TaxTMI 
TaxTMI 
2023 (9) TMI 1754
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.... 4. The Appellate Commissioner erred in confirming the disallowance of an amount of Rs. 26,95,847/- being interest on GST paid." 3. The brief facts of the case are that assessee is a company filed its return of income on 31.10.2018 declaring total income of Rs. 14,01,29,900/-. Assessee company was selected for complete scrutiny under CASS for the reason "large expenditure by way of penalty or fine for violation of any law for the time being in force." During the course of relevant financial year, assessee was engaged in manufacturing activity and disclosed turnover of Rs. 1,60,06,46,867/-. As per 3CD Report, assessee had debited Rs. 34,37,934/- as financial charges for late payment of income tax. However, in ITR, the same was not disallowed u/s 37 of the Act. On perusal of the P & L Statement filed by the assessee, it was observed that assessee had claimed Rs. 76,11,490/- under the head "expenditure by way of statutory payments". The department was not convinced with the reply given the assessee to the notice u/s 143(2) of the Act and hence, issued show cause notice asking for explanation as to why an amount of Rs. 76,62,297/- claimed under ....
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....t, 1948 (34 of 1948) or any other fund for the welfare of the employees. It, therefore, goes without saying that this deemed income has to be treated as the income of the assessee, the moment such an amount comes to the possession of the assessee. It is open for the assessee to claim deduction of the same under section 36(1)(va) of the Act by complying with the said provision. Explanation-1 added by amendment by way of Finance Act, 2021 with effect from 01/04/2021 explains the term 'due date' and it does not impact any rights, liabilities and disabilities created by the provision. Such provisions which will only explain certain terms of the existing provision do not create any new rights or liabilities but only the rights and liabilities that were created by the provisions stood explained by the explanation, and, therefore, such explanations will take effect from the date of the provision itself. 9. In Checkmate Services Pvt. Ltd., (supra), the Hon'ble Apex Court dealt with the impact of the provisions under section 36(1)(va) of the Act in depth and while holding the issue against the assessee, held as under : "53. The distinction between an employer's contribution ....
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.... before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction." 10. This decision of the Hon'ble Apex Court declaring the law under the provision under section 36(1)(va) of the Act will take the retrospective effect, if not otherwise stated to be so specifically. In the decision, nothing contrary is indicated for any prospective effect only. It is, therefore clear that the law under section 36(1)(va) of the Act in the light of the Explanation-1 as declared by the Hon'ble Apex Court in the case of Checkmate Services Pvt. Ltd. (supra), shall be taken to have effect from the enactment of the provision by way of Finance Act, 1987 with effect from 01/04/1988. No other inference is possible. Therefore, we do not find a....
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....come Tax Act. 14. On the other hand, ld. DR relied on the orders of lower authorities. 15. We have heard the rival submissions and perused the material on record. In the present case, we find that assessee paid an amount of Rs. 12,19,936/- as interest on delayed payment of TDS and contended that the same may be allowed as an expenditure u/s 37(1) of the Income Tax Act. In his written statement, ld. AR for the assessee contended that the interest u/s 201(1A) cannot be compared with the interest paid u/s 220(2) of the Act. In fact, as per section 200 of the Act, there is a duty on the assessee to deduct any sum in accordance with the provisions of the Act and shall deposit the said amount after deducting it to the credit of the Government of India. In the present case, there is a failure on the part of the assessee to deduct TDS and deposit the same with the Government. The consequences for failure on the part of the assessee to deduct or pay the amount are provided in Section 201 of the Act and Section 201(1A) provides for the levy of interest on the assessee for such default. 16. Now, the question before us is as to whether the interest paid on the failure of the asse....
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....TA No. 2761/Del/2018 dt. 26.07.2022, wherein the coordinate Bench in Para 16 held that interest payment on late payment of TDS is not compensatory in nature and is not allowable as deduction u/s 37(1) of the Act. In view of the foregoing reasoning and in view of the decision in the case of Universal Energies Limited (supra), we confirm the disallowance made by the Assessing Officer. Thus, this ground of appeal is dismissed. 18. Ground No. 3 With respect to ground No. 3, ld. AR for the assessee submitted that interest expenses incurred on the late deposit of Goods and Services Tax (GST), Value Added Tax (VAT), service tax, Tax Deducted at Source (TDS), and other similar payments are allowable expenditures under section 37(1) of the Income Tax Act and are compensatory in nature and he has drawn our attention to section 50 of the GST Act which provides as under : "Section 50- Interest on delayed payment of tax.- (1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for wh....
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....yani 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. In view of the above fact, respectfully following the decision of Kolkata Bench of ITAT, we hold that such expenses are not disallowable under section 37(1) of the Act. Further, VAT laws, provident laws and service tax laws clearly provide for payment of interest if there is a delay in payment of fees. Therefore, it is apparent that those respective laws allowed the belated payment along with interest. Therefore, those are not affected by explanation-1 to section 37(1) of the Act. In view of this ground no. 2 of the appeal is allowed." 20. On the other hand, ld. DR relied upon the order of ld.CIT(A) and has drawn our attention to Para 8.4 of the order. "8.4 Therefore, if an assessee is penalized under one Act, he cannot claim is deductible against his income under another Act, because that will then defeat the entire object of imposition of penalty in the form of interest. If the assessee resorts to any unlawful means to augment his profits or reduce his loss, ....
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....n his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council. (2) The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid. (3) A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council." 29. It is seen from Sub-section (1) of Section 50 that the liability to pay interest arises automatically, when a person who is liable to pay tax, fails to pay the tax to the Government within the period prescribed. The liability to pay interest is in respect of the period for which the tax remains unpaid. In fact, the liability to pay interest under Section 50 (1) arises even without any assessment, as the person is req....