Assessee-employer deducted TDS as per section 192 in respect of salary of the employees who failed to furnish their correct PAN.
AO applied a flat rate of 20% as per section 206AA and held assessee liable for short-deduction of TDS. ITAT held that as per section 206AA if the deductee fails to furnish PAN, then the deductor shall deduct tax at the rates which is higher of (i) at the rates specified in the relevant provisions of the Act, or (ii) at the rate or rates in force,
or (iii) at the rate of twenty percent. Hence, a careful study of the provisions of section 206AA made it clear that it is not automatic that tax shall be deducted at a flat rate of 20% wherever PAN is not furnished. Unlike other provisions, TDS on salary cannot be deducted by applying flat rate of tax on gross payment. It is not necessary that all payments would come under 20% flat rate, in some cases the rate of tax may be at 10% and in some cases it may be at 30%. Therefore, unless, this was done, the A.O. could not apply flat rate of 20% and compute the short deduction of tax- RASHTRIYA ISPAT NIGAM LTD. V. ACIT [2016] 65 taxmann.com 292 (Visakhapatnam - Trib.)
or (iii) at the rate of twenty percent. Hence, a careful study of the provisions of section 206AA made it clear that it is not automatic that tax shall be deducted at a flat rate of 20% wherever PAN is not furnished. Unlike other provisions, TDS on salary cannot be deducted by applying flat rate of tax on gross payment. It is not necessary that all payments would come under 20% flat rate, in some cases the rate of tax may be at 10% and in some cases it may be at 30%. Therefore, unless, this was done, the A.O. could not apply flat rate of 20% and compute the short deduction of tax- RASHTRIYA ISPAT NIGAM LTD. V. ACIT [2016] 65 taxmann.com 292 (Visakhapatnam - Trib.)
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