Nisar Ebrahim Ookabhoy Vs ITO (ITAT Mumbai)
Deductee Can’t Be Penalised for Deductor’s Default: ITAT Mumbai Directs TDS Credit Despite 26AS Mismatch
ITAT Mumbai (SMC Bench) in Nisar Ebrahim Ookabhoy vs ITO (ITA No. 6638/Mum/2025, AY 2020-21, order dated 24.12.2025) has allowed the assessee’s appeal, holding that TDS credit cannot be denied merely because the deductor failed to deposit tax and the credit does not reflect in Form 26AS.
The Assessee had let out a flat under a leave & license agreement providing for 10% TDS on rent. Though the licensee deducted ₹1,47,600, it deposited only ₹36,000, resulting in a short credit of ₹1,11,600 in Form 26AS. CPC denied the credit and raised demand; CIT(A) upheld it, treating the issue as a private dispute between parties.
Reversing this, ITAT held that once deduction of tax at source is established through primary evidence—registered agreement, bank statements showing net receipts after TDS—Section 205 erects a statutory bar on recovery from the deductee. The Tribunal relied on CBDT Instruction No. 275/29/2014 dated 01.06.2015 and Office Memorandum dated 11.03.2016, which bind the Department and direct that no coercive recovery be enforced against the deductee for deductor’s default. Judicial support was drawn from Bombay HC in Yashpal Sahni & Pushkar Prabhat Chandra Jain and Delhi HC in Incredible Unique Buildcon.
The Tribunal clarified that Section 199 must be read harmoniously with Section 205: while s.199 governs the mechanics of credit, s.205 prevents double taxation when the ordinary course fails due to deductor’s non-compliance. Form 26AS is not decisive; substance prevails over form.
Direction: AO to verify primary evidence and allow full TDS credit, leaving the Department to proceed against the defaulting deductor u/s 200/201.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
