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Income Tax Appellate Tribunal, ‘C’ BENCH : CHENNAI
Before: SHRI INTURI RAMA RAO & SHRI DUVVURU RL REDDY]
आदेश / O R D E R
PER INTURI RAMA RAO, ACCOUNTANT MEMBER
This appeal of the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-11, Chennai dated 20.10.2017 for assessment year 2012-13.
The Revenue raised following grounds for our adjudication.
“1. The order of the ld. CIT(A) is contrary to law and facts and circumstances of the case.
2.1 The ld.CIT(A) erred in deleting the disallowance of expenditure on interest on delayed payment of Service Tax of Rs.69.20.234/- even though the same is penal in nature. 2.2. The ld.CIT(A) ought to have seen that he relied decision of the Hon’ble Delhi Tribunal in the case of M/s.Messee Dusseldorf India pvt ltd., was not accepted by the Department and further appeal is not suggested only on account of low tax effect. 2.3 The ld.CIT(A) ought to have followed the decision of the Apex Court in the case of M/s.Bharat Commrce Industries Ltd.,(153 ITR 275) wherein the Apex Court held that any interest payable for default committed by the assessee in discharging his statutory liability is not allowable expenditure.
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the ld. CIT(A) may be set aside and that of the Assessing Officer be restored.”
The brief facts of the case are that:
The assessee namely M/s.VSL India Pvt Ltd., is a company incorporated under the provisions of the Company Act, 1956. It is engaged in the business of civil Work Contracts.
The return of income for the assessment year 2012-13 was filed on 29.11.2012 declaring a loss of Rs.4,27,83,179/-. Against the said return of income, assessment was completed by the Deputy Commissioner of Income Tax, corporate circle 3(2),Chennai (hereinafter referred as ‘’AO') vide order dated 04.02.2015 passed u/s.143(3) of the Income Tax Act, 1961 (in short ‘’the Act’’) at loss of Rs.2,69,64,291/- after making certain disallowances/additions including the interest paid on delayed payment of Service Tax of Rs.69,20,334/- on the ground that interest is penal in nature. Being aggrieved, the assessee preferred an appeal before the ld.CIT(A), who considering the provisions of section 75 in the Service Tax Act, Chapter-IV of the Finance Act,1994, held that interest on delayed payment of service tax is only compensatory in nature placing reliance in the following decisions, i) Mahalakshmi Sugar Mills Co. Vs.C.I.T in (1980) 123 ITR 429
(SC) ii) Lachmanda Mathuradas in 254 ITR 799 (SC) iii) Swadeshi Cotton Mills Ltd., Vs. 233 ITR 199 (SC), directed the Assessing Officer to delete the addition of interest on delayed payment of Service Tax. Being aggrieved with the order of the ld.CIT(A), the Revenue is before us in the present appeal.
Before us, ld. Senior D.R placed reliance on the orders of the lower authorities and also on the decision of Delhi High Court in the case of M/s.Bharat Commerce Industries Ltd.,(153 ITR 275).
On the other hand, it is submitted by ld.AR that interest partakes the character of principal tax, and therefore, interest on Service Tax is allowable. Hence, it is prayed that interest may be allowed as deduction. In this connection, he relied on the decisions of Hon’ble Supreme Court in the case of Mahalakshmi Sugar Mills Co.
Vs.C.I.T in (1980) 123 ITR 429 (SC) and of Hon’ble Gujarat High Court in the case of C.I.T-III Vs. Kaypee Mechanical India Pvt Ltd., in 2014(4) TMI 829(Gujarat) and of Jaipur Tribunal in the case of M/s.Oriental Earthmovers Pvt Ltd., in 2019(4) TMI 1580(I.T.A.T, Jaipur) and of Kolkata Tribunal in the case of M/s.Sai Food Products Pvt Ltd. Vs. DCIT Kolkata in 2018(4) TMI 565 – I.T.A.T, Kolkata.
We have heard the rival contentions and perused the material available on record. The only issue involved in the present appeal related to allowability of interest paid for belated payment of Service Tax. Admittedly, the interest is paid for belated payment of Service Tax, which is a compensatory nature. It is settled position of law that interest on delay in payment of tax is also part and parcel of tax and it is equally settled position of law that Service Tax paid is also a permissible deduction. The Hon’ble Supreme Court in the case of Mahalakshmi Sugar Mills Co. Vs.C.I.T in (1980) 123 ITR 429 (SC) and C.I.T Vs. Luxmi Devi Sugar Mills P. Ltd., reported in [1991] 188 ITR 41 held that interest is only of compensatory nature and does not take a colour of penalty and therefore, allowable deduction. Therefore, we are of considered opinion that interest paid on account of belated payment of Service Tax is allowable deduction. Reliance in the judgment of Delhi High Court in the case of M/s.Bharat Commerce Industries Ltd., (153 ITR 275)(Delhi) by the Senior D.R, cannot come to rescue of the Revenue for the reason that it is a decision, which relates to allowability of interest paid under the provisions of sections 139 & 215 of the Income Tax Act. The Hon’ble Delhi High Court took a view that since liability to income tax is not a permissible deduction, the interest cannot also be allowed. The view of the Hon’ble Delhi High Court is in consonance with the ratio laid down by the Hon’ble Supreme Court in the case of C.I.T Vs. Luxmi Devi Sugar Mills P. Ltd., cited supra. Thus, we do not find any merit in the appeal filed by the Revenue. Accordingly, the appeal of Revenue is dismissed.
In the result, the appeal of Revenue is dismissed.