 201, 221, 276B, 203, 246A
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Income Tax Appellate Tribunal, PUNE “A” BENCH : PUNE
Before: SHRI RAMA KANTA PANDA, VICE- & Ms. ASTHA CHANDRA
I.T.A.No.394/PUN/2025 (Assessment Year : 2019-2020) Hemant Enterprises, ACIT, Circle-1, Nashik 17 Sarvodaya Nagar, 60 Feet Road Ganjamal, vs. Nashik, Maharashtra PAN : AAFFH 5027 H (Appellant) (Respondent) For Assessee : Shri Deepa Khare-Advocate For Revenue : Shri A.D. Kulkarni, DR Date of Hearing : 25.11.2025 Date of Pronouncement : 30.12.2025 ORDER PER : ASTHA CHANDRA, JM
This appeal filed by the assessee is directed against the order of National Faceless Appeal Centre (NFAC)/ Commissioner of Income Tax (Appeals), Delhi [“CIT(A)/NFAC”] dated 22/01/2025 pertaining to the Assessment Year (“AY”) 2019-20.
Briefly stated, the facts are that assessee is an Association of Persons (AOP). For A.Y. 2019-20, assessee filed its return of income on 15/10/2019 declaring total income of ₹2,78,41,125/-, which was subsequently revised on 2 ITA.No.394/PUN/2025 (Hemant Enterprises) 16/01/2020. Return was processed by the Central Processing Centre (“CPC”)/Assessing Officer (“AO”)) u/s. 143(1) of the Income Tax Act, 1961 (“Act”) vide intimation order, dated 10/07/2020 wherein TDS credit of ₹ 27,14,806/- claimed by the assessee was not given and also interest u/s. 234A was charged. The assessee filed a rectification application u/s. 154 which was rejected by the Ld.AO/CPC vide order, dated 08/09/2020 without any modification.
Aggrieved by such order of Ld.AO/CPC u/s. 154 of the Act, assessee preferred an appeal before the Ld.CIT(A)/NFAC and contended that Ld.AO/CPC has incorrectly denied the credit of TDS to the assessee of ₹ 27,14,806/- on the ground the relevant data was not populated in Form No. 26AS as on the date of processing the return u/s. 143(1) of the Act. Before the Ld. CIT(A)/NFAC, relying on the decision of Hon'ble Gujarat High Court in the case of Kartik Vijay Sonavane and Hon'ble Delhi High Court in the case of Satwant Singh Sanghera vs. ACIT [WP(C) No. 13765/2024 & CM Appl. 57690/2024, dated 01/10/2024], assessee contented that the deductor i.e. Mumbai WTR Pvt. Ltd. while making payment to the assessee, had duly deducted the amount of TDS but failed to deposit the same into the Government account and therefore, it was open for the Department to recover the tax from deductor and the credit of TDS ought to have been granted to the assessee. The Ld. CIT(A)/NFAC, however,
3 ITA.No.394/PUN/2025 (Hemant Enterprises) confirmed the action of the Ld.AO/CPC in not providing the TDS credit observing that the issue in question is a contentious/debatable issue and does not fall within the ambit of “mistake apparent from the record” u/s. 154 of the Act. The Ld.CIT(A)/NFAC further observed that assessee cannot use proceedings u/s. 154 to file an appeal against the order passed u/s.143(1) of the Act, particularly when remedy sought against the adjustments so made require elaborate discussion and where two views are possible. He, accordingly, dismissed the ground of appeal relating to TDS credit raised by the assessee before him treating the same as infructuous. As regards the ground of charging of interest u/s. 234A, Ld. CIT(A)/NFAC directed the Ld.AO/CPC to delete the interest. The relevant findings and observations of the Ld. CIT(A)/NFAC are reproduced below:- “6.0 I have given my due consideration to the submissions. There are two issues for adjudication. The first issue relates to TDS credit and the second one is about interest levied u/s 234A. The CPC made these adjustments in the intimation u/s 143(1) against which the assessee filed a rectification petition which were not considered favourably. 7.0 As regards the issue of TDS credit, it is germane to note that CPC provides credit subject to its availability in form 26AS and in terms of section 199 read with rule 37BA. In the case on hand, the CPC did not provide the TDS credit of Rs 27,14,806 as the relevant data was not populated in the form 26AS as on the date of processing the return u/s 143(1) of the Act. As per CBDT's instruction dated 01.06.2015, TDS credit is given to a person only if it is paid to the Central Government. It was only in the rectification petition submitted that the assessee brought out the fact that deductor MUMBAI WTR PVT LTD Pvt Ltd deducted the tax at source, but failed to remit the same as per law resulting mismatch between TDS credit as per the claim made in the ITR and form 26AS. The CPC did not modify the intimation and passed the order u/s 154 reiterating its earlier
4 ITA.No.394/PUN/2025 (Hemant Enterprises) tax liability in the intimation. It is against this order that the assessee is seeking remedy in the present appeal. 8.0 The argument of the assessee in the appellate proceedings is that the CPC was wrong in not providing the TDS credit in the order u/s 154 merely because the data was not populated in form 26AS. As per assessee, the deductor MUMBAI WTR PVT LTD Pvt Ltd, duly deducted the tax at source at the time of the payment and therefore it was open to the department to recover same from the deductor and placed reliance on decision of Hon. Gujarat HC in case of Kartik Vijay Sonavane and Delhi HC in case of Satwant Singh Sanghera V/S ACIT, W.P.(C) 13765/2024 & CM APPL. 57690/2024 dated 01/10/2024 in support of his argument. 9.0 As already mentioned, the CPC did not provide the TDS credit due to mismatch in the claim as per ITR and form 26AS and keeping in view the Board's instruction (supra). Therefore, there was no mistake apparent in the intimation u/s 143(1) in denying the TDS credit claimed as per the return. Now, the question whether the assessee is eligible to the claim the credit in the proceeding u/s 154 and that too in a case where the deductor, deducted the tax at source but failed to remit the same to the Government is a contentious/debatable one and does not fall within the ambit of mistake. apparent from the record. Therefore, there is no infirmity in the action of CPC in not providing the TDS credit in the impugned order u/s 154 which is only for the limited purpose of correcting mistakes apparent from the record. Hence it was beyond the scope to seek remedy under this section. 9.0 More importantly, the returned income and the tax liability were computed in the summary assessment u/s 143(1) which is an appealable order u/s 246A. Therefore, the cause of action for the assessee arises against the intimation u/s 143(1) and not against the impugned order u/s 154 wherein the CPC merely refrained from making any further adjustments to the intimation u/s 143(1) as requested in the rectification petition. The ITAT, Bangalore while dealing with a similar matter in the case of Areca Trust dt 26.07.2023 also held a similar view. 10.0 In effect, the assessee cannot use proceedings u/s 154 to file an appeal against the order passed u/s 143(1) of the Act, particularly when remedy sought against the adjustments so made require elaborate discussion and where two views are possible. On the other hand, remedy of appeal against order u/s 154 is valid against the adjustments which are purely in the nature of mistakes apparent from the record, like the second issue of charging interest u/s 234A in the present case. Of course, there is no bar in the assessee availing remedies against intimation u/s 143(1) simultaneously, either through
5 ITA.No.394/PUN/2025 (Hemant Enterprises) section 154 or by way of appeal u/s 246A but it purely depends upon the nature of adjustments under challenge. In view of the foregoing discussion the ground of appeal no 1 is treated as infructuous and dismissed. 11.0 As regards charging interest u/s 234A, the assessee filed the original return within due date u/s 139(1) and verified the same on ie 15.10.2019. Thereafter, the revised return was filed which was processed u/s 143(1). Therefore, the question of charging interest does not arise. The AO is directed to delete the interest u/s 234A. The ground no 2 of the appeal is allowed. In result, the appeal is partly allowed.”
4. Dissatisfied, assessee is in appeal before this Tribunal raising the following grounds of appeal:-
1. The Ld.CIT(A) erred in law and on facts in disallowing ₹27,14,806/- TDS deducted by Mumbai WTR Pvt. Ltd.
2. The Ld.CIT(A) erred in law and on facts in charging interest u/s. 234A as the appellant had filed return within due date u/s. 139(1).
3. The appellant craves to add, alter, modify or substitute any grounds of appeal at the time of hearing”
5. Ld. AR submitted that TDS is not reflected in Form No. 26AS as the deductor failed to deposit the same into the Government account. He submitted that assessee received payment from the deductor, Mumbai WTR Pvt. Ltd. net off TDS and once the TDS has been deducted, it is the responsibility of the deductor to deposit the same into the Government account and, therefore, the credit of TDS even though not deposited by the deductor into the Government account, should be given to the assessee. In support of this contention, Ld.AR relied on the decision of Hon'ble Madras High Court in the case of Ashok Kumar B. Chowatia vs. JCIT (TDS) [435 ITR 449 (Mad.- 6 ITA.No.394/PUN/2025 (Hemant Enterprises) HC) and also the decision Hon'ble Bombay High Court in the case of Hashpal Sahni vs. ACIT [293 ITR 539 (Bom.-HC).
6. Ld. Departmental Representative (DR), on the other hand, supported the order of CIT(A)/NFAC.
We have heard Ld. Representatives of both the parties and perused the material available on record. We have also perused the judicial precedents cited before us. The facts of the case are not in dispute. Admittedly, in the instant case, the deductor-Mumbai WTR Pvt. Ltd. has deducted TDS while making payment to the assessee, however, it failed to deposit the same into the Government account due to which such amount of TDS is not reflected in Form No. 26AS. Placing reliance on the decision of Hon'ble Madras High Court in the case of Ashok Kumar B. Chowatia (supra) and the decision of Hon'ble Bombay High Court in the case of Hashpal Sahni (supra), Ld.AR has contended that assessee has received payment from Mumbai WTR Pvt. Ltd. (deductor) after deduction of tax at source, but the deductor failed to deposit the same to the credit of Central Government. Once, the tax has been deducted at source, the assessee cannot be saddled with tax liability as it was duty of the Department to recover such TDS from the deductor, who is in-default and the TDS credit should be provided to the assessee. We find some force in the contention of the Ld.AR.
7 ITA.No.394/PUN/2025 (Hemant Enterprises) 8. We have perused the decision of Hon'ble Madras High Court in the case of Ashok Kumar B. Chowatia (supra) where under the similar set of facts, the Hon'ble Madras High Court held as under:- “33. To the extent tax was deducted by the second respondent and not remitted by the second respondent to the Income-tax Department, recovery can be only directed against the second respondent as the second respondent is the assessee in default. The petitioner cannot be made to pay tax twice. Recovery of any of such Tax Deducted at Source but not remitted by the second respondent has to be recovered only from the second respondent.
Therefore, I am inclined to quash the respective demand notices and direct the third respondent to issue fresh demand notices to the petitioners after taking note of the subsequent developments and payments made by the 2nd respondent. It is made clear that to the extent Tax was Deducted by the second respondent but not remitted, no demand shall be made against the petitioners. If the second respondent had failed to remit the tax to the credit of the Income-tax Department, it is however open to the department to recover the same from the 2nd respondent in the manner known to Law. Balance of tax if any, which has escaped payment alone can be recovered from the Petitioners, by issuing suitable notice under the provisions of the Income-tax Act, 1961 Such notice may be issued within a period of four weeks from the date of receipt of copy of this order.
We find that the Hon'ble Bombay Court in the case of Hashpal Sahni (supra) has also decided the impugned issue in favour of the assessee holding as under:- “19. Section 205 of the Act as it stood at the relevant time reads thus : "Bar against direct demand on assessee.—Where tax is deductible at the source under sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, section 194E, section 195 and section 196A, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income."
8 ITA.No.394/PUN/2025 (Hemant Enterprises) 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.
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 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 the Central Government or not and whether TDS certificate in Form No. 16 has been issued or 9 ITA.No.394/PUN/2025 (Hemant Enterprises) 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 case of Om Prakash 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 per cent per annum 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 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.
In the result, the petition succeeds. As the respondent No. 6 had deducted the tax at source from the salary income of the 10 ITA.No.394/PUN/2025 (Hemant Enterprises) petitioner the revenue could not have recovered the said amount with interest from the petitioner in view of the bar contained in section 205 of the Act. Accordingly, the revenue is directed to refund to the petitioner within 8 weeks from today the amount of Rs. 17,89,587 with interest at the rate of 6 per cent from the date of recovery till the date of payment. Though the credit of the tax deducted at source is not available to the petitioner, since the said liability is not recoverable from the petitioner, the revenue is directed to earmark the said TDS liability as "not recoverable" from the petitioner.
Based on the facts of the case and the legal position enumerated above, in our view, the assessee should be granted TDS credit of ₹ 27,14,806/- as claimed by the assessee in respect of payment received (net off TDS) from deductor-Mumbai WTR Pvt. Ltd. We, therefore, set aside the order of Ld.CIT(A)/NFAC direct the Ld.AO to grant credit of TDS to the assessee, as per fact and law after due verification thereof. Ground No.1 raised by the assessee is accordingly allowed.
In ground No.2, the assessee has challenged the action of the Ld.AO/CPC in charging the interest u/s. 234A of the Act on the ground that assessee had filed the return of income within the specified due date u/s. 139(1) of the Act. We notice that Ld.CIT(A)/NFAC has already allowed this claim of the assessee in his impugned order and directed the Ld.AO/CPC to delete the interest charged u/s. 234A of the Act. As the Ld. CIT(A)/NFAC has already allowed the relief claimed by the assessee, there is no merit in Ground No.2 raised by the assessee and is accordingly dismissed.