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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
Before: Shri M. Balaganesh & Shri S.S. Viswanethra Ravi
ORDER Shri S.S.Viswanethra Ravi, JM:
This appeal by the Assessee is directed against the order of the Commissioner of Income Tax (Appeals), 18, Kolkata dt. 29-07-2016 for the A.Y 2011-12.
The ld.AR submits that the assessee intends not to press ground no. 3 raised in the appeal and urged to dismiss the same. Accordingly, ground no. 3 is dismissed as not pressed.
Ground no. 1 is relating to confirmation of disallowance of Rs.4,45,975/- made on account of foreign travel expenditure.
The AO found that the assessee claimed Rs.4,45,975/- foreign travel expenses as deduction on account of promoters visit to South Africa. For non submission of any evidence in respect of business exigency, the AO disallowed an amount of Rs.4,45,975/- and added the same to the total income of assessee.
The CIT-A confirmed the above addition made by the AO by observing that the assessee failed to furnish any details before AO as well as before him in the first appellate stage and confirmed the impugned addition made by the AO on this count.
Heard both the parties and perused the material on record. It is noticed that the assessee failed to furnish any details of expenditure nor explained business exigency to visit South Africa before both the authorities below. It is noticed from the order of CIT- A that he specifically asked to provide supporting evidence regarding the urgency of foreign travel. We find no details were filed except making a submission that the visit was to negotiate with supplier in South Africa for purchase of new machinery. We find no such evidence is before us also. Relevant portion of finding of the AO & CIT-A are reproduced herein below:-
A.O’s order:
“6. Further it is found that assessee debited Rs. 4,45,975/- as foreign travel expenditure on account of promoters visit to South Africa. However, the company did not enter into any business transaction with any person in South Africa. Assessee company is the business of manufacturing biscuit and company failed to produce any business exigency of visiting South Africa. Therefore, Rs.4,45,975/- is disallowed as not related to business and added back to total income of assessee.”
CIT-A’s order:
3.6 AO had disallowed Rs.4,45,975/-, which was claimed as foreign travel expenses of the promoters to South Africa. In the appeal proceedings assessee has submitted that the visit was to negotiate with suppliers of South Africa for purchase of new machinery. No further details are provided in this regard. In appeal proceedings appellant was specifically asked to provide supporting evidences regarding urgency of foreign trip and its connection with business. However, assessee has failed to furnish any such details. Under the circumstances, it is held that expenses on foreign trip, as above, was not for business purposes and addition of Rs.4,45,975/- is confirmed. “
In view of above, we are of the view that the CIT-A was correct in confirming the impugned disallowance of Rs. 4,45,975/- made by the AO and it is justified. We uphold the same. Therefore, ground no. 1 raised by the assessee is dismissed.
Ground no. 2 is relating to confirmation of disallowance of Rs. 1230/- made by the AO on account of interest paid on late deposit of TDS.
On perusal of P & L account, the AO found that the assessee claimed a deduction of Rs.1230/- towards payment of interest on TDS. According to AO, it is not an allowable deduction and disallowed and added the same to total income of assessee. This action of AO was confirmed by the CIT-A in the first appellate proceedings.
Before us the ld.AR submits that the issue in hand is covered by the order dt. 30-08-2017 of the Co-ordinate bench of this Tribunal, Kolkata in the case of M/s. Narayani Ispat Pvt. Ltd, for the A.Y 2010-11, copy of the same is on record and referred to page-5 of said order and argued that the interest expenses paid by the assessee on delayed deposit of TDS are allowable expenditure u/s. 37(1) of the Act and the said payment is not in the nature of penalty and prayed to allow ground no. 2 raised by the assessee in the appeal.
On the other hand, the ld.DR relied on the orders of the AO and CIT-A on this issue.
Heard both the parties and perused the record including the order dt. 30-08-2017 as relied on by the assessee before us. We find that the issue in hand is covered in favour of assessee by the said order dt. 30-08-2017 of this Tribunal in the case of supra, which held that interest paid on delayed deposit of TDS is an allowable deduction by placing reliance on the decisions of Hon’ble Supreme Court in the case of Bharat Commerce Industries Ltd Vs. CIT reported in (1998) 230 ITR 733 (SC). The Co-ordinate Bench also referred to the decision of Hon’ble Supreme Court in the case of Lachmandas Mathura Vs. CIT reported in 254 ITR 799 (SC), which held interest paid on late deposit of sales tax is an allowable deduction U/Sec. 37(1) of the Act. Relevant portion of order dt. 30- 08-2017 is reproduced herein below for better understanding:-
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 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.
In view of above, we are of the view that the CIT-A was not correct in confirming the impugned disallowance of Rs.1230/- made by the AO on account of interest on late deposit of TDS. The order of the CIT-A on this issue is set aside and the AO is directed to allow the same. Ground no. 2 raised by the assessee is allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 06-04-2018