Non deposit of TDS

[PARVEEN ARORA]

If TDS deducted and not deposited. Will it possible for deductor to pay back TDS amount to landlord and landlord claim his rental income as usual and also show proof to deductor about the treatment of rental income.  

In that case can the deductor claim rent as his expense on the basis of proof provided by landlord?

Secondly if deductor file his income tax return before the land lord and treated rent as his expense (without depositing TDS to government but pay back amount deducted as TDS to landlord) and landlord assure him orally or in writing that he will treat rent as his income as usual, what will be the treatment of this rent expense?

[Surender Gupta]

As per my view, the amount of expenses towards rent shall continue to be eligible as deduction without invoking the provisions of Section 40(a)(ia) or Section 201 of the Income Tax Act, 

However, the peculiarity in the facts of your case is that you have deducted the tax but failed to deposit. Though in my view, since you are refunding the amount to the landlord, the position would remain same as above, but, AO may have something to say for his satisfaction if these facts are on record.

AI Summary

TDS non-deposit: refunding deducted tax may preserve rent deduction, but non-deposit can attract revenue scrutiny. If tax is deducted on rent but not deposited and the deductor refunds the deducted amount to the landlord who declares it as rental income and provides proof, the deductor's rent expense claim generally remains allowable; nonetheless, the non-deposit may attract scrutiny by the assessing officer who may require satisfaction on the transaction's genuineness.