Deductee entitled to TDS credit despite deductor's failure to deposit tax under Section 205

Delhi HC held that petitioner-deductee is entitled to TDS credit of Rs. 29,16,674 despite deductor's failure to deposit tax with government. Court ruled that recovery cannot be made against deductee under Section 205, and denying credit would indirectly achieve prohibited direct recovery from deductee. Since deductee followed statutory regime through government agent (deductor), only the defaulting agent can face recovery proceedings. Rectification order dated 25.06.2020 under Section 154 was set aside, granting relief to petitioner notwithstanding absence of Form 26AS reflection.

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Issues:
1. Application for amendment to challenge the order under Section 154 of the Income Tax Act, 1961.
2. Claim for credit of tax deducted at source by borrower Ninex Developers Ltd.

Issue 1:
The petitioner sought to challenge the order dated 25.06.2020 passed under Section 154 of the Income Tax Act, 1961, concerning a rectification application filed in relation to the Return of Income dated 10.08.2019. The petitioner, after seeking credit for tax deducted at source by Ninex, filed a writ petition for direction to receive credit of Rs. 29,16,674. The respondents accepted notice, and it was noted that Ninex is undergoing Corporate Insolvency Resolution Process (CIRP). The Resolution Professional issued a certificate confirming the tax deducted at source, slightly less than the claimed amount. The court allowed the application for amendment and disposed of the matter accordingly.

Issue 2:
The petitioner claimed credit for tax deducted at source by Ninex, which was not initially reflected in the Return of Income but was later claimed in a revised return. However, the credit was disallowed under Section 143(1) of the Act. The respondents argued that credit can only be given when the amount is paid to the Central Government, citing Section 199 of the Act. The court referred to a previous judgment and emphasized that recovery cannot be made from the deductee and that credit for tax deducted at source must be granted to the petitioner. The court directed that the petitioner be given credit for the full amount, set aside the previous order, and instructed the petitioner to deposit any amount received from the Resolution Professional not exceeding the tax deducted at source by Ninex.

This judgment clarifies the legal position regarding the grant of credit for tax deducted at source and highlights the rights of the deductee in such matters.

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