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?
You get the credit and the refund, not merely a bar on recovery. A Division Bench of the Bombay High Court, hearing a batch of such petitions with the assistance of an amicus, held that where an assessee establishes that tax was in fact deducted at source, the Department must grant appropriate TDS credit and cannot recover the corresponding amount from the deductee directly or indirectly, that the consequential relief including refund must follow, and that pending disposal of a credit application the demand must be marked in the system as stayed or not recoverable so that no coercive recovery or refund adjustment takes place.
Decided by the High Court (B. P. Colabawalla J and Firdosh P. Pooniwalla J) on 2026-08-05, reported as Writ Petition No. 2063 of 2025 with Writ Petition Nos. 1480 and 1481 of 2025, Writ Petition (L) Nos. 20749, 20750, 30175, 30190, 30365, 30376, 31169, 31258, 31429, 31460, 35206 and 40158 of 2025, and Writ Petition Nos. 10325 of 2023, 8927 of 2025, 8929 of 2025 and 13623 of 2025 (Bombay High Court). It bears on section 199, section 205, section 203, section 245, section 143(1) of the Income Tax Act 1961, in TDS Defaults, Refunds, Interest & Condonation, Demand, Recovery & Stay and Evidence & Burden of Proof matters.
The library already carries Sanjay Sudan and the CBDT office memoranda on TDS credit mismatch, but those stop at the section 205 bar on recovery. This decision goes past that to the question the assessee actually cares about — the money — and holds that the relief is credit under section 199 with the refund that follows, not a standing instruction not to recover. That distinction is the whole practical difference between a demand parked on the portal that quietly swallows every later refund under section 245, and a cheque. The second reason this matters is proof: the Court held that where the amount is not in Form 26AS and no Form 16 or 16A is available, the claim cannot be rejected on that ground alone, and set out an illustrative catalogue of what will do instead — salary slips showing gross salary, deduction and net, appointment letters read with bank statements, payroll workings, invoices or fee memos with bank statements showing receipt of the net amount, payment advices, ledgers, payer confirmations, interest and dividend advices, insolvency claims, and any admission by the deductor in books, correspondence, affidavit or balance sheet note. It also held that the absence of any direct document from the deductor cannot by itself defeat the claim, because the deductor may be hostile, closed, insolvent or simply gone. The third reason is the procedure at paragraph 76, which is a checklist an assessee can hold the Assessing Officer to. The limits: it is a High Court decision binding in Maharashtra and Goa and persuasive elsewhere; it does not decide that a demand must be deleted before verification, only that it must be kept in abeyance and marked so it cannot trigger adjustment; and the relief in the batch itself was a remand for fresh consideration after verification, not an immediate direction to pay.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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A batch of writ petitions was heard together. The petitioners were salaried employees or assessees whose receipts had suffered deduction of tax at source. Tax had in fact been deducted from their income or payments, but the deductors had failed to deposit it with the Central Government or had failed to file proper TDS statements, with the result that the Department denied credit for the deduction and raised demands against the deductees. Because the demands remained live on the portal, refunds of later years were being adjusted against them, and interest continued to run. The petitioners complained that even after applying for credit the demand continued to be displayed and adjustments continued. Certain decisions had been pressed before the Court as showing a friction between sections 199 and 205, and because the batch raised recurring questions of considerable importance the Court heard the matters in detail with Mr J. D. Mistri, Senior Advocate, and Advocate Harsh Kothari appearing as amici curiae. The Court framed two issues: whether credit of TDS deducted but not paid by the deductor is to be allowed under section 199 or whether the Department should merely be directed not to recover the demand under section 205; and what constitutes sufficient proof of deduction in the absence of Form 16 and Form 16A.
The petitions were allowed. On the first issue, where tax has in fact been deducted at source from the income or payment of an assessee, the Department cannot deny the deductee credit merely because the deductor failed to deposit the amount, and on verification appropriate TDS credit must be granted and the corresponding demand cannot be enforced or continued against the deductee; the consequential relief flowing from the grant of credit, including refund, must follow (paras 61 and 78(i)). On the second issue, in the absence of Form 16 or Form 16A or similar forms, deduction may be established by other cogent material such as salary slips, bank statements, payment advices, ledgers, invoices, rent records, correspondence and insolvency claims, and the absence of the formal certificate is not by itself fatal (para 78(ii)). A claim cannot be rejected solely because the amount is not reflected in Form 26AS and no certificate is available (para 66), and the absence of direct evidence from the deductor cannot be the sole basis of rejection (para 72). On receipt of such an application the Assessing Officer must register and acknowledge it, keep the corresponding demand in abeyance under section 205, mark the demand in the system as stayed, not recoverable or kept in abeyance so that no coercive recovery or refund adjustment takes place, undertake factual verification, and pass a reasoned order as expeditiously as possible and preferably within six months, with all remedies preserved to a dissatisfied assessee (para 76). The impugned orders and intimations were set aside to the extent they raised a demand on account of TDS deducted but not paid, and the matters were remanded to the respective Assessing Officers for fresh consideration, with a direction to verify the claims, grant credit including issue of refund, and rectify, correct or delete the demands (paras 79 and 80).
The Court treated the supposed friction between sections 199 and 205 as resolved in favour of granting credit rather than merely restraining recovery, because a bare restraint leaves the demand alive on the portal, exposes later refunds to adjustment and lets interest run — the very grievance the petitioners had proved (paras 11, 23, 50 and 75). On proof, the Court traced the change wrought by the electronic system: the sequence is now deduction, payment by challan, filing of the statement, and generation of Form 16 or 16A through the electronic mechanism, so that in a compliant case the amount reflects in Form 26AS and the certificate has become less important as evidence, which in turn reduces the significance of section 203 (paras 62 to 65). It followed that in the very case where the system has failed — the deductor has not paid or not filed — the assessee cannot be required to produce the artefact that the failed system would have generated (paras 66 and 74). The Court then set out, on suggestions from the parties, an illustrative and non-exhaustive catalogue of acceptable evidence for salary cases, non-salary cases and interest or dividend cases, together with common corroborative material including departmental communications, insolvency claims and any admission by the deductor in books, correspondence, affidavit, balance sheet note or proceedings (paras 67 to 71). It held that the absence of any document from the deductor cannot be decisive, since hostility, closure, insolvency, disappearance of management or deliberate non-cooperation may explain it, and that once prima facie material is produced the burden shifts to the Department to satisfy itself, if necessary by inquiry with the deductor, with the TDS officer having jurisdiction over the deductor, or with the resolution professional or liquidator (paras 72 and 73). Finally the Court accepted the specific grievance that the demand continued to show and refunds continued to be adjusted even after an application was made, and framed the six-step procedure at paragraph 76 to close that gap, clarifying at paragraph 77 that although the initial denial of credit in a section 143(1) intimation may be mechanical because processing is statement-driven, once a supported application is received the Department must move beyond the mechanical mismatch and adjudicate.
Accordingly, we answer issue No. (i) by holding that where an Assessee is able to establish that tax was in fact deducted at source from his income or payment, the Department must grant appropriate TDS credit and cannot recover, directly or indirectly, the corresponding amount from the deductee.
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Handle my notice → Ask a CA on WhatsAppYou get the credit and the refund, not merely a bar on recovery. A Division Bench of the Bombay High Court, hearing a batch of such petitions with the assistance of an amicus, held that where an assessee establishes that tax was in fact deducted at source, the Department must grant appropriate TDS credit and cannot recover the corresponding amount from the deductee directly or indirectly, that the consequential relief including refund must follow, and that pending disposal of a credit application the demand must be marked in the system as stayed or not recoverable so that no coercive recovery or refund adjustment takes place. This was decided by the High Court (B. P. Colabawalla J and Firdosh P. Pooniwalla J) and bears on section 199, section 205, section 203, section 245, section 143(1) of the Income Tax Act 1961. It is reported as Writ Petition No. 2063 of 2025 with Writ Petition Nos. 1480 and 1481 of 2025, Writ Petition (L) Nos. 20749, 20750, 30175, 30190, 30365, 30376, 31169, 31258, 31429, 31460, 35206 and 40158 of 2025, and Writ Petition Nos. 10325 of 2023, 8927 of 2025, 8929 of 2025 and 13623 of 2025 (Bombay High Court). The library already carries Sanjay Sudan and the CBDT office memoranda on TDS credit mismatch, but those stop at the section 205 bar on recovery. This decision goes past that to the question the assessee actually cares about — the money — and holds that the relief is credit under section 199 with the refund that follows, not a standing instruction not to recover. That distinction is the whole practical difference between a demand parked on the portal that quietly swallows every later refund under section 245, and a cheque. The second reason this matters is proof: the Court held that where the amount is not in Form 26AS and no Form 16 or 16A is available, the claim cannot be rejected on that ground alone, and set out an illustrative catalogue of what will do instead — salary slips showing gross salary, deduction and net, appointment letters read with bank statements, payroll workings, invoices or fee memos with bank statements showing receipt of the net amount, payment advices, ledgers, payer confirmations, interest and dividend advices, insolvency claims, and any admission by the deductor in books, correspondence, affidavit or balance sheet note. It also held that the absence of any direct document from the deductor cannot by itself defeat the claim, because the deductor may be hostile, closed, insolvent or simply gone. The third reason is the procedure at paragraph 76, which is a checklist an assessee can hold the Assessing Officer to. The limits: it is a High Court decision binding in Maharashtra and Goa and persuasive elsewhere; it does not decide that a demand must be deleted before verification, only that it must be kept in abeyance and marked so it cannot trigger adjustment; and the relief in the batch itself was a remand for fresh consideration after verification, not an immediate direction to pay. If it applies to you, the first step is this: Make a written application to the jurisdictional Assessing Officer for credit of the TDS, attaching the primary evidence of deduction; do not simply file a grievance on the portal, because the directions at paragraph 76 are triggered by an application supported by prima facie material.
A batch of writ petitions was heard together. The petitioners were salaried employees or assessees whose receipts had suffered deduction of tax at source. Tax had in fact been deducted from their income or payments, but the deductors had failed to deposit it with the Central Government or had failed to file proper TDS statements, with the result that the Department denied credit for the deduction and raised demands against the deductees. Because the demands remained live on the portal, refunds of later years were being adjusted against them, and interest continued to run. The petitioners complained that even after applying for credit the demand continued to be displayed and adjustments continued. Certain decisions had been pressed before the Court as showing a friction between sections 199 and 205, and because the batch raised recurring questions of considerable importance the Court heard the matters in detail with Mr J. D. Mistri, Senior Advocate, and Advocate Harsh Kothari appearing as amici curiae. The Court framed two issues: whether credit of TDS deducted but not paid by the deductor is to be allowed under section 199 or whether the Department should merely be directed not to recover the demand under section 205; and what constitutes sufficient proof of deduction in the absence of Form 16 and Form 16A. The matter was decided on 2026-08-05 by the High Court (B. P. Colabawalla J and Firdosh P. Pooniwalla J). On those facts the High Court held as follows. The petitions were allowed. On the first issue, where tax has in fact been deducted at source from the income or payment of an assessee, the Department cannot deny the deductee credit merely because the deductor failed to deposit the amount, and on verification appropriate TDS credit must be granted and the corresponding demand cannot be enforced or continued against the deductee; the consequential relief flowing from the grant of credit, including refund, must follow (paras 61 and 78(i)). On the second issue, in the absence of Form 16 or Form 16A or similar forms, deduction may be established by other cogent material such as salary slips, bank statements, payment advices, ledgers, invoices, rent records, correspondence and insolvency claims, and the absence of the formal certificate is not by itself fatal (para 78(ii)). A claim cannot be rejected solely because the amount is not reflected in Form 26AS and no certificate is available (para 66), and the absence of direct evidence from the deductor cannot be the sole basis of rejection (para 72). On receipt of such an application the Assessing Officer must register and acknowledge it, keep the corresponding demand in abeyance under section 205, mark the demand in the system as stayed, not recoverable or kept in abeyance so that no coercive recovery or refund adjustment takes place, undertake factual verification, and pass a reasoned order as expeditiously as possible and preferably within six months, with all remedies preserved to a dissatisfied assessee (para 76). The impugned orders and intimations were set aside to the extent they raised a demand on account of TDS deducted but not paid, and the matters were remanded to the respective Assessing Officers for fresh consideration, with a direction to verify the claims, grant credit including issue of refund, and rectify, correct or delete the demands (paras 79 and 80).
The Court treated the supposed friction between sections 199 and 205 as resolved in favour of granting credit rather than merely restraining recovery, because a bare restraint leaves the demand alive on the portal, exposes later refunds to adjustment and lets interest run — the very grievance the petitioners had proved (paras 11, 23, 50 and 75). On proof, the Court traced the change wrought by the electronic system: the sequence is now deduction, payment by challan, filing of the statement, and generation of Form 16 or 16A through the electronic mechanism, so that in a compliant case the amount reflects in Form 26AS and the certificate has become less important as evidence, which in turn reduces the significance of section 203 (paras 62 to 65). It followed that in the very case where the system has failed — the deductor has not paid or not filed — the assessee cannot be required to produce the artefact that the failed system would have generated (paras 66 and 74). The Court then set out, on suggestions from the parties, an illustrative and non-exhaustive catalogue of acceptable evidence for salary cases, non-salary cases and interest or dividend cases, together with common corroborative material including departmental communications, insolvency claims and any admission by the deductor in books, correspondence, affidavit, balance sheet note or proceedings (paras 67 to 71). It held that the absence of any document from the deductor cannot be decisive, since hostility, closure, insolvency, disappearance of management or deliberate non-cooperation may explain it, and that once prima facie material is produced the burden shifts to the Department to satisfy itself, if necessary by inquiry with the deductor, with the TDS officer having jurisdiction over the deductor, or with the resolution professional or liquidator (paras 72 and 73). Finally the Court accepted the specific grievance that the demand continued to show and refunds continued to be adjusted even after an application was made, and framed the six-step procedure at paragraph 76 to close that gap, clarifying at paragraph 77 that although the initial denial of credit in a section 143(1) intimation may be mechanical because processing is statement-driven, once a supported application is received the Department must move beyond the mechanical mismatch and adjudicate. In the words reproduced by the source cited on this page: "Accordingly, we answer issue No. (i) by holding that where an Assessee is able to establish that tax was in fact deducted at source from his income or payment, the Department must grant appropriate TDS credit and cannot recover, directly or indirectly, the corresponding amount from the deductee."
It was decided by the High Court on 2026-08-05 and is reported as Writ Petition No. 2063 of 2025 with Writ Petition Nos. 1480 and 1481 of 2025, Writ Petition (L) Nos. 20749, 20750, 30175, 30190, 30365, 30376, 31169, 31258, 31429, 31460, 35206 and 40158 of 2025, and Writ Petition Nos. 10325 of 2023, 8927 of 2025, 8929 of 2025 and 13623 of 2025 (Bombay High Court). 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 199, section 205, section 203, section 245, section 143(1), 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 petitions were allowed. On the first issue, where tax has in fact been deducted at source from the income or payment of an assessee, the Department cannot deny the deductee credit merely because the deductor failed to deposit the amount, and on verification appropriate TDS credit must be granted and the corresponding demand cannot be enforced or continued against the deductee; the consequential relief flowing from the grant of credit, including refund, must follow (paras 61 and 78(i)). On the second issue, in the absence of Form 16 or Form 16A or similar forms, deduction may be established by other cogent material such as salary slips, bank statements, payment advices, ledgers, invoices, rent records, correspondence and insolvency claims, and the absence of the formal certificate is not by itself fatal (para 78(ii)). A claim cannot be rejected solely because the amount is not reflected in Form 26AS and no certificate is available (para 66), and the absence of direct evidence from the deductor cannot be the sole basis of rejection (para 72). On receipt of such an application the Assessing Officer must register and acknowledge it, keep the corresponding demand in abeyance under section 205, mark the demand in the system as stayed, not recoverable or kept in abeyance so that no coercive recovery or refund adjustment takes place, undertake factual verification, and pass a reasoned order as expeditiously as possible and preferably within six months, with all remedies preserved to a dissatisfied assessee (para 76). The impugned orders and intimations were set aside to the extent they raised a demand on account of TDS deducted but not paid, and the matters were remanded to the respective Assessing Officers for fresh consideration, with a direction to verify the claims, grant credit including issue of refund, and rectify, correct or delete the demands (paras 79 and 80). It arises in TDS Defaults, Refunds, Interest & Condonation, Demand, Recovery & Stay and Evidence & Burden of Proof matters, on section 199, section 205, section 203, section 245, section 143(1) of the Income Tax Act 1961, and was decided by B. P. Colabawalla J and Firdosh P. Pooniwalla 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. Build the file from what you actually have: salary slips or invoices showing gross, tax deducted and net; bank statements showing receipt of the net amount; payment advices, ledgers and correspondence demanding the certificate or the deposit; and, where the deductor is in insolvency, the claim filed in that proceeding. Ask expressly, in the application, for the demand to be kept in abeyance under section 205 and to be marked in the system as stayed or not recoverable so that no refund of a later year is adjusted against it — that is direction (iii) of paragraph 76 and it is the step that stops the bleeding. Ask for the reasoned order the Court said should follow, preferably within six months of the application, and put that timeline in the application itself. Do not accept an answer that the credit cannot be given because it does not appear in Form 26AS, or that Form 16 or 16A is indispensable — paragraphs 66, 72 and 74 dispose of both, and paragraph 77 says the mechanical mismatch at section 143(1) processing cannot survive an application supported by material. If credit is refused after verification, note that the Court expressly preserved all remedies available in law against that order.
Validity check could not be completed. Validity check could not be completed. The judgment is dated 5 August 2026; no search for later treatment or for an appeal was carried out, and none would be expected this soon. The decisions said to have been pressed before the Court as showing friction between sections 199 and 205 were not identified in the parts of the report that could be retrieved, so it has not been possible to check whether this judgment departs from any earlier Bombay High Court authority. 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.
This is a batch judgment. The cause title as rendered by the indiankanoon print view opens with Writ Petition No. 2063 of 2025, Manohar Ramabtar Jhunjhunwala v. Principal Commissioner of Income Tax-17, Mumbai, with Writ Petition No. 1480 of 2025 (Urmez Phiroz Mugaseth) and Writ Petition No. 1481 of 2025 (Cuzack Petrus Khursheed Banaji) and further connected petitions. The document's header lists, in full: Writ Petition No. 2063 of 2025, Writ Petition No. 1480 of 2025, Writ Petition No. 1481 of 2025, Writ Petition (L) Nos. 20749, 20750, 30175, 30190, 30365, 30376, 31169, 31258, 31429, 31460, 35206 and 40158 of 2025, and Writ Petition Nos. 10325 of 2023, 8927 of 2025, 8929 of 2025 and 13623 of 2025. The document was reached through the copy indexed under one of the connected petitions, Sagar Roshanlal Agarwal v. Union of India, Writ Petition No. 8927 of 2025. The dates on which the matter was reserved and pronounced were not separately rendered; only the decision date of 5 August 2026 was returned. Paragraphs 68 to 71 came back partly as lists with the surrounding sentence stripped out, so the catalogue of acceptable evidence is stated in this entry as a catalogue and not quoted. Paragraph 76 was returned as a run of clauses following an introductory sentence that was itself paraphrased; the six sub-clauses have been reproduced as they were returned but the introductory words have not been quoted. 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 petitions were allowed. On the first issue, where tax has in fact been deducted at source from the income or payment of an assessee, the Department cannot deny the deductee credit merely because the deductor failed to deposit the amount, and on verification appropriate TDS credit must be granted and the corresponding demand cannot be enforced or continued against the deductee; the consequential relief flowing from the grant of credit, including refund, must follow (paras 61 and 78(i)). On the second issue, in the absence of Form 16 or Form 16A or similar forms, deduction may be established by other cogent material such as salary slips, bank statements, payment advices, ledgers, invoices, rent records, correspondence and insolvency claims, and the absence of the formal certificate is not by itself fatal (para 78(ii)). A claim cannot be rejected solely because the amount is not reflected in Form 26AS and no certificate is available (para 66), and the absence of direct evidence from the deductor cannot be the sole basis of rejection (para 72). On receipt of such an application the Assessing Officer must register and acknowledge it, keep the corresponding demand in abeyance under section 205, mark the demand in the system as stayed, not recoverable or kept in abeyance so that no coercive recovery or refund adjustment takes place, undertake factual verification, and pass a reasoned order as expeditiously as possible and preferably within six months, with all remedies preserved to a dissatisfied assessee (para 76). The impugned orders and intimations were set aside to the extent they raised a demand on account of TDS deducted but not paid, and the matters were remanded to the respective Assessing Officers for fresh consideration, with a direction to verify the claims, grant credit including issue of refund, and rectify, correct or delete the demands (paras 79 and 80).
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My return was only processed under 143(1). Does that stop the department reopening it later?
My refund is being held back because scrutiny is pending. Can the officer simply sit on it?
I let the 30 days to appeal my 143(1) intimation lapse. Can I still go to the PCIT under s.264?
I over-reported income by mistake and the time to file a revised return has gone. Can it be fixed?