My employer deducted tax from my salary but never paid it over. Can the department recover it from me and adjust my refunds?
No. The Gujarat High Court held that the department cannot deny the benefit of tax deducted at source by the employer, and directed that credit be given for the relevant years. It followed its own Division Bench decision in Sumit Devendra Rajani, which construed section 205 and agreed with the Bombay and Gauhati High Courts that where the deductee produces Form 16A the credit must be given and a demand cannot be sustained. Any recovery or adjustment already made out of later years' refunds was to be returned with statutory interest. The department remains free to recover the tax from the deductor.
Decided by the High Court (High Court of Gujarat at Ahmedabad - Akil Kureshi and B.N. Karia JJ; oral order by Akil Kureshi J) on 2018-09-24, reported as R/Special Civil Application No. 12965 of 2018 with No. 12966 of 2018, High Court of Gujarat. It bears on section 205, section 199, section 221(1), section 245 of the Income Tax Act 1961, in TDS Defaults and Demand, Recovery & Stay matters.
This is the short, clean authority for the bar in section 205: once tax has been deducted at source, the deductee cannot be called upon to pay it again. It matters because the department's usual answer - that the credit does not appear in the system because the deductor defaulted - is beside the point; the statutory bar operates on the fact of deduction, and the remedy lies against the deductor. The relief granted here goes further than a bare quashing of the demand: the Court directed refunds of later years that had already been adjusted to be returned with statutory interest, so an adjustment under the set-off machinery does not put the matter beyond recall. The situation recurs whenever an employer becomes insolvent, as here with an airline that had stopped paying over the deductions.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The petitioner is an individual who at the relevant time was employed as a pilot with Kingfisher Airlines. He filed his return for assessment year 2012-13 on 31 July 2012. During the year his employer deducted tax at source on his salary of Rs 2,68,498 but did not deposit it with the government. The petitioner claimed credit for that deduction against his liability to pay tax. The department objected, raised an equivalent demand with interest, and on 24 April 2015 adjusted a refund of Rs 47,140 due to him for assessment year 2013-14 towards that recovery. The petitioner contended that the department's stand was contrary to the statutory provisions, to the Division Bench decision of the same Court in Sumit Devendra Rajani v Assistant Commissioner of Income-tax, and to the Board's circulars in the field. The basic facts were not in dispute. A second petition raised the same issue for another year.
Both petitions were allowed. The department cannot deny the benefit of the tax deducted at source by the petitioner's employer during the relevant financial years, and credit for that tax is to be given to him for the respective years. If any recovery or adjustment had been made out of the refunds of later years, it was to be returned to the petitioner with statutory interest. The Court treated the issue as no longer res integra, following Sumit Devendra Rajani, in which the Division Bench had examined section 205, concurred with the Bombay and Gauhati High Courts, and held that a refusal to give credit for tax deducted at source where the deductee has produced the deduction certificate, and the consequent demand notice, cannot be sustained; that decision also recorded the clarification that if the department is of the opinion that the deductor has not deposited the tax deducted, it remains open to it to recover the same from the deductor.
The Court identified the short question: where the employer has deducted tax from salary but not deposited it, can the department recover that amount from the employee, or is the employee right that having already suffered the deduction he cannot be pursued because the deductor defaulted. It answered by applying the ratio of Sumit Devendra Rajani, in which the same Court had construed section 205 and adopted the view of the Bombay High Court in Om Prakash Gattani and of the Gauhati High Court. The reasoning of that decision, set out in the passage reproduced, is that on section 205 the assessee deductee is entitled to credit for the tax deducted at source to the extent evidenced by the deduction certificate issued by the deductor, that the action of the department in refusing that credit and the demand notice founded on it cannot be sustained, and that the department's recourse for the unpaid tax is against the deductor. The facts here being very similar, the same result followed, with the additional direction to restore adjusted refunds with statutory interest.
the Department cannot deny the benefit of tax deducted at source by the employer of the petitioner during the relevant financial years
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppNo. The Gujarat High Court held that the department cannot deny the benefit of tax deducted at source by the employer, and directed that credit be given for the relevant years. It followed its own Division Bench decision in Sumit Devendra Rajani, which construed section 205 and agreed with the Bombay and Gauhati High Courts that where the deductee produces Form 16A the credit must be given and a demand cannot be sustained. Any recovery or adjustment already made out of later years' refunds was to be returned with statutory interest. The department remains free to recover the tax from the deductor. This was decided by the High Court (High Court of Gujarat at Ahmedabad - Akil Kureshi and B.N. Karia JJ; oral order by Akil Kureshi J) and bears on section 205, section 199, section 221(1), section 245 of the Income Tax Act 1961. It is reported as R/Special Civil Application No. 12965 of 2018 with No. 12966 of 2018, High Court of Gujarat. This is the short, clean authority for the bar in section 205: once tax has been deducted at source, the deductee cannot be called upon to pay it again. It matters because the department's usual answer - that the credit does not appear in the system because the deductor defaulted - is beside the point; the statutory bar operates on the fact of deduction, and the remedy lies against the deductor. The relief granted here goes further than a bare quashing of the demand: the Court directed refunds of later years that had already been adjusted to be returned with statutory interest, so an adjustment under the set-off machinery does not put the matter beyond recall. The situation recurs whenever an employer becomes insolvent, as here with an airline that had stopped paying over the deductions. If it applies to you, the first step is this: Produce the deduction certificate or salary evidence showing the tax was deducted; that is what the credit turns on, not what appears in the annual tax statement.
The petitioner is an individual who at the relevant time was employed as a pilot with Kingfisher Airlines. He filed his return for assessment year 2012-13 on 31 July 2012. During the year his employer deducted tax at source on his salary of Rs 2,68,498 but did not deposit it with the government. The petitioner claimed credit for that deduction against his liability to pay tax. The department objected, raised an equivalent demand with interest, and on 24 April 2015 adjusted a refund of Rs 47,140 due to him for assessment year 2013-14 towards that recovery. The petitioner contended that the department's stand was contrary to the statutory provisions, to the Division Bench decision of the same Court in Sumit Devendra Rajani v Assistant Commissioner of Income-tax, and to the Board's circulars in the field. The basic facts were not in dispute. A second petition raised the same issue for another year. The matter was decided on 2018-09-24 by the High Court (High Court of Gujarat at Ahmedabad - Akil Kureshi and B.N. Karia JJ; oral order by Akil Kureshi J). On those facts the High Court held as follows. Both petitions were allowed. The department cannot deny the benefit of the tax deducted at source by the petitioner's employer during the relevant financial years, and credit for that tax is to be given to him for the respective years. If any recovery or adjustment had been made out of the refunds of later years, it was to be returned to the petitioner with statutory interest. The Court treated the issue as no longer res integra, following Sumit Devendra Rajani, in which the Division Bench had examined section 205, concurred with the Bombay and Gauhati High Courts, and held that a refusal to give credit for tax deducted at source where the deductee has produced the deduction certificate, and the consequent demand notice, cannot be sustained; that decision also recorded the clarification that if the department is of the opinion that the deductor has not deposited the tax deducted, it remains open to it to recover the same from the deductor.
The Court identified the short question: where the employer has deducted tax from salary but not deposited it, can the department recover that amount from the employee, or is the employee right that having already suffered the deduction he cannot be pursued because the deductor defaulted. It answered by applying the ratio of Sumit Devendra Rajani, in which the same Court had construed section 205 and adopted the view of the Bombay High Court in Om Prakash Gattani and of the Gauhati High Court. The reasoning of that decision, set out in the passage reproduced, is that on section 205 the assessee deductee is entitled to credit for the tax deducted at source to the extent evidenced by the deduction certificate issued by the deductor, that the action of the department in refusing that credit and the demand notice founded on it cannot be sustained, and that the department's recourse for the unpaid tax is against the deductor. The facts here being very similar, the same result followed, with the additional direction to restore adjusted refunds with statutory interest. In the words reproduced by the source cited on this page: "the Department cannot deny the benefit of tax deducted at source by the employer of the petitioner during the relevant financial years"
It was decided by the High Court on 2018-09-24 and is reported as R/Special Civil Application No. 12965 of 2018 with No. 12966 of 2018, High Court of Gujarat. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 205, section 199, section 221(1), 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. Both petitions were allowed. The department cannot deny the benefit of the tax deducted at source by the petitioner's employer during the relevant financial years, and credit for that tax is to be given to him for the respective years. If any recovery or adjustment had been made out of the refunds of later years, it was to be returned to the petitioner with statutory interest. The Court treated the issue as no longer res integra, following Sumit Devendra Rajani, in which the Division Bench had examined section 205, concurred with the Bombay and Gauhati High Courts, and held that a refusal to give credit for tax deducted at source where the deductee has produced the deduction certificate, and the consequent demand notice, cannot be sustained; that decision also recorded the clarification that if the department is of the opinion that the deductor has not deposited the tax deducted, it remains open to it to recover the same from the deductor. It arises in TDS Defaults and Demand, Recovery & Stay matters, on section 205, section 199, section 221(1), section 245 of the Income Tax Act 1961, and was decided by High Court of Gujarat at Ahmedabad - Akil Kureshi and B.N. Karia JJ; oral order by Akil Kureshi J. 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. Take the point under section 205 in terms, and say that the department's remedy is against the deductor. If refunds of other years have already been adjusted against the demand, ask for them back with statutory interest and not merely for the demand to be dropped. Where the deductor has collapsed, do not wait for it to file or correct its returns; move against the demand directly.
Still good law. Eleven citator hits and the judgment is now the settled Gujarat line on section 205. The Gujarat High Court itself applied it in Kartik Vijaysinh Sonavane v DCIT (15 November 2021), holding the point 'no longer res integra', and again in Milan Arvindbhai Patel v ACIT (13 February 2023) on the same Kingfisher Airlines facts. It has been followed by Tribunals well outside Gujarat - Jasjit Singh v ITO (Delhi, 3 March 2021), Shailendra Narendrakumar Minocha v ITO (Mumbai, 26 July 2024) and Vinod Kumar Mourya v DCIT (Delhi, 16 May 2025) - each treating it as authority that where the employer deducted tax but did not deposit it, section 205 bars recovery from the employee and credit must be given as per Form 16. Nothing overruling or doubting it was found and no Supreme Court challenge appears in the citator. 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.
The order is short and does not set out section 205 or the Board's circulars in terms; the statutory reasoning is in Sumit Devendra Rajani, whose relevant paragraphs are reproduced here but which I have not read in full. The Court did not decide what evidence of deduction will suffice where no deduction certificate has been issued at all - the reasoning it adopted is framed around a certificate having been produced. The batch line listed sections 199, 201, 220 and 245; the order itself names none of them, and section 205 is the provision the followed decision construed. The batch line gave no reporter citations, so the petition numbers are used. 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.
Both petitions were allowed. The department cannot deny the benefit of the tax deducted at source by the petitioner's employer during the relevant financial years, and credit for that tax is to be given to him for the respective years. If any recovery or adjustment had been made out of the refunds of later years, it was to be returned to the petitioner with statutory interest. The Court treated the issue as no longer res integra, following Sumit Devendra Rajani, in which the Division Bench had examined section 205, concurred with the Bombay and Gauhati High Courts, and held that a refusal to give credit for tax deducted at source where the deductee has produced the deduction certificate, and the consequent demand notice, cannot be sustained; that decision also recorded the clarification that if the department is of the opinion that the deductor has not deposited the tax deducted, it remains open to it to recover the same from the deductor.
TaxSphere, “Devarsh Pravinbhai Patel v ACIT”, https://taxnotice.vittsphere.com/caselaw/case/devarsh-pravinbhai-patel-v-acit/ (validity last checked 2026-08-29)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
The stay order just says 'pay 20% as per Board's circular'. Is that a decision?
The department is recovering the company's tax from me as a director. I resigned, and an MOU and an arbitral award put the tax liability on another director. Is that a defence under s.179?
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?
My employer deducted TDS but never deposited it. The department has raised a demand on me and set my later refund off against it. Can it do that?
