A Kolkata ITAT ruling brought major relief to salaried taxpayers, holding that TDS credit cannot be denied even if the employer fails to deposit the tax with the government. The Tribunal said employees cannot be penalised for employer defaults and directed the tax department to grant full credit.
Imagine checking your Form 26AS and realising that the tax deducted from your salary never actually reached the government. Worse, the tax department then denies you the credit for it.
That’s exactly what happened in a recent case — and the Income Tax Appellate Tribunal (ITAT) has now stepped in with a clear message: a taxpayer cannot be punished for the employer’s fault.
What was the case about?
The case involved Deepak Kumar Ruia vs DCIT (Kolkata ITAT, order dated May 20, 2024) for Assessment Year 2016–17.
The taxpayer, a salaried employee of Falcon Tyres Pvt Ltd, had TDS of Rs 17.97 lakh deducted from his salary. However, the employer failed to deposit this TDS with the government and eventually went into liquidation.
Despite this, the taxpayer filed his return and declared income of Rs 93.23 lakh (later revised to Rs 85.37 lakh). He claimed TDS credit including salary and interest income and also sought refund of around Rs 1.41 lakh.
Where did the problem arise?
During assessment the Assessing Officer (AO) allowed TDS on interest income; but denied TDS credit on salary — solely because the employer had not deposited it. This resulted in a tax demand of Rs 15.85 lakh against the taxpayer.
The CIT(A) also upheld the AO’s decision, and the case was decided ex-parte.
What did the ITAT say?
The ITAT Kolkata bench took a firm view — and overturned the earlier orders.
Key observation:
The Tribunal noted that tax was actually deducted from the employee’s salary. The only lapse was non-deposit by the employer. And that changes everything.
Why the ruling matters
The ITAT made a crucial distinction:
Deduction of TDS = responsibility of employer fulfilled (towards employee)
Deposit of TDS = employer’s obligation to government
So, if the employer defaults, the tax department must recover from the employer — not the employee.
CBDT circular backs taxpayers
The Tribunal relied on a CBDT circular (2016) which clearly states that if TDS is deducted but not deposited, no direct recovery should be made from the taxpayer to that extent. Yet, the Tribunal noted that field officers often fail to follow this.
Legal interpretation strengthened
The ITAT also clarified: that under Section 143(1), adjustments cannot deny rightful TDS credit. Once TDS is deducted, it is treated as tax paid on behalf of the assessee and credit should not depend on whether the employer deposited it.
Precedents support the view
The bench referred to earlier rulings also. All of which consistently held that employees should not suffer for employer defaults.
Final verdict
The ITAT ruled in favour of the taxpayer, stating that full TDS credit must be allowed. The order set aside the demand raised by the assessing officer.
“The assessee cannot be called upon to pay tax again where TDS has already been deducted,” the ruling said.
What this means for taxpayers
This ruling is particularly important for salaried employees in companies facing financial stress, cases where Form 16 shows TDS but Form 26AS doesn’t. Situations involving company liquidation or defaults.
The takeaway is simple: If tax is deducted from your income, your right to claim credit remains intact — regardless of employer’s failure.
It is important to note that this is a ruling of the Income Tax Appellate Tribunal (ITAT). ITAT decisions can be challenged before the High Court and, thereafter, the Supreme Court. Therefore, legal positions may evolve depending on further appeals.
Disclaimer:
This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.
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