Short TDS deduction does not trigger disallowance where tax was deducted and only a surcharge-related deficit remained.

Short deduction of tax at source does not, by itself, justify disallowance under section 40(a)(ia) where tax was in fact deducted and the default was limited to a surcharge-related shortfall on subcontractor payments. The text notes that such a deficiency may attract consequences under section 201, but it does not equate to non-deduction or non-payment for purposes of section 40(a)(ia). The appellate view that no disallowance was warranted for a nominal short deduction was therefore consistent with the settled position, and the Revenue's challenge failed.

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Issues: Whether disallowance under section 40(a)(ia) of the Income-tax Act, 1961 could be sustained where the assessee had deducted tax at source but had made only a short deduction of tax on subcontractor payments.

Analysis: The deduction under section 40(a)(ia) applies where tax deductible at source has not been deducted or, after deduction, has not been paid. On the facts, tax was deducted under section 194C, and the default was confined to non-levy of surcharge leading only to a short deduction. The consistent view relied upon was that such a shortfall may attract action under section 201, but it does not by itself justify disallowance under section 40(a)(ia). The appellate authority's view that no disallowance was warranted for a nominal short deduction was therefore found to be in line with the settled position.

Conclusion: The disallowance under section 40(a)(ia) for short deduction of TDS was rightly deleted, and the Revenue's challenge failed.

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