No recovery from assessee where tax has been deducted but not deposited by deductor

SECTION 199 OF THE INCOME-TAX ACT, 1961 — DEDUCTION OF TAX AT SOURCE — CREDIT FOR TAX DEDUCTED — NON-DEPOSIT OF TAX DEDUCTED AT SOURCE BY THE DEDUCTOR

OFFICE MEMORANDUM F.NO.275/29/2014-IT(B), DATED 11–3‑2016

Vide let­ter of even num­ber dat­ed 1–6‑2015, the Board had issued direc­tions to the field offi­cers that in case of an assessee whose tax has been deduct­ed at source but not deposit­ed to the Gov­ern­men­t’s account by the deduc­tor, the deductee assessee shall not be called upon to pay the demand to the extent tax has been deduct­ed from his income. It was fur­ther spec­i­fied that sec­tion 205 of the Income-tax Act, 1961 puts a bar on direct demand against the assessee in such cas­es and the demand on account of tax cred­it mis­match in such sit­u­a­tions can­not be enforced coercively.

2. How­ev­er, instances have come to the notice of the Board that these direc­tions are not being strict­ly fol­lowed by the field officers.

3. In view of the above, the Board here­by reit­er­ates the instruc­tions con­tained in its let­ter dat­ed 1–6‑2015 and directs the assess­ing offi­cers not to 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. These instruc­tions may be brought to the notice of all assess­ing offi­cers in your Region for compliance.

This issues with the approval of Mem­ber (Rev­enue &TPS).