IBC Proceedings against Employer Not a Ground to Deny TDS Credit to Employee: ITAT [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Delhi bench has held that the proceedings under the Insolvency and Bankruptcy Code(IBC) against the employer-Company cannot be a ground to deny TDS credit to the assessee.

The appellant, Mr. Sanjay Gupta was denied of TDS credit of TDS of INR 12,74,469 on the ground that out of total credit of INR 12,74,469 claimed, credit for TDS of INR 12,24,376 deducted by Era Infra Engineering Ltd (EIEL) (the employer) was not allowable to the assessee despite being duly claimed in the return of income. The department was of the view that the same was not allowed to the assesseefor the reason that such TDS was not reflected in Form 26AS available.

On appeal, the CIT(A), upheld the order considering the factthatthe employer is under insolvency resolution plan where the revenue has already made a claim in regard to outstanding TDS and in regard to relevant financial year order u/s 201(1A) of the Act dated 28.03.2017 for recovery of demand of 16.59 crores have been issued.

The assessee contended that as he has already suffered TDS denying its credit will lead to double taxation.

A bench of Sh. Shamim Yahya, Accountant Member and Sh. Anubhav Sharma, Judicial Member observed that the income tax department has already made claim to the extent of Rs. 24,79,45,328/- which is admitted under the Corporate Insolvency process as on 07.03.2022.

Section 31(1) of the Insolvency and Bankruptcy Code after the amendment of 2019, makes the Resolution plan binding on Central Government in respect of payment of dues arising under any law for the time being enforce. Further section 238 of the IBC specifically provides that the IBC overrides the provisions of any law that is inconsistent with the IBC.

“In the case in hand EIEL was an assessee in default u/s 201 of the Act and sub-section 2 of Section 201 provides that such tax along with interest thereupon as recoverable under sub-section (1A), shall be a charge upon all the assets of the assessee in default,” the Tribunal said.

Granting relief to the assessee, the Tribunal held that “It is admitted fact that order u/s 201/ 201(1A) of the Act for the relevant financial year stands passed against the assessee in default EIEL who was employer of the appellant. That being so, having taken recourse under law by raising a demand for non-deposition of TDS u/s 201 and interest u/s 201(1A) of the Act and which stands further determined andadmitted under the Corporate Insolvency Resolution Process then there could have been no justification under law to deny the credit to the assessee because as such the Government’s claim of TDS stands satisfied and cannot be said to be still outstanding.”

“Even otherwise Section 205 of the Act is very crystal clear in its intention and clarifies that where tax stands deducted at source the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from the income. In the case in hand as noticed above, the deduction of tax from the salary of assessee is not disputed and Government’s claim of TDS stands satisfied under CRP and cannot be said to be still outstanding so as to deny its credit to the assessee,” the Tribunal added.

Noting that the CIT(A) failed to appreciate that there is no provision under law for creating such a liability upon any individual by attributing malice upon him for being party to the default in deposit of TDS, the Tribunal held that “the Appellant was for all purposes merely an employee who was being paid salary by the company which has a distinct and independent identity to its employees. Ld. Counsel appearing for the assessee has also established by an admitted pay slip for the December, 2015 available on page no. 62 of the paper book that in fact the assessee had left the services working for 30 days in December, 2015. Thus, at the time of end of relevant FY, the assessee was not even in position of any nature qua responsibility to deposit the TDS on behalf of the assessee in default.”

To Read the full text of the Order CLICK HERE

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