My employer deducted TDS from my salary and never deposited it. The portal shows nothing in 26AS, I do not even have Form 16 for one of the years, and the department has adjusted my later refunds against the demand. Can they do that?
No. Where the employer has in fact deducted the tax, the department is precluded from denying the deductee credit for it, and any recovery or adjustment already made must be refunded with statutory interest. The absence of the entry in the departmental system, and the absence of a Form 16 for one of the years, were both raised by the Revenue and neither saved the demand.
Decided by the High Court (Sonia Gokani J and Nisha M. Thakore J) on 2021-11-15, reported as R/Special Civil Application No. 6193 of 2021 (High Court of Gujarat at Ahmedabad). It bears on section 205, section 199, section 201, section 154 of the Income Tax Act 1961, in TDS Defaults, Demand, Recovery & Stay and Refunds, Interest & Condonation matters.
This is the Kingfisher Airlines pilot line of cases, and it is the answer to the standard departmental reply that 'the system will not allow credit unless the deductor has deposited'. The Court treated that as an internal difficulty of the department, not a legal answer to the deductee, and expressly recorded that the department's remedy is against the deductor. Note the limit: the decision rests on the deduction being an admitted fact. Where deduction itself is disputed, the assessee still has to prove it, and Form 16/16A or salary slips showing the net payment are how that is done. Note also the older Gauhati decision in Om Prakash Gattani, which barred recovery on the same s.205 reasoning but held that credit under s.199 could lawfully be withheld until the deductor deposited; expect the department to cite it, and answer it with this later line of authority rather than by misreading it.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner was a pilot employed by Kingfisher Airlines. The airline deducted tax at source of Rs.7,20,100 for AY 2009-10 and Rs.8,70,757 for AY 2011-12 from his salary and did not deposit either sum in the Central Government account. He filed returns for both years claiming those amounts as tax paid. Credit was refused, demands were raised with interest, and recovery notices were issued on 19 November 2013, 21 August 2014 and 22 December 2015. On 12 December 2019 a sum of Rs.89,960 was adjusted against the AY 2019-20 demand. He filed applications under s.154 for both years and repeated requests to cancel the demand, all of which went unanswered, and then moved the High Court under Article 226. In its affidavit-in-reply the department said the petition was barred by delay, that Kingfisher Airlines was a necessary party, that the petitioner had not even produced Form 16 for AY 2011-12, and that its own system would not permit credit where the deductor had not deposited the tax.
The petition was allowed. The department is precluded from denying the deductee the benefit of tax deducted at source by his employer for the relevant financial years. Credit is to be given to the petitioner, and any recovery or adjustment made in the interregnum is to be refunded with statutory interest within eight weeks. The Court recorded that proceedings had been initiated against the employer (paras 9 to 12).
The Court held the point was no longer res integra, being covered by its own decision in Devarsh Pravinbhai Patel v. ACIT (SCA Nos. 12965 and 12966 of 2018, decided 24 September 2018), which arose on materially identical facts - another Kingfisher pilot whose salary TDS had not been deposited (para 7). Devarsh in turn followed the Gujarat High Court's decision in Sumit Devendra Rajani, which had concurred with the view taken in Om Prakash Gattani (cited in the extract as a Bombay decision though it is Gauhati) and held that, having regard to s.205, the refusal of credit and the consequent demand notice could not be sustained, while leaving the department free to recover from the deductor. The Court then set out at length paras 13 to 16 of the Gauhati High Court's decision in Om Prakash Gattani, which reason from the deductee's want of any control over the deductor to the conclusion that recovery must be pursued against the deductor as an assessee in default under s.201 and not against the deductee (para 8). On facts being almost identical, no separate reasoning was thought necessary (para 9).
The department is precluded from denying the benefit of the tax deducted at source by the employer during the relevant financial years to the petitioner.
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Handle my notice → Ask a CA on WhatsAppNo. Where the employer has in fact deducted the tax, the department is precluded from denying the deductee credit for it, and any recovery or adjustment already made must be refunded with statutory interest. The absence of the entry in the departmental system, and the absence of a Form 16 for one of the years, were both raised by the Revenue and neither saved the demand. This was decided by the High Court (Sonia Gokani J and Nisha M. Thakore J) and bears on section 205, section 199, section 201, section 154 of the Income Tax Act 1961. It is reported as R/Special Civil Application No. 6193 of 2021 (High Court of Gujarat at Ahmedabad). This is the Kingfisher Airlines pilot line of cases, and it is the answer to the standard departmental reply that 'the system will not allow credit unless the deductor has deposited'. The Court treated that as an internal difficulty of the department, not a legal answer to the deductee, and expressly recorded that the department's remedy is against the deductor. Note the limit: the decision rests on the deduction being an admitted fact. Where deduction itself is disputed, the assessee still has to prove it, and Form 16/16A or salary slips showing the net payment are how that is done. Note also the older Gauhati decision in Om Prakash Gattani, which barred recovery on the same s.205 reasoning but held that credit under s.199 could lawfully be withheld until the deductor deposited; expect the department to cite it, and answer it with this later line of authority rather than by misreading it. If it applies to you, the first step is this: Assemble proof that deduction actually happened - Form 16/16A if you have it, and failing that salary slips or bank credits showing salary received net of tax, plus the employer's own TDS return acknowledgements if obtainable.
The petitioner was a pilot employed by Kingfisher Airlines. The airline deducted tax at source of Rs.7,20,100 for AY 2009-10 and Rs.8,70,757 for AY 2011-12 from his salary and did not deposit either sum in the Central Government account. He filed returns for both years claiming those amounts as tax paid. Credit was refused, demands were raised with interest, and recovery notices were issued on 19 November 2013, 21 August 2014 and 22 December 2015. On 12 December 2019 a sum of Rs.89,960 was adjusted against the AY 2019-20 demand. He filed applications under s.154 for both years and repeated requests to cancel the demand, all of which went unanswered, and then moved the High Court under Article 226. In its affidavit-in-reply the department said the petition was barred by delay, that Kingfisher Airlines was a necessary party, that the petitioner had not even produced Form 16 for AY 2011-12, and that its own system would not permit credit where the deductor had not deposited the tax. The matter was decided on 2021-11-15 by the High Court (Sonia Gokani J and Nisha M. Thakore J). On those facts the High Court held as follows. The petition was allowed. The department is precluded from denying the deductee the benefit of tax deducted at source by his employer for the relevant financial years. Credit is to be given to the petitioner, and any recovery or adjustment made in the interregnum is to be refunded with statutory interest within eight weeks. The Court recorded that proceedings had been initiated against the employer (paras 9 to 12).
The Court held the point was no longer res integra, being covered by its own decision in Devarsh Pravinbhai Patel v. ACIT (SCA Nos. 12965 and 12966 of 2018, decided 24 September 2018), which arose on materially identical facts - another Kingfisher pilot whose salary TDS had not been deposited (para 7). Devarsh in turn followed the Gujarat High Court's decision in Sumit Devendra Rajani, which had concurred with the view taken in Om Prakash Gattani (cited in the extract as a Bombay decision though it is Gauhati) and held that, having regard to s.205, the refusal of credit and the consequent demand notice could not be sustained, while leaving the department free to recover from the deductor. The Court then set out at length paras 13 to 16 of the Gauhati High Court's decision in Om Prakash Gattani, which reason from the deductee's want of any control over the deductor to the conclusion that recovery must be pursued against the deductor as an assessee in default under s.201 and not against the deductee (para 8). On facts being almost identical, no separate reasoning was thought necessary (para 9). In the words reproduced by the source cited on this page: "The department is precluded from denying the benefit of the tax deducted at source by the employer during the relevant financial years to the petitioner." The decision followed or applied Devarsh Pravinbhai Patel v. ACIT, SCA No. 12965 of 2018 (Guj.), decided 24 September 2018 - followed; Sumit Devendra Rajani (Guj.) - relied on through the extract in Devarsh; ACIT v. Om Prakash Gattani [2000] 242 ITR 638 - relied on and extensively reproduced.
It was decided by the High Court on 2021-11-15 and is reported as R/Special Civil Application No. 6193 of 2021 (High Court of Gujarat at Ahmedabad). 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 201, section 154, 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. The petition was allowed. The department is precluded from denying the deductee the benefit of tax deducted at source by his employer for the relevant financial years. Credit is to be given to the petitioner, and any recovery or adjustment made in the interregnum is to be refunded with statutory interest within eight weeks. The Court recorded that proceedings had been initiated against the employer (paras 9 to 12). It arises in TDS Defaults, Demand, Recovery & Stay and Refunds, Interest & Condonation matters, on section 205, section 199, section 201, section 154 of the Income Tax Act 1961, and was decided by Sonia Gokani J and Nisha M. Thakore 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. Write to the Assessing Officer under s.205 asking that the demand be cancelled and that recovery be confined to the deductor under s.201; a s.154 application and, if that fails, a revision under s.264 are the paper trail the Court expects to see. Ask separately for refund of every amount already adjusted against later years' refunds, with statutory interest - that head of relief has to be claimed, it is not automatic. If the department still refuses, a writ petition is the practical remedy; both the Gujarat decisions in this line came by way of Article 226 after the s.154 route was ignored. Put the CBDT Office Memoranda on non-enforcement of demand in a 26AS mismatch case on record along with s.205; the two together are stronger than either alone.
Still good law. The decision follows an unbroken Gujarat line (Sumit Devendra Rajani, Devarsh Pravinbhai Patel), and the same result has since been reached by the Delhi High Court in Sanjay Sudan and the Bombay High Court in the Manohar Jhunjhunwala batch, both already in this library. It relies on the Gauhati decision in Om Prakash Gattani, but only on the s.205 limb: Gattani itself declined to direct credit and expressly upheld the Assessing Officer's note withholding credit until the tax reached the treasury (paras 15 and 16), so on the credit limb this judgment departs from Gattani rather than following it, and that limb is not settled between High Courts. No later decision doubting this judgment was located, but a full citator check was NOT carried out. 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.
Para 7 of the judgment describes Assistant Commissioner of Income Tax v. Om Prakash Gattani (2000) 242 ITR 638 as a decision of 'the Bombay High Court'. It is a decision of the Gauhati High Court, and para 8 of the same judgment correctly calls it Gauhati. Read the report with that slip in mind. The judgment reproduces the extract from Devarsh Pravinbhai Patel, which in turn reproduces the Gujarat High Court's own earlier decision in Sumit Devendra Rajani; the Rs.7,20,100 figure relates to AY 2009-10 and Rs.8,70,757 to AY 2011-12. 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.
The petition was allowed. The department is precluded from denying the deductee the benefit of tax deducted at source by his employer for the relevant financial years. Credit is to be given to the petitioner, and any recovery or adjustment made in the interregnum is to be refunded with statutory interest within eight weeks. The Court recorded that proceedings had been initiated against the employer (paras 9 to 12).
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