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TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 86
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....is liable to be quashed. 2.For that the Ld. Principal CIT was not justified in initiating proceedings u/s. 263 inasmuch as it has been held in various decisions that interest on delayed payment of taxes viz. VAT, Service tax and TDS is compensatory in nature and allowable. 3.For that the appellant craves leave to add, alter or delete all or any of the grounds of appeal. 3. The facts of the case may be stated quite shortly as follows: In the instant case, the assessee filed its return of income for the A.Y. 2014-15 on 26.09.2014. Subsequently, the assessee`s case was selected for scrutiny u/s 143(2) of the Income Tax Act, 1961 ( hereinafter referred to as "the Act") and assessment was completed under section 143(3) of the Act on 11.05.2016. Later on, the learned Principal Commissioner of Income Tax, Kolkata exercised his jurisdiction under section 263 of the Income Tax Act, 1961 to revise the order passed by AO under section 143(3) of the Act on the ground that assessee company has debited expenditure under the head Interest on delay payment of VAT, Service Tax and TDS totaling to Rs. 3,45,633/- and since such expenses are penal in nature, is not deductible u/s 37(1) of the I....
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.... assessment order, therefore, ld Pr.CIT noted that it is a fit case for setting aside the assessment order for limited purpose to rectify the error as brought out above. Also, during the course of assessment proceedings, the Assessing officer had failed to take appropriate measures by disallowing the said expenses (VAT, service tax, TDS) u/s 37(1) of the Act, therefore, Ld. Pr.CIT, held that assessment order passed by AO under section 143(3) dated 11.05.2016 was erroneous and prejudicial to the interest of revenue. 6. Aggrieved by the impugned order of the ld. Pr. CIT, passed u/s. 263 of the Act, the assesse is in appeal before us. 7. The learned Counsel for the assessee submitted that the order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue. The ld Counsel pointed out that interest on TDS, service tax and VAT are allowable expenditure under section 37(1) of the Act, being compensatory in nature. While making the assessment U/s 143(3) of the Act, the ld AO has taken a possible view and that is why he allowed interest on TDS, service tax and VAT as expenditure, being compensatory in nature. 8. Before us, the ld. DR for the Revenue has primari....
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.... jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Th....
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....essed and accepted that the (interest on VAT, service tax, TDS etc.) expenses are not allowable expenditure under section 37(1) of the Act, being penal in nature, does not mean that these expenses should be disallowed. If these expenses ( interest on late deposit of VAT, service tax, TDS etc expense ) are allowable under the Act then these can not be disallowed merely because assessee has admitted. Right expenditure ought to be allowed and right income ought to be taxed. Therefore, the assessing officer, while making the assessment U/s 143(3) took a possible view that these expenses are allowable under section 37(1) of the Act, hence he did not disallow them. Hence, Assessing Officer has adopted one of the courses permissible in law therefore, order made by AO under section 143(3) of the Act, is neither erroneous nor prejudicial to the interest of the Revenue. 12. We note that Coordinate Bench in the case of M/s Naaraayani Sons Pvt. Limited, in ITA No. 1796-1798/Kol/2017, order dated 21.08.2018 held that interest expense on late deposit of VAT, service tax, TDS etc are allowable expenditure under section 37(1) of the Act, the detailed findings, of the Coordinate Bench is given bel....
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....ness. Under the Act, the payment of such interest is inextricably connected with the assessee's tax liability. If income-tax itself is not permissible deduction under section 37, any interest payable for default committed by the assessee in discharging his statutory objection under the Act, which is calculated with reference to the tax on income, cannot be allowed as a deduction. Therefore, it was to be held that deduction of interest levied under sections 139 and 215 would not be allowable under section 37. In the above judgment, the claim of the assessee for interest expenses was denied as it defaulted to make the payment of advance tax as per the provisions of the Act. The advance tax is nothing but income tax only which the assessee has to pay on his income. In the instant case the default relates to the delay in the payment of advance tax and consequently interest was charged on the delayed payment of advance tax. In the above judgment the Hon' ble Apex Court held that as Income Tax paid by the assessee is not allowable deduction and therefore interest emanating from the delayed payment of income tax (advance tax) is also not allowable deduction. However the fa....