Interest on Custom Duty Allowed as Tax Deductible Expense

The Tribunal allowed the appeal, holding that interest payment on custom duty is an allowable expense under the Income Tax Act. The decision favored the assessee, overturning the disallowance by lower authorities. The order was pronounced on 12.11.2014.

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Issues:
- Disallowance of interest on custom duty as an allowable expense under the Income Tax Act.

Analysis:
The appeal was filed against the order of the Ld. CIT(A) sustaining the disallowance of interest on custom duty amounting to Rs. 55,92,254. The Assessing Officer (A.O.) disallowed the amount as it was considered a penalty on government duties not allowed under the Act. The Ld. CIT(A) upheld this decision, citing various judicial precedents. The appellant argued that the payment was interest, not a penalty, and thus allowable under the Act. The Ld. A.R. provided evidence supporting this claim, including a settlement order granting immunity from penalty. The case laws relied upon included Mahalaxmi Sugar Mills Co. and others.

The Tribunal found that the payment debited by the assessee was indeed interest on custom duty, not a penalty, as evidenced by the settlement order and other documents. The case laws cited by the Ld. A.R. supported the position that interest on indirect taxes is akin to taxes and allowable under the Act. The Tribunal referred to the decision in Mahalaxmi Sugar Mills Co., emphasizing that interest on a liability is part of the obligation to pay and not a penalty. Additionally, the Delhi High Court decision in CIT vs. Enchante Jewellery Ltd. held that interest on custom duty is not prohibited under Section 37(1) of the Act.

Based on the evidence and legal precedents, the Tribunal allowed the appeal, concluding that interest payment on custom duty is an allowable expense under the Act. The decision was in favor of the assessee, overturning the disallowance made by the lower authorities. The order was pronounced in open court on 12.11.2014.

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