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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
ORDER PER VIKAS AWASTHY, J.M: This appeal by the assessee is directed against the ex-parte order of Commissioner of Income Tax (Appeals)-21, Mumbai [hereinafter referred to as the ‘CIT(A)’] dated 28.06.2019 for the Assessment Year (AY) 2014-15.
(A.Y. 2014-15) 2. Ms. Radha Halbe appearing on behalf of the assessee submitted that the solitary issue raised by the assessee in appeal is against disallowance of interest on delayed payment of taxes. The ld. Authorized Representative (AR) submitted that during the period relevant to AY under appeal, the assessee had paid interest of Rs. 1,52,676/- on delay in payment of sales tax. The assessee claimed the said amount as Business Expenditure under section 37(1) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’], however, the same was disallowed by the Assessing Officer (AO). The assessee carried the issue in appeal before the CIT(A). The CIT(A) upheld the assessment order and dismissed the appeal of assessee. The ld. AR for the assessee asserted that interest on outstanding balance of tax is not panel in nature. To support this contention, reliance was placed on the judgment of Hon’ble Supreme Court of India in the case of Laxhmandas Mathuradas v/s CIT [122 Taxman 828]. The ld. AR pointed that in the said case it has been held that interest on outstanding balance of sales tax is compensatory in nature and is allowable as deduction under section 37(1) of the Act. The ld. AR submitted that in the light of aforesaid judgment, the claim of assessee should be allowed.
Per contra, Ms. Shreekala Pardeshi representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee.
Both sides heard, orders of the authorities below examined. At the outset we may record that the ld. AR of the assessee has not made any submission assailing ex-parte proceedings before CIT(A) nor any ground has been raised in the grounds of appeal on this point. Therefore, it is deemed that the assessee is not aggrieved by the ex-parte proceedings before the CIT(A).
(A.Y. 2014-15) 5. The short issue in present appeal is: Whether the interest on delayed payment of taxes is allowable as Business Expenditure? The assessee has debited Rs. 1,52,676/- as ‘interest on delayed payment of tax’ to the Profit & Loss account. The AO disallowed assessee’s claim holding that the said interest is penal in nature. The CIT(A) has concurred with the view taken by the AO. The Hon’ble Supreme Court of India in the case of Laxhmandas Mathuradas (supra) has held that interest on arrears on sales tax is compensatory in nature and not penal. Hence, the same is allowable as deduction in computing business profits.
It is not the case of Revenue that the interest on delayed payment of tax which is subject matter of dispute is expressly not allowable under the provisions of Act. The case of AO is that being penal in nature it is not allowable. In the light of law expounded by Hon’ble Apex Court and facts of the case, we hold interest on delayed payment of tax being compensatory is allowable u/s. 37 of the Act. The impugned order is set-aside and appeal of the assessee is allowed. Order pronounced in the open court on Monday, the 30th day of August, 2021.