Non deposit of TDS by deductor – Assessee can not be denied tax credit – ITAT

Non deposit of tax deducted by deductor – ITAT directs AO to take action against deductor and tax credit allowed to assessee

In a recent judgment, ITAT Cochin has given an important judgment on the issue of non credit of TDS due to mismatch with Form 26AS where deductor did not deposit the tax after deduction. The Tribunal directed  AO to initiate appropriate proceedings against the deductor and held that assessee was eligible to take into his credit the tax amount deducted.

ABCAUS Case Law Citation:
4336 (2024) (12) abcaus.in ITAT Cochin

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming denial of TDS credit.

The assessee was owner of the property and rented out the said property to one person for a monthly rent of Rs. 1,00,000/-. The said tenant deducted the TDS at 10% while making the monthly rental payment. The balance rent of Rs. 90,000/- was paid by the tenant by cheque for which the assessee had issued proper receipts in which the deduction of tax at 10% was also mentioned by the assessee.

The assessee shown the rental income in the return of income and also claimed the TDS amount deducted by the tenant. The said return was processed u/s. 143(1) with a demand for mismatch of TDS with Form 26AS.

The assessee challenged the said intimation before the CIT(A) and contended that the tenant had deducted the TDS amount while making the rental payment and also furnished the details of the said tenant. The assessee also relied on the section 205 of the Act and also relied on the judgment of the Hon’ble Delhi High Court and also enclosed the receipts issued by the assessee to show that the tenant had paid the balance rental amount after deducting the TDS.

However, the CIT(A) had not accepted the case of the assessee since the deductor had not remitted the tax amount deducted to the Central Government.

The Tribunal observed that the Hon’ble Delhi High Court had dealt with the similar situations and gave a clear finding that once the payer / deductor, who acts as an agent of the Central Government, has retained money towards tax (though not deposited with the Government), credit for the same cannot be denied, having regard to the consequences and the modes available for recovering the said amount from the payer / deductor.

The Tribunal further observed that the other judgment relied on by the assessee also held that no recovery towards tax deducted at source can be made towards the deductee, in view of the provisions of section 205 of the Act. The Division Bench further held that even though the TDS amount was not reflected in form 26AS, the department cannot make any demand on the assessee for the failure of the deductor to deposit the tax amount collected by him to the Central Government. The Division also relied on the instructions issued by the CBDT dated 01/06/2015 which clearly pointed out that the deductee / assessee cannot be called upon to pay tax, which has been deducted at source from his income.

The Tribunal also observed that in yeat another judgment, the Hon’ble High Court had held that the revenue cannot recover the deficit tax at source from the assessee, which was deducted and pocketed by deductor and they cannot also refuse to grant credit for the same. The rationale being what the revenue cannot do directly, it is impermissible for it to reach the same end indirectly.

Accordingly, the Tribunal set aside the orders of the lower authorities and remitted the issue to the jurisdictional assessing officer for making proper enquiry about the claim made by the assessee and to find out whether the tenant had deducted the tax while making the payment of rent but not paid the same to the department. On enquiry, if the AO found that it is a fact that the tenant had deducted the tax but not remitted the same to the Central Government, then appropriate proceedings should be initiated against the tenant.

The Tribunal also held that the assessee was eligible to take into his credit the tax amount deducted by the tenant and in that event, there would not be any liability as demanded by the department.

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