Supreme Court Sets Aside HC Direction to CBDT to Modify Software for Automatic TDS Demand Relief [Read Order]

The Supreme Court has set aside directions issued by the Gujarat High Court to the Central Board of Direct Taxes (CBDT) for software modification so that no tax demands are raised in cases involving credit for Tax Deducted at Source (TDS). The Apex Court held that technology cannot replace adjudication by tax authorities.

The appeal was filed by the Income Tax Assessing Officer, Baroda, challenging paragraphs 10 and 11 of the High Court’s order. Granting relief to the assessee on merits, the High Court had directed the CBDT to make changes in its software so that no demand is raised in future in similar cases. The Revenue did not dispute the substantive relief granted to the assessee, Shobhan Shantilal Doshi, and confined its challenge solely to the directions issued to the CBDT.

Before the Supreme Court, the Revenue argued that grant of TDS credit depends on verification of factual aspects such as whether tax was actually deducted by the payer and whether the same was correctly reflected. It was submitted that unless the Assessing Officer is made aware of such facts, liability cannot be automatically waived. Any modification to the software could result in genuine demands being ignored, as different factual situations may require manual examination after issuance of a show cause notice.

The Court observed that software systems are meant to assist in data processing and administrative functions. They cannot substitute the role of Assessing Officers in adjudication. It was noted that automated changes may prevent scrutiny even in cases involving incorrect or excessive claims of TDS credit.

The Bench, comprising Justice Rajesh Bindal and Justice Vijay Bishnoi, directed the appeal to be disposed of with the aforesaid directions in the impugned order.

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