Case Law Details
Income Tax Assessing Officer & Ors. Vs Gayatri Snehal Rao (Supreme Court of India)
The Special Leave Petition before the Supreme Court challenged the order dated 14th October 2024 passed by the Gujarat High Court in R/Special Civil Application Nos. 5835 of 2024 and 5870 of 2024. There was a delay of 360 days in filing the petition.
Counsel for the petitioners fairly submitted that the common High Court order, insofar as it related to Special Civil Application No. 5870 of 2024, had already been considered by the Supreme Court in Civil Appeal No. 197 of 2026, where directions were clarified regarding changes to be made in the software. In view of the directions already issued in that matter, the Supreme Court held that no further order was required in the present petition. The Special Leave Petition was dismissed both on delay and on merits. Pending applications, if any, were also disposed of.
Also Read:
SC Sets Aside HC Direction to CBDT to Modify Income-Tax Software System
No Tax Demand on Employee If Employer Fails to Deposit TDS: Gujarat HC
High Court Proceedings and Findings
Before the Gujarat High Court, the petitioners challenged intimations issued under Section 143(1) of the Income Tax Act, 1961 for Assessment Years 2020-21 and 2021-22. The intimations were also treated as notices of demand under Section 156(3) of the Act. The High Court initially issued notice and stayed the impugned demand notices.
The petitioners were ex-employees of Karvy Stock Broking Limited. It was submitted that tax had been deducted at source (TDS) from their salary, but the employer failed to deposit the deducted amount with the Government. When the petitioners filed their income tax returns disclosing the TDS, the system reflected a mismatch because the TDS was not deposited by the employer. As a result, demands were raised through intimation under Section 143(1).
The amounts involved were as follows:
- In one case, TDS deducted amounted to ₹6,13,583 (₹3,53,597 for A.Y. 2020-21 and ₹2,60,086 for A.Y. 2021-22), while the demand raised was ₹5,13,200 (₹2,63,300 for A.Y. 2020-21 and ₹2,49,900 for A.Y. 2021-22).
- In the other case, TDS deducted amounted to ₹32,48,022 (₹18,24,686 for A.Y. 2020-21 and ₹14,23,336 for A.Y. 2021-22), while the demand raised was ₹27,26,590 (₹11,98,880 for A.Y. 2020-21 and ₹15,27,710 for A.Y. 2021-22).
The petitioners relied upon Section 205 of the Act, which provides that where tax is deductible at source, the assessee shall not be called upon to pay the tax to the extent that it has been deducted from that income. They also relied upon CBDT Instruction No. 275/29/2014-IT(B) dated 01.06.2015 and Office Memorandum dated 11.03.2016. These directions reiterated that in cases where TDS has been deducted but not deposited by the deductor, the deductee assessee should not be called upon to pay the demand, and such demands should not be enforced coercively.
The respondent’s affidavit stated that credit of TDS is granted only if the tax deducted is deposited into the Government account, as reflected in Form 26AS. In the petitioner’s case, only part of the TDS was deposited in one year, and none in another, resulting in partial or no credit being granted. The affidavit also referred to reassessment proceedings initiated under Sections 148A and 147 in relation to another entity.
The High Court held that the undisputed fact was that TDS had been deducted from the petitioners’ salary but not deposited by the employer. Therefore, in view of Section 205, read with the CBDT Instruction and Office Memorandum, no demand could have been raised against the petitioners for such mismatch. Section 205 clearly bars direct demand against the assessee to the extent tax has been deducted at source.
The Court observed that despite reiteration of the legal position in 2015 and 2016, the department had failed to rectify the computer system to implement these directions, resulting in inconvenience to the petitioners. It held that the instructions issued under Section 119 of the Act are binding on all officers, including the computer center. Technology cannot be allowed to override statutory provisions and binding instructions.
Accordingly, the High Court quashed and set aside the impugned intimations under Section 143(1) and the consequential demands. The respondents were directed to ensure strict compliance with Section 205 and the CBDT instructions, and to make necessary corrections in the software to prevent demands against deductees where TDS has been deducted but not deposited by the deductor. The department was directed to pass necessary orders giving effect to the judgment and report compliance within four weeks.
Supreme Court Outcome
The Supreme Court, noting that similar directions had already been clarified in a connected matter, dismissed the Special Leave Petition on the ground of delay as well as on merits. Thus, the High Court’s directions quashing the demands and mandating software correction and compliance with Section 205 and CBDT instructions stood undisturbed.
Read HC Judgment in this case: Gayatri Snehal Rao Vs Income Tax Assessing Officer & Ors. (Gujarat High Court)
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
In the present petition the order dated 14th October, 2024 passed by the High Court of Gujarat at Ahmedabad is under challenge. Vide the aforesaid order R/Special Civil Application Nos.5835 of 2024 and 5870 of 2024 were decided.
There is delay of 360 days in filing the present petition.
Learned counsel for the petitioners fairly submitted that common order passed by the High Court with reference to Special Civil Application No.5870 of 2024 was considered by this Court in Civil Appeal No.197 of 2026 (Income Tax Assessing Officer and Ors. v. Shantilal Doshi) and the same was disposed of by this Court’s order dated 12th January, 2026 clarifying the directions given with reference to changes to be made in the software.
In view of the aforesaid directions already issued by this Court, no further order is required to be passed in the present petition. The Special Leave Petition is, accordingly, dismissed on delay as well as on merits.
Pending application, if any, shall also stand disposed of.
Author Bio
