DCIT, CIR-11, KOLKATA, Kolkata V. M/s Safexpress Pvt. Ltd., Howrah

ITA 1296/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1572 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 06-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S GUPTA
• Keywords: Business expenditure; Commercial expediency
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI A.T. VARKEY, JM & DR. A.L.SAINI, AM ./ ITA NO.1296/KOL/2014 ( / ASSESSMENT YEAR : 2009-10 DCIT, CIR-11(2), KOLKATA VS. M/S SAFEXPRESS PVT. LTD. SAFEX CARGO COMPLEX, BAMANDANGA, BALLY, HOWRAH-711205 ./ ./PAN/GIR NO. : AAECS 4363 H ( /ASSESSEE ) .. ( / RESPONDENT ) /ASSESSEE BY : NONE /REVENUE BY :.SHRI S.S. GUPTA, FCA / DATE OF HEARING : 29/05/2017 !'# /DATE OF PRONOUNCEMENT 07/ 07 /2017 / O R D E R PER DR.ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE REVENUE, PERTAINI NG TO ASSESSMENT YEAR 2009-10, IS DIRECTED AGAINST THE O RDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX(APPEALS)-XII, KO LKATA IN APPEAL NO. 384/XII/R-11/11-12 DATED 05.03.2014, WHICH IN T URN ARISES OUT OF AN ORDER PASSED BY THE AO U/S 143(3) OF THE INCOME TAX ACT 1961, (HEREINAFTER REFERRED TO AS THE ACT), DATED 22.12 .2011. ITA NO.1296/14 M/S SAFEXPRESS PVT. LTD. 2 2. BRIEF FACTS QUA THE ASSESSEE ARE THAT THE ASSESS EE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2009-10 ON 29.09.2009DECLARING TOTAL INCOME OF RS. 91,80,24,85 0/-. THE ASSESSEES RETURN OF INCOME WAS PROCESSED U/S 143(1 ) OF THE INCOME TAX ACT. LATER ON, THE ASSESSEES CASE WAS S ELECTED FOR SCRUTINY U/S 143(2) OF THE ACT AND THE ASSESSING OF FICER HAS COMPLETED THE ASSESSMENT BY MAKING ADDITION ON ACCO UNT OF INTEREST ON LATE PAYMENT OF SERVICE TAX. THE LD. ASSESSING O FFICER OBSERVED THAT FROM THE DETAILS OF THE INTEREST PAID BY THE ASSESSEE DURING FINANCIAL YEAR 2008-09, IT IS SEEN THAT THE ASSESSE E COMPANY PAID INTEREST OF RS. 68,81,675/- WITH THE NARRATION INT EREST ON LATE PAYMENT OF SERVICE TAX. THEREFORE, THE LD. ASSESSI NG OFFICER HELD THAT FROM THE NARRATION OF THE ENTRY IN THE BOOKS O F ACCOUNTS, IT WAS EVIDENT THAT THE SAID INTEREST IS PENAL IN NATURE. HENCE, THE CLAIM OF THE INTEREST PAID, ON LATE PAYMENT OF SERVICE TAX O F RS. 68,81,675/- WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME O F THE ASSESSEE. 3. AGGRIEVED FROM THE ORDER OF THE ASSESSING OFFICE R THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME T AX( APPEALS), WHO HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. THE LD. CIT(A) OBSERVED THAT THE BASIC CONDITIONS FOR A LLOWANCE OF DEDUCTION U/S 37(1) OF THE ACT ARE- I) THE EXPENDIT URE SHOULD NOT BE PERSONAL EXPENDITURE OF THE ASSESSEE, II) THE EXPEN DITURE SHOULD ITA NO.1296/14 M/S SAFEXPRESS PVT. LTD. 3 HAVE BEEN INCURRED IN THE PREVIOUS YEAR, III) THE E XPENDITURE SHOULD HAVE BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF BUSINESS OR PROFESSION. THE FINANCE ACT, 1998 HAS I NSERTED AN EXPLANATION IN SECTION 37(1) TO PROVIDE THAT ANY EX PENDITURE INCURRED BY THE ASSESSEE WHICH IS AN OFFENCE OR WHICH IS PRO HIBITED BY ANY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR T HE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANC E SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. THE LD. CIT(A) ALSO HELD THAT WHERE PENALTY IS INCURRED FOR THE CONTRAVENTION OF ANY SP ECIFIC STATUTORY PROVISIONS, IT CANNOT BE SAID TO BE COMMERCIAL LOSS FALLING ON THE ASSESSEE AS A TRADER AND IT IS NOT DEDUCTIBLE. THE LD. CIT(A) FURTHER OBSERVED THAT HOWEVER, WHERE THE PAYMENT OF PENALTY OR FINE IS OF THE NATURE OF COMPENSATORY LIABILITY, THE SAME IS A LLOWABLE AS A DEDUCTION, AS BUSINESS EXPENDITURE U/S 37(1) OF THE ACT. THE LD. CIT(A) RELIED ON THE JUDGMENT OF HONBLE PUNJAB &HA RIYANA HIGH COURT IN THE CASE OF CIT VS. HOSHIARI LAL KEWAL KRI SHAN (2007) 160 TAXMANN 96 WHEREIN IT WAS HELD THAT A PENALTY OR FI NE PAID UNDER ANY LAW WOULD NOT ALWAYS BE IN THE NATURE OF PUNISH MENT FOR BREACH OF LAW. IT MAY BE COMPENSATORY LIABILITY IRRESPECTI VE OF THE NOMENCLATURE USED. IN THAT CASE, THE COURT ALLOWED DEDUCTION OF PAYMENT OF FINE PAID TO EXCISE DEPARTMENT FOR BELAT ED PAYMENT OF EXCISE DUTY INSTALLMENT. IN VIEW OF THE PRINCIPLE O F LAW LAID DOWN IN ITA NO.1296/14 M/S SAFEXPRESS PVT. LTD. 4 THE INSTANT CASE, THE LD. CIT(A) HELD THAT THE INTE REST CHARGED ON LATE PAYMENT OF SERVICE TAX IS AN EXPENDITURE LAID DOWN FOR COMMERCIAL EXPEDIENCY AND IT IS DEDUCTIBLE U/S 37(1) OF THE IT ACT, THEREFORE, THE LD. CIT(A) DELETED THE DISALLOWANCE OF RS. 68,81,67 5/- MADE BY THE ASSESSING OFFICER. 4. NOT BEING SATISFIED WITH THE ORDER OF THE COMMIS SIONER OF INCOME TAX (APPEALS), THE REVENUE IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THAT IN THE FACTS AND IN LAW OF THE CASE THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 68,81,675/- ON ACCO UNT OF INTEREST PAID ON LATE DEPOSIT OF SERVICE TAX. 2. THAT IN THE FACTS AND IN LAW OF THE CASE THE LD . CIT(A) ERRED IN DELETING THE EXPENDITURE WHICH IS PENAL IN NATUR E. 5. THE LD. DR FOR THE REVENUE HAS VEHEMENTLY SUBMIT TED BEFORE US THAT THE ASSESSEE HAS PAID INTEREST ON LATE PAYMENT OF SERVICE TAX AND IT IS A KIND OF A PENAL NATURE AND THEREFORE, S HOULD NOT BE ALLOWED U/S 37(1) OF THE ACT. THEREFORE, THE LD. D R FOR THE REVENUE HAS DEFENDED THE ORDER PASSED BY THE ASSESSING OFFI CER. 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE HAS SUBMITTED BEFORE US THAT THE ASSESSEE HAS PAID INTE REST ON LATE DEPOSIT OF SERVICE TAX AND IT IS A KIND OF COMPENSA TORY NATURE AND NOT IN A PENAL NATURE I.E. INTEREST ON LATE DEPOSIT OF SERVICE TAX IS COMPENSATORY IN NATURE AND WOULD BE ALLOWABLE AS DE DUCTION IN COMPUTING THE PROFITS OF A BUSINESS. THE LD. COUNSE L FOR THE ITA NO.1296/14 M/S SAFEXPRESS PVT. LTD. 5 ASSESSEE HAS RELIED ON THE JUDGMENT OF HONBLE TRIB UNAL MUMBAI IN THE CASE OF GINNERS & PRESSERS LTD. VS ITO IN I.T. A. NO. 3981/MUM/2007 ASSESSMENT YEAR 2003-04 WHEREIN IT HA S BEEN HELD AS FOLLOWS: 6. THE FIRST ISSUE THAT ARISES IN REVENUES APPEAL IS WHETHER INTEREST PAID ON DELAYED PAYMENT OF SERVICE TAX IS PENAL IN NATURE OR NOT. THE ASSESSING OFFICER DISALLOWED THE AMOUNT OF INTEREST PAID ON DELAYED PAYMENT OF SERVICE TAX, ON THE GROUNDS THAT IT IS PENAL IN NATURE. THE FIRST APPELLATE AUTHORITY HELD THAT THE SAID INTEREST WAS ONLY COMPENSATORY IN NATURE AND AS IT IS NOT LEVIED FOR VIOLATION OF A STATUTE, NO DISALLOWANCE CAN BE MADE. WE FULLY AGRE E WITH THESE FINDINGS OF THE FIRST APPELLATE AUTHORITY. THE LD. SENIOR COUNSEL MR. PERCY PARDIWALLA, POINTED OUT THAT INTEREST ON DELA YED PAYMENT OF SERVICE TAX IS LEVIED U/S 75 OF THE SERVICE TAX ACT AND PENALTY FOR FAILURE TO PAY SERVICE TAX IS GOVERNED U/S 76 OF TH AT ACT. A PLAIN READING OF BOTH THE SECTIONS 75 AND 76 CLEARLY DEM ONSTRATE THAT AS FAR AS INTEREST IS CONCERNED, IT IS PURELY COMPENSA TORY IN NATURE AND HENCE, SHOULD BE ALLOWED AS SUCH. THE INTEREST IN T HIS CASE IS NOT LEVIED FOR VIOLATING ANY STATUTE. THUS, WE UPHOLD T HE FINDINGS OF THE FIRST APPELLATE AUTHORITY AND DISMISS THIS GROUND O F THE REVENUE. 7. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THE IN TEREST PAID BY THE ASSESSEE ON LATE PAYMENT OF SERVICE TAX IS COMPENSA TORY IN NATURE. THEREFORE, WE ARE OF THE VIEW THAT WHENEVER ANY STA TUTORY LIABILITY PAID BY THE ASSESSEE BETWEEN DAMAGES OR PENALTY OR INTEREST IS CLAIMED AS ALLOWABLE EXPENDITURE U/S 37(1) OF THE I T ACT. THE ASSESSING OFFICER IS REQUIRED TO EXAMINE THE SCHEME OF THE PROVISION OF THE RELEVANT STATUTE PROVIDING FOR PAYMENT OF S UCH EXPENDITURE NOTWITHSTANDING THE NOMENCLATURE OF THE EXPENDITURE AS GIVEN BY THE STATUTE TO FIND OUT WHETHER IT IS COMPENSATORY NATU RE OR PENAL IN ITA NO.1296/14 M/S SAFEXPRESS PVT. LTD. 6 NATURE. THE INCOME TAX OFFICER HAS TO ALLOW DEDUCTI ON U/S 37(1) OF THE IT ACT WHEREVER SUCH EXAMINATION REVEALS THE CO NCERNED EXPENDITURE/PENALTY TO BE PURELY COMPENSATORY IN NA TURE. IN THE INSTANT CASE, IT HAS BEEN CLEARLY FOUND THAT THOUGH TERMED OF INTEREST PAID ON LATE PAYMENT OF SERVICE TAX, THE SAID PAYME NT IS IN THE NATURE OF COMPENSATORY AND THEREFORE, ALLOWABLE U/S 37(1) OF THE ACT. BASED ON THE ABOVE CITED REASONING, WE DISMISS THE APPEAL FILED BY THE REVENUE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE, IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 07 / 07 /2017. SD/ - (A.T. VARKEY) SD/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; $% DATED 07/ 07/2017 SB , SR.PS. / COPY OF THE ORDER FORWARDED TO : SENIOR PRIVATE SECRETARY HEAD OF OFFICE/D.D.O, I.T.A.T., KOLKATA BENCHES, KOLKATA 1. / THE ASSESSEE- DCIT CIR-II, KOLKATA 2. / THE RESPONDENT.- M/S SAFEXPRESSPVT. LTD. 3. ( ( ) / THE CIT(A), :KOLKATA. 4. ( / CIT 5. )* +, , ,# , / DR, ITAT, KOLKATA 6. + -. / GUARD FILE. ) //TRUE COPY// BY ORDER