M/s. Perfect Turners G1-135, Road No.14, VKI Ind Area, VKI Extn.Jaipur C/o S.L. Poddar & Company E-3A, Kanti Chandra Road, Bani Park, Jaipur, Jaipur V. Deputy Commissioner of Income Tax Circl-4, Jaipur, Circle-4, Jaipur

ITA 294/JPR/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8826 (ITAT-JAIPUR)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 05-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business expenditure; TDS
• Section: 37(1); 201

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENC HES B JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRA M SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 294/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2015-16 M/S PERFECT TURNERS G1-135, ROAD NO. 14, VKI IND AREA, VKI EXTN. JAIPUR CUKE VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-04, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABFP9896L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SH. S. L. PODDAR (ADV.) JKTLO DH VKSJ LS @ REVENUE BY : SH. K. C. GUPTA (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 07/01/2020 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 08/01/2020 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-2, JAIPUR DATED 25.01.2019 WHEREIN THE ASSESSEE HAS TA KEN THE FOLLOWING GROUNDS OF APPEAL:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 3,15,533/- AS PER THE PROVISIONS OF SECTION 2(24)(X) READ WITH SECTION 36(1)(VA) OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF DELAY IN PAYMENT OF ESI AND PF MADE B Y THE LEARNED AO. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 34,644/- U/ S 37(1) OF THE INCOME TAX ACT, 1961 BY DISALLOWING OF INTEREST ON LATE PA YMENT OF TDS MADE BY THE LEARNED AO. ITA NO. 294/JP/2019 M/S PERFECT TURNERS, JAIPUR VS. DCIT, JA IPUR 2 2. IN GROUND NO. 1, THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF ADDITION OF RS. 3,15,533/- UNDER THE PROVISIONS OF SECTION 2(24)(X) READ WITH SECTION 36(1)(VA) OF THE INCOME TAX ACT, 1961 ON AC COUNT OF DELAY IN DEPOSIT OF ESI AND PF EMPLOYEES CONTRIBUTION. IN THIS REGA RD, UNDISPUTED FACTS THAT THE CONTRIBUTIONS HAVE BEEN DEPOSITED BEFORE FILING THE RETURN OF INCOME. THEREFORE, RESPECTIVELY, THE FOLLOWING THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CASE OF CIT VS. JVVNL 98 DTR 105 AND OTHER S, THE ADDITION MADE BY THE ASSESSING OFFICER IS HEREBY DIRECTED TO BE DELE TED. 3. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF ADDITION OF RS. 34,644/- BEING INTEREST ON LATE DEP OSIT OF TDS. THE ASSESSING OFFICER HAS DISALLOWED THE SAID CLAIM HOLDING THAT INTEREST FOR LATE DEPOSIT OF TDS IS NOT DEDUCTIBLE AND THE LD AR OF THE ASSESSEE HAS ALSO SUBMITTED THAT INTEREST ON TDS WAS INADVERTENTLY MISSED FROM ADDIT ION AT THE TIME OF COMPUTATION. 4. ON APPEAL, THE LD CIT(A) HAS RECORDED A FINDING THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS ADMITTED BY THE ASSE SSEE THAT THE SAME WAS MISSED TO BE ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE, HOWEVER, DURING THE COURSE OF APPELLATE PROCEEDINGS, THE SAME WAS C LAIMED AS ALLOWABLE U/S 37(1) OF THE ACT. AS PER LD. CIT(A), TDS IS A PAYME NT UNDER DIRECT TAX AND BY NOT DEPOSITING TDS IN TIME IS A VIOLATION OF LAW AN D THEREFORE, LEVY OF INTEREST ON SUCH LATE PAYMENT IS PENAL IN NATURE AND CANNOT BE ALLOWED AS DEDUCTION. AGAINST THE SAID FINDING, THE ASSESSEE IS IN APPEAL BEFORE US AND IN SUPPORT OF HIS CONTENTION, THE LD AR HAS RELIED ON THE DECISIO N OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS. ORIENTAL INSURANCE COMPANY LTD. REPORTED IN 315 ITR 102 FOR THE PROPOSITION THAT LEVY OF INTEREST U/S 2 01(1)(A) OF THE ACT CANNOT BE CONSTRUED AS PENAL IN NATURE. ITA NO. 294/JP/2019 M/S PERFECT TURNERS, JAIPUR VS. DCIT, JA IPUR 3 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE DECISION O F HONBLE KARNATAKA HIGH COURT IN CASE OF ORIENTAL INSURANCE COMPANY LTD. HO WEVER, THE SAID DECISION DOESNT SUPPORT THE CASE OF THE ASSESSEE AS THE ISS UE BEFORE US IS ABOUT DEDUCTIBILITY OF INTEREST ON LATE DEPOSIT OF TDS AN D NOT WHETHER SUCH INTEREST IS PENAL IN NATURE OR NOT. WE HAD AN OCCASION TO EXAM INE SIMILAR MATTER IN CASE OF M/S SAND PLAST INDIA LIMITED VS. DCIT, ALWAR (IN ITA NO. 310/JP/2018 DATED 24/07/2018) WHEREIN WE HAVE HELD AS UNDER:- 11. AS FAR AS INTEREST ON LATE PAYMENT OF TDS U/S 201 (1A) IS CONCERNED, USEFUL REFERENCE CAN BE DRAWN TO THE DEC ISION OF HONBLE BOMBAY HIGH COURT IN CASE OF FERRO ALLOYS CORPORATI ON LTD VS. CIT (1992) 196 ITR 406 (BOM) WHERE INTEREST PAYMENT U/S 201(1A) FOR FAILURE TO DEDUCT OR PAY TAX DEDUCTED AT SOURCE WAS HELD NOT DEDUCTIBLE. A SIMILAR VIEW HAS BEEN TAKEN BY THE MADRAS HIGH COURT IN CASE OF CIT VS. CHENNAI PROPERTIES & INVESTMENT LTD ., (1999) 239 ITR 435 (MAD) WHEREIN IT WAS HELD AS UNDER (HEAD NOTES): THE LIABILITY FOR DEDUCTION OF TAX ARISES BY REASON OF THE PROVISIONS OF THE ACT. UNDER SECTION 201, THE CONSEQUENCE OF FAILURE TO CO MPLY WITH THE SAME RENDERS THAT PERSON LIABLE TO BE DEEMED AS AN ASSES SEE IN DEFAULT WITH ALL THE CONSEQUENCES ATTACHED THERETO. THE LIABILITY TO PAY INTEREST ON THE AMOUNT NOT DEDUCTED OR DEDUCTED, BUT NOT PAID IS DI RECTLY RELATED TO THE FAILURE TO DEDUCT OR REMIT THE AMOUNT. THE AMOUNT R EQUIRED TO BE DEDUCTED IS THE AMOUNT PAYABLE AS INCOME-TAX. THE I NTEREST PAID FOR THE PERIOD OF DELAY TAKES COLOUR FROM THE NATURE OF THE PRINCIPAL AMOUNT REQUIRED TO BE PAID BUT NOT PAID WITHIN TIME. THE P RINCIPAL AMOUNT HERE WOULD BE THE INCOME-TAX AND THE INTEREST PAYABLE FO R DELAYED PAYMENT IS THE CONSEQUENCE OF FAILURE TO PAY THE TAX AND IN TH E CIRCUMSTANCES, IS IN THE NATURE OF A PENALTY THOUGH NOT DESCRIBED AS SUC H IN SECTION 201(1A). ITA NO. 294/JP/2019 M/S PERFECT TURNERS, JAIPUR VS. DCIT, JA IPUR 4 THE FACT THAT THE INCOME-TAX REQUIRED TO BE REMITTE D IS NOT INCOME-TAX PAYABLE BY THE ASSESSEE BUT IS ULTIMATELY FOR THE B ENEFIT OF AND TO THE CREDIT OF THE RECIPIENT OF THE INCOME ON WHICH THAT TAX IS PAYABLE, DOES NOT IN ANY MANNER ALTER THE CHARACTER OF THE PAYMEN T, NAMELY, ITS CHARACTER AS INCOME-TAX. THE INTEREST PAID UNDER SE CTION 201(1A), THEREFORE, WOULD NOT ASSUME THE CHARACTER OF BUSINE SS EXPENDITURE AND COULD NOT BE REGARDED AS A COMPENSATORY PAYMENT. IN COME-TAX IS NOT ALLOWABLE AS BUSINESS EXPENDITURE. THE AMOUNT DEDUC TED AS TAX IS NOT AN ITEM OF EXPENDITURE. THE AMOUNT NOT DEDUCTED AND RE MITTED HAS THE CHARACTER OF TAX AND HAS TO BE REMITTED TO THE STAT E AND CANNOT BE UTILISED BY THE ASSESSEE FOR ITS OWN BUSINESS. THE SUPREME COURT IN THE CASE OF BHARAT COMMERCE & INDUSTRIES LTD. V. CIT [1 998] 230 ITR 733/ 98 TAXMAN 151 REJECTED THE ARGUMENT THAT RETENTION OF MONEY PAYABLE TO THE STATE AS TAX OR INCOME-TAX WOULD AUGMENT THE CAPITAL OF THE ASSESSEE AND THE EXPENDITURE INCURRED, NAMELY, INTE REST PAID FOR THE PERIOD OF SUCH RETENTION, WOULD ASSUME THE CHARACTE R OF BUSINESS EXPENDITURE. IT HELD THAT AN ASSESSEE COULD NOT POS SIBLY CLAIM THAT IT WAS BORROWING FROM THE STATE THE AMOUNTS PAYABLE BY IT AS INCOME-TAX, AND UTILISING THE SAME AS CAPITALIZATION IN ITS BUSINES S, TO CONTEND THAT THE INTEREST PAID FOR THE PERIOD OF DELAY IN PAYMENT OF TAX AMOUNTED TO A BUSINESS EXPENDITURE. THEREFORE, THE INTEREST PAID UNDER SECTION 201(1A) COULD NOT BE ALLOWED AS BUSINESS DEDUCTION. 12. THE CONTENTION REGARDING SECTION 40(A)(II) IS ALSO NOT TENABLE AS THE SAME IS IN CONTEXT OF TAXES LEVIED ON THE PROFITS O R GAINS OF BUSINESS AND NOT IN CONTEXT OF TAXES BY WAY OF TDS ON PAYMENTS M ADE BY THE ASSESSEE AND IN ANY CASE, THE INTEREST WILL PARTAKE THE CHARACTER OF THE PRINCIPAL WHICH IS NOT OTHERWISE ALLOWABLE. RESPECT FULLY FOLLOWING THE DECISIONS REFERRED SUPRA, INTEREST ON LATE DEPOSIT OF TDS U/S 201(1A) ITA NO. 294/JP/2019 M/S PERFECT TURNERS, JAIPUR VS. DCIT, JA IPUR 5 CANNOT BE ALLOWED TO THE ASSESSEE AND THE SAME HAS RIGHTLY BEEN DISALLOWED BY THE AO. IN THE RESULT, GROUND NO. 7 I S PARTLY ALLOWED. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED.' 6. FOLLOWING THE AFORESAID DECISION, THE GROUND NO. 2 OF THE ASSSESSEES APPEAL IS DISMISSED. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/01/2020. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 08/01/2020 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S PERFECT TURNERS, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- DCIT, CIRCLE-04, JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 294/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR ITA NO. 294/JP/2019 M/S PERFECT TURNERS, JAIPUR VS. DCIT, JA IPUR 6 ITA NO. 294/JP/2019 M/S PERFECT TURNERS, JAIPUR VS. DCIT, JA IPUR 7 ITA NO. 294/JP/2019 M/S PERFECT TURNERS, JAIPUR VS. DCIT, JA IPUR 8 ITA NO. 294/JP/2019 M/S PERFECT TURNERS, JAIPUR VS. DCIT, JA IPUR 9 ITA NO. 294/JP/2019 M/S PERFECT TURNERS, JAIPUR VS. DCIT, JA IPUR 10