Employee Not to Bear Consequences of Employer’s TDS Default: Key Takeaways from Viswanathan Ramakrishnan Vs ITO (ITAT Bangalore)

Background and Context

In Viswanathan Ramakrishnan Vs ITO (ITAT Bangalore), the Bangalore Income Tax Appellate Tribunal (ITAT) examined whether an employee can be refused credit for TDS on salary when the employer has:

  • Deducted tax under Section 192 from salary payments, but
  • Failed to deposit that TDS with the Central Government, and
  • Not reported such deduction in the requisite TDS returns, leading to absence of the credit in Form 26AS.

The assessee, a former employee of M/s. Think & Learn Pvt. Ltd. (popularly known as BYJU’S), faced a substantial tax demand because the Central Processing Centre (CPC) did not allow TDS credit that had been shown as deducted in his salary documentation but did not appear in Form 26AS.

The ITAT Bangalore has stepped in to clarify that an employee cannot be financially penalised for an employer’s statutory failure, and has directed grant of TDS credit after verification of salary records.

Facts of the Case

Employment and Income Disclosure

The assessee, Mr. Viswanathan Ramakrishnan, was employed with M/s. Think & Learn Pvt. Ltd. (BYJU’S) during the relevant period. The key facts are:

  • Assessment Year: 2024–25
  • Return filing date: 25 December 2024
  • Total income declared: ₹1,99,69,720
  • Heads of income:
    • Salaries
    • Capital gains
    • Income from other sources

From the salary received from BYJU’S amounting to ₹1,99,28,404, the employer had, as per the assessee’s records, deducted TDS on salary under Section 192 of the Income Tax Act 1961.

The assessee accordingly claimed:

  • TDS credit claimed: ₹6,89,1511 (as per salary slips and computation shared by employer)

However, during processing of the return under Section 143(1) on 3 January 2025, the CPC denied the TDS credit and raised a demand.

CPC’s Processing and Tax Demand

While issuing the intimation under Section 143(1), the CPC:

  • Declined to allow TDS credit on salary, on the ground that:
    • The employer had not deposited the deducted tax to the credit of the Government, and
    • Corresponding TDS entries were absent in Form 26AS of the assessee.
  • Resulted in a tax demand of ₹8,058,860 on the assessee due to non‑grant of the claimed credit.

Thus, although the employer had reportedly deducted tax from salary payments, the assessee was treated as if no such TDS existed because the employer defaulted on its statutory obligation to deposit and report that tax.

Proceedings Before CIT(A)

Assessee’s Contentions

Aggrieved by the intimation, the assessee approached the Commissioner of Income Tax (Appeals) – 1, Pune and argued that:

  1. No fault of the assessee:

    • The employer alone is responsible for depositing TDS with the Government.
    • Once salary is paid after deduction of tax, the employee has fulfilled their responsibility.

  2. Judicial support from High Courts:
    The assessee relied on multiple High Court decisions (including those of the Hon’ble Gujarat High Court, Hon’ble Bombay High Court and Hon’ble Delhi High Court) which have held that:

    • Where an employer has deducted TDS from salary, the employee cannot be deprived of corresponding TDS credit, even if the employer later fails to deposit the tax or file TDS returns.

  3. Documentary evidence:
    The assessee produced:

    • Salary slips issued by BYJU’S
    • Salary computation sheets
    • Other records demonstrating that TDS had in fact been deducted from the monthly salary payments.

The essence of the assessee’s argument was that the law does not envisage punishing an employee for the non‑compliance of the employer, especially when the employee has already suffered deduction from his salary.