Tax demands cannot be enforced against deductees if TDS has been deducted but not deposited by the deductor, as per Section 205 of the Income Tax Act.

JUDGMENT :

Bhargav D. Karia, J.

1. This Court passed the following order on 29.04.2024:

“1. Heard learned advocate Ms.Manini Bharti with learned advocate Ms.Jayani Shah for the petitioner. Learned advocate Ms.Shah has tendered draft amendment in both the petitions. The same is allowed in terms of the draft. To be carried out forthwith.

2. It was submitted by learned advocate for the petitioner that the respondent authorities have issued the intimation under Section 143(1) of the Income Tax Act, 1961 for the assessment year under consideration being A.Y. 2020-21 and 2021-22 and also intimated that the same may be considered as a notice of demand under Section 156(3) of the Act.

2.1 Learned advocate for the petitioner referred to and relied upon the Press Release dated 11th March, 2016 issued by the Central Board of Direct Taxes wherein it is mentioned that as per the Office Memorandum issued on 11th March, 2015 wherein it is re-emphasised that the Assessing Officer shall not 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. Reliance was also placed on the following orders.

(i) Shantanu Awasthi v. Income Tax Officer Ward 67(1), Delhi with other allied matters being W.P. (C) No.3518 of 2023 decided on 21st March, 2023 of Hon’ble High Court of Delhi;

(ii) Abhijit Bhave v. Income Tax Officer, Circle 67(1), Delhi being W.P. (C) No.3989 of 2023 decided on 29th March, 2023 Hon’ble High Court of Delhi;

(iii) Sachin S. Ghadge v. Income Tax Officer, Circle 22(1) & Ors. being Writ Petition No.1332 of 2023 with other allied matters decided on 17th July, 2023 of Hon’ble High Court of Bombay.

3. Considering the above submissions, issue Notice, returnable on 08th July, 2024.

4. In the meanwhile, the impugned demand notices shall remain stayed till the final disposal of the petition. Direct service, through email, is permitted.”

2. Thereafter, the following order was passed on 01.10.2024:

“1. Heard learned advocate Ms.Manini Bharti for the petitioners through video conferencing and learned Senior Standing Counsel Mr.Karan Sanghani for the respondent.

2. It was submitted by learned advocate Ms.Bharti for the petitioners that the petitioners are ex-employees of Karvy Stock Broking Limited and in spite of the fact that the tax was deducted from their salary but not deposited by the said Company and accordingly, the petitioners are subjected to assessment without giving the set off of the tax deducted from their salary.

3. This Court by order dated 29.04.2024 recording the facts of the case, issued the Notice and stayed the impugned notices till final disposal of the petition.

4. Today, learned advocate for the petitioners submitted that the petitioners are suffering continuous loss as they are not entitled to the refund because of the pendency of this proceeding.

5. Learned Senior Standing Counsel Mr.Sanghani submitted that in one of the matters, the reply is already filed by the respondent.

6. Considering the above submissions, list these matters for final disposal on 07.10.2024 on top of the Board.”

3. Learned advocate Ms. Manini Bharati for the petitioner submitted that the impugned intimation under section 143(1) of the Income Tax Act,1961 [for short ‘the Act’] was passed ignoring the Instruction No. 275/29/2014-IT-(B) dated 01.06.2015 issued by the Central Board of Direct Taxes [‘CBDT’ for short] as well as Office Memorandum F.No. 275/29/2014-IT(B) dated 11.03.2016. It was further submitted that the press release was also issued by the CBDT for non-enforcement of recovery of demand against the assessee where tax has been deducted but not deposited by the deductor based upon the aforesaid instruction and the Office Memorandum but, in spite of the same, the petitioners are subjected to inconvenience by raising the demand by the respondent.

4. It was submitted that the employer of the petitioners did not pay the Tax Deducted at Source from the salary of the petitioners for