Manohar Ramabtar Jhunjhunwala Vs PCIT (Bombay High Court)
Deductee Cannot Be Punished for Deductor’s Default: Bombay High Court Directs TDS Credit Even Without Form 26AS, Form 16 or Form 16A
In a landmark batch of petitions, the Bombay High Court considered cases where tax had been actually deducted from salary or other payments, but the deductors failed to deposit it with the Government or file proper TDS statements. Consequently, the amounts did not appear in Form 26AS, TDS credit was denied and demands were raised against the deductees.
The Court held that once the assessee establishes actual deduction of tax, the Department must grant the corresponding TDS credit, even if the deductor has not deposited it. Section 205 expressly prohibits direct or indirect recovery of the same tax from the deductee, while the Department remains free to recover it from the defaulting deductor through assessment, recovery, penalty and prosecution proceedings.
The Court harmonised Sections 199 and 205, holding that the deductor’s failure to remit tax cannot defeat the deductee’s substantive protection. Denying credit would make the innocent taxpayer bear tax twice for a default entirely beyond his control.
The Court further ruled that Form 16, Form 16A and Form 26AS are not the exclusive proof of deduction. Actual deduction may be established through other reliable evidence, including:
- Salary slips, employment agreements and bank statements showing net salary;
- Invoices, payment advice, ledgers and bank statements showing net professional fees, rent or contractual payments;
- Employer or payer confirmations, payroll workings and correspondence;
- Claims filed in insolvency or liquidation proceedings; and
- Any admission by the deductor in its books, affidavit or other records.
Once prima facie evidence is furnished, the AO must acknowledge the application, keep the demand in abeyance, prevent coercive recovery or adjustment of subsequent refunds, verify the claim and pass a reasoned order preferably within six months.
