2022 (1) TMI 350 - AT - Income Tax

Tribunal allows appeal for deductions on investment & interest, remands disallowance issue for fresh hearing

M/s. Foot Prints Collateral Services Private Limited Versus The Assistant Commissioner of Income-tax, Circle 3 (1) (1) Bangalore.

The Tribunal partially allowed the appeal by directing the Assessing Officer to allow deductions for both the disallowed amounts related to the investment ... Addition u/s 36(1)(iii) - assessee has not challenged the alternate addition u/s 36(1)(iii) before the first appellate authority - CIT(A) deleted the addition u/s 14A for the reason that the assessee has not earned any exempt income for the relevant assessment year - HELD THAT:- We find that the assessee has raised ground before the CIT(A) that investments are made in subsidiary and are out of commercial expediency. The assessee has also placed judicial pronouncements in support of its claim. Therefore, the CIT(A) is not justified in sustaining the addition u/s 36(1)(iii) of the I.T.Act without disposing of the assessee’s grounds on merits. Hence, we deem it appropriate to restore this issue to the files of the CIT(A) in the interest of justice and equity. The CIT(A) is directed to afford a reasonable opportunity of hearing to the assessee before he dispose of this issue. It is ordered accordingly. Interest on delayed payment of service tax - AO held the same is not an allowable expenditure u/s 36 nor 37 as interest payable is not permissible for deduction u/s 37 of the I.T.Act since it is a default committed by the assessee in discharge of its statutory obligation - HELD THAT:- Separate sections govern the penal and interest consequences on delay in payment of service tax. This being the case, interest on delay in payment of service tax cannot be held to be penal in nature. The payment of interest is automatic when there is a delay in payment of taxes. Unlike penalty provisions, interest on delayed payment is not the discretion of the Officer. It has to be paid by the assessee and there is no option of waiver of the same by the Tax Officer. Therefore, the payment of interest is compensatory in nature and not in the nature of penalty or fine, disallowable u/s 37 of the I.T.Act. The Hon’ble Apex Court in the case of Mahalakshmi Sugar Mills Co v. CIT reported in [1980 (4) TMI 1 - SUPREME COURT]had examined the issue of disallowance of statutory interest on the ground that the same was penal in nature. The Hon’ble Apex Court reversing the judgment of the Hon’ble Delhi High Court held that interest payable on arrears of cess is in reality part and parcel of the liability to pay cess. As in KAYPEE MECHANICAL INDIA PVT. LTD. [2014 (4) TMI 829 - GUJARAT HIGH COURT]held that the interest payment is an expenditure deductible u/s 37 The Delhi Tribunal in the case of CIT v. Messee Dusseldorf India (P) Ltd. [2009 (12) TMI 1034 - ITAT, DELHI] had held that interest paid for delayed payment of service tax is compensatory in nature and has the same character as service tax and therefore allowable as a deduction. In view of the above judicial pronouncements, we hold that the interest on delayed payment of service tax is compensatory in nature and not penal in nature. Therefore, we direct the A.O. to allow deduction - Decided in favour of assessee. Issues:1. Condonation of delay in filing the appeal.2. Disallowance of Rs. 2,77,635 u/s 36(1)(iii) of the I.T.Act.3. Disallowance of Rs. 13,08,004 for delayed remittance of service tax.Issue 1: Condonation of Delay in Filing the Appeal:The appeal was delayed by 100 days, with the assessee filing a petition for condonation. The Tribunal, after examining the reasons for the delay, found no fault on the assessee's part and accepted the plea for condonation. Consequently, the Tribunal proceeded to hear the appeal on merits.Issue 2: Disallowance of Rs. 2,77,635 u/s 36(1)(iii) of the I.T.Act:The Assessing Officer disallowed the amount under section 14A or, alternatively, under section 36(1)(iii) of the I.T.Act, alleging that borrowed funds were invested in shares instead of business use. The CIT(A) deleted the disallowance under section 14A but upheld it under section 36(1)(iii) as the assessee did not challenge it. However, the Tribunal found fault with the CIT(A)'s approach, citing the assessee's grounds and judicial precedents. The issue was remanded back to the CIT(A) for a fresh hearing.Issue 3: Disallowance of Rs. 13,08,004 for Delayed Remittance of Service Tax:The Assessing Officer disallowed the interest paid for delayed service tax remittance under sections 36 and 37 of the I.T.Act, considering it a default in statutory obligation. The CIT(A) upheld this disallowance. However, the Tribunal disagreed, emphasizing that interest on delayed tax payment is compensatory, not penal. Citing various judicial decisions, the Tribunal directed the Assessing Officer to allow the deduction of Rs. 13,08,004 for the interest on delayed service tax payment.In conclusion, the Tribunal partially allowed the appeal, directing the Assessing Officer to allow the deductions for both the disallowed amounts.