2018 (2) TMI 1967

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....inising the return of income, the Assessing Officer noticed that the assessee has paid penal interest of Rs. 12,23,58,512/- to Government of Gujarat. The Assessing Officer was of the opinion that the nature of expenditure is of penalty which is not allowable as per provisions of the Income Tax Act, 1961. The Assessing Officer accordingly disallowed an amount of Rs. 12,23,58,512/-. 4. The assessee agitated the matter before the CIT(A) and strongly contended that the impugned payment is not penalty but only interest on delayed payment. Therefore, the disallowance is not justified. After considering the facts and the submissions, the CIT(A) was convinced with the nature of expenditure and directed the Assessing Officer to allow the same. ....

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....nation to section 37(1), is not sustainable in law. The interest charged at the rate of 2% per month for delayed payment of installment by the assessee-company could not be equated with payment made against the public policy or payment made in contravention of law. We are of the considered view that the interest paid by the assessee on delayed payment of installment to the State of Gujarat is in the nature of financial charges for late payment of installment. In this 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 ....

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....nsideration to the orders of the authorities below. It is true that the assessee debited Profit & Loss account by Rs. 5,75,00,227/- and credited the provision for bad and doubtful debts. Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT, 323 ITR 166 has observed and held that where assessee bank had written off the impugned bad debts in its books by way of a debit to profit and loss account, simultaneously reducing corresponding amount from loans and advances to debtors depicted on assets side in balance sheet at close of year, the assessee-bank was entitled to deduction under section 36(1)((vii) and for that purpose it was not necessary for it to close individual account of each of its debtors in its books. 13. In the light of af....