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Issues Involved: Applicability of u/s 201(1) r/w u/s 192(1) of the IT Act, 1961 regarding the deduction of tax at source on salaries paid to employees.
Summary: The appeals by the assessee were consolidated and disposed of together concerning the applicability of u/s 201(1) r/w u/s 192(1) of the IT Act, 1961 for the assessment years 1985-86 to 1987-88. The assessee, a company, filed annual returns of salaries but discrepancies were found during a survey regarding the correct deduction of tax. Issues included reimbursement of driver's salary, ex gratia payments, and office set-off expenditure. The Revenue demanded payment for the alleged short deduction. The assessee contended that it made an honest estimate of tax liability, filed returns as required, and deposited tax on time. The CIT(A) rejected the claim. The assessee argued that the provisions of u/s 201 and u/s 192(1) require failure to deduct or pay tax for their invocation, emphasizing the employer's duty to act honestly and fairly. The Departmental Representative argued that the assessee's errors in calculating salary income fall under u/s 201(1) r/w u/s 192(1) of the IT Act, 1961. The Tribunal examined the provisions of u/s 192 and u/s 201(1) and emphasized the employer's obligation to deduct tax on the estimated income of employees. It was held that the employer must deduct tax on the estimated income of employees and act honestly and fairly. The Tribunal referenced precedents to support the view that mere incorrect estimation does not imply lack of honesty. The Tribunal found that the assessee fulfilled its duties, made an honest estimate, filed returns, and paid tax on time. As no malafide intent was found, the AO had no jurisdiction to demand further tax for alleged short deductions. Consequently, the appeals of the assessee were allowed.
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