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ITA 2025 · Section 401

Bar Against Direct Demand

Chapter XIX — Collection and Recovery of TaxITA 2025AY 2026-27 onward

Section 401 of the Income-tax Act, 2025 is the substantive equivalent of section 205 of the Income-tax Act, 1961. It bars the Revenue from raising direct demand on an assessee for tax which has already been deducted at source by the…

Section 401 — - BAR AGAINST DIRECT DEMAND ON ASSESSEE

Section 401 of the Income-tax Act, 2025 is the substantive equivalent of section 205 of the Income-tax Act, 1961. It bars the Revenue from raising direct demand on an assessee for tax which has already been deducted at source by the deductor -- even if the deductor has failed to deposit the deducted tax with the Central Government.

STATUTORY ARCHITECTURE

Once tax has been deducted at source, the deductee's liability is discharged pro tanto -- the Revenue cannot pursue the deductee for that portion. The recovery channel is against the deductor under s. 398. This is a fundamental allocation of liability and protects the deductee from double burden.

PRACTITIONER PLANNING NOTES

  • Where deductor has not deposited TDS but has issued Form 16 / Form 16A: the deductee gets credit u/s 11(3) [s. 199 of 1961]; demand cannot be raised on deductee -- Sumit Devendra Rajani v. Asstt. CIT (2014) 366 ITR 130 (Guj), Court on its own motion v. CIT (2013) 352 ITR 273 (Del).
  • Documentary trail: salary slip + Form 16 + bank statement showing net credit = sufficient evidence of TDS deduction.
  • Where deductor disputes deduction: file 26AS reconciliation + bank credit evidence; AO must remit demand.
  • Form 26AS / AIS missing TDS: file rectification request u/s 287 / 154 with supporting documents; persistence required.
  • Government Doctor vs Private Hospital -- where employer is Government and TDS not deposited, employee fully protected; no demand can be raised.

CASE-LAW

  • Sumit Devendra Rajani v. Asstt. CIT (2014) 366 ITR 130 (Guj) -- bar applies even where deductor has not deposited.
  • Court on its own motion v. CIT (2013) 352 ITR 273 (Del) -- credit cannot be denied for deductor's default.
  • Ashok Kumar B. Chowatia v. JCIT (TDS) (2021) 437 ITR 13 (Mad) -- direction to grant TDS credit despite Form 26AS mismatch.
  • Yashpal Sahni v. Rekha Hajarnavis (2007) 165 Taxman 144 (Bom) -- foundational.

CROSS-REFERENCES

  • s. 11 (2025) / s. 199 (1961) -- credit for TDS.
  • s. 391 -- direct payment by assessee.
  • s. 398 -- consequences for deductor failure.
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