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of <h1>MVAT interest deductible under section 37(1), not disallowed under section 43B(a) as compensatory not penalty</h1> <h3>Royal Drinks Pvt. Ltd. Versus Income Tax Officer Ward-4 (3), Nagpur.</h3> Royal Drinks Pvt. Ltd. Versus Income Tax Officer Ward-4 (3), Nagpur. - [2024] 113 ITR (Trib) 283 (ITAT [Nag]) Issues Involved:1. Jurisdiction of AO/CPC u/s 143(1) to disallow expenses u/s 43B.2. Deductibility of interest on MVAT as an expenditure only upon actual payment.3. Charging of interest u/s 234A, 234B, and 234C.Summary:The DIN & order No. ITBA/NFAC/S/250/2022-23/1045760461(1) dt. 21/09/2022 passed u/s 250 of the Income-tax Act, 1961 by the National Faceless Appellate Centre for AY 2019-20 is challenged by the assessee.1. Jurisdiction of AO/CPC u/s 143(1) to disallow expenses u/s 43B:The assessee's return was processed summarily u/s 143(1), determining total income at Rs. 35,65,320/- due to disallowance of interest on MVAT u/s 43B(a). The assessee appealed, but the NFAC upheld the disallowance, stating, 'the CPC is within its statutory power to make such adjustment as the appellant's statutory auditor himself has disallowed the impugned amount.' The Tribunal referenced 'Khatau Junkar Ltd. Vs DCIT' [1992, 196 ITR 55 (Bom)] and 'Rohan Korgaonkar Vs DCIT' [2024, 159 taxmann.com 321], concluding that the AO/CPC has jurisdiction to disallow the expenses u/s 43B(a) through prima-facie adjustment u/s 143(1)(a).2. Deductibility of interest on MVAT as an expenditure only upon actual payment:The Tribunal examined whether interest on sales-tax/MVAT is deductible only upon actual payment. It noted that section 43B(a) lists expenses deductible on actual payment, which does not explicitly include 'interest.' Citing judicial precedents such as 'Shree Pipes Vs DCIT' [2007, Taxmann 442 (Raj)] and 'CIT Vs Andhra Sugars' [2014, 367 ITR 195 (AP&T)], the Tribunal found that interest on unpaid taxes can attract section 43B(a). However, they also considered contrary views, such as 'Hindustan Motors Limited Vs CIT' [1995, 218 ITR 450 (Cal)], and concluded that interest on MVAT is compensatory, not penal. Hence, it is deductible u/s 37(1) without disallowance u/s 43B(a). The Tribunal directed the AO to delete the disallowance, stating, 'in absence statutory provisions i.e. specific entry u/c (a), the interest liability incurred against delayed discharge of statutory liability is entitled for deduction u/s 37(1) of the Act without subjecting it disallowance u/s 43B(a) of the Act.'3. Charging of interest u/s 234A, 234B, and 234C:The Tribunal found the ground meritless, referencing 'Anjum H Ghaswala' [2001, 252 ITR 449] and 'CIT Vs Hindustan Bulk Carriers' [2002, 259 ITR 449], which held that levy of interest u/s 234A, 234B & 234C is mandatory. The Tribunal stated, 'levy of interest u/s 234A, 234B & 234C is mandatory and not at the discretionary of tax authorities.'In conclusion, the appeal of the assessee is PARTLY ALLOWED, with the order pronounced on 24th April 2024.
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