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Income Tax Appellate Tribunal, LUCKNOW BENCH”SMC“, LUCKNOW
Before: SHRI. T.S. KAPOOR
IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH”SMC“, LUCKNOW BEFORE SHRI. T.S. KAPOOR, ACCOUNTANT MEMBER ITA No.555&556/LKW/2017 Assessment Year:2014-15 Ashutosh Jaiswal v. Income Tax Officer 1(1) 1127, Perdewanpurwa Kanpur Lal Bangla, Kanpur TAN/PAN:ABQPJ7902B (Appellant) (Respondent) Appellant by: Shri Ankit Bajpai, Advocate Respondent by: Shri C. K. Singh, D.R. Date of hearing: 01 05 2019 Date of pronouncement: 16 05 2019 O R D E R These are two appeals filed by the assessee against separate orders of the ld. CIT(A), both dated 31/5/2007. 2. The only common ground in these appeals is challenging the action of the ld. CIT(A), by which he has confirmed a disallowance which the A.O had made on account of interest for late payment to supplier. 3. Both these appeals involve similar matter and these were heard together, therefore, for the sake of convenience, a common and consolidated order is being passed. 4. At the outset, the ld. A.R. of the assessee invited my attention to the application for condonation of delay of 10 days and 15 days in ITA No.555/LKW/2017 & ITA No.556/LKW/2017 respectively and my attention was also invited to the affidavit placed along with the application for condonation of delay. It was submitted that the assessee
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had gone sick and, therefore, there is a delay in filing the appeals. The ld. A.R. of the assessee also invited my attention to the medical certificates placed along with the affidavit and prayed that there was a reasonable cause for delay, which may be condoned. 5. The ld. D.R. had no objection to the condonation of delay and therefore, finding the reason for delay quite reasonable, we condone the delay and the ld. A.R. of the assessee was directed to proceed with his arguments. 6. The ld. A.R. of the assessee submitted that the assessee is engaged in scrap business and it is being purchased from the Indian Railways and is being sold in the open market. It was submitted that during these two years, assessee had purchased certain scrap from the Indian Railways and due to delay in making payment to the Indian Railways, the assessee had to pay interest for the delay in making payment, which was in accordance with the agreement entered into by the assessee with the Indian Railways and in this respect, my attention was invited to the copy of the terms and conditions of sale, which is placed in the paper book at page 4 onwards. My specific attention was invited to page 5 of the paper book, where interest clause as clause No.9 was mentioned, wherein it was mentioned that assessee is bound to make interest on delayed payments which would be 7% above the base rate of State Bank of India. The ld. A.R. of the assessee submitted that these payments arose in the normal working of the business of the assessee and cannot be termed as penal in nature. It was submitted that the ld. CIT(A) has wrongly held the Indian Railways as an MSME and rather the fact is that theassessee is an MSME. 7. The ld. D.R., on the other hand, relied on the orders of the authorities below.
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I have heard the rival parties and have gone through the material placed on record. I find that the A.O has made disallowance by holding that assessee had debited a sum under the head interest payments and therefore, this being penal in nature, are not allowable. However, I find from the copy of agreement with the Indian Railways that assessee is bound to pay the interest for late payment, therefore, the interest paid on account of late payment cannot be termed as penal in nature. To arrive at the decision, on the grievance of the assessee, it is important to visit the provisions of section 37(1) of the Act along with the Explanation 1. The provisions of section 37(1) along with the Explanation 1 read as under:- “37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". [Explanation 1.]—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.” 9. As per the Explanation 1 to section 37 of the Act, 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. In the present cases, I find that the assessee had paid interest on late payment, which is in accordance with the terms and conditions entered into by him with the Indian Railways. The expenditure has not been incurred for an
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offence or for an action, which was prohibited by the law, therefore, the findings of the ld. CIT(A) in this respect are not correct. The ld. CIT(A) has further elaborated that since the assessee had made payment to MSME and, therefore also in view of the provisions of MSMEDA Act, 2006, the expenditure was not allowable, whereas I find that the Indian Railways cannot be termed as MSME, rather the assessee can be termed as MSME, therefore, this finding of the ld. CIT(A) is also not correct. In view of the above, I reverse the findings of the ld. CIT(A) and allow the appeals filed by the assessee. 10. In the result, appeals of the assessee are allowed. Order pronounced in the open Court on 16/05/2019.
Sd/- [T.S. KAPOOR] ACCOUNTANT MEMBER
DATED:16/05/2019 JJ:0105