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Facts
The assessee filed an appeal against the order of the CIT(A) upholding the disallowance of interest paid on various taxes. The delay in filing the appeal was due to ongoing litigation with flat owners regarding maintenance charges and club house issues, requiring compliance with authorities like HMDA and TSRERA.
Held
The Tribunal condoned the delay in filing the appeal. It held that interest paid on delayed payment of GST, service tax, KK Cess, and SG Cess is compensatory in nature and allowable as a business expenditure under Section 37(1) of the Income Tax Act, reversing the CIT(A)'s finding that it was exorbitant and penal.
Key Issues
Whether interest paid on delayed payment of GST, service tax, KK Cess, and SG Cess is compensatory and deductible as a business expenditure under Section 37(1) of the Income Tax Act.
Sections Cited
37(1), 50, 201(1A)
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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M. : This appeal is filed by M/s. Vazhraa Nirmaan Private Limited (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”), dated 29.12.2023 for the A.Y. 2018-19.
At the outset, it is seen that there was delay of 213 days in filing of the appeal before us. The assessee has filed condonation petition along with Affidavit explaining the reasons for delay (page nos.1 to 52 of the paper book). The Learned Authorised Representative (“Ld. AR”) submitted that, during the relevant period, the assessee faced continuous litigation with the flat owners regarding the issue of maintenance charges and situation of club house. On account of such litigation, the assessee had to make various compliances before the Hyderabad Metropolitan Development Authority (“HMDA”), Telangana Real Estate Regulation Authority (“TSRERA”) and civil court. On account of these litigations, the filing of appeal before the ITAT got delayed. 2.1 Per contra, the Learned Department Representative (“Ld. DR”) submitted that the reasons for delay given by the assessee are of routine nature related to day to day business activity of the assessee. Further, during this period the assessee had time to make necessary compliance with regard to Companies Act i.e. holding of Board of Directors meeting & CSR Committee meeting, but did not have time to file appeal in time. Finally, the Ld. DR opposed for condonation of delay in filing of the appeal before the ITAT.
2.2 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. Although it has been argued by the Ld. DR that the reasons given by the assessee are of routine business nature, it is a fact that there was litigation and assessee had to went upto HMDA, TSRERA and Civil Court. Therefore, in the interest of justice, we are satisfied that there is a reasonable cause for delay in filing of the appeal before the ITAT. Hence, we condone the delay and take up the appeal for adjudication.
The Ld. AR submitted that, the only issue in this appeal is disallowance of interest paid on various taxes which has been upheld by the Ld. CIT(A). Further, he submitted that, they are on appeal against addition of Rs.66,710/- on account of interest paid on delayed payment of TDS, Rs.21,45,537/- on account of interest paid on service tax, Rs.3,760/- on account of interest paid on GST, Rs.15,527/- on account of interest paid on KK Cess on service tax and Rs.18,313/- on account of interest paid on payment of SG Cess on service tax. Further, the Ld. AR submitted that, they are not pressing the ground related to the addition of Rs.66,710/- on account of interest on late payment of TDS. Regarding other additions, the Ld. AR relied on the decision of co-ordinate bench of ITAT in the case of Analogics Tech India Limited Vs. DCIT in dated 08.09.2023, wherein it was held that interest payment on indirect tax liability are compensatory in nature and does not amount to penalty. Finally, the Ld. AR submitted that such interest payments should be allowed as business expenditure u/s.37(1) of the Income Tax Act, 1961 (“the Act”).
Per contra, the Ld. DR relied on the order of Ld. CIT(A) and argued that the disallowance of interest should be upheld. In support of their submission, the Ld. DR relied on the decision of Hon'ble Supreme Court in the case of Bharat Commerce & Industries Limited Vs. CIT 230 ITR 733 (SC) and decision of Hon'ble Madras High Court in the case of CIT Vs. Chennai Properties & Investment Limited 239 ITR 435 (Mad).
We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. As far as the addition of Rs.66,710/-, on account of interest on delay payment of TDS is concerned, since the assessee has not pressed this issue, the same is dismissed as not pressed. 5.1 As far as the reliance of Ld. DR on the decision of Hon'ble Supreme Court in the case of Bharat Commerce & Industries Ltd. Vs. CIT (supra) and Hon'ble Madras High Court in the case of CIT Vs. Chennai Properties & Investment Ltd. (supra), we have gone through the findings of Hon'ble Supreme Court and Hon'ble High Court (supra) and found that the Hon'ble Courts have given the findings on the issue of payments of interest on delayed payment of TDS u/s.201(1A) of the Act. The same are not relevant to the issues pressed before us. 5.2 However, regarding the payment of other interest, the Ld. AR has relied on the decision of co-ordinate bench of ITAT in the case of Analogics Tech India Limited Vs. DCIT (supra), wherein it has been held as under : “ 21. We have heard the rival submissions and perused the material on record. Section 50 of the GST Act provides that the assessee is liable to pay the interest which shall not be exceeding 18% on the unpaid tax / delayed payment of GST with the Government. Now the question arises is whether the payment of 18% tax on the delayed / unpaid tax is said to be compensatory or penal in nature. This issue on the face of it is covered in favour of the assessee by the decision of the coordinate Benches relied upon by the assessee. In fact, in the recent decision of the jurisdictional High Court in the case of Megha Engineering & Infrastructures Ltd. [2019] 104 taxmann.com 393 (Telangana), the Hon’ble High Court had an occasion to examine the provision of section 50 of the GST Act and after examining it, it has recorded that the interest paid u/s 50 of the Act is compensatory in nature. The relevant portion of the said decision is as under : “28. Having thus seen the scheme of Sections 39, 41, 16 and 49, let us now take a look at Section50 about which present dispute revolves, which reads as under: "50. Interest on delayed payment of tax.—(1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made there under, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council. (2) The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid. (3) A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twentyfour per cent., as may be notified by the Government on the recommendations of the Council."
It is seen from Sub-section (1) of Section50 that the liability to pay interest arises automatically, when a person who is liable to pay tax, fails to pay the tax to the Government within the period prescribed. The liability to pay interest is in respect of the period for which the tax remains unpaid. In fact, the liability to pay interest under Section50 (1) arises even without any assessment, as the person is required to pay such interest "on his own".
While Sub-Section (1) of Section50 speaks about the liability to pay interest under one contingency, viz., the failure to pay tax within the period prescribed, Sub-Section (3) of Section50 speaks about the liability to pay interest under a different contingency. Whenever an undue or excess claim of ITC is made or whenever an undue or excess reduction in out-put tax liability is made, a liability to pay interest arises under Subsection (3). The words "on his own" used in Sub-section (1), are not used in Sub-section (3) of Section 50.”
Therefore, it is clear that the liability to pay interest under Section 50(1) is self-imposed and also automatic, without any determination by any one. Hence, the stand taken by the department that the liability is compensatory in nature, appears to be correct.
In view of the categorical finding of jurisdictional High Court holding the liability to pay interest under section 50 is compensatory in nature, hence, we have no doubt that the interest paid by the assessee on delayed payment of GST is compensatory in nature and is, therefore, required to be allowed u/s 37(1) of the Act. Thus, we reverse the finding of the ld.CIT(A) whereby it was held that payment of interest @ 18% is exorbitant and penal in nature. In view of the above, this ground of appeal is required to be allowed. Thus, this ground of the assessee is allowed.” 5.3 On perusal of above findings of ITAT, we found that the ITAT has given the findings only on account of interest on GST and allowed the same as business expenditure u/s.37(1) of the Act. Respectfully following the findings of ITAT, we hold that the payment of Rs.66,710/- on account of interest on GST is allowable as deduction u/s.37(1) of the Act. 5.4 Further, as far as payment of interest on service tax, KK Cess on service tax and SG Cess on service tax is concerned, we found the same also compensatory in nature and are not in the nature of penalty, since such interest payments are made due to obligation of statutory payments and not as penalty for violation of any law. Accordingly, we allow the payment of Rs.21,45,537/- on account of interest on service tax, Rs.15,527/- on account of interest on KK Cess on service tax and Rs.18,313/- on account of interest on SG cess on service tax as deduction u/s.37(1) of the Act.
5.5 In the result, the appeal of the assessee is partly allowed.