Case Law Details
M.V.A. Seetharama Raju Vs DCIT (ITAT Chennai)
ITAT Chennai held that if TDS is deducted by applying wrong provisions or at lower rates, the sum paid cannot be disallowed attracting provisions of section 40(a)(ia) of the Income Tax Act.
Facts-
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 subcontractors u/s.194C of the Income Tax Act, 1961. However, compensation paid by the assessee for breach of contract is in the nature of interest which attract TDS as per provisions of section 194A of the Act @ 10%, but not TDS @ 2%. Therefore, after considering relevant facts, the Assessing Officer has worked out TDS deducted by the assessee @ 2% and assumed that the assessee has only deducted TDS on 20% of amount debited into profit & loss account and thus, balance 80% of Rs.1,92,40,000/- has been disallowed u/s.40(a)(ia) of the Act, for non-deduction of tax at source u/s.194A of the Income Tax Act, 1961.
CIT(A) dismissed the appeal. Being aggrieved, the present appeal is filed.
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