TDS credit mismatch due to nondeposit by deductor: credit ordered after verification in favour of assessee

Denial of TDS credit arising from a mismatch where the deductor failed to deposit tax is addressed by treating documented deduction evidence submitted by the assessee as sufficient to claim credit; this reasoning relies on precedent and administrative instruction and results in directing the assessing officer to grant TDS credit after verifying records. The taxpayers ITR, computation, Form 26AS entries, agreement and bank statements were accepted as proof of tax deduction though not deposited by the deductor, and the credit claim was allowed in favour of the assessee.

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Issues: Whether the assessee is entitled to credit for tax deducted at source where deductions are established by contemporaneous primary evidence but the deductor failed to deposit the tax and the corresponding entries do not appear in Form 26AS.

Analysis: The legal framework comprises Section 199 and Section 205 of the Income-tax Act, 1961 together with CBDT Instruction No. 275/29/2014-IT(B) dated 1 June 2015 and Office Memorandum dated 11 March 2016. Section 199 specifies the ordinary course for giving credit of TDS; Section 205 erects a bar against making a direct demand on the deductee to the extent tax has been deducted from his income. The CBDT instructions and subsequent office memorandum direct field officers not to enforce demands against a deductee arising solely from a deductor's failure to deposit deducted tax. Where contemporaneous primary evidence (invoices, bank statements, payment advices and reconciliation) establishes that tax was deducted at source from the assessee's receipts, denial of credit solely because the deduction is not reflected in Form 26AS would permit double taxation and frustrate section 205. The appropriate course is to verify the assessee's primary evidence and, if deduction is established, allow credit while leaving the Department to pursue remedies against the defaulting deductor under provisions such as sections 200 and 201.

Conclusion: The assessee is entitled to credit of TDS to the extent deduction from receipts is established by contemporaneous primary evidence; conclusion is in favour of the assessee.

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