No interest levy despite short deduction of taxes if reasons are bona fide and the shortfall is nominal

Madhya Gujarat Vij Co. Ltd. (ITAT Ahmedabad)- Section 192(3) of the Act enables the employer to make adjustment of any excess or deficiency arising out of previous deduction or failure to deduct during the tax year. If there are bona fide reasons for short deduction in the earlier months and the same is made good immediately after noticing such shortfall, then section 192(3) would save the employer from interest liability for short deduction of taxes.

If an employer has casually deducted taxes and resorted to lump sum deduction of tax at the end of tax year, then the employer cannot take shelter under the above provision and is liable for interest under section 201(1A) of the Act. A substantial deficiency in tax deduction in different months and its continuity in the subsequent months is an indicator of casual approach by employer for tax deduction. At the time of payment of salary in the subsequent month, an employer has to find out if there was a deficiency of deduction of tax in the preceding month. He has to make good the deficiency in the following month or otherwise has to show his bona fides for not doing so. The onus would be on the employer to prove his bona fide belief. The matter has been restored to AO to find out whether there was a bona fide in not deducting the tax regularly from the payment of salary. If there was a bona fide and the short fall in every month was nominal which was made good at the end of the year, then no mala fide need to be seen and no interest will be applicable.