TaxTMI 
TaxTMI 
2023 (8) TMI 426
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....the compromise agreement out of the Court Order as a compulsive and necessary expense that the assessee has to incur under the definition of business transaction without taking note of the fact that the same was illegal and void transaction and cannot be described as a business expediency. 3. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored." 3. The brief facts of the case are that the assessee is a company engaged in the business of hotels and restaurant. During the course of assessment, the AO disallowed a sum of Rs. 1, 62, 00, 000/- as interest on the ground that the same was penal in nature and hence not allowable under section 37 of the Act. 4. The assessee filed appeal before Ld. CIT(Appeals) in respect of the aforesaid disallowance and submitted that during the year under consideration, the assessee had debited interest of Rs. 1.6 crores payable to Nakoda developers on the amount remaining to be paid for the repurchase of party plot named Vatika belonging the assessee which was sold to....
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.... with the assessee. In view of the aforesaid notice, and after due assessment of the legal position, the assessee decided to repurchase the Vatika party plot back from Nakoda developers. For this purpose, assessee filed a civil suit in the court of law for compromise and got the re-purchase of the Vatika party done through a Court's order in February 2011 on a compromise basis. The assessee contended that in this way the assessee protected its business interests since the possession of Vatika party plot used to bring a lot of revenue to the assessee company. As per the compromise order of the Court dated 10th February 2011, the assessee was required to pay the re-purchase price of the said party plot of Rs. 22 crores to Nakoda Developers. The assessee paid Rs. 2 crores immediately and agreed to pay Rs. 20 crores subsequently. As per the Court's order the assessee was required to pay interest on the balance amount of Rs. 20 crores which was to be paid by the assessee in the next 10 years to Nakoda Developers and till the time such principal amount is not paid, as per the order of the Court, the assessee was required to pay interest @9% on the unpaid principal amount. It was this int....
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....ted purpose. The Court has accepted that the Sales deeds and Lease deeds collectively constituted and security transactions and has stated this item in the court order which is also highlighted. The court has not said that the two Lease deeds entered into, have been illegal or are void. 3.5 As per the judgment when Rs. 2 Crores were paid out of Rs. 22 Crores as payable, the same was not debited to revenue by the Appellant and similarly the remaining Rs. 20 Crores have also not been debited to revenue. The amount of Rs. 22 Crore payable has not been in any way in the form of penalty or damages. It is the repurchase price of the Vatika Plot arrived at with Nakoda Developers. As the Appellant had no money to make complete payment to the said party, it kept the balance as payable and under the terms of the court's order, interest was paid. Sec. 37(l) prescribes to disallow any payment in connection to an offence committed which generally is in the nature of penalty/damages/ additional duties or charges etc. In the Appellant's case it is the interest paid on the amount agreed for the repurchase price of the land. As regards Explanation (1) to section 37 it is submitted that t....
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....beyond doubt that what was entered in to between parties was in fact deed for security purpose and not actual sale or lease deed as named in the deeds and hence what is to be seen is the substance of the agreement and not merely the names given to deeds. On this issue reference is invited to the decision of Hon'ble Apex Court in the case of Mahalakshmi Sugar Mills Co. Vs CIT [1980] 123 ITR 429 (SC) has held as under: "We have been referred by the revenue to Mahobir Sugar Mills (P.) Ltd. vs Commissioner of Income-tax (1969) 71 Itr 87 (All) and Commissioner of Income-tax vs A.K. Das (1970) 77 Itr 31 (Cal), but in those two cases the Allahabad High Court and the Calcutta High Court respectively were concerned with a claim to deduction on account of penalty paid under $.3(5) of the Cess Act. Reliance was also placed on Commissioner of Income-tax vs Oriental Carpet Manufacturers (India) P. Ltd. (1973) 90 ITR 373. In that case, the High Court of Punjab and Haryana laid down that interest paid by an assessee on account of delay in payment of the provisional demand of tax is not a permissible deduction under s. 36(l)(iii) and s. 37 of the I. T. Act. The learned judges observed that t....
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..... The ground of appeal no. 4 of the appellant as filed along with Form 35 is as under:- 4. The Ld. AO should have considered the facts of the payments of Employees' contribution to ESI and as the delays are very meager, he should not have added the amount to the income as otherwise the assessee has been very regular in depositing such contributions. Minor mistakes / lapses if proved genuine, should not be penalized and he should have acted in a friendly way. 4.1 The appellant has not made any submission in respect of this Ground. I am in agreement with the Assessing Officer that this issue is squarely covered by the decision of the jurisdictional Gujarat High Court in the case of CIT Vs Gujarat State Road Transport Corporation [2014] 41 taxmann.com 100 (Guj.). Hon'ble Court has decided the issue in favour of the revenue as under:- "8. In view of the above and for the reasons stated above, and considering section 36(l)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section (2) applies, th....