Anil Kumar Gang Vs ITO (ITAT Mumbai)
ITAT Mumbai Allows TDS Credit Despite Non-Deposit by Employer: Section 205 Bars Recovery from Employee
The Mumbai Bench of the Income Tax Appellate Tribunal allowed the appeal of Anil Kumar Gang for AY 2018–19, directing grant of TDS credit of ₹2,12,350 which had been denied by CPC and upheld by the CIT(A) on the ground that the employer had deducted but not deposited the tax with the Government.
The assessee had received repayment of his contribution to an approved superannuation fund from his employer after deduction of TDS, duly offered the income to tax, and supported his claim with Form 22 issued under Rule 33, bank statements and vouchers evidencing deduction of tax at source. The Revenue denied credit solely because the TDS was not reflected in Form 26AS/Form 16, as the employer had failed to remit the tax.
The Tribunal held that this approach was untenable in law, particularly when the fact of deduction of tax was established and the corresponding income had already been taxed in the hands of the assessee. Relying squarely on the Bombay High Court judgment in Yashpal Sahni v. ACIT, and the coordinate bench decision in DZ Bank, the Tribunal reiterated that Section 205 creates a complete bar against recovery of tax from the employee once TDS is deducted, irrespective of whether the deductor has deposited the tax with the Government.
It was emphasised that the Act provides a complete machinery under Sections 200, 201, 221 and 276B to recover TDS from the defaulting employer, and denying credit to the employee would result in impermissible double taxation. The Tribunal rejected the CIT(A)’s view that only coercive recovery is barred, holding that credit itself cannot be denied where deduction is proved.
Accordingly, the AO was directed to grant TDS credit after verification of Form 22, and the appeal was allowed in full, reinforcing the settled position that an employee cannot be prejudiced for the employer’s failure to deposit TDS
Author’s Comment:
While the ITAT Mumbai’s decision is firmly rooted in the long-standing Bombay High Court jurisprudence (Yashpal Sahni) and treats Section 205 as an absolute statutory bar once deduction of tax is proved, it now stands in direct tension with the recent judgment of the Kerala High Court in the Attinad Software employees’ case. The Kerala High Court, after expressly considering the Delhi High Court’s pro-assessee rulings, has taken a diametrically opposite view, holding that Section 205 operates only when TDS is actually deposited with the Government and must be read in conjunction with Section 199. This sharp divergence underscores a growing jurisdictional conflict: while Bombay and Delhi continue to prioritise employee protection and prevention of double taxation, Kerala has favoured strict statutory coherence even at the cost of hardship. The issue has thus moved beyond mere interpretative nuance and is now ripe for authoritative resolution by the Supreme Court or legislative clarification, failing which similarly placed assessees may face inconsistent outcomes depending solely on territorial jurisdiction.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
