TDS credit allowed based on salary slips despite Form 26AS mismatch; Employer's default cannot penalize Employee

TDS credit allowed based on salary slips despite Form 26AS mismatch; Employer’s default cannot penalize Employee

Issue

Whether the Revenue can deny TDS credit to an employee and levy interest under sections 234B/234C when the employer deducted the tax but failed to deposit it with the Government (resulting in a Form 26AS mismatch), or if Section 205 bars such direct demand from the employee.

Facts

Assessee Status: An ex-employee who received salary income during AY 2024-25.
TDS Deduction: The employer deducted TDS from the salary but failed to deposit it into the Government account.
Employer’s Default: The employer neither remitted the tax nor filed quarterly TDS returns, nor did they issue Form 16 to the assessee.
Assessee’s Claim: The assessee filed a return declaring the salary income and claiming the credit for the TDS deducted, supported by salary slips showing the deduction.
CPC Action: The Central Processing Centre (CPC) processed the return under Section 143(1) and denied the TDS credit because it did not reflect in Form 26AS. Consequently, a demand was raised along with interest under Sections 234B and 234C.

Decision

Section 205 Shield: The Tribunal/Court held that Section 205 of the Income-tax Act creates a specific bar against making a direct demand on the assessee (deductee) to the extent that tax has already been deducted from their income.
Salary Slips as Evidence: Since the assessee produced salary slips clearly demonstrating the deduction of tax, the primary onus of proof was discharged. The unavailability of Form 16 or the absence of entries in Form 26AS was due to the employer’s default, for which the employee cannot be penalized.
No Double Jeopardy: The Revenue must enforce recovery against the defaulting employer (the deductor) under the relevant provisions of the Act, rather than pursuing the employee who has already suffered the deduction.
Interest Deleted: Since the tax is treated as “paid” by the assessee upon deduction, there is no default or deferment of advance tax on their part. Therefore, the levy of interest under Sections 234B and 234C was unjustified and was deleted.

Key Takeaways

Section 205 Supremacy: If tax is deducted at source, the liability of the payee (employee) is extinguished to that extent. The Revenue is statutorily barred from recovering that amount from the payee, regardless of whether the payer deposited it.

Evidence Over Form 26AS: While Form 26AS is the primary record, it is not conclusive against the assessee if they possess alternative proof (salary slips, bank statements) showing actual deduction.

Employee Protection: Ex-employees who cannot compel former employers to issue Form 16 are protected by judicial precedents allowing reliance on pay slips to claim credit.

IN THE ITAT DELHI BENCH ‘D’

Mani Madhukar Bansal

ACIT/DCIT, International Taxation

Yogesh Kumar U.S., Judicial Member
and Rifaur Rahman, Accountant Member

IT Appeal No. 2637 (Delhi) of 2025
[Assessment year 2024-25]

NOVEMBER 12, 2025

Pankaj Sarogi, Adv. for the Appellant. Vikram Singh Sharma, Sr. DR for the Respondent.

ORDER

S. Rifaur Rahman, Accountant Member.- The assessee has filed appeal against the order of the Learned Commissioner of Income-tax (Appeals), Delhi – 42 [“Ld. CIT(A)”, for short] dated 04.02.2025 for the Assessment Year 2024-25.

2. Brief facts of the case are, assessee was employed with M/s. Think & Learn Private Limited (in short TLPL) in assessment year 2024-25. The employer i.e. TLPL had paid gross salary of Rs.1,04,07,665/- to the assessee during the year April 2023 to August 23 and deducted TDS of Rs.37,04,946/- under section 192 of the Income Tax Act, 1961 (for short ‘the Act’). The assessee also attached copy of pay slips for abovesaid period in the paper book submitted before the authorities below. The TLPL did not provide any Form 16 to the assessee for the same period. Assessee declared the gross salary income for filing the return of income and claimed the above said TDS. While processing the return under section 143(1) of the Act, since there was no TDS credit against the above said salary, the TDS was denied to the assessee.

3. Aggrieved assessee preferred an appeal before the ld. CIT (A) and raised the issue that section 143(1) assessment was completed without giving any opportunity to the assessee and also filed the relevant information before the ld. CIT(A). After considering the detailed submissions made by the assessee and grounds raised by the assessee, ld. CIT (A) dismissed the appeal filed by the assassin by observing as under :-

“10. Based on the above facts it is clear that the only detail submitted by the appellant with respect to TDS deducted by the deductor are the copy of pay slip for the month of April,2023 to August,2023 and copy of his bank statement. The appellant in his submission has clearly stated that the credit of TDS is not reflecting in Form 26AS for AY 2024-25. The appellant has not submitted relevant supporting documents like copy of TDS challan deposited by the deductor in favour of the appellant, copy of TDS return submitted by the employer. The appellant was given ample opportunities to provide complete details in support of his claim as stated in the grounds of appeal and statement of facts, but he has failed to submit satisfactory details in his case. Therefore, in absence of the above-mentioned relevant documents, the action of the AD IT, CPC, Bengaluru of denying the TDS credit of Rs.37,04,946/- for AY 2024-25 to the appellant is upheld and the ground no. 1 related to credit of TDS of Rs.37,04,946/- not given by the CPC, Bengaluru is dismissed.”

4. Aggrieved assessee filed an appeal before us raising following grounds of appeal :-

“1. The CIT (A) erred in upholding the decision of ADIT, CPC, Bengaluru to deny the TDS credit of Rs.37,04,946/-.

2. The CIT (A) erred in conforming the additions of interest u/s 234B and 234C made by ADIT, CPC, Bengaluru.”

5. At the time of hearing, both the counsels appearing for the assessee as well as Revenue before us brought on record relevant facts.

6. Considered the rival submissions and material placed on record. We observe that assessee has employed by TLPL and they have paid gross salary of Rs.1,04,07,665/- to the assessee after deducting TDS of Rs.37,04,946/-. Since the employer had not paid any TDS after deducting from the employee and not followed the relevant provisions of Chapter XVII of the Act and after deducting TDS neither remitted the amount to the Government account nor filed any quarterly returns. Further we observe that the employer has not given any Form 16 after deducting the tax at source. We observe from the pay slips submitted by the assessee and it clearly shows that TDS was deducted from the employee and based on that, assessee has declared the gross salary income and accordingly claimed the TDS. Since the assessee was not in a position to get Form 16 and also employer has not followed the provisions of Chapter XVII and failed to comply, the tax authorities have denied the TDS on the basis that the tax deducted at source was not reflected in Form 26AS as well as assessee failed to submit relevant Form 16 from the employer. It is fact on record that assessee is an ex-employee of TLPL and assessee is not in a position to acquire the relevant document from the company and the document submitted before the tax authorities was the information AVAILABLE WITH THE ASSESSEE based on which assessee has filed its return, therefore, the assessee cannot be penalized for the mistakes of the employer. Accordingly we are inclined to follow the decisions of Hon’ble Gujarat High Court and Hon’ble Karnataka High Court in the case of Kartik Vijaysinh v. DCIT (Gujarat)/[2021] 440 ITR 11 (Gujarat)and Smt. Anusuya Alva v. DCIT (Karnataka)/ 278 ITR 206 (Karnataka) respectively, which are placed in the paper book at sl. Nos.11 & 12. Hon’ble Gujarat High Court in the aforesaid decision has held as under :-

“The case is no longer res integra and is covered by the decision of this very Court rendered in case of Devarsh Pravinbhai Patel v. Asstt. ClT [RISCA No. 12965 of 2018, dated 24-9-2018] where too, the petitioner was an employee of the Kingfisher Airlines and worked as a pilot. In his case also the.TDS on the salary made to the petitioner had not been deposited. It is only when the department raised the tax demand with interest and initiated the actions of the recovery that this Court was approached. Relying on the decision of the Gauhati High Court rendered in case of Asstt. CIT v. Om Prakash Gattani, this Court allowed the same by holding that the petitioner-assessee deductee is entitled to credit of the tax deducted at source with respect to amount of TDS for which Form No. 16A issued by the employer deductor 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 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 the same from the deductor. Thus, it is held 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. [Para 7]

In case of Om Prakash Gattani (supra) Gauhati High Court was dealing with the TDS not deposited of prize money payable to the petitioner. It held and observed that a perusal of section 205 clarifies the position where it provides that where tax is deductible at source, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income. What is noticeable in this provision is that its applicability is not dependent upon the credit for tax deducted being given under section 199. What is necessary for applicability of this provision is that the amount has been deducted from the income. In case where the amount has been deducted but not paid to the Central Government that eventuality is taken care of by section 201.The appellant could not show that under the law it may be permissible to proceed against the assessee even after deduction of the tax at source, nor could it be held that merely by deduction of tax at source, credit for deduction of tax at source has to be given even though the amount may not have been made over to the Government treasury. As the mere deduction of tax at source would not close the chapter of tax liability unless it is deposited in the Government treasury. [Para 8]

The facts being almost identical, no separate reasoning are desirable and the petition is being allowed. The department is precluded from denying the benefit of the tax deducted at source by the employer during the relevant financial years to the petitioner. [Para 9]

The credit of the tax shall be given to the petitioner and if in the interregnum any recovery or adjustment is made by the respondent, the petitioner shall be entitled to the refund of the same, with the statutory interest, from the date of receipt of copy of this order. [Para 11]

Petition is accordingly disposed of. [Para 12]”

7. Respectfully following the above decision, even though no Form 16 was provided in this case, the assessee has brought on record the relevant salary slips to demonstrate that the tax was deducted from his salary as held in the above decision, the Revenue cannot deny the tax credit to the assessee. Accordingly, we are inclined to allow the grounds raised by the assessee.

8. In the result the appeal filed by the assessee is allowed.