In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Chandigarh bench has held that the employee cannot be treated as “TDS defaulter” for the fault on the part of the employer who does not remitted the collected TDS to the Government.
Smt. Diva Singh (Judicial Member) has also held that the in such cases, interest under sections 234A, 234B and 234C cannot be levied on the employee.
The assessee, Mr. Gurpreet Mohan Singh is a retired army officer. Credit of the said TDS was denied to the assessee on the ground that the employer had not deposited the same to the credit of the Government of India. The unfairness of the said action was challenged in the proceedings under section 154 before the AO. It was submitted that it had been argued that the salary received by the assessee was minus the TDS. Form No.16 issued to the assessee in support thereof was relied upon. It was submitted that the assessee has no control over the employer. The Rectification application filed by the assessee before the AO was dismissed requiring the assessee to ask his employer to update TDS data online vide order dated 18.06.2020 passed u/s 154 of the Act. The fact that as far as the assessee is concerned, the amount stood deducted is not disputed by the Revenue also. AO also imposed interest under section 234A, 234B and 234C.
The Tribunal observed that section 203 casts the duty on the person deducting tax to prepare statement for such period giving the details of the tax deducted at source and remit it to the credit of the Central Government in the prescribed form and if such a person fails to remit the same, then the provision provides that he would be treated as assessee in default u/s 201(1) of the Income Tax Act.
“It may also be relevant to refer to Section 205 of the Act which restricts the tax authorities from enforcement of any demand on the assessee payee in so far as the amount of tax which had been deducted by the payer and not deposited with the Government,” the Tribunal said.
Regarding the levy of interest, the Tribunal held that “the directions given in para 8 which have caused the assessee to come in appeal before the ITAT, at best can be considered to be ambiguous and at worst the directions were not called forth and infact can be said to be contrary to law. The reason for holding directions to be ambiguous is on account of the fact that levy of interest u/s 234A, 234B and 234C is consequential to the additions made/sustained in the assessment order. Thus, where the addition stood deleted holding that in the facts of the present case, the assessee cannot be said to be an assessee in default. The occasion to attract charging of interest u/s 234A, 234B and 234C did not arise and hence, the alarm of the assessee can be said to be misplaced.”
Concluding the order, the Tribunal held that “The legislature in very clear terms has already factored the factum of TDS deducted by the deductor. Credit of the said deduction is clearly embedded in the calculation of amount of tax on the total income as considered in Section 234A; and assessed tax as applicable in Section 234B and tax due on the returned income to be considered for Section 234C. Thus, I find that the tax authorities are necessarily bound to factor in the deduction made on behalf of the assessee to the tune of Rs.9,37,296/-. Any other shortfall in the assessed tax and tax on total income or tax due on the returned income would be the only limited areas open to the AO. As far as the present issue of non deposit of the tax deducted from the salary of the assessee in the present case is concerned, the provisions of Section 234A, 234B and 234C would have no role to play.”
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