EASTERN CARGO CARRIERS (INDIA) PRIVATE LIMITED,MUMBAI, MAHARASHTRA, INDIA vs. THE ASSESSMENT UNIT, INCOME TAX DEPARTMENT
Facts
The assessee company, an agent of IATA engaged in freight forwarding, appealed against the CIT(A)'s order confirming disallowances related to salary/remuneration, other expenses, and interest on delayed TDS for AY 2021-22. The Assessing Officer had made three additions: disallowance of salary/remuneration to directors, ad-hoc disallowance of other expenses, and interest on delayed TDS.
Held
The Tribunal held that the disallowance of salary/remuneration to directors needs further examination by the Assessing Officer based on the assessee's claim of high taxation of directors and no tax evasion, hence Ground No. 1 was allowed for statistical purposes. For the ad-hoc disallowance of other expenses, the Tribunal restored the issue to the Assessing Officer to verify the expenses with vouchers, as the CIT(A)'s restriction was also ad-hoc, thus Ground No. 2 was allowed for statistical purposes. The disallowance of interest on delayed TDS was upheld, as it was not considered a business expenditure, thus Ground No. 3 was dismissed.
Key Issues
1. Whether the disallowance of salary/remuneration to directors under Section 40A(2)(a) was justified. 2. Whether the ad-hoc disallowance of other expenses was justified. 3. Whether interest paid on delayed deposit of TDS is an allowable business expenditure.
Sections Cited
40A(2)(a), 35(1)(ii), 143(3), 40A(2)(b), 46A, 201(1A), 37(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN
PER OM PRAKASH KANT, AM
This appeal by the assessee is directed against order dated 18.10.2023 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2021-22, raising following grounds:
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A). Disallowance u/s. 40A(2)(a) A). Disallowance u/s. 40A(2)(a) - Rs. 70,20,000/- 1) The learned Commissioner of Income Tax The learned Commissioner of Income Tax (Appeals), National (Appeals), National Faceless Appeal Centre (NFAC) [CIT(A)] erred on facts and in law in Faceless Appeal Centre (NFAC) [CIT(A)] erred on facts and in law in Faceless Appeal Centre (NFAC) [CIT(A)] erred on facts and in law in confirming the disallowance made by the AO u/s. 40A(2)(a) of Rs. confirming the disallowance made by the AO u/s. 40A(2)(a) of Rs. confirming the disallowance made by the AO u/s. 40A(2)(a) of Rs. 70,20,000/-. 2) The learned CIT(A) and the AO failed to appreciate that no The learned CIT(A) and the AO failed to appreciate that no The learned CIT(A) and the AO failed to appreciate that no disallowance was called for disallowance was called for u/s. 40A(2)(a) in the facts and u/s. 40A(2)(a) in the facts and circumstances of the case. circumstances of the case. 3) Appellant prays that the disallowance made by the AO u/s. Appellant prays that the disallowance made by the AO u/s. Appellant prays that the disallowance made by the AO u/s. 40A(2)(a) of Rs. 40A(2)(a) of Rs. 70,20,000/- and confirmed by the CIT(A), may be and confirmed by the CIT(A), may be deleted. B) Disallowance of expenses B) Disallowance of expenses - Rs. 46,56.027/- 4) The learned C The learned CIT(A) having held that the reasons for disallowing 25% IT(A) having held that the reasons for disallowing 25% of expenditure were not convincing erred on facts and in law in of expenditure were not convincing erred on facts and in law in of expenditure were not convincing erred on facts and in law in confirming the disallowance to the extent of 10% of expenses of Rs. confirming the disallowance to the extent of 10% of expenses of Rs. confirming the disallowance to the extent of 10% of expenses of Rs. 4,65,60,267/- amounting to Rs. 46,56,027/ amounting to Rs. 46,56,027/-. 5) Appellant prays that t Appellant prays that the ad hoe disallowance made by the AO out he ad hoe disallowance made by the AO out of various expenses which have been confirmed by the CIT(A) to the of various expenses which have been confirmed by the CIT(A) to the of various expenses which have been confirmed by the CIT(A) to the extent of Rs. 46,56,027/ extent of Rs. 46,56,027/-, may be deleted in toto. C) Disallowance of interest on delayed payment of TDS C) Disallowance of interest on delayed payment of TDS C) Disallowance of interest on delayed payment of TDS - Rs. 74,662/- 6) The learned CIT(A) erred The learned CIT(A) erred on facts and in law in confirming the on facts and in law in confirming the disallowance of interest on delayed payment of TDS of Rs. 74,662/ disallowance of interest on delayed payment of TDS of Rs. 74,662/ disallowance of interest on delayed payment of TDS of Rs. 74,662/-. 7) Appellant prays that the disallowance of interest on delayed Appellant prays that the disallowance of interest on delayed Appellant prays that the disallowance of interest on delayed payment of TDS of Rs. 74,662/ payment of TDS of Rs. 74,662/- as made by the AO and as confirmed as made by the AO and as confirmed by the CIT(A), may by the CIT(A), may be deleted. 2. Briefly stated facts of the case are that the a Briefly stated facts of the case are that the assessee company ssessee company is an agent of International Air Transport A is an agent of International Air Transport Association ssociation(IATA) and engaged in freight forwarding business along with engaged in freight forwarding business along with running a running a factory for recycling of different different waste products at Dahej, Bharuch in products at Dahej, Bharuch in Gujarat. For the year under consideration, the assessee filed return Gujarat. For the year under consideration, the assessee filed return Gujarat. For the year under consideration, the assessee filed return of income declaring income under the head ‘profit and gains of income declaring income under the head ‘profit and gains of income declaring income under the head ‘profit and gains business or profession’ business or profession’ amounting to Rs.8,85,62,030/ to Rs.8,85,62,030/- after claiming deduction of Rs.90,00,000/ claiming deduction of Rs.90,00,000/- u/s 35(1)(ii) of the Income u/s 35(1)(ii) of the Income-tax
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Act, 1961 (in short ‘the Act’). The return of income filed by the Act, 1961 (in short ‘the Act’). The return of income filed by the Act, 1961 (in short ‘the Act’). The return of income filed by the assessee was selected for scrutiny assessment and statutory notices assessee was selected for scrutiny assessment and statutory notices assessee was selected for scrutiny assessment and statutory notices under the Act were issued and partly complied with. In the scrutiny under the Act were issued and partly complied with. In the scrutiny under the Act were issued and partly complied with. In the scrutiny assessment completed u assessment completed u/s 143(3) of the Act on 27.12.2022, the /s 143(3) of the Act on 27.12.2022, the Assessing Officer made three additions, firstly, Assessing Officer made three additions, disallowance of excessive salary/remuneration to directors/relatives of the director salary/remuneration to directors/relatives of the director salary/remuneration to directors/relatives of the director amounting to Rs.70,20,000/-, secondly, ad-hoc disallowance @ amounting to Rs.70,20,000/ hoc disallowance @ 25% of the other expe 25% of the other expenses claimed at Rs.4,65,60,267/ nses claimed at Rs.4,65,60,267/- which was worked out to Rs.1,16,40,066/-, thirdly, interest worked out to Rs.1,16,40,066/ , interest amounting to Rs.,74,662/- on delayed deposit of TDS. on delayed deposit of TDS.
On further appeal, the Ld. CIT(A) by way of impugned order On further appeal, the Ld. CIT(A) by way of impugned order On further appeal, the Ld. CIT(A) by way of impugned order upheld the disallowance of salary/remuneration to the directors upheld the disallowance of salary/remuneration t upheld the disallowance of salary/remuneration t and interest on delayed deposit of TDS but and interest on delayed deposit of TDS but restricted restricted the ad-hoc disallowance out of other expenses to the disallowance out of other expenses to the extent of extent of 10% of the expenses and allowed part relief to the assessee. expenses and allowed part relief to the assessee.
Aggrieved, the assessee is in appeal before the Tribunal b the assessee is in appeal before the Tribunal b the assessee is in appeal before the Tribunal by way of raising grounds as reproduced above. of raising grounds as reproduced above.
The assessee filed a Paper Book containing pages 1 to 160. The assessee filed a Paper Book containing pages 1 to 160. The assessee filed a Paper Book containing pages 1 to 160. In relation to ground No. 1 of the appeal, the Ld. counsel for the relation to ground No. 1 of the appeal, the Ld. counsel for the relation to ground No. 1 of the appeal, the Ld. counsel for the firstly, assessee , submitted submitted that that while while disallowing disallowing the the salary/remuneration to th salary/remuneration to three of the directors/relative of the ree of the directors/relative of the directors amounting to Rs.70,20,000/ rs amounting to Rs.70,20,000/-, the Ld. Assessing Officer he Ld. Assessing Officer has compared their salary/remuneration with the other employees has compared their salary/remuneration with the other employees has compared their salary/remuneration with the other employees
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having similar educational qualification having similar educational qualification but he ignored but he ignored that concerned directors were havi concerned directors were having experience of looking after the ng experience of looking after the sales, finance, networking and other business operations for last 40 sales, finance, networking and other business operations for last 40 sales, finance, networking and other business operations for last 40 years whereas the employees compared for the purpose of whereas the employees compared for the purpose of whereas the employees compared for the purpose of salary/remuneration were having only experience of few months salary/remuneration were having only experience of salary/remuneration were having only experience of and therefore, the excessive amount worked out by the Assessing and therefore, the excessive amount worked out by the Assessing and therefore, the excessive amount worked out by the Assessing Officer is unreasonable and unjustified. Secondly, Officer is unreasonable and unjustified. the Ld. counsel referred to the Central Board of Direct Taxes( Central Board of Direct Taxes(CBDT CBDT) Circular dated 6th July, 1968 wherein July, 1968 wherein it is stated that provisions of se provisions of section 40A(2)(a) of the Act 40A(2)(a) of the Act are intended to check evasion of tax through to check evasion of tax through excessive or unreasonable payments to relatives or associate excessive or unreasonable payments to relatives or associate excessive or unreasonable payments to relatives or associate concern and should not be applied in a manner which will cause a concern and should not be applied in a manner which will cause concern and should not be applied in a manner which will cause hardship in bonafide cases a hardship in bonafide cases and the Income-tax Officer is e tax Officer is expected to ecercise his judgment in a reasonable and fair manner. The Ld. his judgment in a reasonable and fair manner. The Ld. his judgment in a reasonable and fair manner. The Ld. counsel further relied on the decision of Hon’ble Bombay Court in counsel further relied on the decision of Hon’ble Bombay Court in counsel further relied on the decision of Hon’ble Bombay Court in the case of CIT v. Indo Saudi Services (Travel) (P.) Ltd. reported CIT v. Indo Saudi Services (Travel) (P.) Ltd. reported CIT v. Indo Saudi Services (Travel) (P.) Ltd. reported in 310 ITR 306, decision of Hon’ble Bombay High C , decision of Hon’ble Bombay High C , decision of Hon’ble Bombay High Court in the case of CIT v. V.S. Dempo & Co. (P.) Ltd. 336 ITR 209 CIT v. V.S. Dempo & Co. (P.) Ltd. 336 ITR 209 CIT v. V.S. Dempo & Co. (P.) Ltd. 336 ITR 209, decision of Hon’ble Supreme Court in the case of CIT v. Glaxo Smithkline Glaxo Smithkline Hon’ble Supreme Court in the case of Asia (P.) Ltd. reported in 236 CTR 113 (SC) Asia (P.) Ltd. reported in 236 CTR 113 (SC). The Ld. counsel for . The Ld. counsel for the assessee submitted a chart of the taxable income in the hands the assessee submitted a chart of the taxable incom the assessee submitted a chart of the taxable incom of three directors and tax incident in the case of the assessee and of three directors and tax incident in the case of the assessee and of three directors and tax incident in the case of the assessee and submitted that the three directors submitted that the three directors were subjected to maximum rate subjected to maximum rate of the taxation along with the surcharge and therefore, there is no of the taxation along with the surcharge and therefore, there is no of the taxation along with the surcharge and therefore, there is no case of transferring the income to non case of transferring the income to non-taxable entities and evasion taxable entities and evasion
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of tax. The Ld. counsel further submitted that a detailed of tax. The Ld. counsel further submitted that a detailed of tax. The Ld. counsel further submitted that a detailed explanation in this respect was submitted before the Assessing explanation in this respect was submitted before the A explanation in this respect was submitted before the A Officer on 21.12.2022 , a Officer on 21.12.2022 , a copy which is available on Paper Book vailable on Paper Book page 61. The Ld. counsel submitted that ne he Ld. counsel submitted that neither the Assessing ither the Assessing Officer nor the Ld. CIT(A) has considered the explanation of the Officer nor the Ld. CIT(A) has considered the explanation of the Officer nor the Ld. CIT(A) has considered the explanation of the assessee. He accordingly submitted that finding of the Ld. CIT(A) on assessee. He accordingly submitted that finding of the Ld. CIT(A) on assessee. He accordingly submitted that finding of the Ld. CIT(A) on the issue in dispute might be set aside. the issue in dispute might be set aside.
6.1 On the contrary, the Ld. Departmental Representative (DR On the contrary, the Ld. Departmental Representative (DR On the contrary, the Ld. Departmental Representative (DR) submitted that no explanation was filed before the no explanation was filed before the no explanation was filed before the AO, who has . He stated that the passed the impugned passed the impugned assessment order. He stated that assessment proceedings assessment proceedings in the instant case were conducted in a were conducted in a by the Faceless faceless manner through electronic submission faceless manner through electronic submission by the F Assessing Officer(FAO) (FAO). He referred to Paper Book page 61 and . He referred to Paper Book page 61 and submitted that the assessee had filed said reply on 21.12.2022, submitted that the assessee had filed said reply on 21.12.2022 submitted that the assessee had filed said reply on 21.12.2022 before the Jurisdictional Assessing Officer urisdictional Assessing Officer(JAO), whereas scrutiny whereas scrutiny proceedings were pending before the proceedings were pending before the FAO and therefore, the and therefore, the submission of the Ld. counsel for the assessee that Assessing the Ld. counsel for the assessee that Assessing the Ld. counsel for the assessee that Assessing Officer has not considered the explanation of the assessee is totally Officer has not considered the explanation of the assessee is totally Officer has not considered the explanation of the assessee is totally incorrect and devoid incorrect and devoid of truth. He further submitted no such . He further submitted no such explanation was even even filed before the Ld. CIT(A) by way of additional filed before the Ld. CIT(A) by way of additional evidence and therefore, both the authorities are justified in e and therefore, both the authorities are justified in e and therefore, both the authorities are justified in making/sustaining making/sustaining the the disallowance disallowance for for excessive salary/remuneration to three directors. salary/remuneration to three directors.
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6.2 In the rejoinder, the Ld. counsel In the rejoinder, the Ld. counsel for the assessee for the assessee submitted that if the matter is restored back to lower a if the matter is restored back to lower authorities, then uthorities, then the issue of tax evasion in the transaction might be examined first and issue of tax evasion in the transaction might be examined first and issue of tax evasion in the transaction might be examined first and if there is no tax evasion then straight way no disallowance is called if there is no tax evasion then straight way no disallowance if there is no tax evasion then straight way no disallowance for, otherwise the fair market value of the salary/remuneration otherwise the fair market value of the salary/remuneration otherwise the fair market value of the salary/remuneration might be compared with the other might be compared with the other similarly placed directors in the freight forwarding business. freight forwarding business.
We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. In the case, the Assessing Officer has relevant material on record. In the case, the Assessing Officer has relevant material on record. In the case, the Assessing Officer has out of salary/remuneration made disallowance of Rs.70,20,000/ made disallowance of Rs.70,20,000/- out of salary/remunera paid to the following three directors/relative of the directors paid to the following three directors/relative of the directors paid to the following three directors/relative of the directors restricting their salary restricting their salary to Rs. 12 lakhs per annum:
SN NAME OF NAME OF GROSS Restricted Disallowance Disallowance STAFF MEMBER MEMBER ANNUAL amount from from SALARY of salary employee employee per month benefit benefit expenses expenses 1 Sh. Lalit Brijnarain Sh. Lalit Brijnarain 4515000 1200000 3315000 3315000 Seth 2 Sh. Alok Brijnarain Sh. Alok Brijnarain 4515000 1200000 3315000 3315000 Seth 3. Ms. Preeti Seth Ms. Preeti Seth 1590000 1200000 390000 390000
Total disallowance Rs.702000 Total disallowance Rs.7020000/-
7.1 During the the the assessment assessment assessment proceedings, proceedings, proceedings, the the the Assessing Assessing Assessing Officer(FAO) asked the assessee to justify the fair market value of asked the assessee to justify the fair market value of asked the assessee to justify the fair market value of the salary/remuneration paid to tho salary/remuneration paid to those persons being being specified persons under section 40A(2)(b) of the Act, under section 40A(2)(b) of the Act, but in view of non but in view of non-
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compliance on the pa compliance on the part of the assessee, the Assessing Officer made rt of the assessee, the Assessing Officer made disallowance comparing salary disallowance comparing salary/remuneration paid other similarly placed employees having similar educational qualification. The placed employees having similar educational qualification. The placed employees having similar educational qualification. The Assessing Officer has noted that Assessing Officer has noted that above directors were having were having basic qualification only and no technical nly and no technical qualification. Before us, the Ld. . Before us, the Ld. counsel for the assessee has drawn attention to Paper Book Page 61 counsel for the assessee has drawn attention to Paper Book Page 61 counsel for the assessee has drawn attention to Paper Book Page 61 which is a explanation filed before the jurisdictional Assessing which is a explanation filed before the jurisdictional Assessing which is a explanation filed before the jurisdictional Assessing Officer (JAO) and that too after completion of assessment (JAO) and that too after completion of assessment. We are of (JAO) and that too after completion of assessment the view that the assessee was aware that assessment proceedings the assessee was aware that assessment proceedings the assessee was aware that assessment proceedings were pending before the FAO and reply to him could have filed were pending before the FAO and reply to him could have filed were pending before the FAO and reply to him could have filed through e-mail only but instead, the assessee filed the reply of mail only but instead, the assessee filed the reply of mail only but instead, the assessee filed the reply of queries raised by the FAO before the JAO, who was not having queries raised by the FAO before the JAO, who was not having queries raised by the FAO before the JAO, who was not having jurisdiction over instant scrutiny proceedings for the assessment isdiction over instant scrutiny proceedings for the assessment isdiction over instant scrutiny proceedings for the assessment year. The assessee was required to file he assessee was required to file rely/explanation/submission explanation/submission before the FAO only. Further, only. Further, if not filed those reply or explanation if not filed those reply or explanation before the FAO, the assessee could have filed the same before the before the FAO, the assessee could have filed the same before the FAO, the assessee could have filed the same Ld. CIT(A) also in the form of additional evidence for considering in Ld. CIT(A) also in the form of additional evidence for considering in Ld. CIT(A) also in the form of additional evidence for considering in terms of Rule 46A of the Income terms of Rule 46A of the Income-tax Rules, 1962. But no But no additional evidences were even filed were even filed.
7.2 Before us, the Ld. counsel for the assessee has relied on the Before us, the Ld. counsel for the assessee has relied on the Before us, the Ld. counsel for the assessee has relied on the decision in the case of Indo Saudi Services (Travel) (P.) Ltd. (supra) he case of Indo Saudi Services (Travel) (P.) Ltd. (supra) he case of Indo Saudi Services (Travel) (P.) Ltd. (supra) wherein the CBDT Circular No. 6 wherein the CBDT Circular No. 6-P, dated 6th July, 1968 July, 1968 has been discussed. The Hon’ble High Court accordingly concluded that there . The Hon’ble High Court accordingly concluded that there . The Hon’ble High Court accordingly concluded that there is no evidence of evasion of the tax by way of payment of higher is no evidence of evasion of the tax by way of payment of higher is no evidence of evasion of the tax by way of payment of higher
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commission to sister concern as the sister concern ommission to sister concern as the sister concern was also taxed ommission to sister concern as the sister concern in higher rate bracket bracket. The Hon’ble High Court of Bombay in the . The Hon’ble High Court of Bombay in the case of V.S. Dempo & Co. (P.) Ltd. (supra) also held that when the case of V.S. Dempo & Co. (P.) Ltd. (supra) also held that when the case of V.S. Dempo & Co. (P.) Ltd. (supra) also held that when the subsidiary is in the same tax subsidiary is in the same tax bracket and paid same rate of bracket and paid same rate of tax, there is no question there is no question excessive payment and therefore no and therefore no disallowance could be made u/s 40A(2) of the Act. Similarly, the disallowance could be made u/s 40A(2) of the Act. Similarly, the disallowance could be made u/s 40A(2) of the Act. Similarly, the Hon’ble Supreme Court in the case of Glaxo Smithkline Asia (P.) Hon’ble Supreme Court in the case of Glaxo Smithkline Asia (P.) Hon’ble Supreme Court in the case of Glaxo Smithkline Asia (P.) Ltd. (supra) also observed that when assessee company and its Ltd. (supra) also observed that when assessee company and its Ltd. (supra) also observed that when assessee company and its service provider were related companies in terms of section 40A(2) ice provider were related companies in terms of section 40A(2) ice provider were related companies in terms of section 40A(2) of the Act and both were were taxed at same tax rate, then entire exercise then entire exercise of making addition of making addition was a revenue neutral exercise. The relevant was a revenue neutral exercise. The relevant part of the Circular (supra) cited by the part of the Circular (supra) cited by the assessee is repro is reproduced as under:
“74. It may be noted that the new provision is applicable to all categories It may be noted that the new provision is applicable to all categories It may be noted that the new provision is applicable to all categories of expenditure incurred in businesses and professions, including of expenditure incurred in businesses and professions, including of expenditure incurred in businesses and professions, including expenditure on purchase of raw materials, stores or goods, salaries to expenditure on purchase of raw materials, stores or goods, salaries to expenditure on purchase of raw materials, stores or goods, salaries to employees and also other employees and also other expenditure on professional services, or by way expenditure on professional services, or by way of brokerage, commission, interest, etc. Where payment for any of brokerage, commission, interest, etc. Where payment for any of brokerage, commission, interest, etc. Where payment for any expenditure is found to have been made to a relative or associate concern expenditure is found to have been made to a relative or associate concern expenditure is found to have been made to a relative or associate concern falling within the specified categories, it will be necessary for the I falling within the specified categories, it will be necessary for the I falling within the specified categories, it will be necessary for the Income- tax Officer to scrutinise the reasonableness of the expenditure with tax Officer to scrutinise the reasonableness of the expenditure with tax Officer to scrutinise the reasonableness of the expenditure with reference to the criteria mentioned in the section. The Income reference to the criteria mentioned in the section. The Income reference to the criteria mentioned in the section. The Income-tax Officer is expected to exercise his judgment in a reasonable and fair manner. It expected to exercise his judgment in a reasonable and fair manner. It expected to exercise his judgment in a reasonable and fair manner. It should be borne in mind that the should be borne in mind that the provision is meant to check evasion of tax provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate through excessive or unreasonable payments to relatives and associate through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a manner which will cause concerns and should not be applied in a manner which will cause concerns and should not be applied in a manner which will cause hardship in bona fide bona fide cases.” 7.2 Before us, the Ld. counsel for the assessee h Before us, the Ld. counsel for the assessee h Before us, the Ld. counsel for the assessee has filed a chart submitting that concerned concerned directors were subjected to maximum subjected to maximum rate of tax on their income and therefore, no evasion of tax was rate of tax on their income and therefore, no evasion of tax rate of tax on their income and therefore, no evasion of tax there. Since, the issue whether those three directors or subject the issue whether those three directors or subject the issue whether those three directors or subject the
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maximum rate of tax and there is no tax eva maximum rate of tax and there is no tax evasion in the entire sion in the entire transaction, need to be examined at the end of the Assessing need to be examined at the end of the Assessing need to be examined at the end of the Assessing Officer, therefore, we feel Officer, therefore, we feel it appropriate to set-aside the order of ld aside the order of ld CIT(A) on the issue in dispute and CIT(A) on the issue in dispute and restore this issue back to the file restore this issue back to the file of the Assessing Officer for veri of the Assessing Officer for verifying the claim of the assessee in fying the claim of the assessee in accordance with the decision of the Hon’ble Bombay High Court accordance with the decision of the Hon’ble Bombay High Court accordance with the decision of the Hon’ble Bombay High Court and Supreme Court cited above. The Ground No. 1 of the appeal of cited above. The Ground No. 1 of the appeal of cited above. The Ground No. 1 of the appeal of the assessee is accordingly allowed for statistical purposes. the assessee is accordingly allowed for statistical purposes. the assessee is accordingly allowed for statistical purposes.
The ground No. 2 of the appe The ground No. 2 of the appeal of the assessee relate al of the assessee relates to ad- which has been restricted to hoc disallowance of Rs.1,16,40,066/ hoc disallowance of Rs.1,16,40,066/- which has been restricted to Rs.46,56,026/- by the Ld. CIT(A). The Assessing Officer noted that by the Ld. CIT(A). The Assessing Officer noted that by the Ld. CIT(A). The Assessing Officer noted that the assessee was asked to provide ledger account of other expenses the assessee was asked to provide ledger account of other expenses the assessee was asked to provide ledger account of other expenses amounting to Rs.4,65,60 amounting to Rs.4,65,60,267/- but the assessee but the assessee neither filed properly maintained ledger account nor submitted copy of the bank ledger account nor submitted copy of the bank statement highlighting payment and therefore, in absence of the statement highlighting payment and therefore, in absence of the statement highlighting payment and therefore, in absence of the same, the Ld. Assessing Officer made ad the Ld. Assessing Officer made ad-hoc disallowance @ 25% of hoc disallowance @ 25% of the total expenses of the total expenses of Rs.4,65,60,267/-, which was worked out to which was worked out to Rs.1,16,40,066/-. Before the Ld. CIT(A) also no such details were . Before the Ld. CIT(A) also no such details were . Before the Ld. CIT(A) also no such details were filed, but looking to the offices looking to the offices located across the country the country and services provided including including air exports, air imports, sea import, sea ts, sea import, sea export etc., the Ld. CIT(A) restricted the disallowance to 10% of the he Ld. CIT(A) restricted the disallowance to 10% of the he Ld. CIT(A) restricted the disallowance to 10% of the expenses of Rs.4,65,60,267/ expenses of Rs.4,65,60,267/-. Before us, the Ld. counsel for the . Before us, the Ld. counsel for the assessee referred to the assessee referred to the Paper Book page 65 and submitted that all page 65 and submitted that all the details were filed before the Assessing Officer the details were filed before the Assessing Officer but same were but same were not
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considered by the AO and he made considered by the AO and he made ad-hoc disallowance at the rate disallowance at the rate of 25%, which has been restricted which has been restricted by the Ld. CIT(A) @ 10% of the the Ld. CIT(A) @ 10% of the total expenses, which being purely ad which being purely ad-hoc in nature cannot be hoc in nature cannot be sustained. The Ld. counsel referred to the details of the expenses sustained. The Ld. counsel referred to the details of the expenses sustained. The Ld. counsel referred to the details of the expenses available on Paper Book page 158 to 160. available on Paper Book page 158 to 160.
8.1 On the contrary, the Ld. DR submitted that since no details of On the contrary, the Ld. DR submitted that since no details of On the contrary, the Ld. DR submitted that since no details of the expenses or their vouchers were filed before the Assessing the expenses or their vouchers were filed before the Assessing the expenses or their vouchers were filed before the Assessing Officer and therefore Officer and therefore there was no alternative left to the Assessing no alternative left to the Assessing Officer otherwise then Officer otherwise then to make ad-hoc disallowance disallowance. He further submitted that the Ld. CIT(A) has restricted the disallowance @ 10% submitted that the Ld. CIT(A) has restricted the disallowance @ 10% submitted that the Ld. CIT(A) has restricted the disallowance @ 10% without any reasoning or justification without any reasoning or justification. He accordingly submitted e accordingly submitted that matter should be restored back to the file of the Assessing that matter should be restored back to the file of the Assessing that matter should be restored back to the file of the Assessing Officer.
8.2 We have heard rival submission of the part We have heard rival submission of the parties and perused the ies and perused the relevant material on record. The relevant material on record. The detail of other expenses other expenses, disallowance of which is in dispute which is in dispute, has been provided on Paper has been provided on Paper Book pages 158 to 160. On perusal, we find that expenses 158 to 160. On perusal, we find that expenses 158 to 160. On perusal, we find that expenses pertain to office expenses, Diwali expenses office expenses, Diwali expenses, staff training and recruitment, ing and recruitment, legal and professional fees, domestic travelling conveyance, printing legal and professional fees, domestic travelling conveyance, printing legal and professional fees, domestic travelling conveyance, printing and stationery, business promotion, commission incentives, bad and stationery, business promotion, commission incentives, bad and stationery, business promotion, commission incentives, bad debts and balance written off etc. The Assessing Officer has noted debts and balance written off etc. The Assessing Officer has noted debts and balance written off etc. The Assessing Officer has noted that no detailed ledger statement o that no detailed ledger statement of each of the head f each of the head of expenses was submitted, thus, was submitted, thus, there no alternative was left with him was left with him except to make part of disallowance on disallowance on estimate basis. Further, the Ld. . Further, the Ld.
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CIT(A) has not been given any reason for restricting disallowance to CIT(A) has not been given any reason for restricting disallowance CIT(A) has not been given any reason for restricting disallowance 10% of the total expense 10% of the total expenses. The relevant finding of the Ld. CIT(A) is s. The relevant finding of the Ld. CIT(A) is reproduced as under: reproduced as under:
“6.3 I have gone through the assessment order and the submissions 6.3 I have gone through the assessment order and the submissions 6.3 I have gone through the assessment order and the submissions of the appellant. The appellant is in the business of International Air of the appellant. The appellant is in the business of International Air of the appellant. The appellant is in the business of International Air Transport Association agent engaged in freight forwa Transport Association agent engaged in freight forwarding business. rding business. As an IATA agent, the assessee is authorized to deal with all the As an IATA agent, the assessee is authorized to deal with all the As an IATA agent, the assessee is authorized to deal with all the airlines and have their stocks required to transport the • goods out of airlines and have their stocks required to transport the • goods out of airlines and have their stocks required to transport the • goods out of India. It provides services in Air Exports, Air Imports, Sea Exports, India. It provides services in Air Exports, Air Imports, Sea Exports, India. It provides services in Air Exports, Air Imports, Sea Exports, Sea Improts, Fees Express Cargo Sea Improts, Fees Express Cargo and clearance services from and clearance services from Mumbai, Ahmedabad, New Delhi, Kolkatt, Indore, Hyderabad, Mumbai, Ahmedabad, New Delhi, Kolkatt, Indore, Hyderabad, Mumbai, Ahmedabad, New Delhi, Kolkatt, Indore, Hyderabad, Bengaluru and Chennai. Apart from this, the assessee has a Bengaluru and Chennai. Apart from this, the assessee has a Bengaluru and Chennai. Apart from this, the assessee has a recycling factory at Dahej, Bharuch in Gujarat. Through the recycling factory at Dahej, Bharuch in Gujarat. Through the recycling factory at Dahej, Bharuch in Gujarat. Through the assessing Officer requested to submit the ledger ac assessing Officer requested to submit the ledger accounts of various counts of various expenses, the assesse has not submitted the bank statement. To the expenses, the assesse has not submitted the bank statement. To the expenses, the assesse has not submitted the bank statement. To the show cause letter also the assessee has not responded.) In view of show cause letter also the assessee has not responded.) In view of show cause letter also the assessee has not responded.) In view of the above the AO has disallowed 25% of the expenditure amounting the above the AO has disallowed 25% of the expenditure amounting the above the AO has disallowed 25% of the expenditure amounting to Rs. 1,16,40,066/ to Rs. 1,16,40,066/-. I have examined the reasons and found that he reasons and found that the reasons are not very convincing. Therefore, disallowance is the reasons are not very convincing. Therefore, disallowance is the reasons are not very convincing. Therefore, disallowance is restricted to 10% of the other expenses amounting to Rs. restricted to 10% of the other expenses amounting to Rs. restricted to 10% of the other expenses amounting to Rs. 4,65,60,267/ 4,65,60,267/- l' Appellant gets part relief. The ground No. 3 is partly l' Appellant gets part relief. The ground No. 3 is partly allowed.” 8.3 Since, the disallowance Since, the disallowance has been restricted by the ld CIT(A) to by the ld CIT(A) to 10% of the total expenses 10% of the total expenses in ad-hoc manner that too that too in absence of any details of ledger expenses or the vouchers produced before the any details of ledger expenses or the vouchers produced before the any details of ledger expenses or the vouchers produced before the Assessing Officer, therefore, we feel therefore, we feel it appropriate to restore this appropriate to restore this issue back to the file of the Assessing Officer with the direction to the file of the Assessing Officer with the direction to the file of the Assessing Officer with the direction to the assessee to produce all the relevant ledger statement of the the assessee to produce all the relevant ledger statement of the the assessee to produce all the relevant ledger statement of the head of expenses along with vouchers for verification at the end of head of expenses along with vouchers for verification at the end of head of expenses along with vouchers for verification at the end of the Assessing Officer. The ground No. 2 of the appeal of the the Assessing Officer. The ground No. 2 of the appeal of the the Assessing Officer. The ground No. 2 of the appeal of the assessee is accordingly allowed for statistical purposes. see is accordingly allowed for statistical purposes. see is accordingly allowed for statistical purposes.
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The ground No. 3 of the appeal relates to disallowance of the The ground No. 3 of the appeal relates to disallowance of the The ground No. 3 of the appeal relates to disallowance of the interest on delayed deposit of TDS. The Assessing Officer noted that interest on delayed deposit of TDS. The Assessing Officer noted that interest on delayed deposit of TDS. The Assessing Officer noted that interest on TDS is not allowable e interest on TDS is not allowable expenses and therefore he made xpenses and therefore he made disallowance of Rs.74,662/ allowance of Rs.74,662/- accordingly. The Ld. CIT(A) also noted accordingly. The Ld. CIT(A) also noted that the assessee had not that the assessee had not right to utilize money collected from right to utilize money collected from others on behalf of the Government. Accordingly others on behalf of the Government. Accordingly, he sustained the he sustained the disallowance. The relevant finding of the Ld. CIT(A) is reproduced as disallowance. The relevant finding of the Ld. CIT(A) is reprod disallowance. The relevant finding of the Ld. CIT(A) is reprod under:
“7.3 I have gone through the submissions of the appellant. Interest I have gone through the submissions of the appellant. Interest I have gone through the submissions of the appellant. Interest payment on late payment of TDS is not eligible business expenditure on late payment of TDS is not eligible business expenditure on late payment of TDS is not eligible business expenditure for deduction and it is not compensatory in nature. The assessee has for deduction and it is not compensatory in nature. The assessee has for deduction and it is not compensatory in nature. The assessee has no right to utilize such monies coll no right to utilize such monies collected from others on behalf of the ected from others on behalf of the government. Payment of interest on late deposit of TDS levied is government. Payment of interest on late deposit of TDS levied is government. Payment of interest on late deposit of TDS levied is neither an expenditure nor exclusively incurred for the purpose of the neither an expenditure nor exclusively incurred for the purpose of the neither an expenditure nor exclusively incurred for the purpose of the business and therefore the same is not allowable as deduction u/s. business and therefore the same is not allowable as deduction u/s. business and therefore the same is not allowable as deduction u/s. 37(1) of the Act. 37(1) of the Act. Accordingly, the addition made by the AO is upheld. Accordingly, the addition made by the AO is upheld. The Ground No. 4 is dismissed. The Ground No. 4 is dismissed.” 9.1 Before us, the Ld. counsel for the assessee relied on its Before us, the Ld. counsel for the assessee relied on its Before us, the Ld. counsel for the assessee relied on its submissions made before the Ld. CIT(A) in this regard. The Ld. DR submissions made before the Ld. CIT(A) in this regard. The Ld. DR submissions made before the Ld. CIT(A) in this regard. The Ld. DR submitted that interest on TDS is not allowa submitted that interest on TDS is not allowable expenditure and ble expenditure and therefore, finding of the Ld. CIT(A) on the issue in dispute need to therefore, finding of the Ld. CIT(A) on the issue in dispute need to therefore, finding of the Ld. CIT(A) on the issue in dispute need to be sustained.
9.2 We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant material on record. We the relevant material on record. We find that amount amount of interest in dispute relates to the delayed deposit of the TDS. e delayed deposit of the TDS. The Delhi Bench The Delhi Bench of Tribunal in the case of M/s. New Modern Bazaar Departmental in the case of M/s. New Modern Bazaar Departmental in the case of M/s. New Modern Bazaar Departmental Store Pvt. Ltd. in ITA NO. 590/Del/2018 for AY 2014 in ITA NO. 590/Del/2018 for AY 2014-15 held that in ITA NO. 590/Del/2018 for AY 2014 the interest on Late Payment of TDS does not constitute Business the interest on Late Payment of TDS does not constitute Business the interest on Late Payment of TDS does not constitute Business
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Expenditure. The relevant finding of the Tribunal is reproduced as relevant finding of the Tribunal is reproduced as relevant finding of the Tribunal is reproduced as under:
“7. We have carefully considered the rival contentions. The above issue 7. We have carefully considered the rival contentions. The above issue 7. We have carefully considered the rival contentions. The above issue has already been considered by Hon'ble Madras High Court in has already been considered by Hon'ble Madras High Court in CIT Vs. has already been considered by Hon'ble Madras High Court in Chennai Properties & Investment Ltd. Properties & Investment Ltd. (1999) 239 ITR 435 (Mad.) (1999) 239 ITR 435 (Mad.) wherein it has been held that interest under Section 201(1A) wherein it has been held that interest under Section 201(1A) of the Act paid by the assessee does not assume the character of business Act paid by the assessee does not assume the character of business Act paid by the assessee does not assume the character of business expenditure and also cannot be regarded as compensatory payment. d also cannot be regarded as compensatory payment. d also cannot be regarded as compensatory payment. The above decision of the Hon'ble Madras High Court has also been The above decision of the Hon'ble Madras High Court has also been The above decision of the Hon'ble Madras High Court has also been dealt with exclusively by the various Page | 2 benches of the ITAT , dealt with exclusively by the various Page | 2 benches of the ITAT , dealt with exclusively by the various Page | 2 benches of the ITAT , specifically in Velankani Information Systems Ltd. V DCIT [2018] 97 specifically in Velankani Information Systems Ltd. V DCIT [2018] 97 specifically in Velankani Information Systems Ltd. V DCIT [2018] 97 taxmann.com 599 (Bangalore xmann.com 599 (Bangalore - Trib.)/[2018] 173 ITD 19 (Bangalore Trib.)/[2018] 173 ITD 19 (Bangalore - Trib.) wherein considering various decisions of the Tribunal had wherein considering various decisions of the Tribunal had wherein considering various decisions of the Tribunal had followed the decision of the Hon'ble Madras High Court in followed the decision of the Hon'ble Madras High Court in CIT Vs. followed the decision of the Hon'ble Madras High Court in Chennai Properties & Investment Ltd. Properties & Investment Ltd. (supra) as under :- "21. As far as delay in remittance of tax deducted at source u/s. "21. As far as delay in remittance of tax deducted at source "21. As far as delay in remittance of tax deducted at source 201(1A) of the Act is concerned, we find that the Hon'ble Madras of the Act is concerned, we find that the Hon'ble Madras of the Act is concerned, we find that the Hon'ble Madras High Court has taken a vi High Court has taken a view that interest paid u/s. 201(1A) u/s. 201(1A) is also in the nature of tax and notwithstanding the fact that it is not also in the nature of tax and notwithstanding the fact that it is not also in the nature of tax and notwithstanding the fact that it is not the tax liability of the assessee, the same cannot be allowed as a the tax liability of the assessee, the same cannot be allowed as a the tax liability of the assessee, the same cannot be allowed as a deduction. The following were deduction. The following were the relevant observations of the the relevant observations of the Hon'ble Madras High Court: Hon'ble Madras High Court:-- "14. As already noticed the payment of interest takes colour from "14. As already noticed the payment of interest takes colour from "14. As already noticed the payment of interest takes colour from the nature of the levy with reference to which such interest is paid the nature of the levy with reference to which such interest is paid the nature of the levy with reference to which such interest is paid and the tax required to be but not paid in time, which rendered and the tax required to be but not paid in time, which rend and the tax required to be but not paid in time, which rend the assessee liable for payment of interest was in the nature of a the assessee liable for payment of interest was in the nature of a the assessee liable for payment of interest was in the nature of a direct tax and similar to the income direct tax and similar to the income-tax payable under tax payable under the Income-tax Act tax Act. The interest paid under Section 201(1A) Section 201(1A) of the Act, therefore, would not assume the character of business the Act, therefore, would not assume the character of business the Act, therefore, would not assume the character of business expenditure and cannot be regarded as a compensatory payment expenditure and cannot be regarded as a compensatory payment expenditure and cannot be regarded as a compensatory payment as contended by learned counsel for the assessee. as contended by learned counsel for the assessee. 15. Counsel for the assessee in support of his 15. Counsel for the assessee in support of his submission that the submission that the interest paid by the assessee was merely compensatory in interest paid by the assessee was merely compensatory in interest paid by the assessee was merely compensatory in character besides relying on the case of Makalakshmi Sugar Mills character besides relying on the case of Makalakshmi Sugar Mills character besides relying on the case of Makalakshmi Sugar Mills Co. also relied on the decision of the apex court in the cases Co. also relied on the decision of the apex court in the cases Co. also relied on the decision of the apex court in the cases of Prakash Cotton Mills Pvt Ltd. v. CIT Prakash Cotton Mills Pvt Ltd. v. CIT [1993] 201 ITR [1993] 201 ITR 684; Malwa Vanaspati and Chemical Co. v. CIT Malwa Vanaspati and Chemical Co. v. CIT [1997] 225 [1997] 225 ITR 383 and CIT v. Ahmedabad Cotton 383 and CIT v. Ahmedabad Cotton Manufacturing Co. Ltd. Manufacturing Co. Ltd. [1994] 205 ITR 163. In all these cases, the court was concerned with an 205 ITR 163. In all these cases, the court was concerned with an 205 ITR 163. In all these cases, the court was concerned with an
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indirect tax payable by the assessee in the course of its business indirect tax payable by the assessee in the course of its business indirect tax payable by the assessee in the course of its business and admissible as business expenditure. Further liability for and admissible as business expenditure. Further liability for and admissible as business expenditure. Further liability for interest which had been incurred interest which had been incurred by the assessee therein was by the assessee therein was regarded as compensatory in nature and allowable as business regarded as compensatory in nature and allowable as business regarded as compensatory in nature and allowable as business expenditure. 16. The ratio of those cases is not applicable here. Income-tax is 16. The ratio of those cases is not applicable here. Income 16. The ratio of those cases is not applicable here. Income not allowable as business expenditure. The amount deducted as not allowable as business expenditure. The amount deducted as not allowable as business expenditure. The amount deducted as tax is not an item of ex tax is not an item of expenditure. The amount not deducted and penditure. The amount not deducted and remitted has the character of tax and has to be remitted to the remitted has the character of tax and has to be remitted to the remitted has the character of tax and has to be remitted to the State and cannot be utilised by the assessee for its own business. State and cannot be utilised by the assessee for its own business. State and cannot be utilised by the assessee for its own business. The Supreme Court in the case of Bharat Commerce and The Supreme Court in the case of Bharat Commerce and The Supreme Court in the case of Bharat Commerce and Industries [1998] 230 ITR 733, re Industries [1998] 230 ITR 733, rejected the argument advanced jected the argument advanced by the assessee that retention of money payable to the State as by the assessee that retention of money payable to the State as by the assessee that retention of money payable to the State as tax or income- tax would augment the capital of the assessee and tax would augment the capital of the assessee and tax would augment the capital of the assessee and the expenditure incurred, namely, interest paid for the period of the expenditure incurred, namely, interest paid for the period of the expenditure incurred, namely, interest paid for the period of such retention would assume char such retention would assume character of business expenditure. acter of business expenditure. The court held that an assessee could not possibly claim that it The court held that an assessee could not possibly claim that it The court held that an assessee could not possibly claim that it was borrowing from the State, the amounts payable by it as was borrowing from the State, the amounts payable by it as was borrowing from the State, the amounts payable by it as income-tax, and utilising the same as capital in its business, to tax, and utilising the same as capital in its business, to tax, and utilising the same as capital in its business, to contend that the interest paid for contend that the interest paid for the period of delay in payment of the period of delay in payment of tax amounted to a business expenditure". (emphasis supplied) tax amounted to a business expenditure". (emphasis supplied) tax amounted to a business expenditure". (emphasis supplied) 22. The decision cited by the ld. counsel for the assessee of 22. The decision cited by the ld. counsel for the assessee of 22. The decision cited by the ld. counsel for the assessee of Kolkata Bench of the Tribunal on the issue is contrary to the Kolkata Bench of the Tribunal on the issue is contrary to the Kolkata Bench of the Tribunal on the issue is contrary to the decision of the Hon'ble Madras High C decision of the Hon'ble Madras High Court. Though the decision of ourt. Though the decision of the Tribunal is later in point of time, judicial discipline demands the Tribunal is later in point of time, judicial discipline demands the Tribunal is later in point of time, judicial discipline demands that the decision of the Hon'ble Madras High Court is to be that the decision of the Hon'ble Madras High Court is to be that the decision of the Hon'ble Madras High Court is to be followed. It is also worthwhile to mention that the Kolkata Bench followed. It is also worthwhile to mention that the Kolkata Bench followed. It is also worthwhile to mention that the Kolkata Bench of Tribunal in the case of Naraya of Tribunal in the case of Narayani Ispat (P.) Ltd. (supra), which (supra), which was cited by the ld. counsel for the assessee, did not consider or was cited by the ld. counsel for the assessee, did not consider or was cited by the ld. counsel for the assessee, did not consider or did not have an occasion to consider the decision of the Hon'ble did not have an occasion to consider the decision of the Hon'ble did not have an occasion to consider the decision of the Hon'ble Madras High Court Page | 3 in the case Madras High Court Page | 3 in the case of Chennai Properties Chennai Properties and Investment Ltd. and Investment Ltd. (supra). In these circumstances, we follow (supra). In these circumstances, we follow the decision of the Hon'ble Madras High Court & uphold the order the decision of the Hon'ble Madras High Court & uphold the order the decision of the Hon'ble Madras High Court & uphold the order of the CIT(A) insofar as it relates to disallowance of interest on of the CIT(A) insofar as it relates to disallowance o of the CIT(A) insofar as it relates to disallowance o delayed remittance of tax deducted at source delayed remittance of tax deducted at source u/s. 201(1A) u/s. 201(1A) of the Act." 8. In view of this, we do not find any merit in the appeal of the 8. In view of this, we do not find any merit in the appeal of the 8. In view of this, we do not find any merit in the appeal of the assessee and hold that interest payment on late paymen assessee and hold that interest payment on late payment of tax at assessee and hold that interest payment on late paymen source is not eligible business expenditure for deduction and it is not source is not eligible business expenditure for deduction and it is not source is not eligible business expenditure for deduction and it is not compensatory in nature. compensatory in nature.
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Now we come to the various decisions cited by the assessee in the 9. Now we come to the various decisions cited by the assessee in the 9. Now we come to the various decisions cited by the assessee in the statement of facts laid down before us. The first decision that has been statement of facts laid down before us. The first decision that has been statement of facts laid down before us. The first decision that has been cited by the assessee is by the assessee is CIT versus ITC Ltd 3 38 ITR 598 wherein it 3 38 ITR 598 wherein it has been held that the payment of interest u/s 201 (1A) has been held that the payment of interest u/s 201 (1A) is not a penalty. Further, the ass Further, the assessee has also stated the decision of essee has also stated the decision of CIT versus Oriental insurance Co Ltd 315 ITR 102 (Karnataka) wherein insurance Co Ltd 315 ITR 102 (Karnataka) wherein insurance Co Ltd 315 ITR 102 (Karnataka) wherein also it has been stated that it is not a penalty. Another decision stated also it has been stated that it is not a penalty. Another decision stated is Bennett Coleman & Co Ltd versus ITO Bennett Coleman & Co Ltd versus ITO 157 ITR 812 which also 157 ITR 812 which also speaks that the interest chargeable u/s 201 (1A) is not penal in speaks that the interest chargeable is not penal in nature. All other decision also cited in the statement of facts are also nature. All other decision also cited in the stat ement of facts are also on the same line. However, here after considering all on the same line. However, here after considering all the above on the same line. However, here after considering all decision disallowance is confirmed for the reason that such payment disallowance is confirmed for the reason that such payment disallowance is confirmed for the reason that such payment is not business expenditure. Therefore it is not is not business expenditure. Therefore it is not allowable as deduction u/s 37 (1) u/s 37 (1) of the act as it is not wholly and exclusively of the act as it is not wholly and exclusively incurred for the purposes of the business. The lower authorities have incurred for the purposes of the business. The lower authorities have incurred for the purposes of the business. The lower authorities have merely stated that it is not an allowable expenditure. Further other merely stated that it is not an allowable expenditu re. Further other decisions cited by the assessee stating that above interest is decisions cited by the assessee stating that above interest is decisions cited by the assessee stating that above interest is compensatory in nature have already been dealt with by the compensatory in nature have already been dealt with by the compensatory in nature have already been dealt with by the honourable whether a High Court in the above decision. In view honourable whether a High Court in . In view of this none of the decision cited by the assessee in statement of facts none of the decision cited by the assessee in statement of facts none of the decision cited by the assessee in statement of facts supports the view of the assessee that above expenditure is supports the view of the assessee that above expenditure is supports the view of the assessee that above expenditure is allowable u/s 37 (1) u/s 37 (1) of the act. Even assuming meanwhile denying, of the act. Even assuming meanwhile denying, that above interest expenditure is compensatory in nature, it should be above interest expenditure is compensatory in nature, it should be above interest expenditure is compensatory in nature, it should be allowed as allowable expenditure. The conditions of the allowability of allowed as allowable expenditure. The conditions of the allowability of allowed as allowable expenditure. The conditions of the allowability of expenditure is laid down u/s 37 (1) of the income tax act which expenditure is laid down of the income tax act which speaks that any expenditure which is not a capital expenditure or speaks that any expenditure which is not a capital expenditure or speaks that any expenditure which is not a capital expenditure or personal expenses of the assessee which is laid out or expended personal expenses of the assessee which is laid out or expended personal expenses of the assessee which is laid out or expended wholly and exclusively for the purpose of the business shall be allowed wholly and exclusively for the purpose of the business shall be allowed wholly and exclusively for the purpose of the business shall be allowed in computing the income chargeable Under the head profits and gains in computing the income chargeable Under the head pro fits and gains of business or profession. Payment of interest on late payment of TDS of business or profession. Payment of interest on late payment of TDS of business or profession. Payment of interest on late payment of TDS cannot be considered as an expenditure led out or expended wholly cannot be considered as an expenditure led out or expended wholly cannot be considered as an expenditure led out or expended wholly and Page | 4 exclusively for the purpose of the business because late and Page | 4 exclusively for the purpose of the business because late and Page | 4 exclusively for the purpose of the business because late payment of TDS cannot be considered as part of the business of the payment of TDS cannot be considered as part of the business of the assessee. 10. In view of the above facts we hold that payment of interest on late 10. In view of the above facts we hold that payment of interest on late 10. In view of the above facts we hold that payment of interest on late deposit of tax deduction at source by the assessee leviable deposit of tax deduction at source by the assessee leviable u/s 201 deposit of tax deduction at source by the assessee leviable (1A) of the act is neit of the act is neither an expenditure only and exclusively incurred her an expenditure only and exclusively incurred for the purpose of the business and therefore same is not allowable as for the purpose of the business and therefore same is not allowable as for the purpose of the business and therefore same is not allowable as deduction u/s 37 (1) u/s 37 (1) of the act. In view of this, various grounds raised of the act. In view of this, various grounds raised by the assessee on this in the issue are dismissed. essee on this in the issue are dismissed.”
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9.3 The Hon’ble Madras High Court in CIT Vs. Chennai Properties & The Hon’ble Madras High Court in CIT Vs. Chennai Properties & The Hon’ble Madras High Court in CIT Vs. Chennai Properties & Investment Ltd. (1999) 239 ITR 435 (Mad.) has held that interest Investment Ltd. (1999) 239 ITR 435 (Mad.) has held that interest Investment Ltd. (1999) 239 ITR 435 (Mad.) has held that interest under section 201(1A) paid by the assessee does not assume the under section 201(1A) paid by the assessee does not assume the under section 201(1A) paid by the assessee does not assume the character of business expenditure and also cannot be regarded as character of business expenditure and also cannot be regarded as character of business expenditure and also cannot be regarded as compensatory payment. compensatory payment. The decision of Hon’ble Madras High Cour decision of Hon’ble Madras High Court has also been followed by various benches of has also been followed by various benches of Tribunal including Tribunal including, in Velankani Information Systems Limited Vs. DCIT [2018] com 599 Velankani Information Systems Limited Vs. DCIT [2018] com 599 Velankani Information Systems Limited Vs. DCIT [2018] com 599 (Bangalore- Trib.) Further, the Co Trib.) Further, the Co-ordinate Bench of ITAT Bangalore ordinate Bench of ITAT Bangalore in the case of Jindal Aluminimum Limited ITA No. 31/Bang/2019 in the case of Jindal Aluminimum Limited ITA No. 31/Bang in the case of Jindal Aluminimum Limited ITA No. 31/Bang in similar facts held held interest on TDS as ineligible interest on TDS as ineligible for business expenditure. Hence, we have no hesitation to hold that interest Hence, we have no hesitation to hold that interest Hence, we have no hesitation to hold that interest payment on late payment of TDS payment on late payment of TDS is neither compensatory in nature is neither compensatory in nature nor eligible as business expenditure for deduction business expenditure for deduction , therefore, the business expenditure for deduction same is not allowable as deduction u/s 37(1) of the Act. same is not allowable as deduction u/s 37(1) of the Act. same is not allowable as deduction u/s 37(1) of the Act. Accordingly, we uphold the we uphold the order of the Ld. CIT(A) on the issue order of the Ld. CIT(A) on the issue-in- dispute. The ground No. 3 of the appeal of the assessee is The ground No. 3 of the appeal of the assessee is The ground No. 3 of the appeal of the assessee is accordingly dismissed. accordingly dismissed.
assessee is partly allowed for 10. In the result, the appeal of the In the result, the appeal of the assessee is partly allowed for statistical purposes. statistical purposes.
Order pronounced in the open Court on nounced in the open Court on 20/12/2024. /12/2024. Sd/- - Sd/- Sd/ (RAJ KUMAR CHAUHAN) (RAJ KUMAR CHAUHAN (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 20/12/2024
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Rahul Sharma, Sr. P.S. Copy of the Order forwarded to forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.
BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai
