TaxTMI 
TaxTMI 
2022 (2) TMI 176
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....Officer erred in disallowing the Foreign Travel Expenses on his own imaginary explanation which is totally contrary to the explanation given by the Assessee during the scrutiny proceedings. 5) The learned Assessing Officer erred in disallowing the Contract Cancellation Charges paid as penalty for breach of Contract, without considering the TDS provisions of the Income Tax Act, which is contrary to the law, facts and circumstances of this case. 6) The courts have held that under Section 40(a)(ia) of the Act there should be legal liability to deduct the tax under Chapter XVII. If there is no such liability to deduct TDS, then the provisions of Section 40(a)(ia) of the Act cannot be invoked. 7) With a view to liberalize provisions of Section 40(a)(ia) of the Act, Finance Act 2012 brought amendment with effect from 01.042013 as under: * The following second proviso shall be inserted in sub-clause (ia) of clause (a) of Section 40 by the Finance Act, 2012, w.e.f. 1-4-2013: * Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default un....
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....s respected authority, it is prayed that this respected authority may be pleased to: a) Quash the assessment order u/s 143 (3) passed on 29/03/2016, and/or b) Cancel the demand raised u/s 156 and c) Pass such other orders as this respected authority may deem fit." 3. Brief facts of the case are that the assessee is an individual and engaged in the business of trading in iron ore filed his return of income for assessment year 2013-14 on 07.09.2013 declaring total income of Rs. 4,69,69,680/-. During the year under consideration, the assessee had entered into agreements for supply of iron ore with various companies, however, the assessee could not supply iron ore to his customers as agreed due to Supreme Court order banning mining licenses. As per contractual terms with his customers, the assessee has agreed to pay penalty for cancellation of contracts for non-supply of iron ore, as per which it has debited a sum of Rs. 2,40,50,000/- as compensation for termination of contract. The assessee has made payments after deducting TDS @ 2% as applicable to contractors and sub-contractors u/s.194C of the Income Tax Act, 1961. During the course of assessment proceedings, the Assessing O....
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....rationale on the part of the assessee to have deducted tax at a lesser rate of 2%. The non-compliance to TDS provisions in a partial manner also attracts disallowance u/s 40(a)(ia). The decision rendered in the case of Vector Shipping is not applicable to the facts situation in the present case as the compensation of Rs. 2.40crores remains payable as on 31/03/2013. 4.5 In view of the foregoing discussions, considering the fact that on an amount if Rs,2,40,50,000/-, TDS ought to have been deducted @ 10%, it could be seen the assessee by deducting TDS @ 2% has deducted tax only on 20% of the amount payable by him. Hence. the balance 80% of the amount payable of Rs. 2,40,50,000/- being Rs. 1,92,40,000/- on which TDS has not been deducted is disallowed u/s.40(a)(ia) and added back to the total income." 4. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee has submitted that provisions of section 40(a)(ia) of the Act can be invoked, where any person making payment without deduction of TDS, but said provisions cannot be applied where a person makes TDS at lower rates. The assessee, further, claim....
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....contends that short deduction is not subject to disallowance u/s 40(a)(ia) and relies on the following cases in support of their contention. 1. CIT Vs. S.K. Tekriwal (15 taxmann.com 289). 2. CIT Vs. Chandabhoy & Jassobhoy (49 SOT 448). 4.1 To resolve the issue on hand, it is pertinent here to refer to the decision of the Kerala High Court in the case of CIT Vs. P V S Memorial Hospital Ltd (380 ITR 284) wherein it was declared as follows: Section 40(a)(ia) is attracted in cases where fee for professional services or technical services is 'payable' an which tax is 'deductible at source' and 'such tax' has not been deducted or after deduction not paid. Provision of section 40(a)(ia) is not a charging section but is a machinery section and such a provision should be understood in such a manner that the provision is workable. The expression 'tax deductible at source under Chapter XVII-B' occurring in the section 40(a)(ia) has to be understood as tax deductible at source under the appropriate provision of Chapter XVII-B. Therefore, as in this case, if tax was deductible under section 194J but was deducted under section 194C, such a deduction would not satisfy the requirements o....
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....the case of CIT Vs. P V S Memorial Hospital Ltd.(supra), if assessee deducted TDS at lower rate, then it is not sufficient compliance of provisions of section 40(a)(ia) of the Act, and thus, sum paid by the assessee cannot be allowed as deduction u/s.40(a)(ia) of the Act. The learned CIT(A), after considering relevant facts has rightly sustained additions made by the Assessing Officer towards disallowance of compensation paid by the assessee u/s. 40(a)(ia) of the Act for non-deduction of TDS. 8. We have heard both the parties, perused material available on record and gone through orders of the authorities below. Admittedly, facts borne out from records clearly indicate that the assessee has paid compensation for breach of contract for non-supply of iron ore and such payment has been made after deducting TDS @ 2% in terms of the provisions of section 194A of the Act, as applicable to contractors / subcontractors. The Assessing Officer has disallowed part of compensation paid by the assessee u/s.40(a)(ia) of the Act, on the ground that the assessee has deducted TDS at lesser rates and thus, it is as good as non-deduction of TDS on remaining part of the amount. We have gone through t....
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....iew and observed that provisions of section 40(a)(ia) of the Act, applies when the assessee has deducted TDS under wrong provisions of the Act, but because there is divergent views from various High Courts, we prefer to follow decision of the Hon'ble Calcutta High Court in the case of CIT Vs. S.K. Tekriwal (supra), because law is very clear from the decision of the Hon'ble Supreme Court in the case of CIT Vs. M/s. Vegetable Products Ltd. 88 ITR 192 (SC), where it was clearly held that when two views are possible in respect of an issue from different High Courts, then view which is in favour of the assessee needs to be followed. In this case, there is no doubt with regard to compliance of TDS provisions by the assessee, because, the assessee has deducted TDS @ 2% as applicable to contractors / sub-contractors u/s.194C of the Act. Therefore, we are of the considered view that once any payment made by the assessee which is covered under the provisions of section 40(a)(ia) of the Act is subjected to TDS, then even if, the assessee has deducted TDS by applying wrong provisions of the Act or at lower rates, then sum paid by the assessee cannot be disallowed u/s.40(a)(ia) of the Act, on t....