Assessee Cannot Be Denied Refund For Fault Of Deductor”: Allahabad High Court Orders Refund Of Withheld TDS Based On Form 16A Certificates

“Taxpayer Cannot Be Left To The Mercy Of Deductor — Assessing Officer Must Verify TDS And Grant Credit”: Allahabad High Court (Lucknow Bench), comprising Hon’ble Justice Shekhar B. Saraf and Hon’ble Justice Prashant Kumar, delivered a significant ruling in U.P. Rajya Nirman Sahakari Sangh Limited v. Union of India & Others, under Article 226 of the Constitution of India.

The Court addressed the recurring grievance of taxpayers being denied refund of Tax Deducted at Source (TDS) due to non-reflection in Form 26AS, despite holding valid Form 16A certificates evidencing deduction. The Bench held that once an assessee furnishes genuine TDS certificates, the Assessing Officer (AO) is bound to verify the same and grant credit — the taxpayer cannot be penalized for the fault of the deductor or systemic mismatch.

The writ petition was accordingly disposed of with directions to the Income Tax Department to verify the petitioner’s Form 16A documents and issue refund within four weeks.

“Assessee Cannot Be Left To Mercy Of Deductor Or Assessing Officer’s Discretion”

The petitioner, U.P. Rajya Nirman Sahakari Sangh Limited, a registered cooperative society claiming exemption under Section 80P of the Income Tax Act, 1961, approached the High Court under Article 226, challenging an order under Section 226(3) of the Income Tax Act.

The impugned order dated 05.12.2017 had directed the petitioner’s banker to remit ₹3.50 crore towards an alleged tax demand, even though the petitioner claimed that tax had already been deducted at source (TDS) on its income for Assessment Years 2009–10 to 2015–16.

The petitioner contended that it had filed several refund applications supported by Form 16A certificates, yet the Income Tax Department refused to grant refund on the ground that such deductions were not reflected in Form 26AS — the system-generated statement of tax credit.

“Once Form 16A Is Produced, AO Must Verify And Grant Credit — Taxpayer Cannot Be Penalized For Deductor’s Default”

Legal Issues and Court’s Observation

The central legal question before the Bench was whether an assessee can be denied refund of TDS solely due to non-reflection in Form 26AS, despite possessing valid Form 16A certificates evidencing deduction.

The petitioner relied on:

• Delhi High Court’s decision in Court on Its Motion v. Commissioner of Income Tax, W.P. (C) No. 2659 of 2012 (decided on 14.03.2013), and

• Allahabad High Court’s earlier ruling in Rakesh Kumar Gupta v. Union of India, Civil Misc. Writ Petition (Tax) No. 657 of 2013 (decided on 06.05.2014).

Both judgments had categorically held that the assessee cannot be denied refund merely because of mismatch in Form 26AS, if credible evidence of TDS is furnished through certificates issued by the deductor.

Citing these authorities, the Division Bench observed:

“The statutory powers given to the Assessing Officer are sufficient and should be resorted to, and the assessee cannot be left to the mercy or sweet will of the deductors. When an assessee approaches the Assessing Officer with requisite details, the said officer must verify whether the deductor has made payment of TDS, and if payment has been made, credit of the same should be given to the assessee.”

The Court emphasized that it is the duty of the Assessing Officer to carry out verification and, if necessary, communicate with the deductor or the TDS circle to ascertain the truth — not to dismiss the taxpayer’s claim mechanically.

“CBDT Circular 05/2013 Is Binding — Officers Must Verify And Grant Credit On Basis Of Form 16A”

The Bench noted that the CBDT Instruction No. 05/2013, dated 08.07.2013, had already directed all field officers to follow the procedure laid down in Court on Its Motion (Delhi High Court) and ensure that TDS credit is not denied when the assessee produces valid certificates.

The circular specifically states:

“When an assessee approaches the Assessing Officer with TDS certificates as evidence against any mismatched amount, the said Officer will verify whether or not the deductor has made payment of the TDS in the Government account and, if payment has been made, credit of the same should be given to the assessee… The Assessing Officer is at liberty to ascertain and verify the true and correct position about the TDS certificate.”

Reiterating this binding directive, the Bench observed:

“A taxpayer should not be left at the mercy of an Assessing Officer who chooses to delay payment of genuine refunds. As long as the assessee is able to produce documents proving deduction of tax, the same must be accepted and verified by the Assessing Officer.”

Holding that the petitioner had substantiated its claim with Form 16A certificates, the High Court directed as follows:

1. The petitioner shall appear before Respondent No. 3 (Assessing Officer) on 28.10.2025 at 11:00 AM with all supporting documents.

2. The Assessing Officer shall verify the Form 16A certificates and pass necessary orders in accordance with law within four weeks.

3. The petitioner shall be entitled to rely on the precedents of Court on Its Motion (Delhi HC) and Rakesh Kumar Gupta (Allahabad HC), as well as CBDT Circular No. 05/2013, before the Assessing Officer.

The Allahabad High Court’s judgment reinforces the principle that taxpayers cannot be deprived of legitimate refunds due to administrative or third-party defaults. It underscores the accountability of the Assessing Officer to act promptly and fairly, ensuring that statutory rights under the Income Tax Act are not frustrated by procedural rigidity.

As the Bench aptly concluded, the burden of a deductor’s fault or systemic mismatch cannot be shifted to the taxpayer — the Revenue must act diligently to ensure justice and compliance with its own circulars.

Date of Decision: 08 October 2025