PRINCE HOLDINGS MADRAS(P) LTD,CHENNAI vs. DCIT, CC 5(2), CHENNAI

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ITA 524/CHNY/2021Status: DisposedITAT Chennai02 November 2022AY 2017-183 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that interest paid on belated service tax payments is compensatory in nature and not a penalty. Therefore, it is an allowable expenditure under Section 37(1) of the Income Tax Act.

What were the facts?

The assessee, an investment company, paid Rs. 4,03,000 as interest on delayed service tax remittance. The AO disallowed this amount, treating it as a penalty. The CIT(A) upheld the disallowance.

What were the issues?

Whether interest paid on delayed service tax remittance is an allowable business expenditure or a disallowable penalty.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI

Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA

Hearing: 20.10.2022Pronounced: 02.11.2022

आदेश /O R D E R

PER G. MANJUNATHA, ACCOUNTANT MEMBER:

1.

This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 01.10.2021 and pertains to assessment year 2017-18.

2.

The assessee raised the following grounds of appeal: 1.“The order of the Learned CIT (A) is contrary to law, facts and circumstances of the case.

:-2-: ITA. No:524/Chny/2021 2. The learned CIT(A) erred in confirming the disallowance of Rs. 4,03,000 /made by AO. The amount of Rs.4,03,000/- being interest paid on service tax is compensatory in nature for delay in remittance of service tax and the same is allowable expenditure under section 37(1) of Income Tax Act. 3.For these and other grounds that may be adduced at the time of hearing it is prayed that the order of the learned CIT(A) may be set aside on this ground, and the appellant's claim of expenditure be allowed in full.”

3.

The brief facts of the case are that the assessee is an investment company, whose main business is to invest in shares, immoveable property and also providing consultancy services. The assessee filed return of income for the assessment year 2017-18 on 30.10.2017 by admitting Nil total income. The assessment has been completed u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) on 16.12.2019 and made addition of Rs. 4,03,000/- towards interest on service tax u/s. 37 of the Act. The assessee carried the matter in appeal before the first appellant authority, but could not succeed. The Ld. CIT(A), NFAC for the reasons stated in their appellant order dated 01.10.2021, rejected arguments of the assessee and sustained the addition made towards disallowance of interest on service tax.

4.

None appeared for the assessee. We have heard the Ld. DR and perused the relevant material available on record. We

:-3-: ITA. No:524/Chny/2021 find that the AO has disallowed a sum of Rs. 4,03,000/- being interest on service tax relating to earlier years on the ground that the same is in the nature of penalty. We find that interest paid on belated payments of service tax is not a penalty, which can be disallowed u/s. 37(1) of the Act. Therefore, we are of the considered view that the Ld. CIT(A) has erred in sustaining addition made by the AO towards interest paid on service tax. Hence, we reverse the findings of the ld. CIT(A) and direct the AO to delete addition made towards disallowance of interest on service tax.

5.

In the result, appeal filed by the assessee is allowed.

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