M/s IDS Next Business Solutions Pvt Ltd , Bangalore V. The Assistant Commissioner of Income Tax Circle-3(1)(1), Bangalore

ITA 510/BANG/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4628 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 23-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PADMA MEENAKSHI
• Assessee Lawyers: C S RAMPRIYADAS
• Section: 234B; 37(1); 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 5 10 / BANG/201 8 ASSESSMENT YEAR : 20 14 - 15 M/S. IDS NEXT BUSINESS SOLUTIONS PVT. LTD., NO. 490, R T NAGAR MAIN ROAD, RT NAGAR, HMT LAYOUT, BANGALORE 560 032. PAN: AAACI3832R VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3 (1) (1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI C.S. RAMPRIYADAS, CA RESPONDENT BY : SMT. PADMA MEENAKSHI, JCIT (DR) DATE OF HEARING : 11 .0 6 .2018 DATE OF PRONOUNCEMENT : 15 .0 6 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND THE SAME I S DIRECTED AGAINST THE ORDER OF LD. CIT(A)-3, BANGALORE DATED 22.12.2017FOR ASSE SSMENT YEAR 2014-15. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. 1. THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISA LLOWANCE OF INTEREST PAYMENT OFRS.10,45,601 ON BELATED TDS PAY MENT WITHOUT PROPERLY APPRECIATING THE LAW AND THE FACTS IN PROP ER PERSPECTIVE. 2. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THA T IT IS THE CASE OF THE APPELLANT INTER-ALIA THAT INTEREST ON LATE PAYM ENT OF TDS IS COMPENSATORYAND NOT PENAL IN NATURE; THAT TDS IS NO T A LIABILITY IN THE HANDS OF THE DEDUCTOR; THAT INTEREST PAID ON ACCOUN T BELATED TDS PAYMENT IS ONLY TO COMPENSATE THE LOSS, IF ANY; ETC , AND THEREFORE, THE SAME IS ALLOWABLE. 3. THE AO FURTHER ERRED IN MAKING THE DISALLOWANCE OF INTEREST PAYMENT TO UNSECURED CREDITOR WHILE THE PROVISIONS OF S.194A WERE NOT ATTRACTED. ITA NO.510/BANG/2018 PAGE 2 OF 5 4. LEARNED CIT(A) GROSSLY ERRED IN NOT CONSIDERING THE DECISIONS RELIED ON BY THE APPELLANT INCLUDING THE DECISION O F APEX COURT AND HENCE THE DISALLOWANCE MADE IN THE IMPUGNED ORDER I S BAD AND UNSUSTAINABLE. 5. LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE LEVY OF INTEREST UNDER SECTIONS 234B AND 234D OF THE ACT WAS BAD IN LAW AN D FURTHER OUGHT TO HAVE DIRECTED THE AO TO CANCEL THE SAME. 6. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND, ALT ER, VARY AND/ OR WITHDRAW ANY OR ALL OF THESE GROUNDS OF APPEAL. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, THE IMPUGNED ORDER OF THE LEARNED AO MAY BE SET ASIDE IN THE INT ERESTS OF JUSTICE. 3. THE LD. AR OF ASSESSEE PLACED RELIANCE ON THE TR IBUNAL ORDER RENDERED IN THE CASE OF DCIT VS. NARAYANI ISPAT PVT. LTD. IN ITA NO . 2127/KOL/2014 DATED 30.08.2017. HE SUBMITTED A COPY OF THIS TRIBUNAL O RDER AND IT WAS SUBMITTED THAT IN THIS CASE ALSO, THE ISSUE INVOLVED WAS REGA RDING DISALLOWANCE OF INTEREST OF RS. 15,880/- ON SERVICE TAX AND RS. 70,000/- ON TDS BECAUSE OF THE FACT THAT THE ASSESSEE FAILED TO DEPOSIT TAX OF OTHER PARTIES TO CENTRAL GOVERNMENT WITHIN DUE TIME AND IT WAS HELD BY THE TRIBUNAL IN THAT CA SE THAT THE INTEREST EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF LATE DEPOSIT OF SERVICE TAX AS WELL AS TDS ARE ALLOWABLE U/S. 37(1) OF IT ACT AND IN COMIN G TO THE CONCLUSION, THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF LACHMANDAS MATHURA VS. CIT AS REPORTED IN 254 IT R 799 AND ANOTHER JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF BHARAT COMMERCE INDUSTRIES LTD. VS. CIT AS REPORTED IN 230 ITR 733. THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FOR THE SAKE OF READY REFERENCE, WE REPRODUCE PARA 7 OF THIS TRIBUNAL ORDER RENDERED IN THE CASE OF DCIT VS. NARAYANI ISPAT PVT. LTD. (SUPRA). THE SAME READS A S UNDER. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THEMATERIAL AVAILABLE ON RECORD. IN THE INS TANT CASE, AO HAS DISALLOWED THE INTERESTEXPENSES INCURRED BY THE ASS ESSEE ON ACCOUNT OF LATE DEPOSIT OF SERVICE TAX AND TDSAFTER HAVING REL IANCE ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF BH ARATCOMMERCE INDUSTRIES LTD. VS. CIT (1998) (SUPRA). THE RELEVAN T EXTRACT OF ITA NO.510/BANG/2018 PAGE 3 OF 5 THEJUDGMENT READS AS UNDER: FACTS DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE F AILED TO PAY ADVANCE TAX EQUIVALENT TO 75 PER CENT OF ESTIMATED TAX. THE ASSESSING OFFICER LEVIED INTEREST UNDER SECTION 215 AS WELL A S UNDER SECTION 139. THE ASSESSEE CLAIMED THAT SINCE TAXES WHICH WERE PA YABLE WERE DELAYED, THE ASSESSEE'S FINANCIAL RESOURCES INCREAS ED WHICH WERE AVAILABLE FOR BUSINESS PURPOSES. HENCE, THE INTERES T WHICH WAS PAID TO THE GOVERNMENT WAS INTEREST ON CAPITAL THAT WOULD B E BORROWED BY THE ASSESSEE OTHERWISE. HENCE, THE AMOUNTS SHOULD BE AL LOWED AS DEDUCTION. THE REVENUE DID NOT ALLOW SUCH DEDUCTION . THE HIGH COURT AFFIRMED THE VIEW. ON APPEAL TO THE SUPREME COURT : HELD WHEN INTEREST IS PAID FOR COMMITTING A DEFAULT IN R ESPECT OF A STATUTORY LIABILITY TO PAY ADVANCE TAX, THE AMOUNT PAID AND T HE EXPENDITURE INCURRED IN THAT CONNECTION IS IN NO WAY CONNECTED WITH PRESERVING OR PROMOTING THE BUSINESS OF THE ASSESSEE. THIS IS NOT EXPENDITURE WHICH IS INCURRED AND WHICH HAS TO BE TAKEN INTO ACCOUNT BEFORE THE PROFITS OF THE BUSINESS ARE CALCULATED. THE LIABILITY IN TH E CASE OF PAYMENT OF INCOME- TAX AND INTEREST FOR DELAYED PAYMENT OF INC OME-TAX OR ADVANCE TAX ARISES ON THE COMPUTATION OF THE PROFIT S AND GAINS OF BUSINESS. THE TAX WHICH IS PAYABLE IS ON THE ASSESS EE'S INCOME AFTER THE INCOME IS DETERMINED. THIS CANNOT, THEREFORE, B E CONSIDERED AS AN EXPENDITURE FOR THE PURPOSE OF EARNING ANY INCOME O R PROFITS. INTEREST WHICH IS PAID FOR DELAYED PAYMENT OF ADVANCE TAX ON SUCH INCOME CANNOT BE CONSIDERED AS EXPENDITURE WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF BUSINESS. UNDER THE ACT, THE PAYMENT OF SUCH INTEREST IS INEXTRICABLY CONNECTED WITH THE ASSESSEE'S TAX LIAB ILITY. IF INCOME-TAX ITSELF IS NOT PERMISSIBLE DEDUCTION UNDER SECTION 3 7, ANY INTEREST PAYABLE FOR DEFAULT COMMITTED BY THE ASSESSEE IN DI SCHARGING HIS STATUTORY OBJECTION UNDER THE ACT, WHICH IS CALCULA TED WITH REFERENCE TO THE TAX ON INCOME, CANNOT BE ALLOWED AS A DEDUCT ION. THEREFORE, IT WAS TO BE HELD THAT DEDUCTION OF INTE REST LEVIED UNDER SECTIONS 139 AND 215 WOULD NOT BE ALLOWABLE U NDER SECTION 37. IN THE ABOVE JUDGMENT, THE CLAIM OF THE ASSESSEE FO R INTEREST EXPENSES WAS DENIED AS IT DEFAULTED TO MAKE THE PAYMENT OF A DVANCE TAX AS PER THE PROVISIONS OF THE ACT. THE ADVANCE TAX IS NOTHI NG BUT INCOME TAX ONLY WHICH THE ASSESSEE HAS TO PAY ON HIS INCOME. I N THE INSTANT CASE THE DEFAULT RELATES TO THE DELAY IN THE PAYMENT OF ADVANCE TAX AND CONSEQUENTLY INTEREST WAS CHARGED ON THE DELAYED PA YMENT OF ADVANCE TAX. IN THE ABOVE JUDGMENT THE HON'BLE APEX COURT H ELD THAT AS INCOME TAX PAID BY THE ASSESSEE IS NOT ALLOWABLE DE DUCTION AND THEREFORE INTEREST EMANATING FROM THE DELAYED PAYME NT OF INCOME TAX (ADVANCE TAX) IS ALSO NOT ALLOWABLE DEDUCTION. HOWEVER THE FACTS OF THE INSTANT CASE BEFORE US ARE DISTINGUISHABLE AS ITA NO.510/BANG/2018 PAGE 4 OF 5 IN THE CASE BEFORE US THE INTEREST WAS PAID FOR DEL AYED PAYMENT OF SERVICE TAX & TDS. THE INTEREST FOR THE DELAY IN MA KING THE PAYMENT OF SERVICE TAX & TDS IS COMPENSATORY IN NATURE. AS SUC H THE INTEREST ON DELAYED PAYMENT IS NOT IN THE NATURE OF PENALTY IN THE INSTANT CASE ON HAND. THE ISSUE OF DELAY IN THE PAYMENT OF SERVICE TAX IS DIRECTLY COVERED BY THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF L ACHMANDAS MATHURA VS. CIT REPORTED IN 254 ITR 799 IN FAVOUR O F ASSESSEE. THE RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED BELO W : 'THE HIGH COURT HAS PROCEEDED ON THE BASIS THAT THE INTEREST ON ARREARS OF SALES TAX IS PENAL IN NATURE AND HAS REJ ECTED THE CONTENTION OF THE ASSESSEE THAT IT IS COMPENSATORY IN NATURE. IN TAKING THE SAID VIEW THE HIGH COURT HAS PLACED RELI ANCE ON ITS FULL BENCH'S DECISION IN SARAYA SUGAR MILLS (P.) LT D. V. CIT [1979] 116 ITR 387 (ALL.) THE LEARNED COUNSEL A PPEARING FOR THE APPELLANT-ASSESSEE STATES THAT THE SAID JUD GMENT OF THE FULL BENCH HAS BEEN REVERSED BY THE LARGER BENCH OF THE HIGH COURT IN TRIVENI ENGG. WORKS LTD. V. CIT[1983] 144 ITR 732 (ALL.) (FB), WHEREIN IT HAS BEEN HELD THAT INTEREST ON ARREARS OF TAX IS COMPENSATORY IN NATURE AND NOT PENAL. THIS Q UESTION HAS ALSO BEEN CONSIDERED BY THIS COURT IN CIVIL APPEAL NO. 830 OF 1979 TITLED SARAYA SUGAR MILLS (P.) LTD. V. CIT DEC IDED ON 29-2- 1996. IN THAT VIEW OF THE MATTER, THE APPEAL IS ALL OWED AND QUESTION NOS. 1 AND 2 ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE.' IN VIEW OF THE ABOVE JUDGMENT, THERE REMAINS NO DOU BT THAT THE INTEREST EXPENSE ON THE DELAYED PAYMENT OF SERVICE TAX IS ALLOWABLE DEDUCTION. THE ABOVE PRINCIPLES CAN BE APPLIED TO THE INTEREST EXPENSES LEVIED ON ACCOUNT OF DELAYED PAYMENT OF TDS AS IT RELATES TO THE EXPENSES CLAIMED BY THE ASSESSEE WHICH ARE SUBJECT TO THE TD S PROVISIONS. THE ASSESSEE CLAIMS THE SPECIFIED EXPENSES OF CERTAIN A MOUNT IN ITS PROFIT & LOSS ACCOUNT AND THEREAFTER THE ASSESSEE FROM THE PAYMENT TO THE PARTY DEDUCTS CERTAIN PERCENTAGE AS SPECIFIED UNDER THE ACT AS TDS AND PAYS TO THE GOVERNMENT EXCHEQUER. THE AMOUNT OF TDS REPRESENTS THE AMOUNT OF INCOME TAX OF THE PARTY ON WHOSE BEHALF THE PAYMENT WAS DEDUCTED & PAID TO THE GOVERNMENT EXCHE QUER. THUS THE TDS AMOUNT DOES NOT REPRESENT THE TAX OF THE ASSESS EE BUT IT IS THE TAX OF THE PARTY WHICH HAS BEEN PAID BY THE ASSESSEE. T HUS ANY DELAY IN THE PAYMENT OF TDS BY THE ASSESSEE CANNOT BE LINKED TO THE INCOME TAX OF THE ASSESSEE AND CONSEQUENTLY THE PRINCIPLES LAI D DOWN BY THE HON'BLE APEX COURT IN THE CASE OF BHARAT COMMERCE I NDUSTRIES LTD. VS. CIT (1998) REPORTED IN 230 ITR 733 CANNOT BE AP PLIED TO THE CASE ON HAND. ITA NO.510/BANG/2018 PAGE 5 OF 5 THUS, IN OUR CONSIDERED VIEW, THE PRINCIPLE LAID DO WN BY THE HON'BLE SUPREME COURT IN THE CASE OF BHARAT COMMERCE INDUST RIES LTD. (SUPRA) IS NOT APPLICABLE IN THE INSTANT FACTS OF T HE CASE. THUS, WE HOLD THAT THE ASSESSING OFFICER IN THE INSTANT CASE HAS WRONGLY APPLIED THE PRINCIPLE LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF BHARAT COMMERCE INDUSTRIES LTD.(SUPRA). WE ALSO FIN D THAT THE HON'BLE SUPREME COURT IN THE CASE OF LACHMANDAS MAT HURA (SUPRA) HAS ALLOWED THE DEDUCTION ON ACCOUNT OF INTEREST ON LATE DEPOSIT OF SALES TAX U/S 37(1) OF THE ACT. IN VIEW OF THE ABOV E, WE CONCLUDE THAT THE INTEREST EXPENSES CLAIMED BY THE ASSESSEE ON AC COUNT OF DELAYED DEPOSIT OF SERVICE TAX AS WELL AS TDS LIABILITY ARE ALLOWABLE EXPENSES U/S 37(1) OF THE ACT. IN THIS VIEW OF THE MATTER, W E FIND NO REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) AND WE UPHOLD THE SAME. HENCE, THIS GROUND OF REVENUE IS DISMISSED. 5. WE FIND THAT IN THAT CASE ALSO, THE ISSUE INVOLV ED WAS REGARDING ALLOWABILITY OF INTEREST ON BELATED PAYMENT OF SERVICE TAX AND TDS WHEREAS IN THE PRESENT CASE, THE ISSUE IN DISPUTE IS REGARDING INTEREST PA YMENT ON BELATED PAYMENT OF TDS. HENCE IT IS SEEN THAT THE FACTS AND DISPUTE A RE SIMILAR AND THEREFORE, BY RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE DECI DE THE ISSUE IN FAVOUR OF THE ASSESSEE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (SUNIL KUMAR YADAV) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 15 TH JUNE, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.