Employee cannot be called up to pay more taxes than the company has already deducted

Fact and issue of the case

The petitioner is an individual, seeking to challenge the action under Article 226 of the Constitution of India of cancelling the outstanding demand as reflected on income tax portal for the Assessment Year 2010-11, 2011-12 and 2012-13 and to quash the recovery notices dated 14.02.2020, dated 15.02.2020 and dated 14.02.2020 for the respectively assessment years, for recovering the unpaid TDS amount of the employer of the petitioner i.e. Kingfisher Airlines as well as seeking the refund of an amount which is adjusted against the outstanding demand

As averred, the petitioner is a pilot working with Indigo Airlines since 2013. During the Assessment Years 2010-11 to 2012-13, he was working with Kingfisher Airlines

The petitioner filed his return of income under Section 139 of the Income Tax Act (‘the Act’ for short) for AY 2010-11, 2011-12 and 2012-13

The notice was received from the office of the Assessing Officers on 19.11.2013 and 21.08.2014 seeking recovery of outstanding demand of Rs.19,40,707/- for Assessment Year 2011-12 and further notice of 03.03.2015 recovery of 25,12,913/- for Assessment Year 2012-13. In fact, the petitioner, as averred, is eligible for the refund of Rs.45,570/- for the AY 2012-13

The department has issued recovery notices. The petitioner approached his employer – Kingfisher Airlines, requesting to furnish the certificate in relation to the TDS amount deducted. Certificate was given along with the computation of salary on 19.11.2015 stating the Form-16 is under process and filing of annual TDS return will be completed shortly

The summary of income tax return and refund due to the petitioner is given below

Sr. No.	Asst. Year	Tax Payable`	Tax paid by TDS	Advance Tax	Self Assessment Tax	Refund as per ITR
1	2011-12	16,04,286	15,84,858	65,000	NA	45,750
2	2012-13	16,93,965	17,31,599	NA	NA	37,630
3	2013-14	17,17,358	18,60,410	NA	NA	1,43,050
4	2014-15	19,02,072	20,07,358	NA	NA	1,05,290
5	2015-16	21,55,917	22,03,117	NA	NA	47,200
6	2017-18	29,86,210	27,94,988	NA	1,91,220	NA
7	2018-19	32,60,344	27,81,751	2,70,000	2,08,590	NA
8	2019-20	30,09,273	30,14,452	NA	NA	23,150
9	2020-21	29,22,787	30,14,452	NA	NA	28,000
10	2021-22	13,42,951	14,99,507	NA	NA	1,56,560
Total Refund due						5,86,630

According to the petitioner, the promoter of Kingfisher Airlines – Mr. Vijay Malya got bankrupt, on 11.03.2016, the Government of India – Ministry of Finance circulated office memorandum amongst all the Income Tax Departmental Officers directing them not to raise any demand of taxes on account of mismatch of credit of TDS due to non-payment of TDS by the Kingfisher Airlines. Therefore, the present petition, with the following main prayers

Your Lordships may be pleased to issue a writ of certiorari / mandamus or writ in the nature of certiorari / mandamus quashing the impugned notices of recovery dated 14.02.2020 and 15.02.2020 for the Assessment Year 2010-11, 2011-12 and 2012-13 at Annexure – D (Colly.) and cancel the outstanding demand as reflected on Income Tax Portal for the Assessment Year 2011-12 and 2012-13 at Annexure – F

Your Lordships may be pleased to issue a writ of mandamus or writ in the nature of mandamus directing the respondent Assessing Offcier to return the amount of Rs.5,88,820/-, i.e. the amount of refund which is already adjusted against the amount due as per chart mentioned in para 3.4, with interest rate of 9% p.a. within a period of 6 weeks from the date of receipt of the copy of the judgment

During the pendency and final disposal of the present petition, Your Lordships may be pleased to stay the operation and implementation of the impugned notices of recovery dated 14.02.2020 and 15.02.2020 for the Assessment Year 2010-11, 2011-12 and 2012-13 at Annexure – D (Colly.) as well as direct the respondent not to take corrective action against the outstanding demand as reflected on Income Tax Portal for the Assessment Year 2011-12 and 2012-13 at Annexure – F

The affidavit-in-reply of the respondent disputes that the demand of refund on the ground that the credit of TDS of an assessee after granting the said TDS amount matched with e-TDS return filed by the tax deductor, would be otherwise automatic. However, in the case of petitioner, the system of Income Tax Department is not allowing any credit of TDS for AY 2010-11, 2011-12 and 2012-13 as per his claim. His return was processed under Section 143(1) of the Act without grant of credit of TDS and therefore, the demand has been raised for the respective assessment years, which includes tax and interest

According to respondent, the online credit of TDS claims for these years is not possible due to the reasons that credit of TDS is not shown by e-TDS data because of the system of the Income Tax Department

On hearing the learned advocate Mr. Darshan Gandhi for the petitioner and learned Senior Standing Counsel Mr. Nikunt Raval for the respondent – Authorities, this Court notices the Office Memorandum dated 11.03.2016 shows the non-deposit of tax deducted at source by the deductor – recovery of demand against the deductee assessee. The Board issued the direction to the Filed Officer that in case an assessee whose tax has been deducted at source but is not deposited to the Government’s account by the deductor, the assessee shall not be called upon to pay the demand to the extent tax has been deducted from his income. It was also specified that Section 205 of the I.T. Act puts a bar on direct demand against the assessee in such cases and the demand on account of tax credit mismatch in such situations cannot be enforced effectively

As some of such directions of the Board were not being strictly followed, the Board had reiterated the instructions contained in its letter dated 01.06.2015, directing the Assessing Officers not to enforce demands created on account of mismatch of credit due to non-payment of TDS amount to the credit of the Government by the deductor

Here is also the case where the petitioner is a pilot by profession and was an employee of Kingfisher Airlines, which has deducted the TDS from his salary for AY 2010-11, 2011-12 and 2012-13. It is not in dispute that such amount had not been deposited by the Airlines to the Central Government’s account and therefore, when the credit was claimed by the petitioner, obviously, the same was not given. Hence, the demand was raised with interest. The petitioner seeks to challenge this, relying on the decision of this Court in case of Kartik Vijaysingh Sonavane versus Deputy Commissioner of Income Tax – Special Civil Application No.6193 of 2021, dated 15.11.2021, wherein similarly situated assessee, the Court allowed the petition, directed the department not to deny the benefit of tax deducted at source by the employer during the relevant financial year. Relevant findings and observations of the same are necessary to reproduce here, which are as under

Observation of the court

The above ratio would have direct applicability in the instant case. Reference of Section 205 of the I.T. Act is to the effect where it provides that the tax when is deductible at source, assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted form that income. Its applicability is not dependent upon the credit for tax deducted being given under Section 199 of the I.T. Act

Facts being identical, petition is allowed. The department shall not be denying the benefit of tax deducted at source by the employer during the relevant financial years to the petitioner. The credit of the tax shall be given to the petitioner and if in the interregnum, any recovery or adjustment is made by the department, the petitioner shall be entitled to the refund, with the statutory interest, within eight (08) weeks from the date of receipt of copy of this order

Petition is accordingly disposed off