Court Quashes Tax Demand Against Shravan Rustagi, Citing Fault of Employer in TDS Non-Deposit
In a significant ruling, the Delhi High Court has delivered justice to petitioner Shravan Rustagi by quashing a tax demand and ordering a refund with interest. The case involved the non-credit of Tax Deducted at Source (TDS) by Rustagi’s erstwhile employer, Kingfisher Airlines, for the Assessment Year 2011-12. The court's decision, delivered by a division bench comprising Justices Dinesh Mehta and Rajneesh Kumar Gupta, highlighted the taxpayer's inability to be penalized for the deductor's fault.
Rustagi had approached the court after the Assistant Commissioner of Income Tax issued a demand via intimation dated September 23, 2025, under Section 143(1) of the Income Tax Act, 1961. This demand was raised because Kingfisher Airlines failed to deposit the TDS amounting to Rs. 5,59,792, which was deducted from Rustagi’s salary. Consequently, the credit was disallowed, and a substantial amount was recovered from Rustagi’s due refund.
The court recognized that the issue was already adjudicated in a similar case, Satwant Singh Sanghera v. Assistant Commissioner of Income Tax, where it was established that a taxpayer should not suffer due to the deductor's default. The High Court held that the intimation concerning the non-grant of TDS credit was to be quashed, and the subsequent recovery from Rustagi's refund was illegal.
Mr. Paras Jindal, representing Rustagi, argued successfully that the petitioner should not be deprived of his legitimate rights due to the employer’s failure. The court ordered the Income Tax Department to refund the recovered amount with applicable interest under Sections 244(1) and 244(1A) of the Income Tax Act within three months.
The judgment reaffirmed the principle that taxpayers should not be penalized for errors or defaults committed by employers or deductors. The decision will provide relief to taxpayers facing similar issues with TDS credits.
Bottom Line :
Income Tax - Tax Deducted at Source (TDS) credit disallowed due to non-deposit by the deductor - Taxpayer cannot be penalized for the fault of the deductor - Refund with applicable interest directed.
Statutory provision(s): Income Tax Act, 1961 Sections 143(1), 244(1), 244(1A)
Shravan Rustagi v. Assistant Commissioner of Income Tax, (Delhi)(DB) : Law Finder Doc id # 2967880
