SJS MOTORS,MEERUT vs. CIRCLE 1(1) , MEERUT

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ITA 5025/DEL/2024Status: DisposedITAT Delhi04 July 2025AY 2018-19Bench: SHRI VIKAS AWASTHY (Judicial Member), SHRI M. BALAGANESH (Accountant Member)4 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal, following the decision of the Hon'ble Supreme Court in Lachmandas Mathuradas v. CIT, held that the interest paid on delayed remittance of GST and VAT is compensatory in nature and therefore allowable as a deduction.

What were the facts?

The assessee, a partnership firm, paid Rs 17,71,380/- as interest for delayed remittance of GST and VAT. The Assessing Officer disallowed this interest payment, treating it as penal in nature.

What were the issues?

Whether interest paid on delayed remittance of GST/VAT is compensatory or penal in nature for the purpose of deduction.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 143(3A),Section 37

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Cases cited in this judgment(3)Show list

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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI

For Appellant: Shri Rohit Aggarwal, CA
For Respondent: Shri manish Gupta, Sr. DR
Hearing: 20/05/2025Pronounced: 04/07/2025

O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2018-19, arises out of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. NFAC’, in short] in Appeal No. ITBA/NFAC/S/250/2024-25/1067938127(1) dated 23.08.2024 against the order of assessment passed u/s 143(3) r.w.s. 143(3A) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 22.03.2021 by the Assessing Officer, National e-Assessment Centre, Delhi (hereinafter referred to as ‘ld. AO’).

2.

The only issue to be decided in this appeal is as to whether the interest paid on delayed remittance of GST / VAT could be treated as compensatory or penal in nature for the purpose of allowability of deduction.

3.

We have heard the rival submissions and perused the materials available on record. The Assessee is a partnership firm carrying on the business of authorized sales and service agent of M/s Tata Motors Limited (commercial vehicles). The return of income for the assessment year 2018-19 was filed by the Assessee firm on 31-10-2018 declaring total income of Rs 1,30,42,058/-. In the scrutiny assessment proceedings, the learned AO sought to treat a sum of Rs 17,71,380/- shown by the Assessee on account of interest paid for late payment of GST and VAT to be penal in nature and accordingly disallowed the same under section 37 of the Act. The Assessee submitted that the said interest payment would be compensatory in nature as it was incurred only for delayed remittance of statutory dues to the account of the Central Government. However, the plea of the Assessee was not appreciated by the learned CITA which makes the Assessee aggrieved to come in appeal before us.

4.

It is not in dispute that the Assessee had indeed made payment of interest on late payment of VAT and GST in the sum of Rs 17,71,380/-. The issue as to whether the said interest payment would be compensatory in nature so as to make it allowable deduction was subject matter of consideration by the Hon’ble Supreme Court in the case of Lachmandas Mathuradas v. CIT reported in 254 ITR 799(SC). The Operative portion of the said decision is reproduced here under:-

“3. While granting special leave to appeal, the appeal has been confined to question Nos. 1 and 2 only. 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. No order as to costs.”

5.

Respectfully following the said decision, we hold that the interest paid on delayed remittance of GST and VAT would be allowable deduction as it is only compensatory in nature and not penal in nature. Accordingly, the grounds raised by the Assessee are allowed.

6.

In the result, the appeal of the Assessee is allowed.

Order pronounced in the open court on 04/07/2025.

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