DCIT, CC-1(3), KOLKATA, KOLKATA vs. M/S FEEGRADE & COMPANY PVT. LTD., KOLKATA

“1. In the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition made by the A.O on account of disallowance of Railways Punitive charges of Rs.69,77,664/- relying with the submissions of the assessee without appreciating the fact that the disallowances as the overloading charges is nothing but a penalty as per provision of section 73 of the Indian Railway Act, 1989.

2. In the facts and circumstances of the case, the Ld. CIT(A) erred in law as well as fact in deleting the addition made by the A.O on account of interest paid on belated deposit of T.D.S of interest on TDS of Rs.1,67,074/- without considering the fact that such interest is penal in matter.

3. In the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition made by the A.O on account of disallowance u/s 14A r.w. Rule 8D(2)(iii) of Rs.3,69,866/- relying with the submissions of the assessee without considering the direction of Circular 5/2014.

4. The appellant craves the leave to make any addition, alteration and modification etc. of ground or grounds on or before the date of hearing of the appeal.”

6. The ld. DR did not have much to say but he nevertheless relied upon the order of the Assessing Officer.

14. We have considered the rival submissions. This tribunal in the case of Feegrade & Company Pvt. Ltd on an identical issue has taken the following view :- “ 8. At the time of hearing of the appeal it was fairly accepted by the parties that the issue raised by the revenue in this appeal is squarely covered in favour of the assessee by the decision of ITAT Mumbai bench in the case of Taurian Iron & Steel Co.(P)Ltd (supra). In the aforesaid decision the Hon’ble ITAT after considering the decision of the Hon’ble Supreme Court in the case of Prakash Cotton Mills P.Ltd. 201 ITR 684 (SC) and also the nature of railway punitive charges held that the payments made to the railways for overloading of the wagons is compensatory in nature and cannot be disallowed under Explanation to Section 37(1) of the Act. The other decisions relied upon by the assessee supports the plea of the assessee and where the decisions rendered in the context of overloading charges paid to railways. In view of the above we do not find any merits in ground no.1 raised by the revenue. Consequently the same is dismissed.

8. As the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in assessee’s own case(supra) and there is no change in the facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Tribunal and the ld. CIT(A) has allowed the appeal of the assessee. We find no reason to interfere in the said order of the ld. CIT(A) and the same is hereby upheld. Therefore, ground no.1 raised by the Revenue in Ground No.1 raised by the Revenue in are dismissed.

ITA No.1533/Kol/2017 M/s. Bonai Industrial Company Ltd M/s. Feegrade& Company Pvt. Ltd. Assessment Year: 2014-15 5. Ground No.2 raised by the Revenuein and Ground No.2&3 raised by the Revenue in ITA No.1533/Kol/2017 relate to disallowance on account of interest paid on belated deposit of TDS.

“7. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, AO has disallowed the interest expenses incurred by the assessee on account of late deposit of service tax and TDS after having reliance on the judgment of Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd. Vs. CIT (1998) (Supra). The relevant extract of the judgment reads as under : FACTS During the year under consideration, the assessee failed to pay advance tax equivalent to 75 per cent of estimated tax. The Assessing Officer levied interest under section 215 as well as under section 139. The assessee claimed that since taxes which were payable were delayed, the assessee's financial resources increased which were available for business purposes. Hence, the interest which was paid to the Government was interest on capital that would be borrowed by the assessee otherwise. Hence, the amounts should be allowed as deduction. The revenue did not allow such deduction. The High Court affirmed the view. On appeal to the Supreme Court : HELD When interest is paid for committing a default in respect of a statutory liability to pay advance tax, the amount paid and the expenditure incurred in that connection is in no way connected with preserving or promoting the business of the assessee. This is not expenditure which is incurred and which has to be taken into account before the profits of the business are calculated. The liability in the case of payment of incometax and interest for delayed payment of income-tax or advance tax arises on the computation of the profits and gains of business. The tax which is payable is on the assessee's income after the income is determined. This cannot, therefore, be considered as an expenditure for the purpose of earning any income or profits. Interest which is paid for delayed payment of advance tax on such income cannot be considered as expenditure wholly and exclusively for the purpose of business. Under the Act, the payment of such interest is inextricably connected with the assessee's tax liability. If income-tax itself is not permissible deduction under section 37, any interest payable for default committed by the assessee in discharging his statutory objection under the Act, which is calculated with reference to the tax on income, cannot be allowed as a deduction.

M/s. Bonai Industrial Company Ltd M/s. Feegrade& Company Pvt. Ltd. Assessment Year: 2014-15 Therefore, it was to be held that deduction of interest levied under sections 139 and 215 would not be allowable under section 37. In the above judgment, the claim of the assessee for interest expenses was denied as it defaulted to make the payment of advance tax as per the provisions of the Act. The advance tax is nothing but income tax only which the assessee has to pay on his income. In the instant case the default relates to the delay in the payment of advance tax and consequently interest was charged on the delayed payment of advance tax. In the above judgment the Hon’ble Apex Court held that as Income Tax paid by the assessee is not allowable deduction and therefore interest emanating from the delayed payment of income tax (advance tax) is also not allowable deduction. However the facts of the instant case before us are distinguishable as in the case before us the interest was paid for delayed payment of service tax & TDS. The interest for the delay in making the payment of service tax & TDS is compensatory in nature. As such the interest on delayed payment is not in the nature of penalty in the instant case on hand. The issue of delay in the payment of service tax is directly covered by the judgment of Hon’ble Apex Court in the case of Lachmandas Mathura Vs. CIT reported in 254 ITR 799 in favour of assessee. The relevant extract of the judgment is reproduced below : “The High Court has proceeded on the basis that the interest on arrears of sales tax is penal in nature and has rejected the contention of the assessee that it is compensatory in nature. In taking the said view the High Court has placed reliance on its Full Bench's decision in Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR 387 (All.) The learned counsel appearing for the appellant-assessee states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni Engg. Works Ltd. v. CIT [1983] 144 ITR 732 (All.) (FB), wherein it has been held that interest on arrears of tax is compensatory in nature and not penal. This question has also been considered by this Court in Civil Appeal No. 830 of 1979 titled Saraya Sugar Mills (P.) Ltd. v. CIT decided on 29-2-1996. In that view of the matter, the appeal is allowed and question Nos. 1 and 2 are answered in favour of the assessee and against the revenue.” In view of the above judgment, there remains no doubt that the interest expense on the delayed payment of service tax is allowable deduction. The above principles can be applied to the interest expenses levied on account of delayed payment of TDS as it relates to the expenses claimed by the assessee which are subject to the TDS provisions. The assessee claims the specified expenses of certain amount in its profit & loss account and thereafter the assessee from the payment to the party deducts certain percentage as specified under the Act as TDS and pays to the Government Exchequer. The amount of TDS represents the amount of income tax of the party on whose behalf the payment was deducted & paid to the Government Exchequer. Thus the TDS amount does not represent the tax of the assessee but it is the tax of the party which has been paid by the assessee. Thus any delay in the payment of TDS by the assessee cannot be linked to the income tax of the assessee and consequently the principles laid down by the Hon’ble Apex Court in the case of Bharat Commerce Industries Ltd. Vs. CIT (1998) reported in 230 ITR 733 cannot be applied to the case on hand. Thus, in our considered view, the principle laid down by the Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd. (supra) is not applicable in the instant facts of the case. Thus, we hold that the Assessing Officer in the instant case has wrongly applied the principle laid down by the Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd.(supra). We also find that the Hon'ble Supreme Court in the case of Lachmandas Mathura (Supra) has allowed the deduction on account of interest on late M/s. Bonai Industrial Company Ltd M/s. Feegrade& Company Pvt. Ltd. Assessment Year: 2014-15 deposit of sales tax u/s 37(1) of the Act. In view of the above, we conclude that the interest expenses claimed by the assessee on account of delayed deposit of service tax as well as TDS liability are allowable expenses u/s 37(1) of the Act. In this view of the matter, we find no reason to interfere in the order of Ld. CIT(A) and we uphold the same. Hence, this ground of Revenue is dismissed.

7. As the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench(Supra) on the identical facts and law, and there is no change in the facts of law and the Revenue is unable to produce any material to controvert the aforesaid findings. We find no reason to interfere in the said order of the ld. CIT(A) and the same is hereby upheld. Therefore, ground no.2 raised by the Revenue in Ground No.2 & 3 raised by the Revenue in are dismissed.

“20.As far as disallowance of other expenses under Rule 8D(2)(iii) viz. other expenses are concerned the plea of the assessee was to exclude investments which did not yield dividend exempt income during the previous year while working out the average value of investments for application of Rule 8D(2)(ii) of the Rules. In this regard the assessee placed reliance on the decision of ITAT, Kolkata Bench in the case of REI Agro Ltd vs DCIT 144 ITD 141 (Kol) wherein it was held that while making disallowance under Rule 8D(2)(iii) of the Rules and while computing Average value of investments only investments which yielded during the relevant previous year should be considered.

Order is pronounced in the open court on 10.10.2018.