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Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad
Before: Shri Manjunatha G. & Shri K. Narasimha Chary
(निर्धारण वर्ा/Assessment Year: 2018-19) Wissen Technology Private Vs. Deputy Commissioner Limited of Income Tax Bangalore Circle-17(2) [PAN : AABCW5249H] Hyderabad (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri P.Prabhakara Murthy, AR रधजस् व द्वधरध/Revenue by:: Shri Srinath Sadanala, DR सुिवधई की तधरीख/Date of hearing: 11/12/2024 घोर्णध की तधरीख/Date of 11/12/2024 Pronouncement: आदेश / ORDER PER. MANJUNATHA G., A.M: This appeal filed by the assessee is directed against the order dated 03.09.2024 of the learned Commissioner of Income Tax (Appeals) [Learned CIT(A)], Siliguri, relating to A.Y.2018-19 on the following grounds : 1. In the facts and circumstances of appellant’s case, the impugned order under section 250 of I.T.Act passed by Learned ADDL/JCIT(A)-1, SILIGURI, in adjudicating the appeal filed against intimation u/s 143(1) of I.T.Act is not correct both on the facts and in the law applicable to the facts of the appellant’s 2 case, in so far it is against the appellant, as the said intimation u/s 143(1) of I.T. Act ceases to be operative in view of order u/s 143(3) of I.T,Act and hence liable to be set aside.
2. In the facts and circumstances of appellant’s case, having himself accepted that the intimation u/s 143(1) of I.T.Act was merged with order u/s 143(3) of I.T.Act, the Learned ADDL/JCIT (A)-1, SILIGURI should have held that the appeal before him filed against the intimation u/s 143(1) of I.T.Act is infructuous.
3. In the facts and circumstances of appellants case, having himself accepted that the disallowance made of Rs.23,29,136/-, while passing intimation u/s 143(1) of I.T.Act, being interest on late payment of TDS, is duly considered and allowed in favour of appellant in the order passed u/s 143(3) of I.T.Act, being one of the two issues, verification for which the return of income of appellant was specifically selected for limited scrutiny, the said order being attained finality and as such, the Learned ADDL/JCIT(A)-1 SILIGURI is not justified in adjudicating the said issue and confirming the disallowance of Rs.23,29,136/- in the appeal filed against intimation passed u/s 143(1) of I.T.Act, which ceases to be operative being merged with the order u/s 143(3) of I.T.Act. 3.1. Even otherwise, in the facts and circumstances of appellant’s case, the Learned ADDL/JCIT(A)-1, SILIGURI erred in holding that the amount of Rs.23,29,136/-, being interest on late payment of TDS, is not an allowable expenditure.
4. In the facts and circumstances of appellants case, the disallowance made of Rs.2,48,185/- u/s 36(1)(va) while passing intimation u/s 143(1) of I.T.Act, is duly suffered tax while passing the order under section 143(3) of I.T.Act and the said order being attained finality, the Learned ADDL/JCIT (A)-1, SILIGURI is not justified in adjudicating the said 3 issue and confirming the disallowance again in the appeal filed against intimation passed u/s 143(1) of I.T.Act, which ceases to be operative being merged with the order u/s 143(3) of I.T.Act.
5. For the above grounds and any other ground or grounds, that may be urged during the course of hearing of the appeal, the appellant humbly prays to allow the appeal with consequent relief in favour of appellant as prayed in grounds of appeal or to give appropriate relief as the Hon'ble Income-Tax Appellate Tribunal may deem it fit, in the facts and circumstances of appellant’s case.
2. The brief facts of the case are that the assessee company filed its return of income for the A.Y.2018-19 on 30.10.2018, declaring total income of Rs.5,29,52,962/-. The return of income filed by the assessee has been processed and intimation u/s 143(1) of the Income tax Act, 1961 (“the Act”) was issued on 04.11.2019 and determined total income at Rs.5,69,37,931/-, by making addition of Rs.39,84,969/-, which includes, disallowance of interest paid on belated payment of TDS of Rs.23,29,136/- and disallowance of interest on delayed payment of service tax of Rs.14,07,648/-. The Assessing Officer had also made disallowance of Rs.2,48,185/- u/s 36(1)(va) r.w.s. 43B of the Act, towards belated payment of contribution to PF and ESI.
Being aggrieved by the assessment, the assessee preferred an appeal before the CIT(A). Before the Ld.CIT(A), the assessee challenged the additions made towards disallowance of interest paid on TDS and interest paid on service tax. The assessee had also challenged the disallowance of PF and ESI contribution u/s 36(1)(v) of the Act. The Ld.CIT(A), after considering the relevant
4 submissions of the assessee and also by following certain judicial precedents, deleted the additions made by the Assessing Officer towards interest paid on service tax, however, confirmed the additions towards interest paid on TDS and disallowance of PF and ESI contribution u/s 36(1)(v) of the Act.
Aggrieved by the Ld.CIT(A), the assessee is in appeal before the Tribunal.
The first issue that came up for consideration from ground No.3 of assessee’s appeal is addition towards disallowance of interest paid on belated remittance of TDS. The Assessing Officer, while processing the return of income u/s 143(1) has disallowed Rs.23,29,136/- towards interest paid on delayed payment of TDS, on the ground that the said interest is penal in nature, which cannot be allowed as deduction u/s 37(1) of the Act. It was the argument of the assessee that interest paid on delayed remittance of TDS is compensatory in nature and not penal and therefore, it should be allowed as deduction u/s 37 of the Act.
We have heard both the parties, perused the material on record and gone through the orders of the authorities below. We find that this issue is squarely covered in favour of the assessee, by the decision of coordinate Bench of ITAT Hyderabad in the case of M/s Trinity Infraventures Limited Vs. ACIT in where, the Tribunal, by following the decision of Hon'ble High Court of Bombay in the case of Ferro Alloys Corporation Ltd. Vs. CIT [1992] 196 ITR 406 (Bom), held that, interest paid on delayed payment of TDS u/s 201(1A) is 5 compensatory in nature, and therefore allowable u/s 37(1) of the Act. The relevant findings of the Tribunal are as under : “7. We have gone through the record in the light of the submissions made on either side. There is no dispute as to the facts that the assessee failed to deposit the TDS amount within time and, therefore, deposited the same with interest of Rs. 29,35,279/- which they claimed as deduction under section 37 of the Act stating that mere enlargement of the amount of TDS with the inclusion of interest, does not take away its character as being TDS to be allowed under section 37 of the Act. Only question therefore, that falls for our consideration is whether this interest partakes the character of a penalty or to be construed as payment for breach of law, so as to be disallowed under section 37 of the Act.
In Mahalakshmi Sugar Mills Co.(supra), while considering the nature of interest paid on the delayed payment of cess under the provisions of UP Sugarcane Cess Act, 1956, the Hon'ble Apex Court held that when there are provisions dealing with penalty specifically in the enactment, and the enlargement of any amount automatically, without the intervention of any order giving rise to the liability such enlargement, such additional amount will not be a penalty, but only compensatory in nature. In Oriental Insurance Company Ltd., (supra), the Hon'ble Karnataka High Court clearly held that section 201(1A) of the Act is a provision to levy interest for interest for delayed remittance of TDS and it is the practice of the Revenue that for delayed payment of tax for any reasonable cause, the assessee is liable to pay interest at stipulated rate and also paying interest on the delayed payments to the assessees, and, therefore, interest paid for delayed deposit of TDS cannot be equated to penalty or breach of law.
9. In Crustum Products P. Ltd., (supra), a Co-ordinate Bench of this Tribunal held that the interest levied towards the late payment of TDS is only damages thrust on the assessee for late payments of dues to the Revenue. In Mercury Projects (supra), the Co-ordinate Bench held that the interest on TDS is not interest paid on per se and the same is in the nature of compensation and not penal. In Resolve Salvage & Fire India (P.) Ltd., (supra), the Tribunal after noticing the decisions in the case of Ferro Alloys
6 Corporation Ltd., Vs. CIT (1992) 196 ITR 406 (Bom), Bharat Commerce Industries Ltd., Vs. CIT (1985) 20 Taxman 302 and Setup Consultants Pvt. Ltd., Vs. ACIT in by order dated 11/12/2018 observed that the interest paid on delayed payments of TDS under section 201(1A) of the Act is an allowable deduction. Lastly, in the case of M/s. Taksheel Solutions Limited (supra), it was held that the interest on TDS is not interest paid on income tax per se and the disallowance thereof, is unwarranted.
10. It is, therefore, clear that the sole issue for consideration in this appeal is no longer res integra and covered by the above decisions. Respectfully following the same, we hold the issue in favour of the assessee and direct the learned Assessing Officer to delete the disallowance made on account of interest on TDS.”
In view of this matter and by respectfully following the decision of ITAT Hyderabad, we are of the considered view that interest paid on delayed payment of TDS is compensatory in nature, but not penal and therefore, needs to be allowed as deduction u/s 37(1) of the Act. Thus, we set aside the order of the Ld.CIT(A) on this issue and direct the Assessing Officer to delete the additions made towards disallowance of interest on TDS for Rs.23,29,136/-.
8. The next issue that came up for consideration from ground No.4 of assessee’s appeal is disallowance of employees contribution to PF and ESI u/s 36(1)(va) of the Act of Rs.2,48,185/-.
We have heard both the parties, perused the material on record and gone through the orders of the authorities below. We find that this issue is squarely covered against the assessee by the decision of Hon'ble Supreme Court in the case of Checkmate
7 Services Pvt. Ltd. (2022) 143 Taxmann.com 178, where, the Hon'ble Supreme Court clearly held that employees contribution to PF and ESI beyond the due date prescribed under relevant Acts is not allowable as deduction u/s 36(1)(v) r.w.s. 43B of the Act. In the present case, from the perusal of the audit report, the facts regarding payment of dues beyond the due date have been ascertained. Therefore, we are of the considered view that there is no error in the reasons given by the Ld.CIT(A), to sustain the additions made towards contribution to PF and ESI u/s 36(1)(v) of the Act. Thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the grounds taken by the assessee.
In the result, appeal filed by the assessee is partly allowed.