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TaxTMI 
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2020 (2) TMI 22
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....t Rs. 48,90,340/-. The AO completed the assessment 08-12-2018 u/s 143(3) of the I.T. Act, 1961 determining total income at Rs. 78,59,130/- inter alia making the following additions. (i) Addition of Rs. 15,96,562/- by disallowing the payment of interest on statutory liabilities. (ii) Addition of Rs. 11,45,410/- by disallowing the claim of expenditure on account of theft of money debited in P&L A/c. 2.2 Aggrieved by the order of the AO, the assessee preferred appeal before the ld.CIT(A) who has sustained the following additions. (i) Addition of Rs. 3,94,946/- by disallowing the payment of interest on statutory liabilities. (ii) Addition of Rs. 11,45,410/- on account of claim of loss by theft. 2.3 Aggrieved by the order of the ld. CIT(A), the assessee has preferred the present appeal before us by raising the grounds mentioned hereinabove. 3.1 The Ground No. 1 of the assessee relates to challenging the order of the ld. CIT(A) in confirming the addition of Rs. 3,94,946/- as per the provisions of Section 2(24)(x) r.w.s. 36(1)(va) o the I.T. Act, 1961 on account of delay in payment of ESI and PF made by the AO. 3.2 The ld.AR of the assessee reiterated the same are arguments as....
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....nterest expenditure which is made to private parties and banks for delayed payment and loans. Therefore the above addition deserves to be deleted. (b) Payment of interest for delayed payment of statutory liabilities - (i) Interest on late payment of excise & service tax, EPF 188449.00 (ii) Interest on late payment of sales tax payment 122729.00 (iii) Interest on late payment of TDS 83768.00 Total 394946.00 The assessee has made delay in payment of excise, service tax, sales tax and TDS to the government account for which interest payment was made. The above interest payment was not in penal in nature. It is only compensatory in nature to the government for delayed payment of liabilities. It is paid in the name of interest and not in the name of penalty. Therefore it cannot be disallowed. During the assessment proceedings the assessee has submitted as under: - It is submitted that according to the provisions of section 37(1) of the Act, any expenditure incurred wholly and exclusively for the purposes of business is allowable as deduction, provided the same was not incurred for the purpose of any offence or which is prohibited by law. The payment made ....
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.... In the case Lachmandas Mathura v. CIT 254 ITR 799 the Apex Court has held that "The High Court has proceeded on the basis that the interest on arrears of sales tax is penal in nature and has rejected the contention of the assessee that it is compensatory in nature. In taking the said view the High Court has placed reliance on its Full Bench's decision in Saraya Sugar Mills (P) Ltd. v. CIT (1979) 116 ITR 387 (All.) The learned counsel appearing for the appellant-assessee states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni Engg. Works Ltd. v. CIT (1983) 144 ITR 732 (All.) (FB), wherein it has been held that interest on arrears of tax is compensatory in nature and not penal. This question has also been considered by this Court in Civil Appeal No. 830 of 1979 titled Saraya Sugar Mills (P) Ltd. v. CIT decided on 29-2-1996. In that view of the matter, the appeal is allowed and question Nos. 1 and 2 are answered in favour of the assessee and against the revenue." The same view was further approved by the ITAT Kolkata in the case of DCIT Vs Narayani Ispat (P) Ltd. Appeal Number : ITA No. 2127/Kol/2014 Date of Judgement/Order....
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..... We have also gone through the decision of Hon'ble Karnataka High Court in case of Oriental Insurance Company Ltd. However, the said decision doesn't support the case of the assessee as the issue before us is about deductibility of interest on late deposit of TDS and not whether such interest is penal in nature or not. We had an occasion to examine similar matter in case of M/s Sand Plast India Limited vs. DCIT, Alwar (in ITA No. 310/JP/2018 dated 24/07/2018) wherein we have held as under:- "11. As far as interest on late payment of TDS u/s 201 (1A) is concerned, useful reference can be drawn to the decision of Hon'ble Bombay High Court in case of Ferro Alloys Corporation Ltd vs. CIT (1992) 196 ITR 406 (Bom) where interest payment u/s 201(1A) for failure to deduct or pay tax deducted at source was held not deductible. A Similar view has been taken by the Madras High Court in case of CIT vs. Chennai Properties & Investment Ltd., (1999) 239 ITR 435 (Mad) wherein it was held as under (Head notes): "The liability for deduction of tax arises by reason of the provisions of the Act. Under section 201, the consequence of failure to comply with the same renders that person liable to be d....
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....he assessee and in any case, the interest will partake the character of the principal which is not otherwise allowable. Respectfully following the decisions referred supra, interest on late deposit of TDS u/s 201(1A) cannot be allowed to the assessee and the same has rightly been disallowed by the AO. In the result, ground No. 7 is partly allowed. In the result, appeal of the assessee is partly allowed." 6. Following the aforesaid decision, the ground no. 2 of the asssessee's appeal is dismissed. '' Respectfully following the decision of this Coordinate Bench in assessee's own case (supra), we sustain the addition of Rs. 83,768/- on account of late payment of TDS. However, on account of interest paid by the assessee on account of late payments of Sales Tax, Excise & Service Tax and EPF are concerned, in this respect, we rely upon the decision of ITAT Coordinate Bench in the case of CIT vs Western India State Motors (1988) 174 ITR 116 (Raj) wherein it has been said that interest payment of delayed payment of statutory liabilities is allowable as business expenditure. Therefore, the amount of interest paid in respect of late deposit of statutory/Govt. liabilities also partake ....