Summary: The ITAT Mumbai in Sophia Rick Vs ITO held that an employee cannot be denied TDS credit merely because the employer deducted tax from salary but failed to deposit it with the Government. The assessee had claimed TDS of ₹3.91 lakh, but CPC allowed credit of only ₹79,030, resulting in a substantial tax demand due to the employer’s default and the absence of corresponding credit in Form 26AS. The Tribunal observed that the assessee had bona fide pursued rectification proceedings before CPC, and therefore the delay in filing the appeal deserved to be condoned. On merits, it found that salary slips, Form 16, bank statements, and other records conclusively proved that TDS had been deducted. Relying on Section 205 of the Income-tax Act and binding judicial precedents, the Tribunal ruled that the Revenue cannot recover tax from an employee once it has been deducted at source, irrespective of the employer’s failure to deposit it. The Assessing Officer was directed to verify the evidence and grant full TDS credit to the assessee.
Core Issue: The principal issue before the Tribunal was whether an employee can be denied TDS credit and subjected to tax demand where the employer had deducted tax from salary but failed to deposit the same with the Government, and whether delay in filing the appeal could be condoned when the assessee had been continuously pursuing rectification proceedings before CPC.
Facts: The assessee, an employee of Trimax IT Infrastructure & Services Ltd., filed her return of income declaring income of ₹18.41 lakh. While processing the return under section 143(1), CPC allowed TDS credit of only ₹79,030 as against the claim of ₹3,91,241, resulting in a tax demand of ₹3,36,373. The mismatch arose because although the employer had deducted TDS from the assessee’s salary, it had failed to deposit the same with the Government and consequently the credit was not reflected in Form 26AS. The assessee repeatedly pursued rectification applications before CPC. When those efforts did not yield any relief, she filed an appeal before the CIT(A). In support of her claim, she furnished salary slips, Form 16, bank statements and other records evidencing deduction of tax from her salary.
Findings of CPC/AO and CIT(A): CPC denied the TDS credit to the extent the tax deducted by the employer was not reflected in Form 26AS. The CIT(A) did not examine the matter on merits and dismissed the appeal in limine as barred by limitation, refusing to condone the delay in filing the appeal.
ITAT Findings: The Tribunal observed that the assessee had been diligently pursuing the statutory remedy of rectification before CPC and had approached the appellate authority only after such remedy failed. Therefore, the delay was bona fide and deserved to be condoned. On merits, the Tribunal found that the documentary evidence placed on record clearly established that TDS had been deducted by the employer from the assessee’s salary and only the net salary had been paid to her. The Tribunal held that once tax has been deducted at source, the Revenue cannot recover the same amount from the employee merely because the employer failed to deposit the tax with the Government. Referring to section 205 of the Act and the judgments of the Gujarat High Court and Supreme Court, the Tribunal held that the assessee could not be denied credit for TDS actually deducted from her salary. The Assessing Officer was therefore directed to verify the documentary evidence and grant full TDS credit to the assessee.
Cases Relied Upon: The Tribunal principally relied on Gayatri Snehal Rao v. Income Tax Assessing Officer, wherein it was held that once tax is deducted from salary, recovery cannot be made from the employee for the employer’s failure to deposit such tax. The said judgment was affirmed by the Supreme Court in Income Tax Assessing Officer v. Gayatri Snehal Rao and was also supported by the Supreme Court’s earlier decision in Income Tax Assessing Officer v. Shobhan Shantilal Doshi.
Outcome: The Tribunal held that the delay in filing the appeal ought to have been condoned as the assessee was bona fide pursuing rectification proceedings before CPC. On merits, it directed the Assessing Officer to verify the evidence regarding deduction of tax by the employer and grant full TDS credit to the assessee. The appeal was accordingly allowed.
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