TaxTMI 
TaxTMI 
TDS Credit Where the Deductor Defaults: Proof of Deduction Without Form 16 or Form 16A
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....ents recovery, whether direct or indirect, from the deductee to the extent of tax actually deducted. Once deduction is verified, appropriate credit and consequential relief, including refund where due, must follow. • The ruling is confined to domestic transactions and does not cover international transactions. Background & Context The TDS system rests on a division of statutory responsibilities. The payer or deductor withholds tax from the payee's income, remits it to the Central Government, files prescribed statements and furnishes the prescribed certificate. The deductee receives only the net amount and ordinarily has no practical control over remittance, statement filing, correct PAN reporting or portal reflection. A difficulty arises where tax is withheld but the deductor neither deposits it nor files the TDS statement. The amount may consequently not appear in Form 26AS, and Form 16 or Form 16A may not be available. A statement-driven processing system may then deny TDS credit while processing the return and create a demand. The resulting demand can impair refunds and incorrectly portray the deductee as a defaulter despite the deduction from the incom....
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.... correction statements, but no correction statement can be delivered after six years from the end of the financial year in which the original statement was required. Section 201(1) provides that a person required to deduct tax who does not deduct, does not pay, or after deduction fails to pay the tax, is deemed to be an assessee in default. Section 201(1A)(ii) also imposes simple interest at one and one-half per cent for every month or part of a month from the date of deduction to actual payment. These provisions demonstrate that the statutory consequence of post-deduction default is directed at the deductor. Section 205 contains the substantive safeguard: "the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income." Its language makes actual deduction, not remittance by the deductor or availability of a certificate, the trigger for the bar against demand on the deductee. Certificates, portal records and credit rules Rule 31 prescribes Form 16 for deduction or payment under Section 192 and Form 16A for deduction under other provisions of Chapter XVII-B. The certificate must contain, among other particulars,....
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....ncipal ruling is significant for the approach it records: TDS credit follows where TDS has been deducted, though the amount may not have been paid by the deductor, but the factual claim requires verification. While the Supreme Court set aside directions requiring software changes, it did not disturb relief granted on the merits. The governing conclusion is accordingly not one of automatic portal-based allowance; it is entitlement upon verification of actual deduction. Proof without Form 16 or Form 16A Form 16 and Form 16A remain valid and important evidence where available. But in a non-deposit case, their absence cannot be treated as conclusive. The electronic sequence ordinarily requires payment, statement filing and system generation. Consequently, insistence on a certificate as the sole proof would create a closed evidentiary loop: the very default that causes the claim would also deprive the deductee of the stipulated proof. For salary income, cogent material may include salary slips reflecting gross salary, tax deduction and net salary; the appointment letter, offer letter or employment contract coupled with bank statements reflecting net salary; employer payroll wor....
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....eparately examined the consequences of a mismatch. It held that Section 205 bars both direct recovery and indirect recovery through adjustment of a future refund. Its practical importance lies in recognising refund adjustment as an impermissible form of recovery from the deductee. 2023 (11) TMI 808 - DELHI HIGH COURT went beyond non-recovery and upheld the deductee's entitlement to credit despite non-deposit and non-reflection in Form 26AS. It reasoned that withholding from income does not permit the Revenue to shift the deductor's remittance default to the person from whose income tax was retained. 2018 (9) TMI 1635 - GUJARAT HIGH COURT treated Form 16A as documentary proof of deduction and directed grant of credit despite the employer's non-deposit. It also required restoration of amounts adjusted from later refunds, preserving the distinction between recovery from the deductor and prejudice to the deductee. 2019 (1) TMI 1612 - BOMBAY HIGH COURT affirmed a verification-based approach where supporting evidence was produced despite a Form 26AS mismatch. It is important on proof because it requires the Assessing Officer to test the evidence and grant credit on v....
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....ischarges the taxpayer's primary burden, leaving the Revenue to verify the claim and identify any infirmity. Its application is limited to the circumstances considered there, including verification of deduction and deposit, but it supports the proposition that Form 26AS is a reconciliation mechanism rather than an irrebuttable bar to credit. Practical Implications A taxpayer claiming unreflected TDS should make a focused written application before the jurisdictional Assessing Officer. The application should identify the income offered to tax, the gross amount, the TDS claimed, the net amount received, the deductor, the unavailable or non-reflecting certificate, and the supporting evidence. Documentary material should be organised payment-wise and reconciled with the return of income and bank records. Upon receipt of prima facie supporting material, the Assessing Officer is required to register and acknowledge the application, keep the corresponding demand in abeyance, and mark it appropriately as stayed, not recoverable or kept in abeyance so that coercive recovery and refund adjustment do not occur during verification. A reasoned order should be passed as expeditiousl....