The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has delivered a significant victory for salaried taxpayers facing tax demands due to employer TDS defaults. According to reports from Mint, the tribunal held that an employee cannot be denied TDS credit merely because the employer failed to deposit the deducted amount with the government. The ruling provides crucial relief to taxpayers who have already paid their taxes through salary deductions but face demands due to employer non-compliance.
The case involved an employee of Trimax IT Infrastructure & Services Ltd. who filed her income tax return for Assessment Year 2019-20 declaring income of ₹18.41 lakh. As reported by Mint, she claimed TDS credit of ₹3.91 lakh but the Central Processing Centre allowed credit of only ₹79,030. The mismatch resulted in a tax demand of approximately ₹3.36 lakh due to the employer's alleged failure to deposit the deducted tax amount with the government. The employee, Sophia Rick, repeatedly sought rectification from the Centralised Processing Centre but her requests did not lead to any relief, and her first appeal was dismissed as time-barred.
The ITAT based its decision on Section 205 of the Income-tax Act, which provides that once tax has been deducted at source, the same amount cannot be recovered again from the taxpayer. According to Mint, the tribunal also referred to CBDT Instruction No. 275 dated June 1, 2015, which directs tax authorities not to enforce demand on a taxpayer where tax has been deducted but not deposited by the dedctor. Taking note of the evidence and citing recent Supreme Court and High Court rulings, the tribunal held that no tax demand can be raised against an employee if the employer had deducted tax at source from its employee's salary income but failed to deposit the same with the government. The tribunal noted that taxpayers cannot be made to suffer because of an employer's failure to fulfill its statutory obligation of depositing TDS.
The ruling highlights important practical considerations for employees facing TDS mismatches. As reported by Mint, while Form 26AS is crucial for verifying TDS credits, it is not the only evidence available. Employees should preserve documents including Form 16, salary slips, bank statements showing net salary receipt, and employment records to establish that TDS was actually deducted even if the credit does not appear in tax records due to employer defaults. In this case, Rick furnished salary slips, Form 16, bank statements and other documents showing that TDS had been deducted from her salary, which worked in her favor. The decision offers reassurance that if an employer has deducted TDS from salary, the tax department cannot automatically deny credit and seek recovery from the employee.
