2023 (1) TMI 964 - AT - Income Tax

Denial of TDS credit - non-deposit by employer - appellant was employed with M/s Nilkamal Lifestyle Limited on a salary and the accrual / receipt of which is offered to tax with the corresponding claim of TDS made u/s 192 of the Act by the employer thereagainst - Failure of deductor-employer to deposit the said amount of TDS to the credit of Central Exchequer and reporting thereof through filing of TDS return viz 24Q - HELD THAT - There are two methods by which tax liability under the Act can be discharged i.e. direct method where the payment of taxes is made by the assessee-taxpayer directly in the form of advance tax self-assessment tax and indirect method where taxes are deducted paid on behalf of the assessee i.e. through TDS mechanism and it shall not be out of the box to quote from the decision Hon ble Bombay High Court laid in Yashpal Sahni vs Rekha Hajarnavis ACIT 2007 (7) TMI 7 - HIGH COURT BOMBAY In the matter of recovery of taxes it s worthy to note that once the tax liability of the assessee is discharged by indirect method of TDS then the rule of estoppel by virtue of provisions of section 205 of the Act comes into play which invariably puts an embargo on the department from enforcing the recovery of taxes from the assessee where tax is deductible at the sources under chapter XVII of the Act from the payment liable for TDS and as such TDS has been deducted therefrom. Thus TDS being one of the two modes of recovery of taxes envisaged in the Act obliterates the assessee from the tax liability and we find that vide para 33 a similar view found taken by the Hon ble Madras High Court in Ashok Kumar B. Chowatia 2021 (5) TMI 37 - MADRAS HIGH COURT We are of the view that the Revenue in terms of Section 205 of the Act is restrained from enforcing any tax recovery against the assessee insofar as the demand with reference to the amount of tax which had been deducted by the employer from the salary accrued to assessee and assuming that the deductor-employer had not remitted the amount after its deduction to the Central Government the only course open to the Revenue is to recover same from the very person who has deducted the TDS and not from appellant assessee. Thus in the light of aforestated discussion we concur with the views of Ld. AR and deem fit to set-aside orders of both the Ld. TAB as contra-legem. Appeal of assessee allowed.

Summary

Issues:
Challenge to denial of TDS credit by NFAC, Delhi upheld by CPC/AO for AY 2018-19 & 2019-20.

Detailed Analysis:

1. Facts of the Case:
The appellant challenged the denial of TDS credit against salary income received from an employer before the FAA, who upheld the denial. The matter was brought before the Tribunal seeking relief against the denial of TDS credit.

2. Grounds of Appeal:
The appellant raised several grounds of appeal, including lack of consideration of facts, denial of TDS credit due to the employer's failure to deposit, and failure to provide an opportunity to submit proof of TDS deduction.

3. Arguments and Contentions:
The appellant argued that the tax demand was raised despite the employer deducting TDS from the salary but failing to deposit it with the government. The department supported the denial of TDS credit based on Form No 26AS.

4. Judicial Analysis:
The Tribunal considered the legal position and facts of the case. It noted that the appellant's salary income had TDS claimed by the employer but not deposited with the government. The Tribunal referred to relevant case laws and provisions of the Income Tax Act.

5. Legal Principles:
The Tribunal highlighted that tax liability can be discharged directly or indirectly through TDS. It referenced a Bombay High Court decision emphasizing tax recovery through deduction at source. The principle of estoppel under section 205 of the Act was also discussed.

6. Decision and Ruling:
The Tribunal ruled that the Revenue cannot enforce tax recovery against the appellant for the TDS amount deducted by the employer but not remitted to the government. The Tribunal set aside the orders of the lower authorities and allowed the appeals of the appellant.

7. Conclusion:
The Tribunal concluded that the Revenue is restrained from recovering tax from the appellant for the TDS amount deducted by the employer. The decision was based on the legal principles of tax recovery through TDS and the responsibility of the deductor-employer to remit the deducted amount to the government.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved, the arguments presented, the legal principles applied, and the final decision rendered by the Tribunal.