Short deduction of TDS does not trigger section 40(a)(ia); disallowance was deleted where tax was deducted at source.

Section 40(a)(ia) was held not to apply where tax was deducted at source, but at a short rate rather than being completely omitted. The Tribunal followed its coordinate bench rulings that the provision is triggered by non-deduction or a default in deduction, not by a mere short deduction of TDS on salary payments. On the facts, because tax had in fact been deducted, the disallowance could not be sustained and was deleted in favour of the assessee.

---

---

Issues: Whether disallowance under section 40(a)(ia) of the Income-tax Act, 1961 could be made where tax was deducted at source, but at a short rate and not completely omitted.

Analysis: The assessee had deducted tax at source on the relevant salary payments, but the Assessing Officer treated the deduction as short by applying a different TDS provision and rate. The Tribunal followed its coordinate bench decisions holding that section 40(a)(ia) is attracted to cases of non-deduction or default in deduction, and not to a mere short deduction of tax at source. Since the facts showed deduction of tax, though at a lower rate, the disallowance could not be sustained.

Conclusion: The disallowance under section 40(a)(ia) was deleted and the issue was decided in favour of the assessee.

---