Facts of the Case

  • The Petitioner, BDR Finvest Pvt. Ltd., advanced a loan to Ninex Developers Ltd. during FY 2018–19 (AY 2019–20).
  • Interest was paid after deduction of tax at source (TDS) amounting to ₹29,16,674.
  • Initially, the Petitioner did not claim TDS credit in its return filed on 10.08.2019, but later claimed it in a revised return dated 12.12.2019.
  • The TDS credit was disallowed during processing under Section 143(1), and a rectification application under Section 154 was also rejected on 25.06.2020.
  • The deductor (Ninex) had deducted TDS but failed to deposit it with the Government and was undergoing Corporate Insolvency Resolution Process (CIRP).

Issues Involved

  1. Whether recovery of TDS can be made from the deductee (assessee) when tax has already been deducted but not deposited by the deductor?
  2. Whether the assessee is entitled to TDS credit even if such amount is not reflected in Form 26AS due to non-deposit by the deductor?

Petitioner’s Arguments

  • TDS was duly deducted from its income; hence, it cannot be denied credit.
  • The failure of the deductor to deposit tax cannot prejudice the deductee.
  • Reliance was placed on legal principles under Section 205, which bars recovery from the assessee where tax is already deducted.
  • Certificate issued by the Resolution Professional confirmed deduction of TDS.

Respondent’s Arguments

  • As per Section 199 of the Income Tax Act, credit of TDS can only be granted when the amount is deposited with the Central Government.
  • Since the amount was not reflected in Form 26AS, credit could not be allowed.
  • Therefore, the Assessing Officer rightly restricted the TDS credit.

Court Findings / Order

  • The Court relied on Sanjay Sudan v. ACIT (2023) and held:
    • Under Section 205, once tax is deducted, the assessee cannot be asked to pay it again.
    • Denial of credit would amount to indirect recovery, which is impermissible.
  • The Court clarified that:
    • Deduction of TDS is part of tax collection mechanism.
    • The deductor acts as an agent of the Government.
    • Failure of the deductor to deposit tax cannot harm the deductee.
  • Final Directions:
    • TDS credit of ₹29,16,674 must be granted to the Petitioner even if not reflected in Form 26AS.
    • Order dated 25.06.2020 under Section 154 was set aside.
    • Revenue may proceed against the deductor for recovery.

Important Clarifications

  • Section 205 creates a statutory bar against recovery from the deductee.
  • Section 199 cannot override Section 205 to deny legitimate TDS credit.
  • Adjustment of demand against refunds also amounts to indirect recovery and is not permissible.
  • The Government’s remedy lies against the deductor, not the assessee.

Sections Involved

  • Section 154 – Rectification of Mistake
  • Section 143(1) – Processing of Return
  • Section 199 – Credit for TDS
  • Section 205 – Bar against direct demand on assessee

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS31102023CW90432021_135616.pdf


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