ACIT 14 (1)(2), MUMBAI, MUMBAI vs. SHRIRAM CHITS MAHARASTRA LIMITED, MUMBAI

2.1 The Ld. Departmental Representative (DR) on the other hand The Ld. Departmental Representative (DR) on the other hand The Ld. Departmental Representative (DR) on the other hand relied on the order of the Ass relied on the order of the Assessing Officer.

2.2 As far as ground No. 1 of the appeal relating to addition of As far as ground No. 1 of the appeal relating to addition of As far as ground No. 1 of the appeal relating to addition of Rs.5,23,55,080/- on account of foremen commission income is on account of foremen commission income is on account of foremen commission income is concerned, the relevant finding of the Ld. CIT(A) is reproduced as concerned, the relevant finding of the Ld. CIT(A) is reproduced as concerned, the relevant finding of the Ld. CIT(A) is reproduced as under:

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“3.2 Finding and Decision of the Adjudic 3.2 Finding and Decision of the Adjudicating Authority: I have gone ating Authority: I have gone through the facts of the case, submission of the appellant and material through the facts of the case, submission of the appellant and material through the facts of the case, submission of the appellant and material available on record. I find that addition on account of commission income available on record. I find that addition on account of commission income available on record. I find that addition on account of commission income of Foreman has been a recurring issue on which additions were made by of Foreman has been a recurring issue on which additions were made by of Foreman has been a recurring issue on which additions were made by the Assessing Authority in earlier years and were thereafter, adjudicated ng Authority in earlier years and were thereafter, adjudicated ng Authority in earlier years and were thereafter, adjudicated by Commissioner (Appeals) and Hon'ble by Commissioner (Appeals) and Hon'ble jurisdictional Tribunal. The jurisdictional Tribunal. The Hon'ble Hon'ble Hon'ble ITAT, ITAT, ITAT, Mumbai Mumbai Mumbai had had had considered considered considered this this this issue issue issue in in in ITA ITA ITA No. No. No. 1789/Mum/2015 dated 17.03.2017 for AY 2010 1789/Mum/2015 dated 17.03.2017 for AY 2010-11 and had given the 11 and had given the following findings for deleting the addition made on account of difference owing findings for deleting the addition made on account of difference owing findings for deleting the addition made on account of difference between the Foreman commission receivable and the Foreman commission between the Foreman commission receivable and the Foreman commission between the Foreman commission receivable and the Foreman commission actually received: actually received: " 10. We have heard the counsel of both the parties and we have " 10. We have heard the counsel of both the parties and we have " 10. We have heard the counsel of both the parties and we have also perused the material placed also perused the material placed on record as well as the orders on record as well as the orders passed by the revenue authorities. Before we decide the merits of passed by the revenue authorities. Before we decide the merits of passed by the revenue authorities. Before we decide the merits of the case it is necessary to evaluate the orders passed by Ld. the case it is necessary to evaluate the orders passed by Ld. the case it is necessary to evaluate the orders passed by Ld. CIT(A). The operative portion is reproduced below: CIT(A). The operative portion is reproduced below:- "I find that the appellant earns a commissio "I find that the appellant earns a commission of 5% on the total chit n of 5% on the total chit fund collection. Such, chit schemesare fund collection. Such, chit schemesare-normally-of-30. months to 50 30. months to 50 months duration. Therefore, the said commission of 5% is spread months duration. Therefore, the said commission of 5% is spread months duration. Therefore, the said commission of 5% is spread over a period of more than 2 to 5 years. It is also seen that the over a period of more than 2 to 5 years. It is also seen that the over a period of more than 2 to 5 years. It is also seen that the assessee earns commission on a m assessee earns commission on a month to month basis on the onth to month basis on the monthly collection made and on the successful bidding by the monthly collection made and on the successful bidding by the monthly collection made and on the successful bidding by the subscribers. However, the agents are paid a commission of 1% of subscribers. However, the agents are paid a commission of 1% of subscribers. However, the agents are paid a commission of 1% of the total chit value, in respect of each subscriber enlisted by him the total chit value, in respect of each subscriber enlisted by him the total chit value, in respect of each subscriber enlisted by him provided such subscriber pays at lea provided such subscriber pays at least four months instalment, st four months instalment, immediately on receipt of four such instalment. Thus there is no immediately on receipt of four such instalment. Thus there is no immediately on receipt of four such instalment. Thus there is no definite co definite co-relation between the foreman commission earned and relation between the foreman commission earned and the agency commission paid. The appellant also may have to make the agency commission paid. The appellant also may have to make the agency commission paid. The appellant also may have to make additional expenditure on failed chit additional expenditure on failed chit collections. Therefore, the collections. Therefore, the addition made by the AO in computing the income of Shriram Chits addition made by the AO in computing the income of Shriram Chits addition made by the AO in computing the income of Shriram Chits Maharashtra Ltd. the appellant by applying 5 times of the payment Maharashtra Ltd. the appellant by applying 5 times of the payment Maharashtra Ltd. the appellant by applying 5 times of the payment of commission to the agents is not based on any objective yard of commission to the agents is not based on any objective yard of commission to the agents is not based on any objective yard stick. In view of the above, the stick. In view of the above, the addition of Rs.4,72,17,435/ addition of Rs.4,72,17,435/- made by the AO is deleted." by the AO is deleted." After analyzing the aforementioned order passed by Ld. CIT(A) and After analyzing the aforementioned order passed by Ld. CIT(A) and After analyzing the aforementioned order passed by Ld. CIT(A) and after hearing the arguments of both the parties, we find that the after hearing the arguments of both the parties, we find that the after hearing the arguments of both the parties, we find that the CIT(A) has taken into consideration that the assessee earned CIT(A) has taken into consideration that the assessee earned CIT(A) has taken into consideration that the assessee earned commission of 5% on the total chit fund collection. The said commission of 5% on the total chit fund collection. The said commission of 5% on the total chit fund collection. The said commission is spread over the total period of scheme and in this mmission is spread over the total period of scheme and in this mmission is spread over the total period of scheme and in this way the assessee earns commission on a month to month basis on way the assessee earns commission on a month to month basis on way the assessee earns commission on a month to month basis on the monthly collection made and on the successful biding by the the monthly collection made and on the successful biding by the the monthly collection made and on the successful biding by the subscribers. As per the facts, the agents are paid a commission of subscribers. As per the facts, the agents are paid a commission of subscribers. As per the facts, the agents are paid a commission of 1% of the total chit fund value in respect of each subscriber enlisted 1% of the total chit fund value in respect of each subscriber enlisted 1% of the total chit fund value in respect of each subscriber enlisted by him provided such subscribers pays at least 4 months by him provided such subscribers pays at least 4 months by him provided such subscribers pays at least 4 months installment, immediately on receipt of 4 such installments and in installment, immediately on receipt of 4 such installments and in installment, immediately on receipt of 4 such installments and in this way there is no definite co this way there is no definite co-relation between the foremen relation between the foremen commission earned and the agency commission paid. After commission earned and the agency commission paid. After commission earned and the agency commission paid. After appreciating the facts, the Ld. CIT(A) had rightly decided that the appreciating the facts, the Ld. CIT(A) had rightly decided that the appreciating the facts, the Ld. CIT(A) had rightly decided that the addition made by the AO in computing the income of the assessee addition made by the AO in computing the income of the assessee addition made by the AO in computing the income of the assessee

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by applying five times of the payment of the commission to the by applying five times of the payment of the commission to the by applying five times of the payment of the commission to the agents is not based on any objective yardsticks, therefore deleted s is not based on any objective yardsticks, therefore deleted s is not based on any objective yardsticks, therefore deleted the said additions. We have also noticed that the Ld. CIT(A) while the said additions. We have also noticed that the Ld. CIT(A) while the said additions. We have also noticed that the Ld. CIT(A) while deciding this issue had also taken into consideration the deciding this issue had also taken into consideration the deciding this issue had also taken into consideration the submission made by assessee which are contained in para no. 4 submission made by assessee which are contained in para no. 4 submission made by assessee which are contained in para no. 4 and als and also the findings of AO which are contained in para No .3 of o the findings of AO which are contained in para No .3 of CIT(A)’s order. CIT(A)’s order. Apart from the above, the Ld. DR appearing for the applicant has Apart from the above, the Ld. DR appearing for the applicant has Apart from the above, the Ld. DR appearing for the applicant has also not placed on record any new facts or contrary judgments of also not placed on record any new facts or contrary judgments of also not placed on record any new facts or contrary judgments of higher courts before us in order to controvert or re higher courts before us in order to controvert or rebut the findings but the findings recorded by learned CIT(A), and therefore, there are no reasons for recorded by learned CIT(A), and therefore, there are no reasons for recorded by learned CIT(A), and therefore, there are no reasons for us to deviate from or interfere into the well us to deviate from or interfere into the well-reasoned findings reasoned findings recorded by the Ld. CIT(A). Therefore, after hearing both the parties recorded by the Ld. CIT(A). Therefore, after hearing both the parties recorded by the Ld. CIT(A). Therefore, after hearing both the parties and analyzing the impugned order, we and analyzing the impugned order, we are of the considered view are of the considered view that the findings so recorded by the Ld. CIT(A) are judicious and that the findings so recorded by the Ld. CIT(A) are judicious and that the findings so recorded by the Ld. CIT(A) are judicious and well-reasoned. Accordingly, we uphold the same and dismiss this reasoned. Accordingly, we uphold the same and dismiss this reasoned. Accordingly, we uphold the same and dismiss this ground of appeal filed by revenue." ground of appeal filed by revenue." This decision of the co This decision of the co-ordinate bench was followed subsequentl ordinate bench was followed subsequently by the Hon'ble ITAT in ITA No. 3639/Mum/2016 dated 18.01.2018 (AY 2011 Hon'ble ITAT in ITA No. 3639/Mum/2016 dated 18.01.2018 (AY 2011 Hon'ble ITAT in ITA No. 3639/Mum/2016 dated 18.01.2018 (AY 2011-12), ITA No. 947/Mum/2017 (AY 2013 ITA No. 947/Mum/2017 (AY 2013-14) & ITA No. 729/M/2023 dated 14) & ITA No. 729/M/2023 dated 31.05.2023 (AY 2014 31.05.2023 (AY 2014-15): Further, to what has been stated by the higher 15): Further, to what has been stated by the higher Judiciary, I would also like to add that Asse Judiciary, I would also like to add that Assessing Authority has also failed ssing Authority has also failed to substantiate/establish that Foreman commission income over and to substantiate/establish that Foreman commission income over and to substantiate/establish that Foreman commission income over and above of what is disclosed in the regular books of accounts was also above of what is disclosed in the regular books of accounts was also above of what is disclosed in the regular books of accounts was also received by the appellant. Nor any discrepancy in the books of accounts received by the appellant. Nor any discrepancy in the books of accounts received by the appellant. Nor any discrepancy in the books of accounts meriting possible meriting possible action under section 145(3) of the Act has been brought action under section 145(3) of the Act has been brought into consideration. Therefore, as there is no change in factual position of into consideration. Therefore, as there is no change in factual position of into consideration. Therefore, as there is no change in factual position of the impugned addition, and additions suffers from deficiencies pointed the impugned addition, and additions suffers from deficiencies pointed the impugned addition, and additions suffers from deficiencies pointed supra, respectfully following the decisions of the h supra, respectfully following the decisions of the highest fact finding ighest fact finding authority on this issue, the addition of Rs. 5,23,55,080/ authority on this issue, the addition of Rs. 5,23,55,080/- - on account of Foreman commission income is hereby deleted. Accordingly, this ground is Foreman commission income is hereby deleted. Accordingly, this ground is Foreman commission income is hereby deleted. Accordingly, this ground is treated as Allowed. treated as Allowed.” 2.3 Since, the Ld. CIT(A) has followed binding precedent on the Since, the Ld. CIT(A) has followed binding precedent on the Since, the Ld. CIT(A) has followed binding precedent on the issue in dispute in the case of assessee itself, in the case of assessee itself, therefore, we do not therefore, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in find any infirmity in the order of the Ld. CIT(A) on the issue in find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and accordingly dispute and accordingly, we uphold the same. The ground No. 1 of we uphold the same. The ground No. 1 of the appeal of the Revenue is accordingly dismissed. the appeal of the Revenue is accordingly dismissed.

2.4 The ground No. 2 of the appeal of the Revenue is concerned ground No. 2 of the appeal of the Revenue is concerned ground No. 2 of the appeal of the Revenue is concerned with interest incurred for delayed payment of service tax of with interest incurred for delayed payment of service tax of with interest incurred for delayed payment of service tax of

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Rs.31,080/-, which has been allowed by the Ld. CIT(A). The which has been allowed by the Ld. CIT(A). The which has been allowed by the Ld. CIT(A). The relevant finding of the Ld. CIT(A) is reproduced as under: relevant finding of the Ld. CIT(A) is reproduced as under: relevant finding of the Ld. CIT(A) is reproduced as under:

“4.2 I have gone throu 4.2 I have gone through the facts of the case, submission of the appellant, gh the facts of the case, submission of the appellant, assessment order and material available on record. While appellant has assessment order and material available on record. While appellant has assessment order and material available on record. While appellant has furnished a number of case furnished a number of case-laws which have held that such interest laws which have held that such interest payments, being compensatory in nature, become eligible for cla payments, being compensatory in nature, become eligible for cla payments, being compensatory in nature, become eligible for claim as an allowable business expenditure under section 37(1) of the Act, in some of allowable business expenditure under section 37(1) of the Act, in some of allowable business expenditure under section 37(1) of the Act, in some of the recent judgments, Hon'ble Tribunal have given contrary judgments by the recent judgments, Hon'ble Tribunal have given contrary judgments by the recent judgments, Hon'ble Tribunal have given contrary judgments by further specifically examining the nature of the delayed statutory interest further specifically examining the nature of the delayed statutory interest further specifically examining the nature of the delayed statutory interest payment in the context of payment in the context of specific provisions of the Income-tax Act, thereby tax Act, thereby distinguishing with the available case distinguishing with the available case-laws on the subject. In this context, I laws on the subject. In this context, I would like to rely upon decision of Hon'ble Delhi ITAT in the case of would like to rely upon decision of Hon'ble Delhi ITAT in the case of would like to rely upon decision of Hon'ble Delhi ITAT in the case of Universal Energies Pvt. Ltd. dated 26.07.2022 in ITA No Universal Energies Pvt. Ltd. dated 26.07.2022 in ITA No. 2761/Del/2018. . 2761/Del/2018. The relevant portion of the order is extracted as under: The relevant portion of the order is extracted as under: 4. We have considered the order of the AO and facts on 4. We have considered the order of the AO and facts on 4. We have considered the order of the AO and facts on records and find that the assessee has submitted copy of ledger and find that the assessee has submitted copy of ledger and find that the assessee has submitted copy of ledger account of interest on TDS is not allowable expenses as per IT interest on TDS is not allowable expenses as per IT interest on TDS is not allowable expenses as per IT Act, 1961. The assessee itself also agreed that interest on TDS assessee itself also agreed that interest on TDS is not allowable is not allowable expenses, therefore, the AO disallowed the expenses, therefore, the AO disallowed the expenses of interest on expenses of interest on TDS of Rs.9,70,248/ TDS of Rs.9,70,248/-. Interest on TDS is not an allowable is not an allowable expenditure. In this case the assessee itself expenditure. In this case the assessee itself agre agreed for the assessment before the AO and this fact is not assessment before the AO and this fact is not disputed by the ld. disputed by the ld. AR in the appellate proceeding. It is AR in the appellate proceeding. It is undisputed law that income undisputed law that income tax inputs interest, penalty also tax inputs interest, penalty also and the same is not allowable as and the same is not allowable as per provisions of Section per provisions of Section 40(a)(ii) of the Act. Notwithstanding the Notwithstanding the contentions of the contentions of the assessee before the revenue authorities, we have assessee before the revenue authorities, we have examined the examined the issue of allowability as per the provisions of Income issue of allowability as per the provisions of Income Tax Tax Act Act and and in in the the background background of the various judicial of the various judicial pronouncements. pronouncements. 5. Sec. 201(1A) of the Income 5. Sec. 201(1A) of the Income-tax Act mandates Assessee to tax Act mandates Assessee to pay simple interest @ 1.5% per month or part of the month in simple interest @ 1.5% per month or part of the month in simple interest @ 1.5% per month or part of the month in case of delay in remittance of TDS amount deducted, to the delay in remittance of TDS amount deducted, to the treasury of the Central Government. The pertinent question Central Government. The pertinent question arises in the instant arises in the instant appeal is whether the inte appeal is whether the interest paid on late payment of TDS after payment of TDS after deduction can be claimed as expenditure deduction can be claimed as expenditure for determining the for determining the taxable income. taxable income. 6. For claiming an expenditure and arriving at the taxable 6. For claiming an expenditure and arriving at the taxable 6. For claiming an expenditure and arriving at the taxable income, the I.T. Act, 1961 fundamentally stipulates twin the I.T. Act, 1961 fundamentally stipulates twin conditions viz. allowance allowance of expenditure as per Sec.30 to 37 of the Act and non the Act and non- allowable expenditure as per section 40, 43B. allowable expenditure as per section 40, 43B. The same are applicable for claiming the interest paid on late applicable for claiming the interest paid on late remittance of TDS. remittance of TDS. 7. Interest as defined in section 2(28A) of the Act means interest 7. Interest as defined in section 2(28A) of the Act means interest 7. Interest as defined in section 2(28A) of the Act means interest payable in any manner in respect of any moneys borrowed or debt e in any manner in respect of any moneys borrowed or debt e in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or incurred (including a deposit, claim or other similar right or incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect obligation) and includes any service fee or other charge in respect obligation) and includes any service fee or other charge in respect

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of the moneys borrowed or debt incurred or in respect of any credit of the moneys borrowed or debt incurred or in respect of any credit of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. Hence, Section 36(1)(iii) of the facility which has not been utilized. Hence, Section 36(1)(iii) of the facility which has not been utilized. Hence, Section 36(1)(iii) of the Act allows a deduction for interest paid on capital borrowed while Act allows a deduction for interest paid on capital borrowed while Act allows a deduction for interest paid on capital borrowed while computing the business income of the taxpayer. It provides computing the business income of the taxpayer. It provides computing the business income of the taxpayer. It provides deduction of the interest paid in respect of capital borro deduction of the interest paid in respect of capital borro deduction of the interest paid in respect of capital borrowed for the purpose of the business or profession. purpose of the business or profession. 8. In the case of K.M.S. Lakshmanier And Sons vs. CIT 1953 AIR 8. In the case of K.M.S. Lakshmanier And Sons vs. CIT 1953 AIR 8. In the case of K.M.S. Lakshmanier And Sons vs. CIT 1953 AIR 145:1953 SCR 1057 (SC) it was held that the expression “borrowed 145:1953 SCR 1057 (SC) it was held that the expression “borrowed 145:1953 SCR 1057 (SC) it was held that the expression “borrowed money” means real borrowing or real lending. It must be construed money” means real borrowing or real lending. It must be construed money” means real borrowing or real lending. It must be construed in its natu in its natural and ordinary meaning and implies a real borrowing ral and ordinary meaning and implies a real borrowing and real lending. It requires the existence of a borrower and a and real lending. It requires the existence of a borrower and a and real lending. It requires the existence of a borrower and a lender and accordingly there must be a real borrowing. lender and accordingly there must be a real borrowing. lender and accordingly there must be a real borrowing. 9. Unlike section 2(28A), clause (iii) of section 36(1) does not use the 9. Unlike section 2(28A), clause (iii) of section 36(1) does not use the 9. Unlike section 2(28A), clause (iii) of section 36(1) does not use the term ‘debt term ‘debt incurred’. Hence, section 2(28A) defines ‘interest’ in a incurred’. Hence, section 2(28A) defines ‘interest’ in a wider sense whereas Section 36(1)(iii) has used it in a restrictive wider sense whereas Section 36(1)(iii) has used it in a restrictive wider sense whereas Section 36(1)(iii) has used it in a restrictive manner. Therefore, it may be concluded that there must be a loan manner. Therefore, it may be concluded that there must be a loan manner. Therefore, it may be concluded that there must be a loan on which interest is paid for claiming allowance u/s 36(1)(iii) o on which interest is paid for claiming allowance u/s 36(1)(iii) o on which interest is paid for claiming allowance u/s 36(1)(iii) of the Act. Existence of lender and borrower are must in case of a loan Act. Existence of lender and borrower are must in case of a loan Act. Existence of lender and borrower are must in case of a loan transaction. Hence, it can be safely concluded that non transaction. Hence, it can be safely concluded that non transaction. Hence, it can be safely concluded that non-payment of taxes does not amount to the borrowing of capital from the taxes does not amount to the borrowing of capital from the taxes does not amount to the borrowing of capital from the Government and hence interest paid for delayed deposit of t Government and hence interest paid for delayed deposit of t Government and hence interest paid for delayed deposit of taxes is not covered under section 36(1)(iii) of the Act. Section 37 is a not covered under section 36(1)(iii) of the Act. Section 37 is a not covered under section 36(1)(iii) of the Act. Section 37 is a residuary section which allows business expenditure in computing residuary section which allows business expenditure in computing residuary section which allows business expenditure in computing the taxable business income of an Assessee. Expenses allowed as the taxable business income of an Assessee. Expenses allowed as the taxable business income of an Assessee. Expenses allowed as deductions against Profits and Gains of Business or Pr deductions against Profits and Gains of Business or Pr deductions against Profits and Gains of Business or Profession are covered from Section 30 to 36 of the Act. Section 37(1) provides that covered from Section 30 to 36 of the Act. Section 37(1) provides that covered from Section 30 to 36 of the Act. Section 37(1) provides that any expenditure incurred (except expenditure described in sections any expenditure incurred (except expenditure described in sections any expenditure incurred (except expenditure described in sections 30 to 36, capital expenditure or personal expenses of the 30 to 36, capital expenditure or personal expenses of the 30 to 36, capital expenditure or personal expenses of the assessee), wholly and exclusively for the purpos assessee), wholly and exclusively for the purposes of the business es of the business or profession shall be allowed in computing the income chargeable or profession shall be allowed in computing the income chargeable or profession shall be allowed in computing the income chargeable under the head, “Profits and Gains of Business or Profession”. under the head, “Profits and Gains of Business or Profession”. under the head, “Profits and Gains of Business or Profession”. Interest on late payment of TDS is not covered under Section 30 Interest on late payment of TDS is not covered under Section 30 Interest on late payment of TDS is not covered under Section 30-36 of the Act and thus qualifies for conside of the Act and thus qualifies for consideration u/s 37. It is neither ration u/s 37. It is neither capital expenditure nor personal expenditure of the Assessee. capital expenditure nor personal expenditure of the Assessee. capital expenditure nor personal expenditure of the Assessee. Further, Courts have time and again held that interest expenses on Further, Courts have time and again held that interest expenses on Further, Courts have time and again held that interest expenses on late payment of taxes which are compensatory in nature should be late payment of taxes which are compensatory in nature should be late payment of taxes which are compensatory in nature should be treated as expended wholly and ex treated as expended wholly and exclusively for the purposes of the clusively for the purposes of the business or profession since responsibility of payment of taxes business or profession since responsibility of payment of taxes business or profession since responsibility of payment of taxes including deduction and remittance of TDS is part and parcel of the including deduction and remittance of TDS is part and parcel of the including deduction and remittance of TDS is part and parcel of the business operations and the assessee has no right to utilize such business operations and the assessee has no right to utilize such business operations and the assessee has no right to utilize such monies collected from ot monies collected from others on behalf of the government. hers on behalf of the government. 10. We have also gone through the Apex Court observations in this 10. We have also gone through the Apex Court observations in this 10. We have also gone through the Apex Court observations in this regard in the case of Lachmandas Mathura Vs. CIT reported in 254 regard in the case of Lachmandas Mathura Vs. CIT reported in 254 regard in the case of Lachmandas Mathura Vs. CIT reported in 254 ITR 799 are as follows: ITR 799 are as follows: “The High Court has proceeded on the basis that the “The High Court has proceeded on the basis that the interest on arrears of sales tax is penal in nature and has rears of sales tax is penal in nature and has rejected the contention of the assessee that it is rejected the contention of the assessee that it is compensatory in nature. In taking the said view the High compensatory in nature. In taking the said view the High

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Court has placed reliance on its Full Bench’s decision in Court has placed reliance on its Full Bench’s decision in Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR 387 (All.) 16 ITR 387 (All.) The learned counsel appearing for the appellant The learned counsel appearing for the appellant-assessee states that the said judgment of the Full Bench has been states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni reversed by the larger Bench of the High Court in Triveni Engg. Works Ltd. v. CIT [1983] 144 ITR 732 (All.) (FB), Engg. Works Ltd. v. CIT [1983] 144 ITR 732 (All.) (FB), wherein it has been held that interest on arrears of tax is has been held that interest on arrears of tax is compensatory in nature and not penal. This question has compensatory in nature and not penal. This question has also been considered by this Court in Civil Appeal No. 830 also been considered by this Court in Civil Appeal No. 830 of 1979 titled Saraya Sugar Mills (P.) Ltd. v. CIT decided on 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 e matter, the appeal is allowed and question Nos. 1 and 2 are answered in favour of the and question Nos. 1 and 2 are answered in favour of the assessee and against the revenue.” 11. The payment of interest takes colour from the nature of the levy 11. The payment of interest takes colour from the nature of the levy 11. The payment of interest takes colour from the nature of the levy with reference to which such interest is paid and the tax requir with reference to which such interest is paid and the tax requir with reference to which such interest is paid and the tax required to be but not paid in time, which rendered the assessee liable for to be but not paid in time, which rendered the assessee liable for to be but not paid in time, which rendered the assessee liable for payment of interest was in the nature of a direct tax and similar to payment of interest was in the nature of a direct tax and similar to payment of interest was in the nature of a direct tax and similar to the income the income-tax payable under the Income-tax Act. The interest paid tax Act. The interest paid under Section 201(1A) of the Act, therefore, would under Section 201(1A) of the Act, therefore, would not assume the not assume the character of business expenditure and cannot be regarded as a character of business expenditure and cannot be regarded as a character of business expenditure and cannot be regarded as a compensatory payment. compensatory payment. 12. The Income Tax Appellate Tribunal (ITAT), Delhi Bench in the 12. The Income Tax Appellate Tribunal (ITAT), Delhi Bench in the 12. The Income Tax Appellate Tribunal (ITAT), Delhi Bench in the case of M/s. New Modern Bazaar Departmental Store Pvt. Ltd. is a case of M/s. New Modern Bazaar Departmental Store Pvt. Ltd. is a case of M/s. New Modern Bazaar Departmental Store Pvt. Ltd. is a Pvt. Ltd. held that the in Pvt. Ltd. held that the interest on Late Payment of TDS does not terest on Late Payment of TDS does not constitute Business Expenditure. In this case the assessee argued constitute Business Expenditure. In this case the assessee argued constitute Business Expenditure. In this case the assessee argued before the ld. CIT(A) that interest on late deposit of TDS is before the ld. CIT(A) that interest on late deposit of TDS is before the ld. CIT(A) that interest on late deposit of TDS is compensatory and not penal in nature. The ld. CIT(A) held that compensatory and not penal in nature. The ld. CIT(A) held that compensatory and not penal in nature. The ld. CIT(A) held that interest paid under the pr interest paid under the provisions of the Act is not a deductible ovisions of the Act is not a deductible expenditure, not compensatory in nature. Thus, he confirmed the expenditure, not compensatory in nature. Thus, he confirmed the expenditure, not compensatory in nature. Thus, he confirmed the action of the Assessing Officer. The assessee submitted that the action of the Assessing Officer. The assessee submitted that the action of the Assessing Officer. The assessee submitted that the interest is compensatory in nature and a part of business interest is compensatory in nature and a part of business interest is compensatory in nature and a part of business operations of the assessee. H operations of the assessee. Had the same amount has been taken ad the same amount has been taken as loan from a bank, the interest paid on the same anyway would as loan from a bank, the interest paid on the same anyway would as loan from a bank, the interest paid on the same anyway would have been allowed as deduction u/s 36. The Revenue submitted have been allowed as deduction u/s 36. The Revenue submitted have been allowed as deduction u/s 36. The Revenue submitted that interest on late deposit of TDS is neither an expenditure wholly that interest on late deposit of TDS is neither an expenditure wholly that interest on late deposit of TDS is neither an expenditure wholly and exclusively incurred fo and exclusively incurred for the purpose of business and further it r the purpose of business and further it is a payment, which is in the form of tax so it is not an allowable is a payment, which is in the form of tax so it is not an allowable is a payment, which is in the form of tax so it is not an allowable expenditure. The ITAT dismissed the appeal of the assessee. expenditure. The ITAT dismissed the appeal of the assessee. expenditure. The ITAT dismissed the appeal of the assessee. 13. The Hon’ble Madras High Court in CIT Vs. Chennai Properties 13. The Hon’ble Madras High Court in CIT Vs. Chennai Properties 13. The Hon’ble Madras High Court in CIT Vs. Chennai Properties & Investment Ltd. (1999 & Investment Ltd. (1999) 239 ITR 435 (Mad.) has held that interest ) 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. 14. This decision of Hon’ble Madras High Court has also been 14. This decision of Hon’ble Madras High Court has also been 14. This decision of Hon’ble Madras High Court has also been followed by various benches of ITAT, specifically in Velankani ollowed by various benches of ITAT, specifically in Velankani ollowed by various benches of ITAT, specifically in Velankani Information Systems Limited Vs. DCIT [2018] taxmann.com 599 Information Systems Limited Vs. DCIT [2018] taxmann.com 599 Information Systems Limited Vs. DCIT [2018] taxmann.com 599 (Bangalore (Bangalore- Trib.) as under: -

Shriram Chits Maharashtra Ltd. Shriram Chits 8 ITA No. 66/MUM/2024

“As far as delay in remittance of TDS u/s 201(1A) of the Act “As far as delay in remittance of TDS u/s 201(1A) of the Act is concerned, we find that the Hon’ble Mad is concerned, we find that the Hon’ble Madras High Court has taken a view that interest u/s 201(1A) is also in the has taken a view that interest u/s 201(1A) is also in the nature of tax and notwithstanding the fact that is not the nature of tax and notwithstanding the fact that is not the tax liability of the assessee, the same cannot be allowed as tax liability of the assessee, the same cannot be allowed as deduction. The following were the relevant observations of deduction. The following were the relevant observations of the Hon’ble Madras High Court: - 1. As already noticed the payment of interest takes colour 1. As already noticed the payment of interest takes colour from the nature of the levy with reference to which such from the nature of the levy with reference to which such from the nature of the levy with reference to which such interest is paid and the tax required to be but not paid in interest is paid and the tax required to be but not paid in time, which rendered the assessee liable for time, which rendered the assessee liable for payment of interest was in the nature of a direct tax and similar to the interest was in the nature of a direct tax and similar to the income-tax payable under the Income Tax Act. The interest tax payable under the Income Tax Act. The interest paid u/s 201(1A) of the Act, therefore, would not assume paid u/s 201(1A) of the Act, therefore, would not assume the character of business expenditure and cannot be the character of business expenditure and cannot be regarded as a compensatory payment. 2. Counsel for the assessee in support of his submission 2. Counsel for the assessee in support of his submission that the interest paid by the assessee was merely that the interest paid by the assessee was merely compensatory in character besides relying on the case of compensatory in character besides relying on the case of Makalakshmi Sugar Mills Co. also relied on the decision of Makalakshmi Sugar Mills Co. also relied on the decision of the apex court in the cases of Prakash Cotton Mills Pvt. Ltd. t in the cases of Prakash Cotton Mills Pvt. Ltd. V. CIT [1993] 201 ITR 684; Malwa Vansapati and Chemical V. CIT [1993] 201 ITR 684; Malwa Vansapati and Chemical Co. v. CIT [1997] 225 ITR 383 and CIT vs. Ahmedabad Co. v. CIT [1997] 225 ITR 383 and CIT vs. Ahmedabad Cotton Manufacturing Co. Ltd. [1994] 205 ITR 163. In all Cotton Manufacturing Co. Ltd. [1994] 205 ITR 163. In all these cases, the court was concerned with these cases, the court was concerned with an indirect tax payable by the assessee in the course of its business and payable by the assessee in the course of its business and admissible as business expenditure. 3. The ratio of those cases is not applicable here. Income 3. The ratio of those cases is not applicable here. Income- tax is not allowable as business expenditure. The amount of tax is not allowable as business expenditure. The amount of tax deducted is not an item of expenditure. 4. We therefore, follow the decision of Hon’ble Madras High 4. We therefore, follow the decision of Hon’ble Madras High Court and uphold the order of CIT(A) in so far as it relates to Court and uphold the order of CIT(A) in so far as it relates to disallowance of interest on delayed payment of TDS u/s disallowance of interest on delayed payment of TDS u/s 201(1A) of the Act.” 15. Further, the Co 15. Further, the Co-ordinate Bench of ITAT Bangalore in the case of Jindal TAT Bangalore in the case of Jindal Aluminimum Limited ITA No. 31/Bang/2019 having similar facts where Aluminimum Limited ITA No. 31/Bang/2019 having similar facts where Aluminimum Limited ITA No. 31/Bang/2019 having similar facts where interest on TDS is held as ineligible business expenditure. interest on TDS is held as ineligible business expenditure. 16. Hence, we have no hesitation to hold that interest payment on late 16. Hence, we have no hesitation to hold that interest payment on late 16. Hence, we have no hesitation to hold that interest payment on late payment of TDS is not payment of TDS is not eligible business expenditure for deduction and it is eligible business expenditure for deduction and it is not compensatory in nature. Payment of interest on late deposit of TDS not compensatory in nature. Payment of interest on late deposit of TDS not compensatory in nature. Payment of interest on late deposit of TDS levied u/s 201(1A) is neither an expenditure only and exclusively incurred levied u/s 201(1A) is neither an expenditure only and exclusively incurred levied u/s 201(1A) is neither an expenditure only and exclusively incurred for the purpose of the business and therefore the same i for the purpose of the business and therefore the same is not allowable as s not allowable as deduction u/s 37(1) of the Act. deduction u/s 37(1) of the Act. 17. Therefore, the disallowance made by the AO is hereby confirmed. The 17. Therefore, the disallowance made by the AO is hereby confirmed. The 17. Therefore, the disallowance made by the AO is hereby confirmed. The ground of appeal is dismissed. ground of appeal is dismissed.

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Respectfully following the above quoted decision of the Hon'ble Tribunal Respectfully following the above quoted decision of the Hon'ble Tribunal Respectfully following the above quoted decision of the Hon'ble Tribunal wherein the existing catena o wherein the existing catena of judicial precedents on the issue of interest f judicial precedents on the issue of interest payment for delayed TDS payment have been examined in payment for delayed TDS payment have been examined in payment for delayed TDS payment have been examined in-depth and distinguished, the addition of Rs. 25,163/ distinguished, the addition of Rs. 25,163/- on account of interest incurred on account of interest incurred on delayed TDS payment is hereby confirmed. However, with respect to on delayed TDS payment is hereby confirmed. However, with respect to on delayed TDS payment is hereby confirmed. However, with respect to the interest incurred for delayed payment of service tax dues, no contrary the interest incurred for delayed payment of service tax dues, no contrary the interest incurred for delayed payment of service tax dues, no contrary judgment has come to my notice. Hence, respectfully following the judgment has come to my notice. Hence, respectfully following the judgment has come to my notice. Hence, respectfully following the available judicial precedents on this subject, as quoted and cited by the available judicial precedents on this subject, as quoted and cited by the available judicial precedents on this subject, as quoted and cited by the appellant, the addition of Rs.31,080/ appellant, the addition of Rs.31,080/- is hereby deleted by holding it an hereby deleted by holding it an allowable business expenditure under section 37(1) of the Act. This Ground allowable business expenditure under section 37(1) of the Act. This Ground allowable business expenditure under section 37(1) of the Act. This Ground is hence, partly allowed. is hence, partly allowed.” 2.5 While allowing the relief of Rs.31,080/ While allowing the relief of Rs.31,080/- in respect of interest in respect of interest incurred for delayed payment of the service tax, the Ld. CIT(A) has incurred for delayed payment of the service tax, the incurred for delayed payment of the service tax, the followed binding precedent on the issue in dispute and therefore, we followed binding precedent on the issue in dispute and therefore, we followed binding precedent on the issue in dispute and therefore, we do not find any infirmity in the order of the Ld. C do not find any infirmity in the order of the Ld. CIT(A IT(A) on the issue in dispute and accordingly in dispute and accordingly, we uphold the same. The ground No. 2 we uphold the same. The ground No. 2 of the appeal of the Revenue is accor of the appeal of the Revenue is accordingly dismissed. dingly dismissed.

2.6 The ground No. 3 of the appeal of the Revenue is related to The ground No. 3 of the appeal of the Revenue is related to The ground No. 3 of the appeal of the Revenue is related to addition of Rs.18,046/ addition of Rs.18,046/- on account of unrecorded FD interest on account of unrecorded FD interest income. The relevant finding of the Ld. CIT(A) reproduced as under: income. The relevant finding of the Ld. CIT(A) reproduced as under: income. The relevant finding of the Ld. CIT(A) reproduced as under:

“5.2 I have gone through the facts of the ca 5.2 I have gone through the facts of the case, submission of the appellant, se, submission of the appellant, assessment order and material available on record. It is seen that by assessment order and material available on record. It is seen that by assessment order and material available on record. It is seen that by debiting the interest expenditure on account of premature encashment of debiting the interest expenditure on account of premature encashment of debiting the interest expenditure on account of premature encashment of two FDs, the appellant was correctly recognizing the fact that such an two FDs, the appellant was correctly recognizing the fact that such an two FDs, the appellant was correctly recognizing the fact that such an amount already credited in the P&L A/c does not represent his income. eady credited in the P&L A/c does not represent his income. eady credited in the P&L A/c does not represent his income. Hence, appellant by debiting an equivalent amount in P&L A/c, was Hence, appellant by debiting an equivalent amount in P&L A/c, was Hence, appellant by debiting an equivalent amount in P&L A/c, was squaring off the transaction which did not result in income. It is a trite law squaring off the transaction which did not result in income. It is a trite law squaring off the transaction which did not result in income. It is a trite law that under Income that under Income-tax, only the Real Income is taxable and not the ble and not the hypothetical income. Hence, following this legal principle, the addition is hypothetical income. Hence, following this legal principle, the addition is hypothetical income. Hence, following this legal principle, the addition is hereby deleted. Accordingly, this Ground is hereby allowed. hereby deleted. Accordingly, this Ground is hereby allowed. hereby deleted. Accordingly, this Ground is hereby allowed.” 2.7 We find that the interest the interest in form no. 26 was reported for the form no. 26 was reported for the full maturity period of fixed of fixed deposit but the assessee encashed the the assessee encashed the fixed deposit prematurely. prematurely. The Ld. CIT(A) has allowed allowed relief to the assessee after verification assessee after verification of the interest credited on Fixed deposits on Fixed deposits

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for full maturity period for full maturity period and interest debited for the debited for the period from the assessee encashed the fixed deposits prematurity d the fixed deposits prematurity and final maturity and final maturity period. In our opinion, the Ld CIT(A) has correctly allowed relief to In our opinion, the Ld CIT(A) has correctly allowed relief to In our opinion, the Ld CIT(A) has correctly allowed relief to the assessee. We do not find any infirmity in the order of the Ld. We do not find any infirmity in the order of the Ld. We do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and accordingly CIT(A) on the issue in dispute and accordingly, we uphold the same. we uphold the same. The ground No. 3 of appeal of the Revenue is accordingly dismissed. of appeal of the Revenue is accordingly dismissed. of appeal of the Revenue is accordingly dismissed.

2.8 The ground Nos s. 4 and 5 of the appeal are general in nature . 4 and 5 of the appeal are general in nature and same are dismissed as and same are dismissed as infructuous.

Order pronounced in Order pronounced in the open Court on 03 03/06/2024. 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: 03/06/2024 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order 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