Assessee entitled to TDS credit even if employer fails to deposit TDS; recovery to be made from employer:ITAT
Aditya Ramniwas Dhoot v. DCIT | ITAT Mumbai Bench ‘A’ | IT Appeal No. 313 (M)/2025 | AY 2022-23 | Decided: 25 March 2025 | [2026] 187 taxmann.com 429 (Mumbai – Trib.)
Background
Aditya Ramniwas Dhoot, a salaried employee, filed his return of income for AY 2022-23 declaring total income of Rs. 70,36,750 and claimed credit for TDS of Rs. 18,10,000. His employer, M/s. IMP Powers Limited, had paid him salary of Rs. 57,50,000 and deducted TDS of Rs. 17,50,000 on it — but failed to deposit the deducted tax in the Government account. As a result, the TDS did not reflect fully in Form 26AS.
What the Authorities Did?
The CPC processed the return under section 143(1) and allowed TDS credit of only Rs. 60,000 against the Rs. 18,10,000 claimed, restricting the balance because the employer had not deposited the deducted tax. On first appeal, the Commissioner (Appeals) did not decide the matter outright but directed the AO to grant the assessee an opportunity of being heard, verify the TDS against Form 26AS and other relevant material to ascertain whether it related to income offered in the year, and then grant credit if the claim was found correct. The assessee, still aggrieved, carried the matter to the Tribunal, where the Revenue argued that since the employer had not deposited the TDS, credit could not be allowed.
What the Tribunal Held — Appeal Allowed
The Tribunal held that the assessee was entitled to full credit of the TDS deducted by his employer, even though it was never deposited with the Government. Reading sections 201 and 205 together, where an employer deducts tax but fails to remit it, the employer alone is “deemed to be an assessee in default,” and under section 205 the employee cannot be called upon to pay that tax again to the extent it has been deducted from his income.
The Bench followed the co-ordinate Bench decision in Aditya Deepak Nasta v. ITO [IT Appeal No. 3293/M/2024, dated 20.09.2024], which dealt with an identical situation. It also relied on the jurisdictional High Court ruling in Yashpal Sahni v. ACIT (293 ITR 539) (Bom) — holding that failure to issue Form 16 or deposit TDS does not shift liability from employer to employee, and the Revenue cannot recover the amount once again from the assessee — and on Kartik Vijaysinh Sonavane v. DCIT (440 ITR 11) (Guj), where the Department was precluded from denying the benefit of TDS deducted by the employer.
The AO was accordingly directed to grant the credit of TDS and re-compute the income. The Tribunal clarified that the Department remains at liberty to take recovery action against the employer for the deducted-but-undeposited TDS, but not against the employee.
Section 68 Addition Deleted Where Identity, Genuineness, Creditworthiness and Source of Source Established; TP Adjustments Remanded: ITAT
Nivaya Resources (P.) Ltd. v. DCIT | ITAT Delhi Bench ‘I’ | IT Appeal Nos. 4341 & 6052 (Delhi)/2024 | AY 2020-21 & 2021-22 | Decided: 29 May 2026 | [2026] 187 taxmann.com 72 (Delhi – Trib.)
Background
Nivaya Resources (P.) Ltd., a company engaged in trading of coal and oils, faced additions and adjustments across two assessment years. For AY 2020-21, it had credited an unsecured loan of Rs. 25.50 crore in its books on 31 March 2020, received from its director Ayush Goel (the cheques were actually encashed only in May–June 2020 in the following year). The source of the funds was traced through a chain: Ayush Goel had received the money from his relative Anita Goel, whose own funds came from her husband Sudhir Goel and son Prerit Goel, both out of their salary incomes.
Separately, in both years the company imported coal from its associated enterprise (AE) and benchmarked the transactions under the Resale Price Method (RPM), and also had outstanding trade receivables from foreign AEs.
What the Authorities Did?
On the loan, the AO treated the entire Rs. 25.50 crore as unexplained cash credit under section 68 read with section 115BBE, suspecting the routing of funds through Ayush Goel rather than directly from Anita Goel, and objecting to the credit being booked in AY 2020-21 although the money was received the next year. The DRP upheld the addition.
On transfer pricing for AY 2020-21, the TPO rejected one of the assessee’s six comparables, added five of his own, recomputed gross profit margins and fixed the median arm’s length margin at 10.23% against the assessee’s 4.01%, proposing an adjustment of Rs. 15.16 crore. For AY 2021-22, the TPO rejected RPM and the foreign AE as tested party, adopted the assessee as tested party, applied TNMM and proposed an adjustment of Rs. 5.38 crore. In both years, the TPO also treated outstanding receivables from AEs as a separate international transaction and imputed notional interest.
What the Tribunal Held — Section 68 Deleted; TP Issues Remanded
Section 68 (Rs. 25.50 crore unsecured loan): Addition deleted. The assessee had fully discharged its onus by establishing the identity, genuineness and creditworthiness of the lender, source and source of source through documentary evidence, and the assessments of those parties had been completed under section 143(3) with no adverse finding. The addition was based merely on suspicion.
Coal TP adjustment, AY 2020-21 (Rs. 15.16 crore): Remanded. The TPO had compared the assessee’s margin (after adjusting sales commission and freight/port clearance) against comparable margins without similar adjustments. To be recomputed on a like-to-like basis.
Coal TP adjustment, AY 2021-22 (Rs. 5.38 crore): Remanded. The AO/TPO had not followed DRP directions on tested party, comparables, Covid-related economic adjustment and opening stock. To be decided afresh by a speaking order.
Interest on receivables (both years): Remanded for verification. If the assessee charged no interest from unrelated customers, no interest is to be imputed on receivables from foreign AEs.
Result: AY 2020-21 partly allowed; AY 2021-22 allowed for statistical purposes.
Reassessment on a Loose Paper From a Third Party With No Nexus to Assessee — Reopening Quashed : Gujarat HC
Naveenchandra Prahladbhai Patel v. ITO | High Court of Gujarat | R/Special Civil Application No. 7431 of 2026 | AY 2018-19 | Decided: 8 June 2026 | [2026] 187 taxmann.com 377 (Gujarat)
Background
Naveenchandra Prahladbhai Patel had sold his land on 3 March 2018, and the sale deed on record showed it was sold as agricultural land. The Department later sought to reopen his assessment for AY 2018-19 on the strength of a loose paper recovered from a third party during search proceedings on the B Safal Group, City Estate Group, City Estate Management India and City Procon Realtors Pvt. Ltd. The loose paper referred to Revenue Survey No. 581, described the land as non-agricultural (NA) carrying a rate of Rs. 17,000 per square yard, and the only name appearing on it was one “Rajubhai Thakkar Dev” — who was neither a co-owner nor the purchaser and had no connection with the assessee.
What the Authorities Did?
The AO issued a notice under section 148 and passed a consequent reassessment order under section 147 read with section 143(3), treating the matter as one of unexplained money under section 69A. This was based solely on the loose paper, even though its data was largely illegible, it bore no link to the assessee, and the satisfaction note did not record any connection between the assessee and the searched entities. The assessee challenged the notice and order by way of writ petition before the High Court. The Revenue opposed the petition, arguing the assessee had ample opportunity to defend the reopening in the regular assessment proceedings and that the Court should not interfere at that stage.
What the High Court Held — Petition Allowed, Reopening Quashed
The Court held that the entire reopening rested on a loose paper that was illegible, sourced from an unrelated third party, and bore the name of a person with no connection to the assessee. The satisfaction note recorded no link between the assessee and the searched entities. Decisively, the sale deed on record established that the assessee had sold the land as agricultural land, whereas the loose paper described the land as “NA” (non-agricultural) — a contradiction that meant the price the Revenue assumed to allege escapement of income could only be a matter of hypothesis.
Following its own ruling in Deepak Chinubhai Shah v. Dy. CIT [2026] 183 taxmann.com 90 (Gujarat) — which had quashed reopening on identical facts and similarly worded loose papers arising from the same search — the Court held the reassessment was unsustainable in law. The impugned notice under section 148 and the consequent assessment order were quashed and set aside.
Section 80G Deduction Allowable on CSR Donations to an 80G-Approved Trust; 80-IA and TP Issues Remanded : ITAT
Cosmo First Ltd. v. DCIT | ITAT Delhi Bench ‘H’ | IT(TP) Appeal No. 49 (Delhi)/2025 | AY 2022-23 | Decided: 5 June 2026 | [2026] 187 taxmann.com 403 (Delhi – Trib.)
Background
Cosmo First Ltd., a company manufacturing bi-axially oriented polypropylene films and flexible packaging films, faced several disputes for AY 2022-23. During the year it incurred CSR expenditure of Rs. 3.55 crore — Rs. 2.80 crore contributed to Cosmo Foundation and Rs. 75 lakh towards other social work. In line with the law, it suo motu disallowed the entire CSR spend under section 37(1), but separately claimed deduction under section 80G of Rs. 1.40 crore, being 50% of the donation to Cosmo Foundation, which was a registered trust approved under section 80G.
The company also claimed an enhanced deduction under section 80-IA on profits from sale of power to its captive units (based on the Supreme Court ruling in CIT v. Jindal Steel & Power Ltd.), a deduction under section 80M, and faced transfer pricing adjustments — including interest imputed on outstanding receivables from its associated enterprises (AEs).
What the Authorities Did?
On the 80G claim, the AO denied the deduction on the ground that the contribution was a mandatory CSR expenditure and not a voluntary donation, and the DRP confirmed the disallowance. On 80-IA, the AO denied the enhanced claim. On transfer pricing, the AO framed the final assessment order making a TP adjustment of Rs. 11.48 crore — but the TPO then passed a giving-effect order to the DRP’s directions two days later, reducing the adjustment to Rs. 1.85 crore, which the AO had not factored in. The TPO had also treated receivables realised beyond the agreed credit period as capital financing to the AEs and imputed interest of Rs. 1.09 crore, which the DRP upheld.
What the Tribunal Held — Appeal Partly Allowed for Statistical Purposes
On Section 80G (CSR donation): The Tribunal allowed the deduction, following the assessee’s own case for AY 2020-21. It held that the issue is no longer res integra — the CSR character of a payment does not disentitle an 80G claim. Since CSR expenditure is an application of income, it continues to form part of total income, and section 80G falls in Chapter VI-A which operates only after gross total income is computed (including the Explanation 2 to section 37(1) disallowance); there is therefore no correlation between the suo motu section 37(1) disallowance and the 80G claim. The Bench also rejected the “mandatory, not voluntary” reasoning, noting that a donation is voluntary by virtue of being made without any reciprocal promise from the donee — equally true of CSR contributions. As Cosmo Foundation was an approved 80G trust and no other 80G condition was disputed, the deduction was allowed.
On Section 80-IA (power to captive units): Following the assessee’s earlier-year order and the Supreme Court in Jindal Steel & Power, the Tribunal held the enhanced claim was considerable but required factual verification. The issue was restored to the AO to verify the additional evidence and then allow the enhanced claim.
On Section 80M: Since the assessee had claimed the deduction of Rs. 33.34 lakh in its return but the assessment order contained no discussion of it, the issue was restored to the AO for fresh adjudication by a speaking order.
On the TP giving-effect order: As the TPO’s giving-effect order (reducing the adjustment from Rs. 11.48 crore to Rs. 1.85 crore) was passed after the final assessment order, the AO was directed to give effect to the revised TP adjustment and re-compute the total income accordingly.
On interest on AE receivables: Following the assessee’s own earlier-year order, the Tribunal held that if a working capital adjustment was granted while benchmarking the international transaction, no separate adjustment for interest on outstanding receivables was warranted. The issue was restored to the AO/TPO for giving the working capital adjustment.
In the result, the appeal was partly allowed for statistical purposes.
Reassessment Alleging On-Money on an Undated, Nameless Loose Chit With No Live Link — Notice Quashed : Gujarat HC
Love Dharminkumar Patel v. ITO | High Court of Gujarat | R/Special Civil Application No. 4336 of 2026 | AY 2020-21 | Decided: 8 April 2026 | [2026] 187 taxmann.com 41 (Gujarat)
Background
Love Dharminkumar Patel, an individual, had jointly purchased a parcel of agricultural land at Moje Godhavi (Survey No. 591) along with three co-owners under a registered sale deed dated 27 May 2019 for a total consideration of Rs. 1.30 crore, his share being 55%. The Department had conducted a search on the Bsafal Group and City Estate Group on 28 September 2021, during which a broker (City Estate Management) was found to be dealing in land transactions in Ahmedabad. In the seized material was a loose chit dated 23 February 2017 referring to Survey Nos. 591 and 614, an area of 20,000 sq., a rate of Rs. 8,000 per sq. yard, and the words “Bro Manish Bopal.” The broker’s statement under section 131 was recorded, but it did not name the assessee.
What the Authorities Did?
Relying on the chit and the broker’s statement, the AO issued a notice under section 148 on 31 March 2025 for AY 2020-21. Applying the Rs. 8,000 per sq. yard rate from the chit, the AO worked out the property value at about Rs. 9.85 crore, compared it with the sale-deed consideration of Rs. 1.30 crore, and inferred that the difference had been paid in cash as “on-money.” A show cause notice proposed an addition of about Rs. 4.70 crore (being 55% of about Rs. 8.55 crore) under section 69A. The assessee objected, sought copies of the seized material, furnished the sale deed, and denied any cash component, pointing out that the entire payment was through banking channels. The Revenue argued that the expansive phrases “pertains to” and “relates to” in Explanation 2 to section 148 were satisfied and that, per Supreme Court precedent, only prima facie material was needed at the notice stage.
What the High Court Held — Petition Allowed, Notice Quashed
The Court held that the reopening rested on vague, irrelevant and non-specific information that failed to establish any live link with the assessee. The chit contained no names or identifiable figures and was dated 23 February 2017, whereas the assessee bought the land almost two years later, on 27 May 2019 — so the Court could not see how on-money could be attributed to him on the basis of that rate. The survey number was tied to the assessee only by data pulled from the government “AnyRoR” website recording sale-deed details, not from the seized material itself. The broker’s statement did not name the assessee, there was no link with the broker “Manish” appearing on the chit, and no connection — even remotely — with the Bsafal Group, City Estate Management India or City Procon Realtors Pvt. Ltd.
While acknowledging that cash transactions are often done clandestinely in coded script and that at the notice stage a court cannot weigh the sufficiency of evidence, the Court held that the Revenue is nonetheless obliged to analyse seized material in light of the surrounding circumstances and record a prima facie opinion establishing a live link to escapement of income in the assessee’s hands. The expressions “relates to” and “pertains to” cannot be used in a vacuum. As no such live link existed here, section 148 was not attracted. The impugned notice and consequent notices were quashed and set aside.
Section 148 Notice for AY 2015-16 Issued One Day After Limitation — Time-Barred; Gross Sale Consideration Cannot Be “Escaped Income” : ITAT
Kala Kumar v. ITO | ITAT Chennai Bench ‘A’ | IT Appeal No. 58 (CHNY)/2026 | AY 2015-16 | Decided: 12 May 2026 | [2026] 186 taxmann.com 882 (Chennai – Trib.)
Background
Kala Kumar, an individual, did not file a return of income under section 139(1) for AY 2015-16. Information on the INSIGHT/NMS (Non-Filers Monitoring System) portal showed that during the year she had earned interest income of about Rs. 0.86 lakh and had sold an immovable property for about Rs. 1.22 crore. The property had originally belonged to her mother, who acquired it in 1967, and was settled upon the assessee and other legal heirs in 1995.
What the Authorities Did?
On the strength of the portal information, the Department initiated proceedings under section 148A and, after passing an order under section 148A(d), issued a notice under section 148 on 2 April 2022. In response, the assessee filed a return on 26 February 2024 declaring total income of about Rs. 9.02 lakh, including long-term capital gain of about Rs. 7.44 lakh (computed with indexed cost of acquisition and improvement) and claiming deduction under section 54F. During reassessment, the AO found the assessee had not produced the sale deed, inheritance proof, cost/improvement evidence, or proof of section 54F investment. The AO therefore rejected the LTCG claim and taxed the entire sale consideration of Rs. 1.22 crore as short-term capital gain, denying indexation and section 54F. The CIT(A) upheld both the validity of the reassessment and the addition.
What the Tribunal Held — Appeal Allowed
On limitation (Section 149): The Tribunal held the reassessment was time-barred. For AY 2015-16, the limitation under the erstwhile section 149 expired on 31 March 2022, whereas the section 148 notice was issued on 2 April 2022 — one day late. Under the first proviso to section 149 (inserted by the Finance Act, 2021), no section 148 notice could be issued for AY 2015-16 after that date where it had already become time-barred under the old law. The Bench relied on the Supreme Court’s recent ruling in ITO v. Sai Kumar Mateti (Civil Appeal No. 6922 of 2026, decided 4 May 2026), where — following Union of India v. Rajeev Bansal — it was conceded by the Revenue and held that reassessment notices pertaining to AY 2015-16 are liable to be struck down outright as time-barred. The notice was accordingly quashed.
On the jurisdictional condition (Section 149(1)(b)): As an independent ground, the Tribunal held the AO had wrongly treated the entire gross sale consideration of Rs. 1.22 crore as “income represented in the form of an asset” to invoke the extended time limit. Under the scheme of capital gains taxation, only the taxable capital gain, if any, can constitute escaped income — not the gross sale consideration on transfer of a capital asset. Since the AO failed to determine the escaped income in accordance with law and merely relied on the gross consideration, the jurisdictional condition under section 149(1)(b) was unfulfilled, rendering the reassessment invalid on this ground too.
Having quashed the reassessment on these legal grounds, the Tribunal held that adjudication of the merits (the LTCG-versus-STCG dispute, indexation, and section 54F) had become academic and did not decide those issues. The appeal was allowed.