PINCIPAL COMMISSIONER OF INCOME TAX - 2 vs. GUJARAT STATE FINANCIAL CORPN

C/TAXAP/984/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 984 of 2018 ========================================================== PINCIPAL COMMISSIONER OF INCOME TAX - 2 Versus GUJARAT STATE FINANCIAL CORPN ========================================================== Appearance: MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA

Date : 14/08/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The Appeal is filed by the Revenue challenging judgement of the Income Tax Appellate Tribunal dated 23.02.2018 raising following questions for our consideration: “A. Whether the Appellate Tribunal has erred in law and on facts by deleting the addition of rs. 12,23,58,512/- made on account of penal interest paid to the Government of Gujarat? B. Whether the Appellate Tribunal has erred in law and on facts by deleting the addition of Rs. 5,75,00,227/- made on account of provision for bad and doubtful debts without applying the binding decision of the Hon'ble Supreme Court in the case of TRF Ltd vs. CIT?” 2. Question A pertains to the addition made by the Assessing Officer of a sum of Rs. 12.23 crores which was the penal Page 1 of 3

C/TAXAP/984/2018 ORDER interest paid by the assessee to the Government. This addition was deleted by the CIT(A) and the Tribunal. In particular, the Tribunal observed that the Government of Gujarat had prescribed the rates of interest on the loans for the public sector undertakings with stipulation for penal interest for late payments. The assessee-Gujarat State Financial Corporation, who is in the business of finance, had to pay such penal interest on account of late payments to the State Government. The Tribunal was of the view that such penal interest cannot be equated with any payment for infringement of law. Penal interest is merely in the nature of finance charges for late payment. We are perfectly in agreement with the view of the Tribunal. This precise question had also come-up for consideration before the High Court in Tax Appeal No. 327 of 2013 concerning this very assessee. Revenue's ground was dismissed by an order dated 09.04.2013. 3. Second question pertains to writing off the bad debts. According to the Assessing Officer, the assessee had merely made a provision and the judgement of the Supreme Court in case of TRF Ltd. vs. CIT reported in 323 ITR 397 would apply. The Tribunal, however, noted that the assessee had written off the debt in its books by way of debiting it to the profit and loss account and simultaneously reducing corresponding amount from loans and advances to debtors. This was thus, actually written of bad debt. View of the Tribunal is correct. No question of law arises. Page 2 of 3

C/TAXAP/984/2018 ORDER 4. In the result, Tax Appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) JYOTI V. JANI Page 3 of 3