The CBDT has issued a letter dated 1st June 2015 stating that grievances have been received by the Board from many taxpayers that in their cases the deductor has deducted tax at source from payments made to them in accordance with the provisions of Chapter XVII of the Income-tax Act but has failed to deposit the same into the Government. The CBDT has pointed out that under section 205 of the Act, the assessee shall not be called upon to pay the tax to the extent that tax has been deducted from the income. It has emphasized that the Act puts a bar on direct demand against the assessee in such cases and the demand on account of tax credit mismatch cannot be enforced coercively. The CBDT has asked all assessing officers not to put the assessees to any inconvenience on account of the default of tax info into the Government account by the deductor.
I agree with Shri Vswamy. The heading to section 205 of income tax act, 1961 is ” Bar against direct demand on assesse”. CBDT should direct the CPC/AOs not to even raise such bogus and infructous demand against the taxpayer when the act itself bars raising such demand . Strict action including penalty and prosecution should be taken against defaulting deductors who fail to deposit the TDS after deducting.
As commented, sharing own thoughts elsewhere:
In view of the unambiguously provided legal bar on direct demand (sec 205), AO cannot, not only enforce as said, but even raise a demand as not said. As such, any step for enforcement , coercively, or even otherwise, is a non-starter. A better and more specific , accordingly worded, directive was therefore called for; so that, the indisputable correct legal position, -that has , for no rhyme or reason, so far not been taken a serious note of by many AOs hence being violated with impunity , comes to be made more than clear and binding once for all.
All the more reason for doing so; as otherwise taxpayer/ refundee will be put to hardship and avoidable hassle of running around for remedy, should AO / the AO –in-charge at CPC issue a demand notice , without first making a proper enquiry with and exploring action first against deductor, – thereby taxpayer being slapped (lapped !) with a demand , which is simply non-est , so not enforceable.
In this context, yet again a pointed mention is called for, of the TDS requirement under sec 194 IA. As analysed and for reasons brought out in the Article published on this website long ago, the provision, as presently worded / framed suffers from more than one material lacuna, seemingly having potentials to give rise to problems, among others in regard to allowance of credit for TDS in cases of compliance and TDS been paid; that is, despite the deficiencies in the enactment. Refer Links: @ @Section 194 IA And Section 194 IA Supplement – See more at: http://taxguru.in/…/law-and-vs-case-law-on-flats-a-critical…
Needless to repeat, except to reiterate own conviction reinforce the shared viewpoints , – if as canvassed therein are not without merits but deserve due consideration, might be prudent to do so ; earlier the lacnae plugged in, the better, for both the Revenue and taxpayers – i.e. decductor and deductee alike.