HITECH PLAST LTD,MUMBAI vs. DCIT (OSD) RG 8(1), MUMBAI

O R D E R

Per Sandeep Gosain, Judicial Member:

Hitech Plast Ltd 1. Ground No.1 :Disallowance of Interest on Taxes of Rs.5,27,541/-

1.1 The CJ.T.(Appeals)-16, Mumbai, erred in confirming the disallowance of interest expenditure of Rs.5,27,541/- being interest paid on late payment T.D.S.(Rs.9,815/-), Service tax (Rs.31,977/-), Income tax (Rs.1,90,948/-) and income tax penalty (Rs.2,94,801/-) ignoring the fact that the same is compensatory in nature and not penal in nature.

1.2 The said CIT(Appeals) also erred in not considering the judicial decisions allowing the interest paid on such statutory payments on the ground that the same are not penal in nature and therefore the same is allowable U/Sec. 37 (1).

Ground No :2 The appellant craves leave to add, amend, alter, modify, delete and/or change all or any of the above grounds on or before the date of hearing.

Hitech Plast Ltd Act at Rs. 6,30,32,502/-. Thereafter the case was selected for scrutiny and after serving statutory notice and seeking reply assessment u/s 143(3) was completed by the AO on 14.03.14 thereby making disallowances on several grounds.

Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee but sustained the disallowance of interest on taxes of Rs. 5,27,541/-. Now before us, the assessee has preferred the present appeal by raising the above grounds.

Ground No. 1 (1.1 & 1.2) 3. These ground raised by the assessee are inter connected and inter related and relates to challenging the order of Ld. CIT(A) in confirming the disallowance of interest on taxes, etc. therefore we thought it fit to dispose of the same by this common order.

4. Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised before Ld. CIT(A) and in this Hitech Plast Ltd respect, our attention was drawn towards para no. 4 of written submissions filed before Ld. CIT(A). It was also submitted that the interest expenditure incurred by the assessee is compensatory in nature and has relied upon the following judgments:-

2. CIT V/s Messee Dusseldorf India (P) Ltd. 129 TTJ 81 (Del)(URO

5. Harshad Shantilal Mehta V/s Custodian 231 ITR 871 (SC)

Hitech Plast Ltd Supreme Court in the case of Bharat Commerce & Industries Ltd. Vrs. CIT 230 ITR 733 (SC).

6. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 6 of its detailed order. The operative portion of the order of Ld. CIT(A) is contained in para no. 6.4.2 of its order and the same is reproduced below:-

6.4.2 During appellate proceedings a written submission was filed which find place in para 5 of this order. I have considered the written submission filed by the appellant and case laws relied upon in this regard. The case laws relied upon by the appellant are not directly on the issue involved. The facts of the cases cited by the appellant are different and not applicable in this case. Interest on late payment of TDS, income tax, service tax or penalty are definitely penal in nature

Hitech Plast Ltd and it is not an allowable expenditure also. The appeal of the appellant on this ground is dismissed and disallowance made by the A.O. is confirmed.

After hearing the arguments of both the parties and the judgments cited by both the parties as well as orders passed by revenue authorities, we find that the para material and the facts contained in those judgments are different, thus the judgments cited by Ld. AR are not applicable to the facts of the present case whereas the judgments cited by Ld. DR in the case Bharat Commerce & Industries Ltd. Vrs. CIT 230 ITR 733 (SC) is directly applicable to the facts of the present case wherein it has categorically been held that 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 income- tax and interest for delayed payment of Hitech Plast Ltd income-tax of advance tax arises on the computation of the profits and gains of business. The tax which is payble 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. It was further held as under:- We are concerned with the tax which was required to be paid after the ascertainment of the net income of the assessee for the relevant assessment year. 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 Income Tax 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 obligation under the I.T. Act. Which is calculated with reference to the tax on the income cannot be allowed as a deduction.

Hitech Plast Ltd Keeping in the view the principles laid down by the Supreme Court in the aforementioned case, we are of the view that the expenses incurred by the assessee cannot be considered an expenditure for the purpose of earning any income or profits as the tax which is payble is on the assessee’s income after the income is determined, therefore the interest paid on late payment of TDS, Service tax, income tax and income tax penalty cannot be considered as expenditure wholly and exclusively for the purpose of business.

No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, these grounds raised by the assessee stands dismissed.

Hitech Plast Ltd Ground No. 2. 7. This ground is general in nature, thus requires no specific adjudication.