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Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
Before: SH. R. K. PANDA & SMT. BEENA A. PILLAI
The present appeal has been filed by assessee against the order dated 19.08.2013 passed by Ld. CIT(A)-XII, New Delhi, for assessment year 2010-11 on the following grounds of appeal: 1. "The Ld. CIT (A) erred in law and on facts in deleting the disallowance of Rs. 1.95 crore made by the A.O u/s 40. (a)(ia) of the Income Tax Act, 1961 as the assessee defaulted in complying with the provisions of section 194A of the Income Tax Act." 2. "The Ld. CIT (A) erred in law and on facts deleting the disallowance of Rs. 47,629/- u/s 37. (1) of the Income Tax Act."
3. "The appellant craves to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal."
Brief facts of the case are as under: Assessee filed its return of income declaring a total income of Rs. 56,55,755/- on 10.09.2010. Return was processed under section 143(1) and subsequently selected for scrutiny. The assessee attended proceedings and filed all the relevant documents called for from time to time. During the year under consideration assessee had sold property situated at 12- Mangalam Palace, Rohini, New Delhi, for an amount of Rs.62,60,00,000/-.
During the assessment proceedings Ld. AO observed that assessee had made certain payment, on which TDS provisions applied. On further calling for details assessing officer observed that assessee had made payment to Arora Developers a sum of Rs.1,95,00,000/- without deducting any TDS. The assessee had submitted that an amount of Rs. 12 crores was paid to Mr. Subash Arora and others on account of settlement arrived as per final order passed by Hon’ble Delhi High Court dated 02.07.2009. Assessing officer held that excess payment has been made being in the nature of interest on which tax was to be deducted at source. He held that as per provisions of section 40 (a)(ia) of the Act no TDS has been deducted and expenditure from the cost of property was added to income in the hands of assessee.
Ld. AO also observed that assessee had made a payment of Rs. 47,629/- as interest for the month which was of penal nature. He, therefore, disallowed interest paid under section 37(1) of the Act.
Aggrieved by order passed by Ld. AO assessee preferred an appeal before Ld. CIT(A) who deleted the additions. 6. Aggrieved by the order of Ld. CIT (A), the revenue is in appeal before us now. Ground No. 1: 7. Ld. DR submitted that assessee has paid an amount of Rs. 1.95 crores over and above the figure of Rs. 10.05 crores, is in the nature of interest. She submitted that assessee should have deducted TDS on the same and therefore, assessing officer was right in making the addition. She submitted that assessee itself vide letter dated 02.01.2013 submitted that a sum of Rs. 12 crores was paid to Subash Arora and others on the basis of an oral agreement. She submitted that reason for making such payments has not been anywhere mentioned even in the deed of settlement. 8. On the contrary, Ld. AR submitted that settlement deed has been approved by Hon’ble Delhi High Court by way of a decree, wherein a figure of Rs. 12 crores was payable by assessee to Subash Arora and others. He submitted that presumption drawn by Ld. AO is without any basis and cannot be accepted on the facts of the case. Ld. AR submitted that nowhere in the settlement deed on decree passed by Hon’ble High Court approving settlement deed has it been mentioned that an amount is payable by assessee to Subash Arora and others by way of interest. 9. Ld.AR further submitted that entire payment of Rs. 12 crores has been made by assessee as a full and final payment which included reimbursement of various costs, damages etc. He placed reliance upon the decision of Honble Bombay High Court in the case of Madhusudan Srikrishna vs. Emkay Exports reported in (2010) 188 taxman 195. 10. We have perused submissions advanced by both sides in the light of records and judicial decisions placed before us. 11. It is observed that assessee had purchased a plot for an amount, which was financed by M/s Rupabh developers & M/s Arora developers. The said land has been taken for the construction of a hotel, to be facilitated to DDA for using it during Commonwealth Games. On April 2007 a conveyance deed was executed in favour of assessee by DDA accordingly. Thereafter, a dispute arose between assessee and owners of M/s Rupabh Developers and Arora Developers and these parties demanded their money back from assessee. Out of total liability, assessee refunded a sum of Rs. 10.90 crores to M/s Rupabh developers and M/s Arora developers, leaving behind a sum of Rs. 10.05 crores as balance payable. The dispute between assessee and these companies further aggravated, leading to protracted litigation. Finally under the guidance of Hon’ble Delhi High Court, the parties agreed to enter into settlement agreement, according to which assessee was to pay a sum of Rs. 12 crores to these associates. It has been submitted that nothing except the quantum of payment has been stated in the settlement agreement, which covered all damages and was a lump-sum payment that has been made. The settlement agreement was then presented before Hon’ble Delhi High Court based on which final decree was drawn up.
Ld. CIT (A) on these facts observed as under: Further I believe that once a decree is passed, it is a judgment and order of the court which culminates into final decree being passed which has to be discharged only on payment of the exact amount due under the said decree. The debtor, therefore, cannot, deduct tax at source since it is an order and direction of the court and, as such, would not be liable for penal consequences for non- deduction of the tax due. Defendants, therefore, in my view, are not entitled to withhold the payment on the pretext that it has to be deducted as tax at source. Defendants may, therefore, pay the said amount to the plaintiff and for that purpose they would not be liable for non-deduction of tax at source as that issue has to be decided by the Income – tax authorities and if tax is payable the same may be paid by the plaintiff. Thus, in the present case at the first it cannot be concluded that the amount of Rs. 1.95 crores paid by the appellant to its associates was in the nature of interest, secondly the appellant has paid the amount on the basis of decree issued by Delhi High Court and thus, had to tender the exact amount mentioned in the decree. Thus, provisions of section 194A and 40(a)(ia) will not apply to the facts of the case. The assessing officer is directed to delete the disallowance of Rs. 1.95 crores as the same is bad on the facts of the case and in law.
We do not find any infirmity in the above findings of Ld. CIT (A). It is further observed that Hon’ble Bombay High Court in the case of Madhusudan Srikrishna vs Emkay Exports (supra) has observed as under: The judgment debtor, therefore, cannot, in my view, deduct tax at sources since it is an order and direction of the court and as such, would not be liable for penal consequences for non-deduction of the tax due. Tax, if payable, can be decided by the Income-tax Officer after the amount is paid to the decree holder. Defendants, therefore, in my view, are not entitled to withhold the payment on the pretext that it has to be deducted as tax at source. Defendants may, therefore, pay the said amount to the plaintiff and for that purpose they would not be liable for non-deduction of tax at source as that issue has to be decided by the Income-tax authorities and if tax is payable the same may be paid by the plaintiff.
Respectfully following the same we hold that disallowance of Rs. 1.95 crores has been rightly deleted by Ld. CIT(A). Accordingly, ground raised
by revenue stands dismissed. Ground No. 2
15. This ground has been raised by revenue on account of Rs. 47, 629/-being deleted by Ld. CIT(A).
16. Ld. DR submitted that assessee had paid a sum of Rs.47, 629/- to its banker, which was in the nature of penalty, and not allowable under section 37(1) of the Act. She has submitted that assessing officer has rightly disallowed said amount. She placed here reliance on the orders passed by authorities below.
17. On the contrary, Ld. AR submitted that addition made by assessing officer is bad on facts and in law. It has been submitted that assessee was paying EMI’s on the loan taken from bank regularly. But due to paucity of some payments additional interest was levied on assessee by the bank. It has been submitted that said payment was truly in the nature of business expenditure, which cannot be considered as being disallowable under section 37(1) of the Act. He further submitted that explanation to section 37(1) cannot be invoked to the facts of the present case, as the additional interest paid is not against any offence nor it has been made for an action done by assessee which is prohibited under law. He submitted that use of word “penal” cannot mean payment made to bank as payment against some offence. He submitted that such payments are called late payment penalty. He placed reliance upon decision of Hon’ble Gujarat High Court in the case of CIT versus Gujarat State Financial Corporation reported in (2013) 216 taxman 183.
18. We have perused submissions advanced by both sides in the light of records placed before us and decisions relied upon by them. On perusal of decisions relied upon by Ld. AR, facts therein are very much identical to present facts of assessee and Hon’ble Court held as under: The penal interest in the nature of finance charges for late payment of installment/amount could not be equated with penalty imposable due to some infringement of law. The use of the word "penal interest" as a nomenclature does not mean any penalty for infringement of law. We find that the observations of the CIT(A) that such late payment is against the public policy and amount paid by the same could not be allowed as deductible expenses under Section 37(1 A) in view of Explanation to section 37(1), is not sustainable in law. The interest charged at the rate of 2% per month for delayed payment of installment by the assessee-company could not be equated with payment made against the public policy or payment made in contravention of law. We are of the considered view that the interest paid by the assessee on delayed payment of installment to the State of Gujarat is in the nature of financial charged for late payment of installment. In view of the matter, we hold that no case of disallowance by holding the payment of penal interest as against the public policy could be made out by the department, and accordingly, the issue is decided in favour of the assessee and the grounds of the appeal of the assessee are allowed.”