In the episode ďDevil's TrapĒ John getís possessed by Azazel, who as we all know is a demon. Now Supernatural has made it clear that there are a few things demons canít control, one of them is there reaction against holy water.
In the episode Sam and Dean rescue John from the demons, but later in the same episode John reveals to be old YED in disguise. So he possessed John and said that he could have killed them a hundred times, but he waited until they were alone and had the colt. Now we must assume that John was possessed when they rescued him, and they even checked if he was by using holy water, yet there wasnít any reaction at all and how the hell can that be when he is possessed by a demon?
The only kind of explanation I can think off is that Azazel is a different kind of demon, heís a higher class than most, and therefore something simple like holy water didnít have a effect on him?