Mumbai branch of the Income Tax Appellate Tribunal (ITAT) has clarified that employees can still receive credit for tax that has been deducted from their salaries. This is true even if their employers failed to send that tax money to the government.
The tribunal asked the income tax officer to provide TDS credit to the salaried taxpayer after checking that the deduction was shown in her salary records (such as monthly salary vouchers and Form 16).
For FY 2018-19, the taxpayer had submitted her income tax return and had reported an income of Rs 18.4 lakh. She claimed a TDS credit of Rs 3.9 lakh. But, at the time of processing the ITR, the Central Processing Centre (CPC) permitted a credit of only about Rs 79,000, resulting in a tax demand of nearly Rs 3.4 lakh.
The employer, an IT services firm, is accused of only partially submitting employee income tax deductions to the government, leading to a tax shortfall. Therefore, the full TDS was not shown in the taxpayer’s Form 26AS (which provides details of tax deducted/collected at source and advance tax payments).
The taxpayer engaged in rectification proceedings with the CPC for a number of years.
When previous attempts were unsuccessful, she filed an appeal, which was subsequently denied by the Commissioner (appeals) on the grounds of being out of time.
The taxpayer submitted salary slips, Form 16, and bank statements to the ITAT to prove that tax was deducted from her salary and that she received only the net salary.
The tax tribunal noted the Commissioner (appeals) should have excused the late appeal filing because the taxpayer was actively seeking rectification from the CPC. Crucially, it ruled that the taxpayer shouldn’t be penalised for the employer’s failure to deposit TDS.
The ITAT placed reliance on precedents of the Supreme Court and a High Court and ruled that no tax demand could be raised against an employee where tax had earlier been deducted from the salary. The bench asked the IT officer to check the claim of the taxpayer and authorise the full TDS credit.
| Case Title | Ms. Sophia Rick vs ITO Ward 42(1)(5) |
| Case No. | ITA No.3362/MUM/2026 |
| For Petitioner | Assessee-in-person (Virtual) |
| For Respondent | Sh. Nishant Somaiya (CIT) – Ld. DR |
| ITAT Mumbai | Read Order |
