MR. KARAN BANSAL,MANDI GOBINDGARH vs. COMMISSIONER OF INCOME TAX (APPEALS), MANDI GOBINDGARH

In the assessment order, Ld. AO disallowed GST interest paid by the assessee. The said interest was levied by GST department for delayed payment to the suppliers. The Ld. AO disallowed the same u/s 37(1) on the ground that interest was penal in nature through the assessee referred to Sec.50 of IGST Act which mandate such interest payment if the person fails to pay tax or any part thereof to the Government within prescribed period. The section provides a cap of 18% on such interest which would be notified by the Government. The assessee stated that penalties and offences were contained in Sec.122 to 138 of GST Act and the payment made by the assessee was in the nature of interest only. The Ld. CIT(A) confirmed the same on the ground that the interest was penal in nature. Aggrieved, the assessee is in further appeal before us. 3. From case records, it emerges that the assessee was subjected to GST audit wherein it was noted that the assessee did not make payment to some suppliers within 180 days as required u/s 16(2) of CGST Act, 2017. The total input tax credit on such payment worked out to be Rs.64.44 Lacs. The assessee was required to deposit the same along with interest on delayed payment as per Sec.50 of IGST Act. The assessee made the payment and claimed deduction of interest on late payment u/s 37(1). It clearly emerges that the interest is not penal in nature but compensatory for late payment of GST / irregular availment of Input Tax Credit. The same is also evident from the fact that it is to be computed at prescribed rate subject to maximum cap of 18% which would show that the interest is