2019 (2) TMI 1734 - AT - Income Tax

Tribunal Upholds Disallowance Appeal, Allows Interest Deduction

The Tribunal dismissed the revenue's appeal challenging the disallowance under Section 40(a)(ia) of the Income-tax Act, 1961, regarding expenses related ... Addition u/s 40(a)(ia) - as argued obligation of the assessee to deduct tax at source has been fulfilled by M/s CKIL - HELD THAT:- It is noticed in appeal for Assessment Year 2008-09 that the payment by way of rent and repairs have been duly subjected to deduction of tax at source. The assessee has reimbursed the amount to M/s CKIL on which tax has already been deducted at source. Since the impugned payments have been made M/s CKIL on behalf of the assessee and the tax has been deducted at source there from by M/s CKIL, it should be construed that M/s CKIL has deducted tax at source also on behalf of the assessee. In this view of the matter, the obligation of the assessee to deduct tax at source has been fulfilled by M/s CKIL and hence I agree with the view taken by Ld CIT(A) that the provisions of sec. 40(a)(ia) would not get attracted in this factual matrix Disallowance of interest on delayed payment of service tax - HELD THAT:- The assessee has claimed to have paid the interest on delayed payment of service tax pertaining to Assessment Year 2008-09, 2009-10, 2010-11 & 2011-12. We have noted that the assessee has given bifurcation of interest paid for earlier Assessment Year. Considering the decision of Hon’ble Gujarat High Court in CIT vs. Kaypee Mechanical India (P.) Ltd. [2014 (4) TMI 829 - GUJARAT HIGH COURT] wherein it was held that the interest on service tax is to be recorded as payment made during the course of business wholly and exclusively for the purpose of business and the same is compensatory in nature and would not partake the character of penalty. Thus interest on delayed service tax is allowable deduction. Therefore, we restore the ground of appeal to the file of Assessing Officer to verify the fact about the payment of interest on delayed payment of service tax and pass appropriate order in accordance with law. Issues:1. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961.2. Disallowance of interest on delayed payment of service tax under Section 40(a)(ia) of the Income-tax Act, 1961.Issue 1: Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961:The appeal by revenue challenged the order of the Commissioner of Income-Tax (Appeals) concerning the disallowance of expenses under Section 40(a)(ia) of the Act. The Revenue contended that the assessee failed to deduct TDS on payments made to Cox & Kings (India) Ltd. The assessee argued that the payments were reimbursements without any income element, and CKL had already deducted tax at source. The Tribunal noted previous decisions in favor of the assessee and upheld the CIT(A)'s decision. The Tribunal found that CKL had complied with TDS provisions, and since tax was already deducted by CKL, the assessee's obligation to deduct tax at source was fulfilled. Therefore, the disallowance under Section 40(a)(ia) was not applicable.Issue 2: Disallowance of interest on delayed payment of service tax under Section 40(a)(ia) of the Income-tax Act, 1961:The assessee raised a cross objection regarding the disallowance of interest on delayed payment of service tax. The Assessing Officer disallowed the interest, considering it penal in nature and not allowable under Section 37 of the Act. The assessee argued that the interest was compensatory, citing legal precedents. The Tribunal, following the decision of the Gujarat High Court, held that interest on delayed service tax is compensatory and allowable as a deduction. The Tribunal directed the Assessing Officer to verify the payment of interest and make a decision in accordance with the law. The cross objection filed by the assessee was allowed for statistical purposes.In conclusion, the Tribunal dismissed the revenue's appeal and allowed the cross objection filed by the assessee regarding the disallowance of interest on delayed payment of service tax. The Tribunal upheld the decisions based on legal interpretations and precedents, ensuring compliance with the Income-tax Act, 1961.