2022 (10) TMI 1091 - AT - Income Tax

Levy of interest u/s 234A, 234B and 234C - Disallowance of TDS credit deducted by ex-employer of the appellant - HELD THAT - Section 203 of the Income Tax Act, 1961 casts a duty on the person deducting tax to furnish certificate for tax deducted at source to the person to whose account credit has been given. Section 203 casts the duty on the person deducting tax to prepare statement for such period giving the details of the tax deducted at source and remit it to the credit of the Central Government in the prescribed form and if such a person fails to remit the same, then the provision provides that he would be treated as assessee in default u/s 201(1) of the Income Tax Act. It may also be relevant to refer to Section 205 of the Act which restricts the tax authorities from enforcement of any demand on the assessee payee in so far as the amount of tax which had been deducted by the payer and not deposited with the Government. Sub-clause (ii) of clause (b) of Section 234A(1) specifically and clearly states that any tax deducted or collected at source is required to be reduced therefrom. Similarly, when provisions of 234B is considered. It is seen that for charging interest for defaults in payment of advance tax is considered, in terms of Explanation1 to Section 234B(1)(i) again specifically makes a reference to the fact that assessed tax is to be reduced by the amount of any tax deducted or collected at source. Similarly, for attracting the charge of levy of interest for deferment of advance tax as addressed by Section 234C it is seen that Explanation-1 to the 3rd Proviso to Section 234C(1)(b) specifically in sub-clause (1) again makes a clear mention that tax due on the returned income is to be reduced by the amount of any tax deductible or collectible at source in accordance with the provisions of Chapter XVII on any income. Accordingly, it is seen that for attracting the levy of interest, the calculations necessarily require to be made are to be considered after reducing the TDS deducted in a case like this. Hence, in case the Assessing Officer and the assessee are interpreting the observations/directions in para 8 as a direction to charge interest holding assessee in default, then such an interpretation is contrary to law. The legislature in very clear terms has already factored the factum of TDS deducted by the deductor. Credit of the said deduction is clearly embedded in the calculation of amount of tax on the total income as considered in Section 234A; and assessed tax as applicable in Section 234B and tax due on the returned income to be considered for Section 234C. Thus,find that the tax authorities are necessarily bound to factor in the deduction made on behalf of the assessee to the tune of Rs.9,37,296/-. Any other shortfall in the assessed tax and tax on total income or tax due on the returned income would be the only limited areas open to the AO. As far as the present issue of non deposit of the tax deducted from the salary of the assessee in the present case is concerned, the provisions of Section 234A, 234B and 234C would have no role to play.

Issues Involved:
1. Validity of the CIT(A) order.
2. Disallowance of TDS credit of Rs. 9,37,296/- deducted by the ex-employer.
3. Ignoring the appellant's tax payment including the TDS claim.
4. Ignoring judgments of Hon'ble High Courts on the identical issue.
5. Upheld decision regarding not allowing credit of TDS paid on behalf of the appellant.
6. Levy of interest under sections 234A, 234B, and 234C.

Detailed Analysis:

1. Validity of the CIT(A) Order:
The appellant challenged the correctness of the CIT(A) order dated 18.11.2021. The tribunal acknowledged the appellant's contention but did not specifically adjudicate on this general ground.

2. Disallowance of TDS Credit:
The appellant argued that the TDS of Rs. 9,37,296/- was deducted by the employer but not deposited with the Government. The employer's failure to deposit the TDS was the reason for the disallowance. The tribunal noted that the appellant had no control over the employer's actions and had already suffered the deduction.

3. Ignoring Appellant's Tax Payment:
The appellant claimed to have paid a total tax amount of Rs. 9,97,190/-, which included the TDS of Rs. 9,37,296/-. The tribunal observed that the appellant had provided Form 16 as evidence, which showed the tax deduction but did not confirm the deposit of the TDS into the Government account. Consequently, the credit could not be allowed as per section 199 of the Income Tax Act.

4. Ignoring Judgments of Hon'ble High Courts:
The appellant relied on various High Court judgments, such as Devarsh Pravinbhai Patel Vs ACIT, Smt. Anusuya Alva, Yashpal Sahni, Sumit Devendra Rajani, Executors of the Estate of S. Shanmuga Mudaliar, and Ashok Kumar B Chowatia. These judgments emphasized that the recovery of tax should be made from the deductor (employer) and not the deductee (employee). The tribunal concurred with these precedents, stating that the responsibility lies with the deductor.

5. Upheld Decision Regarding TDS Credit:
The CIT(A) upheld the AO's decision not to allow the TDS credit due to the employer's failure to deposit the TDS. The tribunal found this action to be in line with section 199, which requires the TDS to be deposited for the credit to be given. However, it also noted that recovery should not be enforced from the appellant as per section 205.

6. Levy of Interest Under Sections 234A, 234B, and 234C:
The CIT(A) directed the AO to charge interest under sections 234A, 234B, and 234C, which are consequential in nature. The tribunal clarified that these interests should not be charged to the appellant for the TDS amount not deposited by the employer. It emphasized that the tax authorities must consider the TDS deducted when calculating interest under these sections.

Conclusion:
The tribunal allowed the appeal, stating that the appellant should not be held liable for the employer's failure to deposit the TDS. The recovery of the demand should be made from the employer, and the appellant should not be charged interest under sections 234A, 234B, and 234C for the TDS amount. The tribunal's decision aligns with the legal precedents and provisions of the Income Tax Act, ensuring that the appellant is not penalized for the employer's default.

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