Is there anything binding on the assessing officer that stops him enforcing a demand caused by my deductor's failure to deposit?
Yes. The Board told field officers in terms that s.205 bars a direct demand where tax has been deducted from the assessee's income, and that a demand on account of tax credit mismatch cannot be enforced coercively. It had to say it twice — the 2016 Office Memorandum was issued because officers were not following the 2015 letter.
Decided by the CBDT Circulars & Instructions (Central Board of Direct Taxes, Ministry of Finance, Government of India) on 2015-06-01, reported as Instruction No. 275/29/2014-IT-(B), dated 1 June 2015; Office Memorandum F.No. 275/29/2014-IT(B), dated 11 March 2016. It bears on section 205, section 199, section 220, section 245 of the Income Tax Act 1961, in TDS Defaults, Demand, Recovery & Stay and Refunds, Interest & Condonation matters.
A Board instruction of this kind binds the officer even where he thinks the section reads differently, and it removes the argument that the officer has no choice because the system has generated the demand. It is also the document the High Courts have quoted when quashing recovery and refund adjustments, so it is worth putting on record before you ever get to a writ.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Taxpayers whose deductors had deducted tax but not paid it into the Central Government account were being met with demands generated by the credit mismatch, and those demands were being enforced and set off against refunds. The Board addressed field formations on the point in June 2015 and, because the direction was not being followed, reiterated it by Office Memorandum in March 2016.
By the Instruction of 1 June 2015 the Board directed that, although section 199 gives credit for tax deducted only where it has reached the Central Government account, section 205 provides that the assessee shall not be called upon to pay the tax to the extent it has been deducted from his income where the tax was deductible under Chapter XVII; so the Act itself bars a direct demand and the demand on account of tax credit mismatch cannot be enforced coercively. Commissioners were asked to bring this to the notice of all Assessing Officers in their region so that, where the facts justify it, assessees are not put to inconvenience by the deductor's default. It issued with the approval of the Chairperson, CBDT. By the Office Memorandum of 11 March 2016 the Board recorded that these directions were not being strictly followed by field officers, reiterated the instruction, and directed Assessing Officers not to enforce demands created on account of mismatch of credit due to non-payment of the deducted tax to the Government by the deductor. It issued with the approval of Member (Revenue & TPS).
The Board's route is short. Section 199 conditions credit on the tax reaching the Central Government account; section 205 bars calling upon the assessee to pay tax to the extent it has been deducted from his income. The Board read the second as controlling the consequence of the first, so a mismatch demand may stand on the system but may not be enforced against the deductee. Note where the courts have gone further. In Sanjay Sudan v. ACIT the Delhi High Court held that adjusting such a demand against a future refund is an indirect recovery and is itself barred by section 205, and said in terms that the instruction, in providing only that no coercive measure will be taken, falls short of what the legislature put in place by section 205. That is the answer to the department's usual position that the demand simply remains outstanding and cannot be effaced.
Thus the Act puts a bar on direct demand against the assessee in such cases and the demand on account of tax credit mismatch cannot be enforced coercively.
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Handle my notice → Ask a CA on WhatsAppYes. The Board told field officers in terms that s.205 bars a direct demand where tax has been deducted from the assessee's income, and that a demand on account of tax credit mismatch cannot be enforced coercively. It had to say it twice — the 2016 Office Memorandum was issued because officers were not following the 2015 letter. This was decided by the CBDT Circulars & Instructions (Central Board of Direct Taxes, Ministry of Finance, Government of India) and bears on section 205, section 199, section 220, section 245 of the Income Tax Act 1961. It is reported as Instruction No. 275/29/2014-IT-(B), dated 1 June 2015; Office Memorandum F.No. 275/29/2014-IT(B), dated 11 March 2016. A Board instruction of this kind binds the officer even where he thinks the section reads differently, and it removes the argument that the officer has no choice because the system has generated the demand. It is also the document the High Courts have quoted when quashing recovery and refund adjustments, so it is worth putting on record before you ever get to a writ. If it applies to you, the first step is this: Quote paragraph 2 of the 1 June 2015 letter in your reply to the demand or the s.245 intimation — it concedes the s.199 point and then says the bar in s.205 still applies.
Taxpayers whose deductors had deducted tax but not paid it into the Central Government account were being met with demands generated by the credit mismatch, and those demands were being enforced and set off against refunds. The Board addressed field formations on the point in June 2015 and, because the direction was not being followed, reiterated it by Office Memorandum in March 2016. The matter was decided on 2015-06-01 by the CBDT Circulars & Instructions (Central Board of Direct Taxes, Ministry of Finance, Government of India). On those facts the CBDT Circulars & Instructions held as follows. By the Instruction of 1 June 2015 the Board directed that, although section 199 gives credit for tax deducted only where it has reached the Central Government account, section 205 provides that the assessee shall not be called upon to pay the tax to the extent it has been deducted from his income where the tax was deductible under Chapter XVII; so the Act itself bars a direct demand and the demand on account of tax credit mismatch cannot be enforced coercively. Commissioners were asked to bring this to the notice of all Assessing Officers in their region so that, where the facts justify it, assessees are not put to inconvenience by the deductor's default. It issued with the approval of the Chairperson, CBDT. By the Office Memorandum of 11 March 2016 the Board recorded that these directions were not being strictly followed by field officers, reiterated the instruction, and directed Assessing Officers not to enforce demands created on account of mismatch of credit due to non-payment of the deducted tax to the Government by the deductor. It issued with the approval of Member (Revenue & TPS).
The Board's route is short. Section 199 conditions credit on the tax reaching the Central Government account; section 205 bars calling upon the assessee to pay tax to the extent it has been deducted from his income. The Board read the second as controlling the consequence of the first, so a mismatch demand may stand on the system but may not be enforced against the deductee. Note where the courts have gone further. In Sanjay Sudan v. ACIT the Delhi High Court held that adjusting such a demand against a future refund is an indirect recovery and is itself barred by section 205, and said in terms that the instruction, in providing only that no coercive measure will be taken, falls short of what the legislature put in place by section 205. That is the answer to the department's usual position that the demand simply remains outstanding and cannot be effaced. In the words reproduced by the source cited on this page: "Thus the Act puts a bar on direct demand against the assessee in such cases and the demand on account of tax credit mismatch cannot be enforced coercively."
It was decided by the CBDT Circulars & Instructions on 2015-06-01 and is reported as Instruction No. 275/29/2014-IT-(B), dated 1 June 2015; Office Memorandum F.No. 275/29/2014-IT(B), dated 11 March 2016. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 205, section 199, section 220, section 245, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. By the Instruction of 1 June 2015 the Board directed that, although section 199 gives credit for tax deducted only where it has reached the Central Government account, section 205 provides that the assessee shall not be called upon to pay the tax to the extent it has been deducted from his income where the tax was deductible under Chapter XVII; so the Act itself bars a direct demand and the demand on account of tax credit mismatch cannot be enforced coercively. Commissioners were asked to bring this to the notice of all Assessing Officers in their region so that, where the facts justify it, assessees are not put to inconvenience by the deductor's default. It issued with the approval of the Chairperson, CBDT. By the Office Memorandum of 11 March 2016 the Board recorded that these directions were not being strictly followed by field officers, reiterated the instruction, and directed Assessing Officers not to enforce demands created on account of mismatch of credit due to non-payment of the deducted tax to the Government by the deductor. It issued with the approval of Member (Revenue & TPS). It arises in TDS Defaults, Demand, Recovery & Stay and Refunds, Interest & Condonation matters, on section 205, section 199, section 220, section 245 of the Income Tax Act 1961, and was decided by Central Board of Direct Taxes, Ministry of Finance, Government of India. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Point to the 11 March 2016 Office Memorandum as well, since its existence is itself evidence that non-compliance by officers was already a known problem. Ask for the demand to be kept out of enforcement and out of any refund adjustment, not merely for it to be 'noted'. Put the evidence of deduction on the file at the same time — the instruction operates 'if the facts of the case so justify'.
Still good law. Both instruments are carried in full in the database with no amendment, corrigendum or withdrawal noted on either. They have been applied by the courts. In Sanjay Sudan v. ACIT [2023] 148 taxmann.com 329 / [2023] 292 Taxman 138 / [2023] 452 ITR 107 (Delhi), decided 17 February 2023, the High Court extracted paragraph 2 of the 1 June 2015 instruction, held that the deductee cannot be called upon to pay tax deducted at source from his income, quashed the demand notice, and held further that the revenue could not adjust the demand against a refund for another year because that would be an indirect recovery barred by section 205 - adding that the instruction, in speaking only of coercive measures, falls short of the section (paras 8 to 11). A line of Delhi decisions follows it, including Incredible Unique Buildcon (P.) Ltd. v. ITO [2023] 153 taxmann.com 179 and [2023] 155 taxmann.com 603, Chintan Bindra v. Dy. CIT [2024] 158 taxmann.com 27, Satwant Singh Sanghera v. ACIT [2024] 167 taxmann.com 713 and Latha Viswanathan v. ACIT [2025] 172 taxmann.com 741, with Madhusmita Avinash Patnaik v. Dy. CIT [2024] 168 taxmann.com 471 (Gujarat) to like effect. Two limits on that picture. Mridul Raj Kunnon v. CIT [2025] 174 taxmann.com 164 (Kerala) is reported in favour of revenue on the same question and has not been examined here, so a practitioner relying on an unbroken line of authority should read it first. The Orissa decision in Malay Kar v. UOI, mentioned in an earlier note on this entry, has not been established and nothing is attributed to it. Neither instrument has been tested against a case where the deduction itself is disputed, so the protection assumes that deduction from the assessee's income can be shown. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
THREE THINGS TO CARRY WITH THESE TWO INSTRUMENTS. The 2016 memorandum is not a mere restatement: it records that the Board's own field officers were not following the 2015 direction, which is why it exists and why it is worth attaching to a representation. An officer who says he is bound by the system rather than by the instruction is answered by the memorandum itself. The two instruments carry different levels of approval — the 2015 instruction issued with the approval of the Chairperson, CBDT, the 2016 memorandum with the approval of Member (Revenue & TPS) — which is worth knowing if their standing is questioned, because both are Board directions to subordinate authorities. And the instruction is narrower than the section it rests on: the Delhi High Court in Sanjay Sudan v. ACIT held that stopping at 'no coercive measures' falls short of section 205, and that setting off the mismatch demand against a refund for another year is an indirect recovery which the section forbids. Where a refund has been adjusted, cite the section and that decision, not the instruction alone. WHAT THE INSTRUMENTS DO NOT SAY, AND WHY IT MATTERS IN PRACTICE. Neither of them grants credit. Section 199 gives credit only where the tax has reached the Central Government account, and the Board's direction leaves that untouched; what it does is keep the resulting demand out of enforcement. That distinction is the one to plead: ask for the demand to be kept out of recovery and out of any adjustment under section 245, and separately ask for credit under section 199 on the evidence of deduction, rather than running the two together. Neither instrument says what evidence the officer must accept, and the department's practical answer, as recorded in Sanjay Sudan, is that the amount should appear in Form 26AS; where it does not, the salary slips, the Form 16 or 16A and the bank statements showing the net receipt are what the file needs, and they should go in at the same time, because the direction operates only 'if the facts of the case so justify'. A LAST POINT ON DURATION. Nothing in either instrument says how long the demand may sit on the system unenforced, or what happens to interest under section 220(2) while it does. That is the gap a deductee feels every year the demand reappears, and it is a reason to press for the demand to be deleted on the merits rather than merely parked. Neither instrument says what evidence of deduction the officer must accept - in practice the department's answer, as recorded in Sanjay Sudan, is that the amount must appear in Form 26AS - nor what is to be done about the defaulting deductor, nor whether credit under section 199, as distinct from freedom from recovery, must be granted in the deductee's assessment. Neither deals with interest under section 220(2) on the demand while it sits unenforced, nor with how long the demand may remain on the system. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
By the Instruction of 1 June 2015 the Board directed that, although section 199 gives credit for tax deducted only where it has reached the Central Government account, section 205 provides that the assessee shall not be called upon to pay the tax to the extent it has been deducted from his income where the tax was deductible under Chapter XVII; so the Act itself bars a direct demand and the demand on account of tax credit mismatch cannot be enforced coercively. Commissioners were asked to bring this to the notice of all Assessing Officers in their region so that, where the facts justify it, assessees are not put to inconvenience by the deductor's default. It issued with the approval of the Chairperson, CBDT. By the Office Memorandum of 11 March 2016 the Board recorded that these directions were not being strictly followed by field officers, reiterated the instruction, and directed Assessing Officers not to enforce demands created on account of mismatch of credit due to non-payment of the deducted tax to the Government by the deductor. It issued with the approval of Member (Revenue & TPS).
TaxSphere, “CBDT Office Memoranda of 1 June 2015 and 11 March 2016 — TDS credit mismatch”, https://taxnotice.vittsphere.com/caselaw/case/cbdt-om-275-29-2014-tds-credit-mismatch-no-coercive-recovery/ (validity last checked 2026-08-20)
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My employer deducted tax from my salary but never paid it over. Can the department recover it from me and adjust my refunds?
My employer deducted tax but never deposited it, so the credit was denied on processing, a demand now sits on the portal and my later years' refunds are being eaten by it. Do I get the credit and the refund, or only a promise that nobody will recover from me?
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