Default in TDS & CARO

TDS is always a controversial issue for every assessee. Considering the defaults in TDS by deductor and disclosure of the same by auditors in CARO and Tax Audit Report, a question arises about a default for which one can have some different view. Take example: 

A company (deductor) has deducted the tax from the payment say @ 2% in the month of say October 1, 2010. The tax was paid to the Government in time, quarterly return was also filed and the certificate is also issued.

During the course of statutory audit, say on April 15, 2011 the auditor has pointed out that the tax should have been deducted @ 10% instead of 2%. They advised the company to deposit the differential tax otherwise; this amount will be shown under CARO as default in statutory liability. 

A prudent auditor will disclose the default in CARO. The Tax Auditor will disclose the same in Form 3CD and proportionate disallowance of expenditure u/s 40(a)(ia). This is a general and well accepted practice.


So, the query here is that when the statutory due is already paid to the Government, there should not be any disclosure in the CARO about the same. The disclosure may remain in the tax audit report as it makes it mandatory to disclose the short deduction of tax while the CARO only wants the disclosure of arrears outstanding for more than 6 months.