2021 (8) TMI 1221 - AT - Income Tax

Tribunal allows deduction of interest expenses for delayed payment of EDC as revenue expenditure.

The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) in allowing the deduction of interest expenses amounting to Rs. 8,17,42,528 ... Revenue expenditure - interest expenses towards delayed payment of EDC external Development Charges to HUDA - allowable expenditure u/s 37 or penal in nature as interest has been charged by concerned authority for delay - HELD THAT:- As decided in TRIVENI FERROUS INFRASTRUCTURE LTD [2019 (11) TMI 1670 - ITAT DELHI] the interest payment as revenue expenditure and not penal in nature, therefore respectfully following the same, the interest expenditure on delayed payment for EDC charges paid to HUDA in the year under consideration is allowable to the assessee. We do not find any error in the order of the Ld. CIT(A) and accordingly, we uphold the same. The grounds of the appeal of the Revenue are accordingly dismissed. Issues:1. Allowability of interest expenses towards delayed payment of EDC to HUDA as revenue expenditure.2. Treatment of interest expenses as penal in nature.3. Disallowance of interest expenses by Assessing Officer.Issue 1: Allowability of interest expenses towards delayed payment of EDC to HUDA as revenue expenditureThe dispute in this case revolves around the allowability of interest expenses amounting to Rs. 8,17,42,528 paid by the assessee to Haryana Urban Development Authority (HUDA) for delayed payment of External Development Charges (EDC) as revenue expenditure. The Assessing Officer disallowed the deduction, categorizing the interest payment as penal in nature and part of the cost of the project. However, the Commissioner of Income-tax (Appeals) reversed this decision, citing a similar precedent where such interest payments were treated as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, emphasizing that the interest payment was revenue in nature and not penal, thereby allowing the deduction.Issue 2: Treatment of interest expenses as penal in natureThe Assessing Officer contended that the interest paid for delayed EDC charges was penal in nature due to the imposition of an 18% interest rate by HUDA. This penal nature led to the disallowance of the interest expenses as a business expenditure. However, the CIT(A) disagreed with this characterization, stating that the interest payment was a result of an agreement between the appellant and HUDA and did not fall under the definition of penal payments. The Tribunal, following a previous decision, concurred with this view, ruling that the interest payment was not penal but a revenue expenditure, thus allowing its deduction.Issue 3: Disallowance of interest expenses by Assessing OfficerThe Assessing Officer disallowed the interest expenses on the grounds that EDC charges were integral to the project cost and the interest payment should have been treated as part of work-in-progress. However, the CIT(A) and the Tribunal found that the interest was on outstanding EDC charges for a completed project, making it a revenue expenditure rather than a capital one. The Tribunal upheld the CIT(A)'s decision, emphasizing that the interest payment was allowable as a business expense, leading to the dismissal of the Revenue's appeal.In conclusion, the judgment focused on the allowability of interest expenses towards delayed EDC payments as revenue expenditure, rejecting the penal nature assigned by the Assessing Officer. The decision highlighted the distinction between revenue and capital expenditures, ultimately upholding the deduction of interest expenses in favor of the assessee.