2013 (8) TMI 78

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....e is in appeal against the judgment of the Income-tax Appellate Tribunal ("the Tribunal" for short) dated 5-10-2012 raising following question for our consideration:-      "Whether the Tribunal is right in law and on facts in deleting the disallowance of penal interest paid to Government of Gujarat amounting to Rs.51,14,787/- without appreciating the fact that levy of penal ....

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....st on delayed payment of instalments. The respondent assessee itself is a public sector undertaking. Having taken loan from the Government it also agreed to a repayment schedule. The terms of agreement provided that delayed payment would incur interest at the rate of 2% per month. When the assessee expended the sum of Rs.15.14 lakhs towards such liability and claimed deduction thereof under Sectio....

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....of late payment of amount payable to the State Government. There is no infringement of law and there is no Act on the part of the assessee which can be said to be against the public policy. The assessee had advanced finance by way of term loans, leave finance etc. for the industrial units in the State of Gujarat during the relevant period and has earned interest thereon. The penal interest in the ....

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....ment of instalment to the State of Gujarat is in the nature of financial charged for late payment of instalment. In view of the matter, we hold that no case of disallowance by holding the payment of penal interest as against the public policy could be made out by the department, and accordingly, the issue is decided in favour of the assessee and the grounds of the appeal of the assessee are allowe....