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Income Tax Appellate Tribunal, ‘A ’ BENCH, CHENNAI
Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM & HON’BLE SHRI MANU KUMAR GIRI, JM
आयकर अपीलीय अिधकरण ‘ए’ �ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A ’ BENCH, CHENNAI माननीय �ी मनोज कुमार अ�वाल ,लेखा सद� एवं माननीय �ी मनु कुमार िग�र, �ाियक सद� के सम�। BEFORE HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM AND HON’BLE SHRI MANU KUMAR GIRI, JM आयकरअपील सं./ (िनधा�रणवष� / Assessment Year: 2020-21) M/s. Pothys, Vs. The Deputy Commissioner of No.15, Dr.Nageswara Rao Road, Income Tax, T. Nagar, Central Circle 1(3), Chennai – 600 017. Chennai. [PAN: AAFFP 2437B] (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/ Appellant by : Shri N. Arjun Raj, Advocate For Shri Y. Sridhar, CA ��यथ� क� ओर से /Respondent by : Shri AR.V. Srinivasan, Addl. CIT सुनवाई क� तारीख/Date of Hearing : 09.05.2024 घोषणा क� तारीख /Date of Pronouncement : 15.05.2024 आदेश / O R D E R MANU KUMAR GIRI (Judicial Member)
This appeal filed by the assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals)-18, Chennai [CIT(A)] dated 20.09.2023 for Assessment Year 2020-21. The assessment was framed by the Deputy/Assistant Commissioner of Income Tax, Circle 1(3), Chennai for the assessment year 2020- 21 passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’), vide order dated 29.09.2022.
Registry has noted 4 days delay in filing appeal. After perusal of reasons given in affidavit, small delay of 4 days in filing appeal is condoned and appeal is admitted for adjudication.
In its appeal, the assessee has raised various grounds but in substance ground of appeal relates to disallowance of an addition of Rs.9,83,173/- which consists of disallowance of Rs.3,78,538/- on account of late fee on TDS payments u/s 234E of the Act and interest of Rs.6,04,635/- paid on late payment of GST.
Facts mentioned by the AO are that the assessee has claimed Rs.9,83,173/- as rates and taxes. The assessee vide letter dated 23.03.2022 has stated that claim of Rs.9,83,173/- includes the late fee paid on TDS and the interest paid on belated payment of GST. The assessing officer vide order dated 29.09.2022 disallowed both claims and added back to the returned income of the assessee.
Aggrieved against the order of ld. A.O. dated 29.09.2022, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions of the appellant, sustained the view of the A.O. and concluded that the interest and late/additional fee payable as a consequence of default in discharging a statutory liability cannot be considered as expenditure laid out wholly and exclusively for the purpose of business.
Aggrieved against the order of Ld.CIT(A), the assessee further challenged the order of ld. CIT(A) dated 24.03.2023 before the Tribunal.
Before us, the counsel for the assessee relied upon various orders including the co-ordinate bench order dated 02.11.2022 in in the case of Prince Holdings Madras (P) Ltd Vs DCIT and argued that interest paid on belated payments of service tax is not a penalty, which can be disallowed u/s 37 of the Act.
Per Contra, the Ld. Addl. CIT supported the orders of the lower authorities.
We have considered the order of the AO, Ld. CIT(A) and facts on records. First, we take up issue concerning disallowance of Rs.3,78,538/- on account of late fee on TDS payments u/s 234E of the Act. Section 234E of the Income Tax Act reads as under:- Fee for default in furnishing statements -
(1) Without prejudice to the provisions of the Act, where a person fails to deliver or cause to be delivered a statement within the time prescribed in sub-section (3) of Section 200 or the proviso to sub-section (3) of Section 206C, he shall be liable to pay, by way of fee, a sum of two hundred rupees for every day during which the failure continues. (2) The amount of fee referred to in sub-section (1) shall not exceed the amount of tax deductible or collectible, as the case may be. (3) The amount of fee referred to in sub-Section 91) shall be paid before delivering or causing to be delivered a statement in accordance with sub- Section (3) of Section 200 or the proviso to sub-Section (3) of Section 206 C. (4). The provisions of this Section shall apply to a statement referred to in sub-Section (3) of Section 200 or the proviso to sub-Section (3) of Section 206 C which is to be delivered or caused to be delivered for tax deducted at source or tax collected at source, as the case may be, on or after the 1st day of July, 2012.
Section 234E of Income Tax Act was introduced by the Finance Act, 2012 w.e.f. 01.07.2012 which applies for the late filing of TDS statement. The vires of Section 234E of the Income Tax Act, 1961 was challenged before the Hon’ble Jurisdictional High Court in W.P.Nos.13331, 13118 and 13377 of 2019, by Qatalys Software Technologies Private Limited, QSource Global Consulting Private Limited and Jeans Park (India) Private Limited. The Hon’ble Jurisdictional High Court at Madras in Writ Petition Nos.13331, 13114, 13118, 13337, 13377 and 13379 of 2019 and W.M.P.Nos.13257, 13259, 13443, 13447 and 13486 of 2019 dated 11/3/2020 in the case of Qatalys Software Technologies Private Limited& Anr. Vs UOI & Anr. @ para 31 observed as under: “Revenue is right in contending that Section 234(E) of the Act is not a penalty. Penalty is levied under Section 271(H) and is not automatic. Penalty is levied only when tax is deducted at source along with interest fee is not deposited and statement is not filed within one year. If the above two conditions are satisfied, then penalty is not leviable. On the other hand, Section 234(E) of the Act is only a late fee at the rate of Rs.200/- per day. As held in the judgments relied above, Section 234(E) of the Act is purely compensatory and is a special benefit to the advantage of the assessee as well for belatedly filing the TDS statement. The revenue is right in contending that Section 234(E) of the Act is meant to ensure that assessee files the statement in time, so that the Department can clear the returns of thepersons connected with the assessee, i.e., from whom tax has been deducted at source without any delay and accurately with increasing or overloading the burden of the department.”
In the case of CIT v. Ahmedabad Cotton Mfg. Co. Ltd. [1993] 71 Taxman 56/[1994] 205 ITR 163 (SC), the Hon’ble Supreme Court ruled that when an assessing authority examines claim for a deductible expenditure under section 37, which is nature of penalty, it should oversee that whether any law or act required such payment to be made as a way of punishment for violation of any law . If it is not found that penalty is paid for any violation of law, then it should be allowed as a business expenditure to the assessee under Section 37.
Similarly in the case of Swadeshi Cotton Mills Co. Ltd. v. CIT [1998] 233 ITR 199 (SC), it was held that if the penalty imposed on any assessee is of composite nature, then the authority have to bifurcate the penalty into two components – one which is of compensatory nature and other of penal nature and subsequently allow the component / penalty of compensatory nature and disallow the penalty of penal nature.
The similar view was adopted in the case of Malwa Vanaspati & Chemical Co. v. CIT [225 ITR 383(SC)], where the assessee is required to pay an amount comprising both the elements of compensation and penalty, and further the compensation is allowable as business expenditure, but not the penalty.
In the case of M/s Neelkamal Realtors Suburban Pvt. Ltd. Vs The Asst. Commissioner of Income Tax, dated 28.04.2022 at para 9 held as under:
“We have carefully considered the rival conditions. We find that identical issue has been decided by the co-ordinate Bench in case of Emdee Digitronics Pvt. Ltd Vs. PCIT in dated 28th June, 2019, wherein the co-ordinate Bench in Para No.12 relying on the decision of M/s Naaraayani Sons Pvt. Limited, in ITA No. 1796- 1798/Kol/2017, order dated 21.08.2018 held that interest expense on late deposit of VAT, service tax, TDS etc are allowable expenditure under section 37(1) of the Act. In view of the above fact, respectfully following the decision of Kolkata Bench of ITAT, we hold that such expenses are not disallowable under section 37(1) of the Act. Further, VAT laws, provident laws and service tax laws clearly provide for payment of interest if there is a delay in payment of fees. Therefore, it is apparent that those respective laws allowed the belated payment along with interest. Therefore, those are not affected by explanation–1 to section 37(1) of the Act. In view of this ground no. 2 of the appeal is allowed.”
Therefore, on the basis of ratio laid down in citations referred supra, we are of considered view that the late fee paid on TDS payments is compensatory in nature rather than penal. In result, we held that late fee paid on TDS payments amounting to Rs.3,78,538/- is allowable under Section 37 of the Income Tax Act, as it does not represent expenses incurred for a purpose that is illegal or prohibited by law. Hence, this issue is allowed accordingly.
Now, we take up issue concerning interest of Rs.6,04,635/- paid on late payment of GST.
At the outset, Ld Counsel argued that this issue is covered in favor of assessee by the order of Mumbai bench in the case of M/s Neelkamal Realtors Suburban Pvt. Ltd. Vs The Asst. Commissioner of Income Tax, dated
28.04.2022 and also by the order of co-ordinate bench dated 02.11.2022 in in the case of Prince Holdings Madras (P) Ltd Vs DCIT.
We have benefit of going through the order of Mumbai bench in the case of M/s Neelkamal Realtors Suburban Pvt. Ltd. Vs The Asst. Commissioner of Income Tax, dated 28.04.2022 and order of co-ordinate bench in the case of Prince Holdings Madras (P) Ltd Vs DCIT, dated 02.11.2022 in ITA No.524/Chny/2021, we are of the view that the interest of Rs.6,04,635/- paid on late payment of GST is allowable u/s 37 of the Act hence allowed accordingly.
In result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 15th May, 2024 at Chennai.