In a recent ruling, the Income Tax Appellate Tribunal Mumbai reaffirmed that an employee cannot be penalised for an employer’s failure to deposit tax deducted at source (TDS) with the Government. The case involved denial of TDS credit solely because the deducted amount did not appear in Form 26AS, despite clear evidence that tax had been deducted and the income had already been offered to tax by the employee.

The Tribunal held that once TDS deduction is established through supporting documents such as statutory certificates and bank records, Section 205 of the Income Tax Act acts as a complete bar on recovering the same tax again from the employee. Denying credit in such circumstances would result in unlawful double taxation.

Relying on the landmark judgment of the Bombay High Court in Yashpal Sahni v. ACIT, the Tribunal reiterated that the responsibility to recover unpaid TDS rests entirely with the defaulting employer. The Act already provides a comprehensive enforcement mechanism against such employers, including interest, penalties, and prosecution.

Accordingly, the Assessing Officer was directed to grant the TDS credit after verification of documentary evidence, reinforcing the settled legal principle that employees should not suffer for lapses beyond their control.

However, the decision also highlights a growing divergence in judicial interpretation. While courts in Bombay and Delhi continue to prioritise employee protection, a recent Kerala High Court ruling has taken a stricter view, linking TDS credit to actual deposit with the Government. This conflict underscores the need for authoritative clarification by the Supreme Court or legislative intervention to ensure uniform application of the law across jurisdictions.