What would you do if tax was deducted from your salary every month, but at the end of the year, the Income Tax Department sent you a notice saying that your tax hadn't been paid? Recently, a similar case came to light in Kolkata, where the Income Tax Appellate Tribunal (ITAT) provided significant relief to a distressed employee, setting a precedent.

Why should the employee be punished for the company's mistake?

This entire case revolves around an employee working at an ed-tech company. The company regularly deducted TDS (Tax Deducted at Source) from the employee's salary, totaling approximately Rs. 14.88 lakh. Ideally, the company should have deposited this money into the central government's account, but it failed to do so. When the employee filed his Income Tax Return (ITR) and claimed the tax credit for the Rs. 14 lakh deducted, the system rejected it. Not only that, but the department also issued a tax demand notice to the employee. The department argued that since the money had not reached the government treasury, the credit could not be granted.

The protection of 'Section 205.'

The employee did not give up, and the case reached the ITAT Kolkata. There, the employee's representatives, Advocate S.K. Tulsiram and FCA Abha Agarwal, strongly presented their case in court. They cited Section 205 of the Income Tax Act, which clearly states that if tax (TDS) has been deducted from a person's income, they cannot be asked to pay the same tax again.

The argument also referred to the CBDT (Central Board of Direct Taxes) instructions from 2015 and 2016, which clearly state that the taxpayer should not be harassed due to the fault of the deductor. In addition, previous judgments of the Mumbai ITAT and the Guwahati High Court were also cited, where similar cases were decided in favor of the taxpayers.

The Tribunal reprimands the authorities.

The ITAT Kolkata, while hearing the case, expressed displeasure at the attitude of the lower authorities. The tribunal stated unequivocally that judicial discipline must be followed. When higher courts or tribunals deliver a judgment, subordinate authorities must abide by it.

The court stated in its judgment that the Income Tax Department has the full authority under Section 201 to recover tax and penalties from the defaulting company (employer). However, the burden of its failure to recover the amount cannot be placed on the employee whose salary has already been subjected to tax deduction at source (TDS).

A major relief for salaried employees

The tribunal directed the Assessing Officer to give the employee full credit for the TDS deducted and to cancel the demand notice issued. The tribunal held that as soon as TDS is deducted from the salary, it is legally presumed that the employee has paid their tax. It is now a matter between the government and the company as to how the money reaches the government's account.

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