TaxTMI 
TaxTMI 
2025 (9) TMI 1733
X X X X Extracts X X X X
X X X X Extracts X X X X
....entire liability already having been met through TDS. 3. The assessee is a well-regarded law firm providing legal services to multiple clients. It filed its return of income declaring a total income of Rs. 20,16,58,770. The self assessment tax calculated thereon was Rs. 7,04,67,641 and interest Rs. 8,12,300, aggregating to Rs. 7,12,79,941. Against this liability, the assessee claimed credit of TDS of Rs. 4,80,45,747, advance tax of Rs. 2,20,00,000, and self-assessment tax of Rs. 12,34,194. 4. The assessee maintains its accounts on cash basis. Payments received from clients were net of tax deducted at source, the deductors having withheld the applicable TDS before releasing amounts. The assessee thus claimed credit for such deductions while offering the entire gross receipts to tax. 5. CPC, however, while processing the return under section 143(1) on 16.11.2022, denied credit of TDS aggregating to Rs. 96,12,846 solely on the ground that such amounts did not feature in Form No. 26AS. A demand of Rs.1,09,01,070 was raised comprising the disallowed TDS together with interest under section 234B of Rs. 8,02,776 and under section 234C of Rs.4,85,452. 6. In appeal, the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....luding invoices raised on clients, advices showing deduction of tax, and bank statements showing netof-tax credits. Once this is established, denial of TDS credit merely because the deductor failed in his statutory duty is to penalise the innocent for the fault of another, resulting in double taxation. 12. Reliance was placed on CBDT Instruction No. 275/29/2014-IT(B) dated 1.6.2015, wherein the Board clarified that in cases where TDS has been deducted but not deposited by the deductor, the assessee shall not be made to suffer demand on account of mismatch. The Instruction specifically directed field officers that recovery on account of such mismatch cannot be enforced against the deductee. 13. Reference was also made to Office Memorandum dated 11.3.2016, which reiterated the position and once again directed officers not to enforce demands created due to nonpayment of TDS by deductors. The Board cautioned that despite the earlier instruction, field officers were continuing to enforce demands against deductees, and it was once again clarified that assessees shall not be called upon to pay where tax has already been deducted from their income. 14. The assessee fortified his s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The moment deduction is shown on the strength of primary evidence, the embargo of section 205 attaches and the deductee cannot again be called upon to bear the burden. 20. This statutory position is not only plain on the text of the provision but also reinforced by the Central Board of Direct Taxes. In Instruction No. 275/29/2014 IT(B) dated 1 June 2015 the Board recorded that taxpayers were being denied credit because deductors failed to deposit the tax, and directed that in such cases coercive recovery should not be enforced from the deductee. The subsequent Office Memorandum dated 11 March 2016 reiterated the same position and directed field officers not to enforce demands created on account of mismatch of credit due to non payment by the deductor. These directions are binding on the Department and are intended precisely to avoid double taxation of an innocent deductee. 21. The judicial current flows in the same channel. The jurisdictional High Court in Yashpal Sahni v. Rekha Hajarnavis held that once deduction of tax at source is established the bar of section 205 operates and the revenue is restrained from recovering the same amount again from the person from whose inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee has already brought the corresponding income to tax. Denial of credit in the assessee's hands, because the deductor failed to deposit or mis reported the deduction, results in taxing the same income twice. Section 205 is the Parliamentary safeguard against precisely such injustice. The Board's Instruction and Memorandum translate that safeguard into administrative practice. The High Courts have given it judicial benediction. The revenue's proper remedy lies against the defaulting deductor under sections 200 and 201 and other enabling provisions, and not against the deductee who has already suffered deduction. 25. The learned Departmental Representative suggested that section 199 contemplates credit only on payment to the Government and hence the absence of 26AS entries should defeat the claim. Section 199 cannot be read in isolation. It must be read harmoniously with section 205. Section 199 allocates the time and manner of giving credit in the ordinary course when the deductor has discharged his obligation. Section 205 steps in to prevent a second exaction from the deductee when that ordinary course is derailed by the deductor's default. The harmonious reading preser....