Court rules in favor of petitioner regarding tax recovery dispute, emphasizing entitlement to credit. Department directed to return funds.

The court ruled in favor of the petitioner, holding that the Department could not recover the tax amount from the petitioner when the employer had deducted it but not deposited it with the Government. Citing relevant statutory provisions and case law, the court emphasized the petitioner's entitlement to credit for the tax deducted at source by the employer. The Department was directed to return any recovery or adjustment made from the petitioner's refunds in later years, along with statutory interest, affirming the petitioner's right to the benefit of tax deducted at source.

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Issues:
1. Recovery of tax deducted at source by employer but not deposited with the Government.
2. Entitlement of the petitioner to the benefit of tax deducted at source.

Analysis:
1. The petitioner, an individual and a pilot with King Fisher Airlines, filed an income tax return for the assessment year 2012-13, with the employer deducting tax at source amounting to Rs. 2,68,498. However, the employer failed to deposit this tax with the Government. The Income Tax Department raised an equivalent tax demand with interest, which the petitioner contested, citing statutory provisions and relevant court decisions. The Department adjusted a refund of Rs. 47,140 from the petitioner for a subsequent assessment year, leading to the dispute.

2. The main question before the court was whether the Department could recover the tax amount from the petitioner when the employer had deducted it but not deposited it with the Government. Referring to previous judgments, particularly the case of Sumit Devendra Rajani vs. Assistant Commissioner of Income Tax, the court held that the petitioner was entitled to credit for the tax deducted at source by the employer. The court emphasized that the mere failure of the deductor to deposit the tax should not allow the Department to recover the amount from the petitioner.

3. Citing Section 205 of the Income Tax Act, 1961, the court relied on the decision of the Division Bench in the Sumit Devendra Rajani case and directed the Department to give credit for the tax deducted at source to the petitioner. The court ruled in favor of the petitioner, emphasizing that the Department could not deny the benefit of tax deducted at source by the employer. The court ordered the Department to return any recovery or adjustment made from the petitioner's refunds in later years, along with statutory interest.

4. Ultimately, the court disposed of the petitions, holding that the Department was not permitted to recover the tax amount from the petitioner when the employer had deducted it but failed to deposit it with the Government. The court affirmed the petitioner's entitlement to the benefit of tax deducted at source and ordered the return of any adjustments made from the petitioner's refunds in subsequent years, with statutory interest.

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