CHANDRASHEKHAR SADASHIV POTPHODE, PUNE V. CIT(Appeals), Delhi

ITA 509/PUN/2022

AI Insights

The case revolves around the denial of TDS credit to the appellant, Chandrashekhar Sadashiv Potphode, for the assessment years 2018-19 and 2019-20. The appellant's employer, M/s Nilkamal Lifestyle Limited, deducted TDS from the appellant's salary but failed to deposit it with the government. Consequently, the Central Processing Centre (CPC) denied the TDS credit, leading to a tax demand. The appellant contested this decision, arguing that the failure to deposit the TDS was not his fault and that he should not bear the tax liability for the employer's default. The Tribunal agreed with the appellant, citing legal precedents that the tax liability should not fall on the employee when the employer, as the deductor, fails to deposit the TDS.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 136331 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 26-12-2022
• Assessment Year: 2019-2020
• Appeal Filed On: 03-07-2022
• Other Referred Cases: Yashpal Sahni vs Rekha Hajarnavis, ACIT, Ashok Kumar B. Chowatia Vs JCIT (TDS)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; TDS
• Section: 143(1); 205; 250; 201; 192

Judgement Text

॥ आयकर अपीलीय न्यायाधिकरण, पुणे “सी” न्यायपीठ, पुणे में ॥ ITAT-Pune Page 1 of 9 IN THE INCOME TAX APPELLATE TRIBUNAL, PUNE “C” BENCH, PUNE BEFORE HON’BLE SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI G. D. PADMAHSHALI, ACCOUNTANT MEMBER आयकर अपीलसं. / ITA No. 508 & 509/PUN/2022 कर धििाारण वर्ा / Assessment Year :2018-19 & 2019-20 Chandrashekhar Sadashiv Potphode, Y-105, Rohan Mithilla, Lohegaon, Pune. PAN : AGCPP9492P . . . . . . . अपीलाथी / Appellant बिाम / V/s. Deputy Commissioner of Income Tax CPC, Bengaluru. . . . . . . .प्रत्यथी / Respondent द्वारा / Appearances Assessee by : Ms. Vishaka for Satish Shanbhag Revenue by : Shri Suhas Kulkarni सुनवाई की तारीख / Date of conclusive Hearing : 27/12/2022 घोषणा की तारीख / Date of Pronouncement : 06/01/2023 आदेश / ORDER PER G. D. PADMAHSHALI, AM; By the Present bunch of appeals, the appellant challenges the order of National Faceless Appeal Centre, Delhi [for short “NFAC”] dt. 09/05/2022 passed u/s 250 of the Income Tax Act, 1961 [for short “the Act”] confirming the denial of TDS credit by the Deputy Commissioner of Income Tax, Central Processing Centre, Bengaluru [for short “CPC / AO ”] u/s 143(1) of the Act for assessment years [for short “AY”] 2018-19 & 2019-20. Chandrashekhar Sadashiv Potphode ITA No.508 & 509/PUN/2022 PAN: AGCPP9492P ITAT-Pune Page 2 of 9 2. Since the issue involved in this bunch of appeals is identical, with the agreement of parties present, the matter is heard together for a consolidated order, resultantly the adjudication in lead case ITA/508/PUN/2022 positioned in succeeding paragraphs, shall mutatis mutandis apply to ITA/605 to 509/PUN/2022. 3. Brief stated the facts of the case are; 3.1 The appellant assessee is a resident individual filed his return of income [for short “ITR”] for AY 2018- 19 declaring total income of ₹25,88,794/- which inter alia included net salary income of ₹22,33,914/- accrued / received from his employer M/s Nilkamal Lifestyle Limited with the corresponding Tax Deducted at Source [for short “TDS”] claim of ₹4,34,184/-. The ITR was summarily processed u/s 143(1) of the Act, identifying mis-match of TDS credit against salary income declared M/s Nilkamal Lifestyle Limited and culminated the processing with an equivalent demand on account of “Zero” credit appearing in Form No 26AS thereagainst. Chandrashekhar Sadashiv Potphode ITA No.508 & 509/PUN/2022 PAN: AGCPP9492P ITAT-Pune Page 3 of 9 3.2 Aggrieved assessee challenged the denial of TDS credit against the salary income received from M/s Nilkamal Lifestyle Limited, before the first appellate authority [for short “FAA”], who in the absence of proof of deduction countenanced the denial of TDS credit and confirmed the action of CPC. 4. Hurt by the action of both the tax authorities below [for short “TAB”], the assessee brought up the matter before the Tribunal seeking relief against the denial of TDS credit on the following grounds of appeal; “1. The Ld. CIT(A) have completed the Appellate Proceedings without considering the facts & circumstances of the case, which is contrary to law and is against the principles of natural justice. 2. The Ld. CIT(A) has erred in not giving the benefit of TDS credit of Rs.4,34,184 deducted on salary u/s. 192 to the appellant because the employer has not deposited the same to the Government, which is beyond the control of appellant. 3. The Ld. CIT(A) has erred in not affording reasonable opportunity of submitting the proof of TDS deduction in possession of the appellant, received through registered email-id of the employer (Nirmal Lifestyle Private Ltd.); and proceeding to deny TDS credit merely on that ground. Chandrashekhar Sadashiv Potphode ITA No.508 & 509/PUN/2022 PAN: AGCPP9492P ITAT-Pune Page 4 of 9 4. The Ld. AO and CIT has erred in not appreciating that the appellant is not at fault since as per the provisions of Sec. 192, when a person responsible for deduction of TDS has deducted the TDS, it becomes his liability to deposit the amount deducted with the Government and also furnish the TDS returns so as to enable the deductee/employee to claim credit thereof as per Form26AS. 5. The Ld. AO and CIT have erred in appreciating that where the person (employer) having deducted the TDS has failed to make payment to the Government, the department cannot make the employee to pay for such failure on the part of the employer. 6. The Ld. CIT(A) has erred in ignoring various judicial pronouncements relied upon by the appellant during the course of appeal proceedings. 7. The appellant craves leave to add, alter, modify, amend or substitute all or any of the above grounds of appeal.” 5. During the course of hearing, the learned counsel for the assessee [for short “AR”] contended that, the tax demand raised against the assessee on account of “zero” TDS credit appearing against salary was indeed already deducted by the employer u/s 192 by way TDS from the salary, however, the deductor-employer Chandrashekhar Sadashiv Potphode ITA No.508 & 509/PUN/2022 PAN: AGCPP9492P ITAT-Pune Page 5 of 9 failed to deposit such TDS to the credit of Central Government. Therefore, for the failure of deductor- employer i.e. being an assessee in default in terms of section 201 of the Act, the assessee can’t be saddled with tax liability twice. Au contraire, the learned departmental representative in the evince of Form No 26AS deciphering the factual position of “zero” TDS credit against the salary income accrued to appellant assessee from M/s Nilkamal Lifestyle Limited, has strongly supported the order of Ld. TAB 6. After hearing to rival contentions of both the parties; and subject to the provisions of rule 18 ITAT, Rules, 1963 perused case records, case laws relied upon by the appellant as well the respondent and duly considered the facts of the case in the light of settled legal position forewarned to parties present. 7. In the present case, undisputedly the appellant was employed with M/s Nilkamal Lifestyle Limited on a salary and the accrual / receipt of which is offered to tax with the corresponding claim of TDS made u/s 192 Chandrashekhar Sadashiv Potphode ITA No.508 & 509/PUN/2022 PAN: AGCPP9492P ITAT-Pune Page 6 of 9 of the Act by the employer thereagainst. The case of the revenue is that, the appellant is not entitled to credit of TDS owning to failure of deductor-employer to deposit the said amount of TDS to the credit of Central Exchequer and reporting thereof through filing of TDS return viz 24Q. Per contra in support of “Annexur-2” a document showcasing the deduction of taxes from salary, the appellant denies the tax demand raised on account of denial of TDS credit resulted on account of non-deposit by employer. 8. In this context, it shall be suffice to voice that, there are two methods by which tax liability under the Act can be discharged i.e. direct method where the payment of taxes is made by the assessee-taxpayer directly in the form of advance tax & self-assessment tax and indirect method where taxes are deducted & paid on behalf of the assessee i.e. through TDS mechanism and it shall not be out of the box to quote from the decision Hon’ble Bombay High Court laid in “Yashpal Sahni vs Rekha Hajarnavis, ACIT”, reported in 293 ITR 539 that; Chandrashekhar Sadashiv Potphode ITA No.508 & 509/PUN/2022 PAN: AGCPP9492P ITAT-Pune Page 7 of 9 "15. Chapter XVII of the Income Tax Act, 1961, provides for collection and recovery of tax by two modes. They are (one) directly from the assessee and (two) indirectly by deduction of tax at source. In the present case, we are concerned with the second mode of recovery, namely, recovery of tax by deduction at source. 9. In the matter of recovery of taxes it’s worthy to note that, once the tax liability of the assessee is discharged by indirect method of TDS, then the rule of estoppel by virtue of provisions of section 205 of the Act comes into play, which invariably puts an embargo on the department from enforcing the recovery of taxes from the assessee where tax is deductible at the sources under chapter XVII of the Act from the payment liable for TDS and as such TDS has been deducted therefrom. Thus TDS being one of the two modes of recovery of taxes envisaged in the Act obliterates the assessee from the tax liability and we find that, vide para 33, a similar view found taken by the Hon’ble Madras High Court in “Ashok Kumar B. Chowatia Vs JCIT (TDS)” reported in 435 ITR 449; Chandrashekhar Sadashiv Potphode ITA No.508 & 509/PUN/2022 PAN: AGCPP9492P ITAT-Pune Page 8 of 9 “33. To the extent tax was deducted by the second respondent and not remitted by the second respondent to the Income Tax Department, recovery can be only directed against the second respondent as the second respondent is the assessee in default. The petitioner cannot be made to pay tax twice. Recovery of any of such Tax Deducted at Source but not remitted by the second respondent has to be recovered only from the second respondent.” 10. In the present facts and circumstances, we are of the view that, the Revenue in terms of Section 205 of the Act, is restrained from enforcing any tax recovery against the assessee insofar as the demand with reference to the amount of tax which had been deducted by the employer from the salary accrued to assessee and assuming that the deductor-employer had not remitted the amount after its deduction to the Central Government, the only course open to the Revenue is to recover same from the very person who has deducted the TDS and not from appellant assessee. Thus in the light of aforestated discussion, we concur with the views of Ld. AR, and deem fit to set-aside orders of both the Ld. TAB as contra-legem. Chandrashekhar Sadashiv Potphode ITA No.508 & 509/PUN/2022 PAN: AGCPP9492P ITAT-Pune Page 9 of 9 11. Resultantly, both the appeal of the appellant assessee is ALLOWED in above terms. In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Friday 06 th day of January, 2023 -S/d- -S/d- S. S. GODARA G. D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / PUNE ; दिन ांक / Dated : 06 th day of January, 2023. आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1.अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The NFAC, New Delhi 4. The CIT Concerned, Pune 5. DR, ITAT, Pune “C” Bench, Pune 6. ग र्डफ़ इल / Guard File. आिेश नुस र / By Order, वररष्ठ दनजी सदिव / Sr. Private Secretary आयकरअपीलीय न्य य दिकरण, पुणे / ITAT, Pune.