ITAT Mumbai Rules in Favour of Taxpayer Denied TDS Credit

What happens if your employer has deducted tax from your salary but fails to deposit it with the government? Will you get the entire TDS credit in such a case or not? Something similar happened with Mumbai-based IT professional Sophia Rick when she got a tax demand of Rs 3.36 lakh, instead of Rs 3.91 lakh TDS credit which she had claimed in her income tax return (ITR)

While filing her income tax return for Assessment Year 2019-20, Sophia Rick had declared her income at Rs 18.41 lakh and claimed a TDS credit of Rs 3.91 lakh but got only Rs 79,030. This resulted in a tax demand of Rs 3.36 lakh. Why? Because her employer – an IT services company – had not deposited the TDS deducted from her salary with the government.

She sought rectification from time to time before CPC which did not fructify and finally, Sophia decided to fight back and preferred first appeal. However, this was dismissed being time-barred. Aggrieved, she then turned to the income tax appellate tribunal (ITAT), which ruled in her favour.

TDS deducted but claim denied to taxpayer credit: Mumbai woman fights in ITAT

ITAT Mumbai found that full TDS credit has not been granted since assessee’s employer has deducted TDS but has not remitted the same to the revenue. Because of this, full TDS credit didn’t reflect in her Form 26AS and so the Rs 3.91 lakh TDS credit claim was denied.

However, to support her claims and show that TDS was in fact deducted by her employer, Sophia furnished salary slips, Form 16, bank statements and other documents.

Taking note of the same and citing recent SC and a HC ruling, the tribunal held that the tax demand could not be raised against an employee if the employer deducted tax at source from salary income of the assessee but did not deposit the same with the government.

The Rs 3.36 lakh tax demand will also be nullified after the Assessing Officer verifies Sophia’s Rs 3.91 lakh TDS claim and allows full credit.

How taxpayer won TDS credit despite employer failing to deposit tax with govt

Dhruv Chopra, Managing Partner at Dewan PN Chopra and Co, explained that the assessee won because she proved that TDS had been deducted from her salary. “The ruling strengthens taxpayer protection in similar cases,” he said, adding that the order confirms that a taxpayer cannot be denied TDS credit merely because the employer failed to deposit the deducted TDS with the Government.

If the taxpayer can prove that TDS was deducted (through Form 16, salary slips, etc.), and in light of Section 205 of the Income Tax Act, 1961, the Department can’t recover the tax from the employee. Once the TDS credit is granted, the Rs 3.36 lakh demand will effectively be nullified.

What steps can taxpayers take before filing their ITR so as to avoid such situations?

So that something like this does not happen to you, take the following steps before you file your income tax return:

• Match Form 16 with Form 26AS; AIS and bank statement

• Report any TDS mismatch to the employer immediately

• Preserve Form 16, salary slips and bank statements