2023 (7) TMI 907 - HC - Income Tax

Credit of TDS deducted on salary but not deposited by the employer (Karvy Stock Broking Limited) - tax credit mismatch - criminal investigation by the Enforcement Directorate for financial crimes including money laundering against Respondent No. 2 Karvy Stock Broking Limited - as petitioner states Respondent No. 2 was deducting tax at source from the salary paid to Petitioners and that since tax has been deducted from the salary of Petitioner, Petitioner cannot be called upon to pay tax to the extent to which tax has been deducted HELD THAT - Revenue in each of the Petitions state that Petitioners be directed to furnish evidence to the Income Tax Officer who has issued notice of demand that tax has been deducted at source from their salaries. If such evidence is furnished, the Income Tax Officer will not take any coercive steps against those Petitioners. Statement accepted as an undertaking to this Court. Directions issued. If the Income Tax Officer requires any clarification to tally the salary slip with the bank statement, the Income Tax Officer shall issue notice to the concerned Petitioner to attend hearing and notice thereof shall be communicated atleast 5 working days in advance.

Summary

Issues:
The issues involved in the judgment are related to tax deduction at source by an employer, non-deposit of the deducted tax with the Income Tax Department, and the consequent demand notices issued to the employees.

Issue 1: Tax Deduction at Source

The petitioners were employees of a stock broking firm where tax was being deducted at the source from their salaries. However, it was alleged that the firm did not deposit these deducted amounts with the Income Tax Department, leading to a mismatch in the tax statements and resulting in notices being issued to the petitioners by the Income Tax Department.

Issue 2: Legal Position and Compliance

The petitioners relied on Section 205 of the Income Tax Act, 1961, which states that if tax is deducted at source, the assessee shall not be required to pay tax to the extent the deduction has been made. The petitioners argued that as tax had already been deducted from their salaries, they should not be called upon to pay any additional tax.

Issue 3: Compliance with Office Memorandum

The petitioners' counsel referred to an office memorandum directing that in cases where tax has been deducted at source but not deposited to the government account, the deductee should not be asked to pay the demand. However, it was claimed that field officers were not strictly following these directions, leading to coercive enforcement of tax demands.

Judgment:

The court directed the petitioners to provide evidence to the Income Tax Officer showing that tax had indeed been deducted at source from their salaries. Upon submission of the necessary documents, the Income Tax Officer was instructed not to take coercive steps against the petitioners. The petitioners were given two weeks to file the required documents, including salary slips and bank statements. The banks were ordered to issue certified statements promptly upon request. If any clarifications were needed, the Income Tax Officer was to issue advance notices for hearings. The court disposed of all petitions without any order as to costs and clarified that no observations were made on the merits of the matter.