ORDER
Rajesh Kumar, Accountant Member.- This is an appeal preferred by the assessee against the order of the Commissioner of Income-tax (Appeals), Mysore (hereinafter referred to as the “Ld. CIT(A)”] dated 31.01.2025 for the AY 2024-25.
2. The only issue raised by the assessee in the various grounds of appeal is against the order of ld. CIT (A) upholding the assessment order, wherein the Id. AO has raised a demand of Rs. 9,42,570/-resulting from non-deposit of TDS by the employer of the assessee.
2.1. The facts in brief are that the assessee was employed with M/s Think and learn Private Limited, which is gone into liquidation and therefore, the tax conducted on behalf of the assessee from the salaries was not deposited resulting into mismatch of TDS claimed by the assessee in the return of income vis-a-vis the TDS amount appearing in form 26AS. The assessee filed the return of income u/s 139(1) of the Act which were processed u/s 143(1) of the Act vide order dated 10.09.2024, passed by the DCIT, CPC, Bangalore in which the demand of Rs. 9,43,570/- was created on account of mismatch of Tax Deducted at source.
2.2. The appeal of the assessee was dismissed by the ld. CIT (A) by observing and holding as under:-
“8. The Ground No. 2, 3, 5 and 6 raised by the appellant are related to the same issue i.e. denial of TDS amounting to Rs.8,48,953/-. As the issue involved in the grounds of appeal is same, the grounds are adjudicated together. The appellant submitted that during the period relevant to the instant AY he has earned salary income against which his employer deducted TDS of Rs.8,48,953/-. There was default on the part of the employer in remitting the TDS amount in Government Account and therefore, this TDS amount was not reflected in 26AS and in turn, the TDS claim in the return was denied while processing return of income u/s.143(1). The appellant submitted that as there was no mistake from the appellant, the appellant should have been allowed for credit of TDS. The appellant furnished “Full & Final Settlement” from his employer in support of the claim.
8.1 The impugned order u/s.143(1) along with 26-AS statement and the appellant’s submission is verified. Form 16/16A is the certificate of TDS or TCS that is issued by the deductor which serves as an evidence that tax deducted or collected by him is deposited to the Government account under a particular PAN. There is a need to obtain a TDS Certificate. The rationale behind introducing Form 26AS was to enable the taxpayers to cross-check and verify their details in the TDS certificates with the details recorded in Form 26AS and maintain transparency of information. In this instant case, the appellant failed to furnish the evidence of tax deduction by the deductor by not submitting TDS certificate. In view of the fact of the case, the grounds of appeal of the appeal are dismissed.”
2.3. After hearing the rival contentions and perusing the materials available on record, we find that the assessee was employed with M/s Think and learn Private Limited and received salary which was paid to the assessee after deduction of tax at source. The assessee was also issued TDS Form showing full amount of Tax Deducted at source. However, the employer company did not deposit the same in the government treasury resulting into mismatch between the TDS as claimed by the assessee as per form 16/16A Vis-a-vis form 26AS as appearing in the portal of the Revenue. In our opinion, once the tax is deducted by the employer, the assessee employee cannot be forced to make good short fall in deposit of tax by the employer. The Revenue has to proceed against the employer for the recovery of said demand u/s 200 and 201 of the Act. However, in the present case the employer is already under liquidation. Therefore, the said action was also could not be taken against the employer. In our opinion, the non-deposit of TDS on the part of the employer cannot be slapped on the assessee more so no action against the employer can be taken under the Act. The case of the assessee find support from the decision of the Hon’ble Delhi High Court in case of Chintan Bindra v. Dy. CIT (Delhi)vide order dated 29.11.2023 in WP(C) No. 2164/2022 & CM Appl. 6192/2022, wherein the Hon’ble Court has held as under:-
“3. The factual position pleaded by the petitioner and admitted by the respondents is that the respondents raised multiple demands of outstanding income tax and interest pertaining to Assessment Years 2009-10, 2011-12 and 2012-13. It is also not in dispute that as reflected from records, the petitioner was being paid salary after deduction of income tax at source but his employer namely Kingfisher Airlines Limited did not deposit the same with the revenue. Despite repeated communications from petitioner, the said demands were not withdrawn by the respondents, so the petitioner approached this court by way of writ action.
4. That being so, the core issue to be considered by us is as to whether any recovery towards the said outstanding tax demand can be effected against the petitioner in view of the admitted position that the tax payable on salary of the petitioner was being regularly deducted at source by his employer namely Kingfisher Airlines Ltd. who did not deposit the deducted tax with the revenue.
5. The said issue stands covered by the judgment of this court in the case of Sanjay Sudan v. Asstt. CIT ITR 107 (Delhi). The relevant observations made in the said judgment are set forth hereafter:
“5. Mr Sanjay Kumar, learned senior standing counsel, who appears on behalf of the respondents/revenue, says that the credit for withholding tax can only be given in terms of Section 199 of the Act, when the amount is received in the Central Government account.
5.1 It is, therefore, his submission that while no coercive measure can be taken against the petitioner, the demand will remain outstanding and cannot, thus, be effaced.
6. We have heard counsel for the parties.
7. According to us, section 205 read with instruction dated 1-6-2015, clearly point in the direction that the deductee/assessee cannot be called upon to pay tax, which has been deducted at source from his income. The plain language of section 205 of the Act points in this direction. For the sake of convenience, section 205 is extracted hereafter:
“Section 205 Bar against direct demand on assessee.
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.”
8. The instruction dated 1-6-2015 is aligned with the aforesaid provision of Act inasmuch as it clearly provides in paragraph 2 that since the Act places a bar on a direct demand qua the deductee assessee, the same cannot be enforced coercively. For the sake of convenience, paragraph 2 of the said Instruction is extracted hereafter:
“.2. As per section 199 of the Act credit of Tax Deducted at Source is given to the person only if it is paid to the Central Government Account. However, as per section 205 of the Act the assessee shall not be called upon to pay the tax to the extent tax has been deducted from his income where the tax is deductible at source under the provisions of Chapter XVII. Thus the Act puts a bar on direct demand against the assessee in such cases and the demand on account of tax credit mismatch cannot be enforced coercively.”
9. The question, therefore, which comes to fore, is as to whether the respondents/revenue can do indirectly what they cannot do directly.
9.1 The adjustment of demand against future refund amounts to an indirect recovery of tax, which is barred under section 205 of the Act.
9.2 The fact that the instruction merely provides that no coercive measure will be taken against the assessee, in our view, falls short of what is put in place by the legislature via section 205 of the Act.
10. Therefore, in our view, the petitioner is right inasmuch as neither can the demand qua the tax withheld by the deductor/employer be recovered from him, nor can the same amount be adjusted against the future refund, if any, payable to him.”
6. On behalf of revenue, it was contended that no credit for tax can be given to the petitioner, since in view of the provisions under section 199 of the Income-tax Act the credit can be given only when the tax which was deducted at source is paid to the Central Government and in the present case, admittedly the tax deducted from salary of the petitioner has not been deposited by his employer. This contention was raised also in the case of Sanjay Sudan (supra) but not accepted by this court.
7. Further, in the case of BDR Finvest (P.) Ltd. v. Dy. CIT [WP (C) No. 9043 of 2021 decided by this court on 31-10-2023], it was clarified that payment of the tax deducted at source to the Central Government has to be understood as the payment in accordance with law.
8. The petitioner having accepted the salary after deduction of income tax at source had no further control over it in the sense that thereafter it was the duty of his employer acting as tax collecting agent of the revenue under Chapter XVII of the Act to pay the deducted tax amount to the Central Government in accordance with law. The employer of the petitioner having failed to perform his duty to deposit the deducted tax with the revenue, petitioner cannot be penalized. It would always be open for revenue to proceed against employer of the petitioner for recovery of the deducted tax.
9. Same view has been taken by this court in the case of Pr. CIT v. Jasjit Singh [IT Appeal No. 295 of 2023, dated 2-11-2023] (subsequent to the date when judgment in this case was reserved). Section 199 of the Act, in our view cannot operate as impediment to grant relief to the petitioner.
10. In view of the aforesaid, the petition as well as the interim relief application Chintan Bindra v. Dy. CIT [CM Appeal No. 6192 of 2022, dated 29-112023] are allowed, thereby setting aside the intimations/communications dated 21-32011 pertaining to Assessment Year 2009-10; dated 23-10-2012 pertaining to Assessment Year 2011-12; and dated 16-1-2014 pertaining to Assessment Year 201213, all intimations/communications issued by respondent no. 3 under section 143 of the Act raising demands of tax and interest against the petitioner and consequently, restraining the respondents from carrying out any recovery proceedings pertaining to the said intimations/communications; and also directing the respondents to refund to the petitioner within four weeks from receipt of this order a sum of Rs. 3,88,209/-which was wrongly adjusted by the respondents against the impugned demands pertaining to the above mentioned Assessment Years. However, it is clarified that in case the petitioner is able to obtain any amount of money towards tax deducted from his income at source for the Assessment Years 2009-10, 2011-12 and 2012-13 from his employer, the same shall be deposited by him with the revenue forthwith.”
2.4. We therefore respectfully following the decision of the Hon’ble Delhi High Court, set aside the order of ld. CIT (A) and direct the ld. AO not to recover any demand from the assessee. The ld. AO can proceed against the employer to recover such demand or take any other remedial measure. Consequently, the appeal of the assessee is allowed.
3. In the result, the appeal of the assessee is allowed.