AO to recover tax from employer who didn’t remit TDS after deducting from employee’s salary: ITAT

Case Details: Chandrashekhar Sadashiv Potphode v. DCIT - [2023] 147 taxmann.com 260 (Pune-Trib.)

Judiciary and Counsel Details

• • S.S. Godara, Judicial Member & G.D. Padmahshali, Accountant Member
  • Ms Vishaka & Satish Shanbhag for the Appellant.
  • Suhas Kulkarni, for the Respondent.

Facts of the Case

Assessee, a resident individual, filed its return of income for the relevant assessment year by declaring salary income and claiming credit for Tax deducted thereon. However, such TDS amount was not deposited by the employer to the credit of the Central Government. Pertaining to the mismatch of TDS credit as declared by the assessee in his return of income and the amount reflected in his Form 26AS, the return of income was processed by disallowing the credit of TDS.

On appeal, CIT(A) upheld the additions. Aggrieved-assessee preferred an appeal to the Pune Tribunal.

ITAT Held

The Tribunal held that there are two methods by which tax liability can be discharged by a taxpayer i.e., a direct method where the payment of taxes is made by the assessee-taxpayer directly in the form of advance tax & self-assessment tax and an indirect method where taxes are deducted & paid on behalf of the assessee i.e. through TDS mechanism.

With respect to the recovery of taxes, it must be noted that, once the tax liability of the assessee is discharged by the indirect method of TDS, then the rule of estoppel by virtue of provisions of section 205 of the Income-tax Act gets attracted, which invariably puts restriction on the Assessing Officer (AO) from enforcing the recovery of taxes from the assessee where the tax has been deducted from the payment made to the assessee.

Since TDS is one of the two modes for recovery of taxes, the assessee is eliminated from the tax liability. Therefore, the powers of the AO pertaining to recovery of taxes in cases, where tax has been deducted from the income of the assessee, are restricted to the deductor i.e., the employer, and not to the assessee-deductee.

List of Cases Referred to

• • Yashpal Sahni v. Rekha Hajarnavis, Asstt. CIT [2007] 165 Taxman 144/293 ITR 539 (Bom.) (para 8)
  • Ashok Kumar B. Chowatia v. Jt. CIT (TDS) [2021] 128 taxmann.com 230/281 Taxman 405/435 ITR 449 (Mad.) (para 9)