Tax credit for TDS must be allowed if deduction is proved, while recovery may be pursued from the defaulting deductor.

Where an employer deducts tax at source but fails to deposit it, the statutory bar on demand once tax is deducted prevents the revenue from recovering the same sum from the payee; recovery lies against the defaulting deductor. The legal analysis applies Chapter XVII provisions to hold that, if the assessee proves deduction with salary slips and documentary evidence, credit for the withheld TDS must be allowed after verification, while the Department may pursue recovery from the employer-deductor rather than the payee.

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Issues: Whether the assessee is entitled to credit for tax deducted at source of Rs.15,85,989/- purportedly deducted by the employer but not deposited by the employer, and whether the revenue can recover that amount again from the assessee.

Analysis: Chapter XVII and relevant provisions (including Sections 192, 199, 200, 203, 205 and Section 221(1) of the Income-tax Act, 1961) were examined to determine the interplay between deduction at source, deposit by the deductor and credit to the deductee. The statutory bar in Section 205 operates once tax has been deducted at source, preventing direct demand on the payee to the extent of that deduction; separate recovery mechanisms exist under the Act against the person who deducted the tax. Judicial precedents of High Courts holding that where tax has been deducted at source the revenue is barred from recovering the same amount again from the payee were applied. The assessee produced salary slips and documentary evidence indicating that TDS was deducted on his salary for the disputed period; the AO had denied credit because the employer had not deposited the deducted amount and it did not appear in Form 26AS. In view of the statutory scheme and controlling High Court authority, the proper course is to verify the deduction evidence and, if established, grant the credit to the assessee while leaving recovery from the defaulting deductor to the Department.

Conclusion: Credit for the TDS of Rs.15,85,989/- is to be granted to the assessee upon verification of documents evidencing deduction; the revenue is barred from recovering that amount from the assessee and may pursue recovery from the employer-deductor.

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