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Facts
The assessee received back employee's contribution to a superannuation fund, from which tax was deducted at source (TDS) amounting to INR 2,12,350/-. The assessee offered this amount to tax and claimed TDS credit, but it was denied during processing under Section 143(1). A rectification request under Section 154 was also rejected.
Held
The Tribunal held that Section 205 of the Income Tax Act, 1961, bars the recovery of tax from an assessee if tax has already been deducted at source, regardless of whether the deductor deposited the tax with the government or issued a TDS certificate. The employer is responsible for depositing the TDS, and the revenue has recourse against the employer.
Key Issues
Whether the assessee is entitled to credit for TDS deducted at source when the employer failed to deposit the TDS with the government and did not issue a TDS certificate, despite the employer being responsible for such deposit and the assessee having offered the income to tax.
Sections Cited
Section 143(1), Section 154, Section 199, Section 200, Section 201, Section 203, Section 205, Section 221, Section 276B
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
[ Per Rahul Chaudhary, Judicial Member:
The present appeal preferred by the Assessee is directed against the order, dated 30/07/2025, passed by the Additional/Joint Commissioner of Income Tax (Appeals) – 1, Gurugram [hereinafter referred to as ‘the CIT(A)’] whereby the Ld. CIT(A) had dismissed the appeal against the Intimation Order, dated 18/10/2022, passed under Section 154 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] for the Assessment Year 2018-2019. 2. The Assessee has raised following grounds of appeal :
That on the facts and law, in the circumstances of the case, the learned lower authorities erred in deny the benefit of credit of Tax Deducted of Sources of Assessment Year 2018-2019 Rs.2,12,350/- by employer during the relevant Financial Year.‖
We have the Learned Departmental Representative and have the perused the material on record.
The short issue involved in the present appeal pertains to denial of credit of tax deducted at source.
The Assessee received back employees’ contribution to the superannuation fund from employer [i.e., Mehsana District Cooperative Milk Producer Union Ltd.] after deduction of tax at source amounting to INR.2,12,350/-. The Assessee offered the said amount to tax in the return of income for the Assessment Year 2018-2018 and claimed the of credit of Tax Deducted at Source (TDS) of INR.2,12,350/-. While processing return of income under Section 143(1) of the Act, the Assessee was not allowed credit of the same and therefore, the Assessee moved application under Section 154 of the Act for rectification claiming credit of TDS of INR.2,12,350/-. However, the rectification request made by the Assessee was rejected.
Being aggrieved, the Assessee preferred appeal before the Learned CIT(A) contending as under:
―The assessee has furnished the evidences in respect of tax has been deducted from the income and do not reflect in Form no.26AS as well as Form no.
Therefore, credit has not been allowed. The credit has to be allowed according to Form no.22 (Rule 33) Statement of tax deducted at source issued by deductor/employer dated 22.06.2017. Sec 205, CBDT Instructions and a series of High Courts Judgment have reinforced a basic jurisprudence that where TDS has been deducted by the employer but not paid to the government or does not reflect in 26A, recovery of the same cannot be made from employee or credit of TDS cannot be denied. It is, therefore, requested that the credit of TDS of Rs.2,12,350/- is allowed.‖
2 Assessment Year 2018-2019 The Learned CIT(A) dismissed the appeal preferred by the Assessee holding as under:
―4.2.1 The appellant in its reply had stated that he received back employees‘ contribution to the superannuation fund from employer i.e., Mehsana District Cooperative Milk Producer Union Ltd. amounting to Rs. 10,84,458/- after deducting TDS of Rs. 2,12,350/-. The appellant has enclosed a copy of the Form-22, journal voucher of Mehsana District Co-operative Milk Producer Union Ltd. and bank statement highlighting the entry of amount credited into his account after deducting TDS of Rs. 2,12,350/- and the same are reproduced as under:- xx xx 4.2.2 However, on perusal of the reply and record available with this office, it has been found that appellant has received Rs. 14,14,338/-[16,26,688 – 2,12,350] as contribution to superannuation fund. Further, it has been observed that the TDS deducted by the employer on repayment of employee‘s contribution of Rs. 2,12,350/-, has not been deposited to Government account and therefore the same was also not reflected in 26AS of the appellant & form 16 also. Therefore, the CPC has not allowed the credit of TDS to the extent of Rs. 2,12,350/- while processing the ITR of the appellant and passing order u/s 154 of the Act. It is responsibility of the employer to deposit the tax deducted by it in the Govt. account. Also, it is responsibility of the employee to check whether the TDS deducted by the employer has been deposited by the employer, reflected in its Form 26AS and Form 16 and in case of any discrepancy found, the appellant should approach to the employer deposit the tax if not deposited earlier or to rectify the discrepancy and issue revised Form 16, so that the same may be highlighted in 26AS and employee could claim the TDS deducted in its ITR correctly. However, in the instant case, intimation u/s. 143(1) was passed on 02.05.2019, the appellant has approached to the employer for correction on 03.03.2021, but the credit for TDS is not reflected in the form 26AS or form 16 of the appellant. It is observed that as per section 199 of the Act, credit of tax deducted at source is given to the person, when it is paid to the central government account on behalf of the person in respect of whose income such payment of tax has been made. Further section 205 provides that the assessee shall not be called upon to pay the tax to the extent tax has been deducted from his income under chapter -XVII. Thus, it is only mandated 3 Assessment Year 2018-2019 that in case of mismatch on account of tax credit, the demand may not be enforced coercively.‖
Being aggrieved, by the above order passed by the Learned CIT(A), the Assessee has preferred the present appeal before the Tribunal on the grounds reproduced in Paragraph 2 above.
It is admitted position that the income offered to tax by the Assessee has been accepted by the Revenue. Even though Form No.16 and Form 26AS do not reflect payments of superannuation fund to the Assessee. However, as per Form No.22 containing details the tax deducted at source from contributions repaid to employees in the case of an approved superannuation fund issued by the employer on 22/06/2017 under Rule 33 of the Income Tax Rules, 1962, tax of INR.2,12,350/- was deducted from the payments made to the Assessee. We note that the Learned CIT(A) has reproduced From No.22 furnished by the Assessee. However, the credit of tax deducted at source amounting to INR.2,12,350/- reflected therein was not granted to the Assessee on the ground that the employer had failed to deposit the tax so deducted with the Government Treasury and therefore the same were not reflected in Form 26AS. In our view the approach adopted by the Learned CIT(A) cannot be countenanced in the facts of the present case where the Assessee has offered the corresponding income to tax and has placed on record evidence showing that the tax of INR.2,12,350/- was withheld by the employer in respect of the same. We find that the Assessee had placed reliance upon the judgment of the Hon’ble Bombay High Court in the case of Yashpal Sahni Vs. Assistant Commissioner of Income Tax [2007] 165 taxman 144 (Bom), dated 18/07/2007 before the Learned CIT(A) (as per submission of the Assessee reproduced at Page 4 to 7 of the impugned order). In the aforesaid case the Hon'ble High Court held that assessee should be granted credit of tax deducted at source irrespective of whether the tax so deducted was deposited by the deductor with the 4 Assessment Year 2018-2019 government treasury. The relevant extract of the aforesaid judgment of the Hon’ble Bombay High Court reads as under:
―14. We have carefully considered the rival submissions.
Chapter XVII of the Income-tax Act, 1961 provides for collection and recovery of tax by two modes. They are (one) directly from the assessee and (two) indirectly by deduction of tax at source. In the present case, we are concerned with the second mode of recovery, namely recovery of tax by deduction at source.
Section 192 of the Act provides that any person responsible for paying any income chargeable under the head ‗Salaries‘ shall deduct, at the time of payment, income-tax at the average rate of income computed on the basis of the rates in force for the financial year in which the payment is made. Under section 200 of the Act, the TDS amount collected under section 192 of the Act is required to be paid to the credit of the Central Government within the prescribed time.
Section 201 of the Act inter alia provides that where a company bound to deduct tax at source fails to deduct tax or after having deducted fails to pay the said tax to the credit of the Central Government within the stipulated time, then the company shall be deemed to be an assessee in default in respect of the tax and the said company shall be liable to pay simple interest at the rate of 12 per cent per annum on the TDS amount from the date on which such tax was deductible up to the date on which such tax is actually paid to the Central Government. Section 201(2) of the Act further provides that till the TDS amount with interest as stated above is paid to the Central Government, there shall be a charge upon all the assets of the company. Moreover, section 221 of the Act inter alia provides for the levy of penalty and section 276B of the Act inter alia provides that where a person fails to pay to the credit of the Central Government, the tax deducted at source, such person shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and provides for levy of fine. Thus, the Act provides for complete machinery to recover tax deducted at source from the person who has deducted it.
At this stage, we may also note that every person deducting tax at source is required to issue a certificate under section 203 of the Act specifying the amount of tax deducted, the rate at which 5 Assessment Year 2018-2019 the tax has been deducted and such other particulars as may be prescribed. Section 199 of the Act provides that any tax deducted at source under the provisions of Chapter XVII and paid to the 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 on production of the TDS certificate issued under section 203 of the Act. Section 205 of the Act provides that where tax is deductible at the source under Chapter XVII of the Act, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted.
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."
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?
In the present case, though the respondent No. 6 has deducted 6 Assessment Year 2018-2019 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 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 7 Assessment Year 2018-2019 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 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.
Rule is made absolute in the above terms with no order as to costs‖
8 Assessment Year 2018-2019
The above judgment was followed by Mumbai Bench of the Tribunal in the case of DZ Bank Vs. Deputy Commissioner of Income Tax [2022] 197 ITD 147. 10. Respectfully following the above judicial precedence, we hold that in the facts and circumstances of the present case the Assessee is entitled to credit of tax deducted at source as reflected in Form 22 furnished by the Assessee. Accordingly, the Assessing Officer is directed to grant credit of tax deducted at source amounting to INR.2,12,350/- after verification of Form 22 in terms of Paragraph above. Ground No.1 raised by the Assessee is allowed.
In terms of above, the present appeal preferred by the Assessee is allowed
Order pronounced on 07.01.2026 (Vikram Singh Yadav) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 07.01.2026 Milan, LDC
9 Assessment Year 2018-2019
आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : अपील र्थी / The Appellant 1. प्रत्यर्थी / The Respondent. 2. आयकर आय क्त/ The CIT 3. 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध ,आयकर अपीलीय अदधकरण ,म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //// उप/सह यक पुंजीक र /(Dy./Asstt.