TMI Blog2022 (2) TMI 176X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 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. - I.T.A.No. 795/Chny/2019 - - - Dated:- 31-1-2022 - Shri V.Durga Rao, Judicial Member And Shri G. Manjunatha, Accountant Member For the Appellant : Mr. R. Devaraj, Advocate For the Respondent : Dr. I.P.Roopa, JCIT ORDER PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-2, Chennai, dated 25.01.2019 and pertains to assessment year 2013-14. 2. The assessee has raised following grounds of appeal:- 1) The order of the Assessing officer is contrary to the law, facts and circumstances of this case, irrational and unfair. 2) It is a prima facie case of high-pitched assessment, non-observance of principles of natural justice and non-appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may incur, be deemed to be an assessee in default in respect of such tax: [Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident - (i) has furnished his return of income under Section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed:] Further liberalization of provisions of Section 40(a)(ia) made through Prospective amendment brought by the Finance Act 2014 Section 40(a)(ia) is amended via Finance (No. 2) Act, 2014 to restrict the amount of disallowance for non-deduction of tax to 30% of expenditure. The proviso is also amended to the effect that 30% of such sum shall be allowed as a deduction in computing the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of the Assessing Officer are as under:- 4.2 On Careful examination of the payments made to to 12 entities in the form of compensation summing up to ₹ 2,40,50,000/- the amounts due to them is payable as on 31/03/2013and tax has been deducted @ 2%. The compensation has been given to persons who contributed the capital for venturing into iron export business and due to failure to keep up with the commitment, the assessee had to compensate them which is actually the interest cost on the funds lying idle with the assessee. 4.3 Sec 2(28A) of the I.T. Act defines interest as below: Interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. From the above definition, it is clear that the compensation amount received by the assessee for breach of contract by M/s.TiffinBarytes is also in the nature of interest. It is under such circumstances that M/s. Tiffin Barytes had deducted TDS 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT(A) opined that there is no error in the reasons given by the Assessing Officer to disallow sum paid by the assessee u/s. 40(a)(ia) of the Act. The relevant findings of the learned CIT(A) are as under:- 4. Decision: I have considered the observations of the Assessing Officer and the submissions made by the appellant. Ground No.1 is with regard to the disallowance of ₹ 1,92,40,000/- u/s 40(a)(ia). The Assessing Officer observes that the appellant received an amount of ₹ 3,29,50,000/- as income from contract cancellation charges and likewise made a payment of ₹ 2,40,50,000/- to 12 companies for the same reason. Tax has been deducted @ 10% on the contract cancellation charges paid by Tiffin Barytes Asbestos Paints Ltd. (TBAPL) whereas the appellant deducted tax @ 2% on the contract cancellation charges claimed to have been paid to the 12 companies. The Assessing Officer further observes that the compensation received by the appellant is in the nature of interest which is further confirmed by the fact that the TDS has been made @ 10% that is applicable to interest. The Assessing Officer concluded that there is no rational to deduct tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Section.40(a)(ia) are applicable in case of short deduction of tax as well. Respectfully following the above decision of the Hon ble High Court of Kerala, I have no hesitation in holding that short deduction of tax would not satisfy the requirements of Section 40(a)(ia). I also agree with the view of the Assessing Officer that tax should have been deducted@10% and not 2% since the nature of payments on both the occasions is same i.e., contract cancellation charges. Therefore, the Assessing Officer rightly disallowed the expenses of ₹ 1,92,40,000/- The disallowance u/s 40(a(ia) made by the Assessing Officer is confirmed. The appellant fails on this ground. Being aggrieved by the learned CIT(A) order, the assessee is in appeal before us. 6. The learned A.R for the assessee submitted that the learned CIT(A) erred in sustaining additions made by the Assessing Officer towards disallowance of compensation paid for breach of contract u/s.40(a)(ia) of the Act, even though the assessee has deducted applicable TDS @ 2% in terms of the provisions of section 194A of the Income Tax Act, 1961. The learned A.R further submitted that by no stretch of imaginatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) of the Act 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) of the Act. 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 the Hon ble Calcutta High Court in the case 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. A similar view has been taken by the ITAT., Kolkata Bench in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- on the ground that the assessee has failed to prove nexus between foreign travel expenses and business connection in the countries to which the assessee has travelled. It was the explanation of the assessee that when the Assessing Officer accepts fact that there was nexus between foreign travel expenditure incurred by the assessee and business connection, then ad-hoc disallowance cannot be made. 10. We have heard both the parties and considered relevant materials along with arguments advanced by the learned counsel for the assessee and learned DR present for the Revenue. We find that although the Assessing Officer has stated that the assessee has not provided any evidence of having attended any trade fair or meeting in countries in which he has travelled, but has made ad-hoc disallowance of ₹ 5,00,000/- without pointing out any errors or in the reasons given by the assessee to claim foreign travel expenses of ₹ 10,55,183/-. 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 justif ..... X X X X Extracts X X X X X X X X Extracts X X X X
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