Short deduction of TDS does not trigger section 40(a)(ia) disallowance where deduction was made under a bona fide view.

Where tax was deducted under section 194C on hiring charges for barges or equipment, a short deduction arising from the Revenue's view that section 194-I applied did not attract disallowance under section 40(a)(ia). The Tribunal noted that section 40(a)(ia) applies when tax is not deducted, not where there is a bona fide difference on the applicable TDS provision. In such cases, the appropriate consequence is treatment of the assessee as in default under section 201 and recovery of any differential tax with interest, if payable. The deletion of the disallowance was upheld.

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Issues: Whether disallowance under section 40(a)(ia) of the Income-tax Act, 1961 could be made where tax was deducted at source under section 194C, but the Revenue treated the payment as falling under section 194-I, resulting only in short deduction of tax.

Analysis: The payment was on account of hiring charges for barges/equipment. The Revenue treated the payment as hire of machinery/equipment and held section 194-I applicable, whereas the assessee had deducted tax under section 194C. The Tribunal followed the view that section 40(a)(ia) applies where tax is not deducted, and not where there is only a short deduction because of a bona fide difference of opinion as to the applicable TDS provision. In such a case, the proper course is to treat the assessee as in default under section 201 and recover the differential tax with interest, if payable.

Conclusion: Disallowance under section 40(a)(ia) was not justified; the assessee succeeded on this issue and the deletion of the disallowance was upheld.

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