2001 (7) TMI 314 - AT - Income Tax

Tribunal upholds interest levy for short-deduction of tax on car expenses, leave travel, and business attire reimbursement.

The Tribunal upheld the Assessing Officer's decision to levy interest under Section 201(1A) for the short-deduction of tax at source on car operating ... - Issues Involved:1. Short-deduction of tax at source on car operating expenses, leave travel allowance, and business attire reimbursement.2. Levy of interest under Section 201(1A) of the Income Tax Act for short-deduction of tax.Issue-wise Detailed Analysis:1. Short-deduction of Tax at Source:The Assessing Officer (AO) conducted survey enquiries regarding Tax Deducted at Source (TDS) from the salaries of employees and found that the assessee had reimbursed car operating expenses, leave travel allowance, and business attire reimbursement. The AO concluded that 20% of these reimbursements pertained to personal elements and should be considered for TDS purposes. Specifically:- Car Operating Expenses: The AO assumed that 20% of the car operating expenses were for personal use.- Leave Travel Allowance (LTA): The AO noted that LTA was granted based on declarations from employees without proof of actual journeys, estimating that 20% might not have been utilized for LTA.- Business Attire Reimbursement: The AO felt that there was no uniform policy, thus considering such payments as taxable.The AO estimated the short-deduction of tax for the financial years 1991-92 to 1994-95 and charged interest accordingly.2. Levy of Interest under Section 201(1A):The assessee appealed against the AO's action, arguing that the payments were considered non-taxable due to permissible deductions or exemptions. The assessee's representative contended that the interest under Section 201(1A) is applicable only when there is a failure to deduct or pay TDS, and since the assessee had made an honest estimate, the interest provisions should not apply. The representative cited the Madhya Pradesh High Court decision in Gwalior Rayon Silk Co. Ltd. vs. CIT, which held that an incorrect estimate alone does not imply dishonesty.The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the assessee's plea, concluding that the TDS was based on honest estimates, and the difference was merely a matter of opinion. The CIT(A) canceled the interest charged for all the years under consideration, holding that the honest estimate made by the assessee did not warrant the levy of interest under Section 201(1A).Revenue's Appeal:The Revenue appealed against the CIT(A)'s decision, arguing that interest is compensatory in nature and must be levied for the period during which the tax remained unpaid. The Revenue emphasized that the assessee agreed to the short-deduction of tax but did not agree to the interest, which was unjustified.Tribunal's Decision:The Tribunal examined the provisions of Sections 201(1) and 201(1A), emphasizing that the levy of interest is compensatory for withholding tax that should have been paid to the exchequer. The Tribunal noted that the use of the term 'shall' in Section 201(1A) indicates a mandatory levy of interest, compensatory in nature, for the period the tax remained unpaid.The Tribunal referred to various judicial precedents, including the Supreme Court's decision in Ganesh Dass Shreeram vs. ITO, which clarified that interest for late filing is compensatory, not penal. The Tribunal concluded that the AO's action in charging interest under Section 201(1A) was justified, reversing the CIT(A)'s order and restoring the AO's decision for all the years under consideration.Conclusion:All the appeals of the Revenue were accepted, and the Tribunal upheld the AO's decision to levy interest under Section 201(1A) for the short-deduction of tax at source. The CIT(A)'s order canceling the interest was reversed, emphasizing the mandatory and compensatory nature of the interest levy.