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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI A.MOHAN ALANKAMONY & SHRI DUVVURU RL REDDY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:-
This appeal by the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals)-13, Chennai dated 18.07.2017 in for the assessment year 2014-15 passed U/s.250(6) r.w.s. 143(3) of the Act.
The assessee has raised several grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in confirming the order of the Ld.AO who had disallowed the expenditure incurred towards penal interest amounting to Rs.74,03,247/- by holding that the expenditure was incurred for the period April 2009 to March 2011 which had crystalized during the previous year relevant to the assessment year 2012-13.
The brief facts of the case are that the assessee is a co- operative society engaged in the business of banking services, filed its return of income for the assessment year 2014-15 on 27.11.2014, admitting total income of Rs.2,99,95,590/-. The case was selected for scrutiny and notice U/s.143(2) of the Act was issued on 04.09.2015. Finally assessment order was passed U/s.143(3) of the Act on 26.12.2016 wherein the Ld.AO disallowed the expenditure incurred towards penal interest for non- maintenance of SLR on the ground that the liability had incurred for the period April 2009 to March 2011 and the same had crystalized during the previous year relevant to the assessment year 2012-13. While arriving at his decision the Ld.AO relied on the decisions of the Hon’ble Apex Court in the case Haji Vs. CIT reported in 224 ITR 591, Francis Vs. CIT reported in 236 ITR 308
CIT Vs. Bharat Carbon reported in 239 ITR 505 wherein the Hon’ble Apex Court had laid down the ratio that the disputed liability is allowable as deduction in the year in which the demand notice is issued though it pertains to the earlier year. On appeal, the Ld.CIT(A) confirmed the order of the Ld.AO by agreeing with the view of the Ld.AO.
Before us the Ld.AR submitted that though the Reserve Bank of India had levied penal interest on the assessee, as per Section 24(8) of the Banking Regulations Act, 1949 the Reserve Bank of India has powers to waive the interest if it finds that the assessee had sufficient cause for its failure to comply with the provisions of Section 24(2A)(a) of the Banking Regulations Act. The Ld.AR further argued by stating that the assessee had appealed before the RBI for waiver of interest and the final decision of the RBI was intimated to the assessee vide letter dated 28th January 2014 wherein the waiver of penal interest was denied, however time was granted for payment of the same in two annual installments. It was therefore pleaded that the disputed liability had crystalized only on 28th January 2014 i.e., during the previous year 2013-14 relevant to the assessment year 2014-15. With the above submission it was requested that the disallowance
Ld.AO for the relevant assessment year may be deleted. On the other hand the Ld.DR relied on the orders of the Ld.Revenue Authorities and argued in support of the same. The Ld.DR further argued stating that the levy of penal interest by the RBI is due to violation of the Banking Regulations Act and therefore it cannot be allowed as deduction.
We have heard the rival submissions and carefully perused the materials available on record. At the outset we must say that levy of penal interest by the RBI is not due to any offence prohibited by law. It is only an additional burden imposed on the assessee for non-compliance of maintaining adequate SLR. Therefore this argument advanced by the Ld.DR is devoid of merits. Further the Banking Regulations Act provides for waiver of the penal interest if the assessee has reasonable cause for such lapse. Moreover on perusing the case laws relied by the Ld.Revenue Authorites, we find that it is not applicable to the facts of the case present before us. In the case Bharat Carbon, the issue was with respect to the demand raised by the Excise Department with respect to levy of excise duty. There is no provision in the Act to waive excise duty if it is chargeable. Hence the expenditure towards excise duty crystalizes the moment it is Act. Similarly in the case Haji, the issue was with respect to sales tax composition fee and there is no provision in the relevant Act for waiving such sales tax composite fee if chargeable. Further the fact in the case of Francis was with respect to recognizing expenditure on passing accounting entries and therefore not relevant to the facts of the case before us. The issue in the case before us is with respect to the crystallization of the liability of penal interest levied for the shortfall in maintaining SLR during the period April 2009 to March 2011. As rightly mentioned earlier by the Ld.AR the RBI is vested with the power of waiving the interest if the assessee had reasonable cause for the shortfall in maintenance of SLR. Since the assessee was of the bonafide belief that it had reasonable cause for the shortfall in maintaining SLR it had requested the RBI to waive the penal interest which was subsequently denied by the RBI. Therefore it is obvious that the liability to incur the expenditure had crystalized only on 28th January 2014 relevant to the assessment year 2014-15 i.e., on the date of the letter of intimation by the RBI. For the above stated reason, we are of the view that the assessee will be entitled for claiming the deduction of Rs.74,03,247/- for the assessment year 2014-15, being the penal interest charged by the RBI for the shortfall in maintenance
SLR by the assessee which has crystalized only during that period. Therefore we hereby direct the Ld.AO to delete the addition of Rs.74,03,247/- made by him which was subsequently sustained by the Ld.CIT(A).
In the result the appeal of the assessee is allowed.
Order pronounced on the 09th May, 2018 at Chennai.