TaxTMI 
TaxTMI 
2026 (3) TMI 616
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....th an affidavit explaining the reasons for such delay. After considering the contents of the condonation application filed along with the affidavit and after hearing the Ld. DR, the delay in filing of the appeal is condoned and the appeal is admitted for adjudication. 3. Facts of the case, in brief, are that the assessee is a private limited company engaged in the business of dealership of Maruti Suzuki India Limited and deals in purchase and sale of vehicles. It filed its return of income on 28.11.2014 declaring total income of Rs. 40,18,540/-. The original assessment was completed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') on 21.12.2016 by making disallowance of Rs. 1,67,335/- u/s. 36(1)(va) r.w.s. 2....
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....ficer by observing as under: 6.4 I have also gone through the Apex Court observations in this regard in the case of Lachmandas Mathura Vs. CIT reported in 254 ITR 799, wherein the Hon'ble court has held 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.) 6.5 The payment of interest takes colour from the nature of levy with reference to which such interest is paid and the tax required to be paid but is not paid in time, which rendered the assessee liable for payment of intere....
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.... that interest under section 201(1A) paid by the assessee does not assume the character of business expenditure and also cannot be regarded as compensatory payment. This decision of Hon'ble Madras High Court has also been followed by various benches of ITAT, specifically in Velankani Information Systems Limited Vs. DCIT [2018] com 599 (Bangalore- Trib.) as under: "As far as delay in remittance of TDS u/s. 201(1A) of the Act is concerned, we find that the Hon'ble Madras High Court has taken a view that interest u/s. 201(1A) is also in the nature of tax and notwithstanding the fact that is not the tax liability of the assessee, the same cannot be allowed as deduction. The following were the relevant observations of the Hon....
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.... TDS u/s. 201(1A) of the Act." 6.8 Further, the Co-ordinate Bench of ITAT Bangalore in the case of Jindal Aluminium Limited ITA No. 31/Bang/2019 having similar facts where interest on TDS is held as ineligible business expenditure 6.9 Hence, in view of the aforesaid discussion, I hold that interest payment on late payment of VAT is not eligible business expenditure for deduction and it is not compensatory in nature. Payment of interest on late payment VAT is not an expenditure wholly and exclusively incurred for the purpose of the business and therefore the same is not allowable as deduction u/s. 37(1) of the Act. Therefore, the disallowance made by the AO is hereby confirmed. The ground of appeal is dismissed 5. Aggrie....
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....iture. Referring to para 6.4 of the order of the Ld. CIT(A) / NFAC he submitted that the Ld. CIT(A) / NFAC has only quoted one sentence of the said order without considering the decision of Hon'ble Supreme Court in its entirety. So far as various other decisions relied on by the Ld. CIT(A) / NFAC are concerned, he submitted that those were all relating to interest on delayed payment of TDS u/s. 201(1A) of the Act and not on account of interest on VAT expenses. He submitted that since the issue stands decided in favour of the assessee by the decision of Hon'ble Supreme Court, the order of the Ld. CIT(A) / NFAC is liable to be set aside. 7. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A....
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....arises out of the Income-tax Reference No. 54 of 1978, wherein the Income-tax Appellate Tribunal, Delhi Bench, had referred the following questions to the Allahabad High Court for opinion (page 413) : "1. Whether, the Tribunal was in law justified in allowing the assessee's claim in respect of interest on the arrears of sales tax in computing the asses-see's income for the year under consideration ? 2. Whether, the interest on the outstanding balance of sales tax was an allowable deduction under the Income-tax Act ? 3. Whether there was material on record justifying the Tribunal's finding that the liability of Rs. 69,383 for damages had crystallised in the accounting period relevant to the assessment y....