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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
(PAN : AABCC6812A) (APPELLANT) (RESPONDENT) ASSESSEE BY : None REVENUE BY : Shri Sumit Kumar Verma, Sr. DR Date of Hearing : 20.09.2022 Date of Order : 22.09.2022 ORDER
PER SHAMIM YAHYA, ACCOUNTANT MEMBER :
This appeal by the assessee is directed against the order of the ld. CIT (Appeals)-2, New Delhi dated 12.09.2017 for the assessment year 2014-15.
The assessee has taken the following grounds of appeal :-
“1. That the order of the Learned Commissioner of Income- tax (Appeals) is against facts and law. 2. That the Learned Commissioner of Income-tax (Appeals)is not justified in confirming the disallowance of Rs.2,42,856/- being interest paid on delayed deposit of TDS.
Brief facts of the case are that assessee company is engaged in the business of manufacturing of pesticides and insecticides. The assessee company filed its return of income on 30.11.2014 declaring income of Rs.8,15,89,750/-. The same was selected for scrutiny. In the assessment order, AO made an addition on account of interest of TDS as under :-
“On perusal of the balance sheet, Profit & Loss a/c and tax audit report. it was seen that the assessee has not added back the interest paid on late deposit of TDS u/s 206(C)(7). The assessee was asked explain this vide order sheet entry dated 24.11.2016 as per the submission of AR dated 03.12.2016. it was seen that the assessee has paid an interest or Rs.2,42,856/- u/s 206(C)(7) and not added back to his income. Therefore, this amount is disallowed and added back to the total income or the assessee. Penalty proceedings u/s 271 (1)(c) are being initiated separately for furnishing inaccurate particulars or income.”
Against the above order, assessee filed appeal before the ld. CIT (A). Ld. CIT (A) noted the assessee’s contention. He noted that reliance has been placed on the following case laws in this regard by the assessee:-
i) CIT v Ahmedabad Cotton Mfg. Co. Ltd..[ 1995] 205 ITR 163 (SC) "Therefore, what needs to be done by an assessing authority under the Income-tax Act, 1961, in examining the claim of an assessee that the payment made by such assessee was a deductible expenditure under section 37 of the Income-tax Act although called a penalty is to see whether the law or scheme under which the amount was paid required such payment to be made, as penalty or as something akin to penalty, that is imposed by way of punishment for breach or infraction of the law or the statutory scheme. If the amount so paid is found to be not a penalty or something akin to penalty due to the fact that the amount paid by the assessee was in exercise of the option conferred upon him under the very law or scheme concerned, then one has to regard such payment as business expenditure of the assessee, allowable ./2017 under section 37 of the Income-tax Act, as n incident of business laid out and expended wholly and, exclusively for the purposes of the business. However, such payment of the assessee is one which is made in exercise of the option given to such assessee by the law or the statutory scheme and there arises no need for the assessing authority to go into the question whether the payment could not regarded as once made as a measure of business expediency, for it cannot ignore the fact that the law or the statutory scheme enables incurring of such expenditure in the course of the assessee's business. ii) ITO v Virtue Financial Service P. Ltd. [2012] 19 ITR (Trib.) 57 (Delhi)
On due consideration of the record, we are of the view that payments made by the assessee on account of delay in submitting certain statutory returns are compensatory in nature and not on account of fraction of any law. There are not penal in nature. Therefore, the learned Commissioner of Income-tax (Appeals) has rightly deleted the addition. iii) Kind attention is invited to the judgment of Delhi Bench "SMC-1 ", New Delhi wherein the same issue of allow ability of interest paid on late deposit of statutory dues had come up. The finding has been recorded in Para (5) which is as under:-
"(5) Having gone through the above cited decisions I find that the issue raised is supported with the above decisions. In the case of ITO vs Virtue Financial Service P. Ltd. (supra) the Tribunal on due consideration of the record has held that the payment made by the assessee on account of delay in submitting certain statutory returns is compensatory in nature and not on account of fraction of any law. They are not penal in nature. Therefore, the Ld. Commissioner of Income-tax (Appeals) has rightly deleted the addition hold the ITAT. IN the present case the interest in question was paid by the assessee to service tax department for delay in deposit of service tax. Thus the delay in deposit has been compensated with payment of the interest of Rs.2,43,671/-, hence the same cannot be termed as penal in nature due to violation of any provision of law. I thus hold that the interest payment of Rs.2,43,671/- due to delay in deposit of service tax is not penal in nature to justify the disallowance made and upheld by the authorities below. The same are set aside with the direction to the Assessing Officer to delete the disallowance. The objection is accordingly allowed. iv) Kind attention is invited to the judgment of S A Builders Limited v CIT (A) [2007] 288 ITR 1 (SC) wherein while considering the case of Delhi High Court in CITv Dalmia Cement (B) Limited [2002J 254 IJR 377 held as under:-
"The Revenue cannot justifiable claim to put itself in the arm chair of business man or in the position of Board of Directors to assume the role to decide how much is reasonable expenditure having regards to the circumstances of the case. No business man can be compelled to maximize his profit. The Income-tax authority must not put themselves in the shoes of the assessee and see how a prudent businessman would act. The authority must not look at the matter from their own view point but that of a prudent business man."
Ld. CIT (A) rejected the assessee’s contention and the case laws referred above by observing that submission of the assessee is without any merit because Explanation 1 of section 37(1) of Income-tax Act, 1961 (for short ‘the Act’) states as under :-
“[Explanation l.]-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.”
Referring to the above Explanation, ld. CIT (A) held that it is clear that interest on late payment of TDS is not allowable u/s 37(1) of the Act.
Against this order, assessee is in appeal before us. We have heard ld. DR for the Revenue and perused the records. Nobody is appearing on behalf of the assessee for several past occasions and all the notices have returned unserved. In this view of the matter, we are disposing of the appeal by hearing ld. DR for the Revenue and perusing the record.
We note that in the submission before the ld. CIT (A), assessee has referred to several case laws ranging from Hon’ble Supreme Court to Hon’ble jurisdictional High Court and the ITAT. However, ld. CIT (A) the file of ld. CIT (A). Ld. CIT (A) is directed to examine the applicability of case laws referred by the assessee and quoted by him in his appellate order. Needless to add, assessee should be granted adequate opportunity of being heard.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on this day 22nd of September, 2022.