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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI N.K. PRADHAN, HONBLE
O R D E R PER C.N. PRASAD 1. This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-10 Mumbai dated 15.02.2016 for the assessment Year 2012–13.
(A.Y: 2012-13)) M/s. Central Investigation & Security Services Limited, 2. The first ground of appeal in assessee’s appeal is in respect of upholding of disallowance of ₹.1,13,699/ and ₹.1,04,522/- being the amounts paid on late payment of TDS and service tax penalty.
3. While Completing the assessment, the Assessing Officer noticed that assessee debited its Profit and Loss account with ₹.1,13,699/ and ₹.1,04,522/- towards interest on TDS and service tax penalty respectively. The assessee was required to explain as to why the above payments should not to be disallowed u/s. 37(1) of the Act. It seems that assessee has not filed any explanation before the Assessing Officer. In the absence of explanation by the assessee the Assessing Officer invoking the Explanation to Section 37(1) of the Act treated the said expenditure as incurred for the purpose of offence which is prohibited by law and not allowable as deduction. Accordingly, the Assessing Officer disallowed the said expenditure. On appeal Ld.CIT(A) sustained the disallowance.
4. Before us, Ld. Counsel for the assessee submitted that the amount paid for delay in payment of TDS and service tax is not in the nature of penalty and it is not in violation of any law. The payment made towards late remittance of TDS and Service tax is only compensatory in nature and not penal in nature. Ld. Counsel for the assessee placed reliance on the decision of the Mumbai Bench in the case of Mangal Keshav Securities Ltd v. ACIT [46 ITR (trib) 458] in support of the above contentions.
(A.Y: 2012-13)) M/s. Central Investigation & Security Services Limited, 5. We have heard the rival submissions and perused the orders of the authorities below.
Assessee paid interest for delay in remitting of TDS and paid penalty for delay in filing the service tax return. The said amount paid by the assessee was treated as expenditure falling under Explanation to Section 37(1) of the Act and the same was disallowed by the Assessing Officer. On a plain reading of the Explanation to Section 37(1) of the Act it is clear that any expenditure incurred by the 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 such expenditure is not allowed as deduction. The delay in payment of interest and penalty in late filing of return of service tax cannot be said to be an offence or incurred for the purpose which is prohibited by law. This view is also supported by the Mumbai Bench in the case of Mangal Keshav Securities Ltd. v. ACIT (supra). In the circumstances, we direct the Assessing Officer to delete the said disallowance. This ground is allowed.
The Ground No.2 to 4 of the grounds of appeal of the assessee is regarding upholding the disallowance of ₹.24,87,321/- made u/s. 40(a)(ia) of the Act.
(A.Y: 2012-13)) M/s. Central Investigation & Security Services Limited, 8. The Assessing Officer while completing assessment and on perusal of the TDS statements and Tax Audit report noticed that assessee paid interest to various parties and no tax was deducted u/s. 194A of the Act. In the course of assessment proceedings assessee was asked to explain as to why the provisions of u/s. 40(a)(ia) should not be applied. It is observed by the Assessing Officer that in response to the same the assessee accepted proposed disallowance and accordingly disallowance of ₹.24,87,321/- was made u/s. 40(a)(ia) for failure to deduct TDS on interest expenses. On appeal Ld.CIT(A) sustained the disallowance observing that since the assessee has agreed for the disallowance before the Assessing Officer during the course of assessment proceedings, assessee cannot not raise ground on the same issue again.
Before us, Ld. Counsel for the assessee submitted that, assessee never agreed before the Assessing Officer for any addition for any disallowance u/s. 40(a)(ia) of the Act. Ld. Counsel for the assessee further refereing to the Page No. 18 of the Paper Book which is the written submissions filed before the Ld. CIT(A), it is submitted that all the persons/parties to whom payments were made without deduction of Tax at source had filed their returns and paid taxes and therefore no disallowance could be made in assessee’s hand u/s. 40(a)(ia) of the Act. Ld. Counsel for the assessee further submitted that relevant certificates
(A.Y: 2012-13)) M/s. Central Investigation & Security Services Limited, required to be submitted as per Rule 31ACB of the I.T. Rules have been submitted before the Ld. CIT(A) and these certificates were not filed before the Assessing Officer as these were not received by the assessee from the parties and requested before the Ld.CIT(A) to direct the Ld. A.O to verify the certificates before deleting the amounts therefore it is submitted that the matter may be restored to the file of the Assessing officer for verification of the certificates before the assessing officer.
Ld. DR has no serious objection in remitting the matter back to the file of the assessing officer for fresh examination in the light of the submissions and the evidences furnished by the assessee.
On hearing both the parties, we are of the view that this matter has to be examined by the Assessing Officer afresh in the light of the submissions of the assessee and decide in accordance with law, after giving adequate opportunity of being heard to the assessee. Thus, we restore this issue to file of the Assessing Officer. This ground is allowed for statistical purpose.
The last ground remaining for adjudication is in respect of disallowance of adhoc disallowance made by the Assessing Officer from out of “business promotion”, “gifts” and “office expenses”.
(A.Y: 2012-13)) M/s. Central Investigation & Security Services Limited, 13. The Assessing Officer while completing the assessment noticed that assessee debited various expenses like business promotion, gifts and office expenses to the profit and loss account and called for bills, vouchers pertaining to the said expenses. On verification, he found that some bills, vouchers, were defective like some were undated, unsigned, not supported with relevant bills. Therefore, Assessing Officer disallowed a sum of ₹.3,00,000/- as unverifiable business promotion, gifts and office expenses. On appeals Ld. CIT(A) sustained the said disallowance.
On a careful reading of the orders of the authorities below, we do not find any good reason to interfere with the findings of the authorities below in sustaining the disallowance at ₹.3,00,000/- from out of business promotion, gifts and office expenses. Hence the same is sustained. This ground is rejected.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on the 23rd April, 2018.