Great Eastern Shipping Co. Ltd. Vs DCIT (ITAT Mumbai)
ITAT Mumbai held that levy of interest under section 201(1A) of the Income Tax Act for lower deduction of TDS not justified since the lower deduction in earlier months were due to bonafide reasons and the same was adjusted in later months.
Facts- The issue involved in the present appeal is levy of interest under section 201(1A) of the Income Tax Act. AO has levied interest under Section 201(1A)(ii) of the Act @1.5% per month as in his opinion the Appellant has not followed the approach envisaged in sub-section (1) of Section 192 of the Act which requires an employer to estimate the salary income of the employee for the entire year and deduct monthly TDS on a pro-rata basis. The Appellant submits that the levy of interest under section 201(1A)(ii) is erroneous.
Conclusion- Held that in our view if there are bonafide reasons in deducting a lower tax in earlier months of financial year and the same is made get immediately after noticing such shortfall, then in the eventuality section 192 sub-section (3) would save the employer from the liability of making payment of interest. Thus, to meet such eventualities sub-section (3) provides for adjustment of excess or deficiency arising out of the any previous months or failure to deduct in the financial year. Any other interpretation would render Sec. 192(3) nugatory and an employer would be put to undue burden of payment of interest for no fault of him. From this analysis, it is apparent that on mere short deduction of tax at source from the salaries paid to the employees, Sec. 201(1A) cannot be invoked, unless the total tax deducted by the end of the year is less than the tax deductable from the salary paid to the employee in that year. Since, in the instance case the assessee has reasonably estimated the income and in view of the above circumstances there was a short deduction of tax at the beginning of financial year which is adjusted in the later months. Therefore in our considered view interest is not chargeable for mere short deduction in the initial months.
