Write an application to Your ITO and attach the copy of this form 16 and the demand notice alongwith your ITR
Also quote following provisions and court judgements in your favour-:
S.205 of the income tax act 1961, as per which "Where tax is deductible at the source under the foregoing provisions of this Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income."
Citicorp Finance (India) Ltd Vs. ACIT Wherein it was held that
The AO is not justified in denying credit for TDS on the ground that the TDS is not reflected in the computer generated Form 26AS.
3i Infotech Limited wherein it was held that "merely because the Department’s system does not indicate the TDS refund, it cannot be held that the assessee should be compelled to deposit the amount once again. It is for the Department to check the error in its system or point out fallacy in the assessee’s claim. There can be no question of penalizing the assessee for no fault committed by it"
CBDT Instruction 5/2013
when an assessee approaches the Assessing Officer with requisite details and particulars in the form of TDS certificate as an evidence against any mismatched amount, the said Assessing Officer will verify whether or not the deductor has made payment of the TDS in the Government Account and if the payment has been made, credit of the same should be given to the assessee.
The Delhi High Court in Courts on Its Own Motion Vs. CIT 352 ITR 273
[The circular I cited above was issued consequent to this judgement]
If AO does not cancel the demand you may also appeal to Commissioner of Income Tax (Appeals).
[Prefer meeting Assessing officer personally and take 2 copies of the letter and receive acknowledgement on them, as a proof]