Employee cannot be held liable or denied credit for TDS deducted by employer but not deposited.

By | September 9, 2026
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Employee cannot be held liable or denied credit for TDS deducted by employer but not deposited.
Issue
Whether an employee-assessee can be denied TDS credit and subjected to direct tax demands when the employer deducts tax at source from salary but fails to deposit it with the Central Government.
Facts
  • The assessee-employee was employed with Kingfisher Airlines during assessment years 2009-10 to 2012-13.
  • Tax at Source (TDS) was duly deducted from the assessee’s salary by the employer for the relevant assessment years.
  • However, the employer (Kingfisher Airlines) failed to deposit the deducted TDS amount into the credit of the Central Government.
  • The Assessing Officer (AO) processed the returns and issued intimations under Sections 143(1) and 154 of the Income-tax Act, 1961, disallowing/omitting the TDS credit and raising outstanding tax demands along with interest against the employee.
Decision
  • No Direct Demand on Employee: The employee cannot be blamed for the deductor’s failure to deposit the tax into the government account or deprived of their legitimate right to credit.
  • Quashing of Tax Demands: The impugned tax demands and interest raised under Sections 143(1) and 154 for AY 2009-10 to 2012-13 were quashed and set aside to the extent they pertained to the non-grant of TDS credit deducted by Kingfisher Airlines.
  • Ruling in Favor of Assessee: The judgment was delivered entirely in favor of the assessee.
Key Takeaways
  • Bar Against Direct Demand (Section 205): Where tax has been deducted at source under the provisions of Chapter XVII, the revenue cannot directly demand tax from the assessee to the extent of such deduction.
  • Deductor Liability: The responsibility to deposit deducted tax rests solely on the deductor (employer). The Income Tax Department must pursue recovery proceedings against the defaulting employer, not the employee.
  • Rectification of Intimations: Automatic computer-generated intimations or orders raising demands due to non-matching 26AS/TDS mismatch are illegal if tax was actually deducted at source from the employee’s income.
HIGH COURT OF DELHI
Yatish Saxena
v.
Assistant Commissioner of Income-tax
Dinesh Mehta and Rajneesh Kumar Gupta, JJ.
W.P. (C) No. 5631 OF 2026
CM APPL. Nos. 27599 and 34832 OF 2026
AUGUST  21, 2026
Nikhil Goyal and Paras Jindal, Advs. for the Petitioner. Ruchir Bhatia, SSC, Anant Mann and Pratyaksh Gupta, JSCs for the Respondent.
ORDER
1. Learned counsel for the petitioner contended that for the Assessment Years 2009-10, 2010-11, 2011-12, and 2012-13 demands of Rs. 4,52,188/-(Ref No. 2010200910040512521T), Rs. 2,04,369/- (Ref No. 20172010101599218801), Rs. 49,48,730/- (Ref No. 2016201137049076722T) and Rs. 26,29,922/- (Ref No. 2013201237013914932T) including interest have been raised by way of intimations under Sections 143(1) and 154 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961’) against the petitioner because the credit of TDS which Kingfisher Airlines (erstwhile employer) had deducted from the salary of the petitioner amounting to Rs. 1,08,367/- for AY 2009-10, Rs. 10,88,879/- for AY 2010-11, Rs. 13,57,302/- for AY 2011-12, and Rs. 7,14,967/-for AY 2012-13 was not given.
2. It is contended that the issue involved in the present writ petition is squarely covered by a judgment dated 01.10.2024 of this Court rendered in W.P. (C) No. 13765/2024 Satwant Singh Sanghera v. Asstt. CIT  (Delhi).
3. Mr. Ruchir Bhatia, learned Senior Standing Counsel for the Respondent, was not in a position to dispute the legal position of law as stated by the learned counsel for the Petitioner.
4. Heard learned Counsel for the Parties.
5. Adverting to the merits of the case, we are of the view that the Respondent could perhaps have been justified in disallowing the amount of TDS which was collected by Kingfisher Airlines from the Petitioner’s salary, as the same was not deposited by said deductor but the Petitioner cannot be blamed for that and deprived of his legitimate right, as has been held by this Court in its judgement Satwant Singh Sanghera (supra).
6. We therefore allow the writ petition and quash and set aside the impugned demands for the AY’s 2009-10, 2010-11, 2011-12, and 2012-13 to the extent they relate to the non-grant of credit of Tax Deducted at Source by the Kingfisher Airlines.
7. Needless to observe that our order shall confine to the amounts which have been deducted by the Kingfisher Airlines and in case there is any other demand raised by the Assessing Officer, the same shall not be effected.
8. The instant petition, alongwith pending applications, stands disposed of in the aforesaid terms.