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2022 (2) TMI 176 - AT - Income TaxTDS u/s 194A OR 194C - short deduction of TDS - compensation paid by the assessee for breach of contract u/s.40(a)(ia) - assessee has deducted TDS at lower rates or under wrong TDS provisions of the Act - Contradictory views - HELD THAT:- 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 as applicable to contractors / subcontractors. AO has disallowed part of compensation paid by the assessee u/s.40(a)(ia) 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. As gone through the reasons given by the AO in light of the provisions of section 40(a)(ia) and arguments advanced by the assessee in the case of CIT Vs. S.K. Tekriwal [2011 (10) TMI 10 - ITAT, KOLKATA] and we ourselves do not subscribe to the reasons given by the Assessing Officer for disallowing part of the amount u/s.40(a)(ia) of the Act for simple reason that once the assessee deduct TDS on any payment made, then said payment cannot be disallowed u/s.40(a)(ia) of the Act, even if, the assessee has deducted TDS at lower rate or under different TDS provisions of the Act. The sole reason for inserting provisions of section 40(a)(ia) in statute book was to put check on payments made by an assessee for various services and to track such payments in the hands of recipients. When sole object of insertion of provisions in the statute to comply with TDS provisions for tracking payments, then it cannot be said that when the assessee has deducted TDS at different rates and for shortfall in deduction of TDS impugned payment cannot be allowed as deduction u/s.40(a)(ia) - If at all there is shortfall in TDS deducted by the assessee, then the assessee can be treated as an assessee in default u/s.201(1) / 201(1A) and recover shortfall in TDS amount and consequent interest thereon, but sum paid by the assessee cannot be disallowed u/s.40(a)(ia) of the Act, by holding that the assessee has not deducted TDS on said payment. This legal principle is supported by the decision of CIT Vs. S.K. Tekriwal (supra), where it has been very clearly held that where the assessee deduct TDS at lower rates or under wrong provisions of TDS, provisions of section 40(a)(ia) of the Act cannot be invoked. We prefer to follow decision 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 [1973 (1) TMI 1 - SUPREME COURT] 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 - 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 the ground that the assessee has deducted TDS at lower rates or under wrong TDS provisions of the Act. AO as well as the learned CIT(A), without appreciating facts has simply disallowed compensation paid by the assessee for breach of contract u/s.40(a)(ia) - Hence, we direct the AO to delete additions made towards disallowance of expenses u/s.40(a)(ia) of the Act. Disallowance of foreign travel expenses - assessee has failed to prove nexus between foreign travel expenses and business connection in the countries to which the assessee has travelled - HELD THAT:- It is an admitted legal position of law that unless the Assessing Officer points out specific defects in expenditure claimed by the assessee, no ad-hoc disallowance can be made for reason that the assessee has not filed any evidence to justify expenses. In this case, admittedly, the AO has accepted fact that the assessee has incurred foreign travel expenses for business purpose and out of total expenditure claimed by the assessee he has allowed 50% of expenses. Made ad-hoc disallowance of ₹ 5.00 lakhs without any valid reason. At the same time, the assessee has also failed to adduce proper evidence to justify huge foreign travel expenses claimed for the year under consideration. Therefore, to resolve dispute between the parties and also in the interest of justice, we deem it appropriate to direct the Assessing Officer to restrict disallowance of foreign travel expenses. Accordingly, we direct the AO to restrict disallowance of foreign travel expenses out of total foreign travel expenses claimed by the assessee.
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