LAS CARGO PVT. LTD.,PIRAMAL MANSION vs. INCOME TAX OFFICER TDS WARD- 1 (3)(3), DR. GOPALRAO DESHMUKH MARG

The brief facts of the case are that the assessee, M/s LAS Cargo Private Limited, is a company which, during F.Y. 2018-19 relevant to A.Y. 2019-20, paid aggregate remuneration of ₹32,80,000/- to two Directors. The assessee treated the remuneration as salary and deducted tax at source under section 192 of the Income-tax Act, 1961 (“the Act”) amounting to ₹2,22,220/-. The Assessing Officer noticed that the effective tax deducted by the assessee worked out to about 6.775% of the total remuneration. The Assessing Officer took the view that the assessee ought to have deducted tax at the flat rate of 30% on the entire directors' remuneration of ₹32,80,000/-, which according to the Ld. AO resulted in tax deductible of ₹9,84,000/- and consequently a short deduction of ₹7,61,780/-.

During the TDS proceedings, the assessee submitted that the remuneration constituted salary liable for deduction of tax under section 192 of the Act and that the Assessing Officer could not apply a flat rate of 30% because section 192 of the Act mandated the employer to take into account the applicable slab rates, basic exemption limit, standard deduction, investments and other deductions while computing tax deductible from salary. The assessee also furnished computations of income of the two Directors. The Assessing Officer, however, found that the assessee had not furnished the Directors' income-tax returns, evidence of deductions claimed and Form 26AS. The Assessing Officer held that the assessee ought to have deducted tax at the rate of 30% on the entire remuneration of ₹32,80,000/- and computed tax deductible at ₹9,84,000/-. After giving credit for TDS of ₹2,22,220/- already deducted, the Assessing Officer treated the balance amount of ₹7,61,780/- as short deduction of tax and held the assessee to be an assessee in default under section 201(1) of the Act.

The assessee challenged the order before the learned CIT(A). The learned CIT(A) observed that although the assessee had furnished computations of income of the Directors, the assessee had not furnished copies of their returns of income and supporting evidence of deductions or Form 26AS. The learned CIT(A) declined to admit the additional evidence sought to be produced before him because, according to him, the assessee had not established the circumstances which prevented the assessee from furnishing such evidence before the Assessing Officer. The learned CIT(A), therefore, dismissed the appeal of the assessee.

The assessee is in appeal before us against the order passed by the learned CIT(A) dismissing the appeal of the assessee.

At the outset, we notice that the appeal before us is delayed by 157 days. The assessee has filed an application for condonation of delay supported by an affidavit of Shri Aslam Yaqub Rangwala, Director of the assessee-company. The Director has explained that the assessee-company had undergone Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016, during which the management and control of the company remained vested with the Resolution Professional. The management was formally handed back to the Directors pursuant to the order dated 19.06.2024. The Director has further explained that the company thereafter went through a transitional period involving restoration of its accounting and administrative systems, statutory portals and financial records and that the Director was also unable to attend to the appellate proceedings on account of his health during the relevant period. The assessee has stated that the delay was neither deliberate nor intentional.

We have considered the explanation. We find that the assessee has shown sufficient cause for not filing the appeal within the prescribed period. The assessee-company had undergone insolvency proceedings followed by restoration of management and administrative systems, and the affidavit sufficiently explains the circumstances which caused the delay. We also find nothing on record to suggest that the assessee deliberately allowed the limitation to expire or gained any advantage by filing the appeal belatedly. In these circumstances, justice requires that the matter be decided on merits rather than rejected on limitation. We accordingly condone the delay of 157 days and admit the appeal for adjudication on merits.

On merits, the learned Counsel has produced before us as additional evidence the Forms 16 of both Directors and the computations of their respective tax liabilities. According to the learned Counsel, these documents demonstrate that the assessee computed the tax deductible under section 192 of the Act by applying the rates actually applicable to the respective Directors and the aggregate deduction of ₹2,22,220/- was correct. The learned Counsel therefore requested that the demand raised under sections 201(1) and 201(1A) be deleted after verification of these documents.

We have considered the submissions and examined the orders of the authorities below. In our view, the matter requires fresh examination by the Assessing Officer for more than one reason. Section 192 does not prescribe a flat rate of 30% for deduction of tax from salary. The relevant principle under section 192 of the Act is that the employer has to deduct tax on the estimated salary income of the employee at the average rate of income-tax computed on the basis of the rates in force for the relevant financial year. Therefore, if the Assessing Officer accepts that the remuneration paid to the Directors constitutes salary and section 192 of the Act applies, the Assessing Officer cannot simply multiply the entire gross remuneration by 30% merely because 30% is the highest slab rate applicable to a portion of an individual's taxable income. Further, while estimating salary income for TDS purposes, the employer may also be required to consider the standard deduction and such other deductions as the employee is entitled to claim and has furnished the necessary particulars towards. The Assessing Officer therefore had to examine the estimated taxable salary and tax liability of each Director separately. He could not treat the aggregate remuneration of both Directors as one block of income and apply 30% to the entire amount.

We find that the Assessing Officer has given no statutory or computational basis for applying a flat rate of 30% to the entire remuneration of ₹32,80,000/-. The Assessing Officer simply computed ₹9,84,000/- at 30%, reduced the TDS of ₹2,22,220/- already deducted and treated the difference of ₹7,61,780/- as short deduction. This methodology does not reflect the manner in which section 192 requires tax to be deducted from salary.

At the same time, we find whether the assessee's claim that the deduction of ₹2,22,220/- was fully correct requires factual verification with reference to the salary/remuneration of each Director, the Form 16, computation of income, applicable slab rates and the deductions actually admissible to each Director. These documents were not fully examined by the Assessing Officer. The learned CIT(A) also declined to admit the additional evidence and therefore did not verify the correctness of the tax computation.

We further find that the assessee has raised an important contention under the first proviso to section 201(1). The learned CIT(A) himself reproduced the provision which protects a deductor from being treated as an assessee in default where the resident recipient of income has furnished his return under section 139 of the Act, has included the relevant payment in computing his income, paid the tax due on such returned income and the deductor furnishes the prescribed accountant's certificate.

The assessee's case before us is that both Directors had included the remuneration in their respective returns of income and paid the tax due thereon. If that factual position is correct and the statutory requirements of the first proviso to section 201(1)of the Act being the prescribed certification wherever required, are satisfied, we are of the considered view that the Assessing Officer cannot hold the assessee as an assessee in default in respect of tax liability already discharged by the recipients.

Considering the totality of these facts, we admit the additional evidence comprising the Forms 16 of both Directors and their respective computations of tax liability and restore the issue to the file of the Assessing Officer for fresh consideration. The Assessing Officer shall first examine the remuneration paid to each Director separately and compute the TDS requirement in accordance with section 192 of the Act by applying the average rate of income-tax applicable to the estimated salary income of each Director. The Assessing Officer shall thereafter verify the Forms 16, computations of income, relevant deductions and other supporting records of both Directors and ascertain whether the assessee had correctly deducted tax of ₹2,22,220/- under section 192 of the Act. If the Assessing Officer finds upon verification that the assessee had correctly computed and deducted tax in accordance with section 192, he shall delete the demand raised under section 201(1) and grant consequential relief.

Even if the Assessing Officer finds any short deduction after carrying out the above exercise, he shall independently verify the assessee's contention that both Directors had included the entire remuneration in their respective returns of income and paid the tax due thereon. The Assessing Officer shall verify the returns of income, Form 26AS/AIS, tax payments and such other evidence as may be necessary and shall grant the assessee the benefit of the first proviso to section 201(1) if the prescribed conditions are satisfied. The Assessing Officer shall also permit the assessee to furnish the prescribed accountant's certificate/Form 26A, if required for claiming such statutory benefit.

Accordingly, we restore the matter to the file of the Assessing Officer for de novo verification in terms of the directions given above.

In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 27-08-2026.