In many cases, assessees are confronted with tax demands solely on the ground that the credit of Tax Deducted at Source (TDS) claimed by them is not fully or correctly reflected in Form 26AS, despite the fact that tax has actually been deducted at source and the corresponding TDS certificates such as Form 16, Form 16A or Form 16B have been duly issued. Such discrepancies generally arise due to technical or system-related issues, incorrect reporting, or mismatches in PAN–TAN mapping, rather than any lapse on the part of the deductee.

Under the scheme of the Income-tax Act, 1961, Section 199 provides that credit for TDS shall be given to the person from whose income the tax has been deducted. Further, Section 205 expressly mandates that where tax is deductible at source, the assessee shall not be called upon to pay the tax himself to the extent to which such tax has been deducted from his income. These provisions make it clear that once tax is deducted at source, the liability of the deductee stands discharged to that extent.

The legal position on this issue has been conclusively settled by judicial pronouncements. The Gujarat High Court, in the case of Sumit Devendra Rajani v. Assistant Commissioner of Income Tax (2014) 369 ITR 673 (Guj), held that where TDS has been deducted and the deductor has issued the relevant TDS certificates, the credit of such tax cannot be denied to the deductee merely because the same is not appearing or not fully matching in the Income Tax Department’s system or in Form 26AS. The Court observed that in view of Section 205, the assessee cannot be subjected to double taxation and any failure in reporting or system reflection cannot be a ground to deny legitimate credit.

The Court further clarified that if there is any default in deposit or reporting of TDS, the remedy available to the Department lies against the deductor, and not against the deductee, who has no control over the compliance of the deductor once tax has been deducted from his income. Consequently, demands raised against the deductee in such circumstances were held to be unsustainable in law.

This view is consistent with earlier decisions of various High Courts, including Yashpal Sahni v. ACIT (2007) 293 ITR 539 (Bom), ACIT v. Om Prakash Gattani (2000) 242 ITR 638 (Gau), and DIT (International Taxation) v. NGC Network Asia LLC (2009) 313 ITR 187 (Bom). These judgments uniformly hold that the deductee cannot be penalised for defaults, omissions, or technical lapses attributable to the deductor or system-level deficiencies.

The underlying legal principle is that deduction of tax at source is one of the recognised modes of collection of tax. Once this mode is adopted and tax is actually deducted, the deductee’s obligation is fulfilled, and the Department cannot seek to recover the same tax again from the deductee merely because of non-reflection or partial reflection of credit in Form 26AS. System-generated statements cannot override the statutory protection granted under Section 205 of the Act.

Accordingly, where TDS has been deducted, income has been received net of tax, and valid TDS certificates are available, the Department is legally bound to grant credit of such TDS, irrespective of any mismatch or non-reflection in Form 26AS. Any demand raised solely on this basis is purely technical in nature and is not sustainable in law.

In conclusion, the law is well settled that denial of TDS credit on account of system mismatch or non-reflection in Form 26AS is impermissible. Sections 199 and 205 of the Income-tax Act, 1961, read with consistent judicial precedents, protect the deductee from double taxation, and any grievance of the Department must be addressed against the deductor and not the deductee.

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