SANJIV HASMUKH DESAI, MUMBAI V. ACIT CIR 21(2), MUMBAI

ITA 7610/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75904 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 26-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KIRAN S MEHTA
• Keywords: Business income
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI AMIT SHUKLA, JM ./ I.T.A. NO. 7610/MUM/2012 ( / ASSESSMENT YEAR: 2009-10) SANJIV HASMUKH DESAI 8, KOTESHWAR NIWAS, SUBHASH ROAD, VILE PARLE (E), MUMBAI-400 057 / VS. ASST. CIT, CIRCLE-21(2), MUMBAI ' ./# ./PAN/GIR NO. AAEPD 3505 F ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) '$ ' ( / APPELLANT BY : SHRI KIRAN S. MEHTA %&'$ ' ( / RESPONDENT BY : SHRI ASHOK SURI )* + ' , / DATE OF HEARING : 10.03.2014 -./ ' , / DATE OF PRONOUNCEMENT : 14.03.2014 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-32, MUMBAI (CIT(A) FOR SH ORT) DATED 09.10.2012, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2009-10 VIDE ORDER DATED 30.11.2011. 2. THE ONLY ISSUE ARISING IN THE INSTANT APPEAL BY THE ASSESSEE IS VALIDITY IN LAW OF THE DISALLOWANCE (AT RS.94,812/-) IN RESPECT OF INTERES T ON DELAYED PAYMENT OF SERVICE TAX U/S. 37(1) OF THE ACT. 2 ITA NO. 7610/MUM/2012 (A.Y. 2009-10) SANJIV HASMUKH DESAI VS. ASST. CIT 3. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD. 3.1 THE ASSESSEES CASE IS THAT SERVICE TAX, RECEIV ED AS PART OF HIS BUSINESS RECEIPT, IS THUS A TRADING RECEIPT IN TERMS OF THE DECISIONS BY THE HONBLE APEX COURT IN CASE OF CHOWRINGHEE SALES BUREAU P. LTD. VS. CIT [1973] 87 ITR 542 (SC) AND SINCLAIR MURRAY & CO. P. LTD. VS. CIT [1974] 97 ITR 615 (SC). AS SUCH, WHERE THERE IS A DELAY IN ITS PAYMENT, ATTRACTING INTEREST UNDER RELEVANT ACT, IT IS ONLY QUA THE PAYMENT OF A TRADING LIABILITY, A BUSINESS OUTGOING, SO THAT THE INTERES T FOR THE DELAYED PAYMENT WOULD STAND TO BE ALLOWED AS EXPENDITURE IN-AS-MUCH AS FUNDS WERE RETAINED IN THE BUSINESS TO THAT EXTENT, BENEFITING IT. THE REVENUES CASE, ON THE OTHER HAND, IS THAT SERV ICE TAX STANDS COLLECTED BY THE ASSESSEE FOR AND ON BEHALF OF THE REVENUE AND, ACCO RDINGLY, CAN BY NO MEANS BE CONSIDERED AS THE ASSESSEES TRADING RECEIPT/S. IN ANY CASE, THE SAME IS REQUIRED TO BE DEPOSITED BY LAW WITHIN A SPECIFIED TIME, AND ITS P AYMENT BEYOND THE SAID PERIOD CANNOT BE CONSIDERED AS AN INCIDENT OF THE BUSINESS AND, T HEREFORE, ASSUMES A PENAL NATURE. 3.2 WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE MATTER. THAT THE FUNDS WERE RETAINED IN BUSINESS, AND THEREFORE DEPLOYED FOR IT S PURPOSES, I.E., FOR THE PERIOD OF THEIR RETENTION, IS NOT IN DOUBT OR DISPUTE. THAT THE SER VICE TAX COLLECTED IS A PART OF THE ASSESSEES TRADING RECEIPT IS BEYOND DOUBT, AND TOW ARD WHICH WE DRAW ON THE NON OBSTANTE CLAUSE OF SECTION 145A, BESIDES THE NATURE THEREOF AS EXPLAINED BY THE APEX COURT IN CHOWRINGHEE SALES BUREAU P. LTD. (SUPRA) AND SINCLAIR MURRAY & CO. P. LTD. (SUPRA). THE ONLY QUESTION THAT SURVIVES IS WHETHER THE INTE REST COST OR THE CHARGE FOR PERIOD OF DELAY IN REMITTING A LIABILITY OF THE BUSINESS BY T HE ASSESSEE, IS COMPENSATORY OR, EVEN IF IN PART, PENAL IN NATURE. THIS FOR THE SIMPLE REASO N THAT IF AND TO THE EXTENT IT IS PENAL IN NATURE, THE SAME WOULD NOT WARRANT A DEDUCTION IN- AS-MUCH AS THE SAME WOULD IN THAT CASE ARISE IN CONSEQUENCE OF AN INFRACTION OF LAW, AND WHICH CANNOT BY ANY STRETCH OF IMAGINATION BE CONSIDERED AS AN INCIDENT OF THE TRA DE. TOWARD THIS, WE OBSERVE THAT THE LAW, I.E., SECTION 75 OF THE SERVICE TAX ACT, REPRO DUCED AT PARA 3.2 (PAGES 2 & 3) OF THE IMPUGNED ORDER, PROVIDES A WIDE DISCRETION, RANGING FROM 10% TO 36% PER ANNUM, TO THE ADJUDICATING AUTHORITY FOR THE PURPOSE OF LEVY OF I NTEREST. 3 ITA NO. 7610/MUM/2012 (A.Y. 2009-10) SANJIV HASMUKH DESAI VS. ASST. CIT THE INTEREST RATE LEVIED IN THE INSTANT CASE, AS IN FORMED TO US BY LD. A.R DURING THE HEARING, IS AT 13% PER ANNUM. IN OUR VIEW, THE SAME CAN ONLY BE SAID TO BE COMPENSATORY IN CHARACTER. AS SUCH, SUBJECT TO THE VERIFICATION OF ASSESSEES CLAIM WITH REGARD TO THE INTEREST RATE, WE CONFIRM THE SAME AS COMPENSATORY AND, THUS, DEDUCTIBLE IN THE COMPUTATION OF BUSINESS INCOME. IT MAY BE RELEVANT TO CLARIFY HERE THAT THE DELAY IN THE REMISSION OF A LIABILITY COULD ARISE FOR A VARIETY OF REASONS, AND WHICH BY ITSELF COULD NOT LEAD TO AN INFERENCE THAT THE COMPENSATORY COST ATT RACTED THEREBY IS NOT FOR THE PURPOSES OF THE BUSINESS. IN OUR VIEW, THEREFORE, IT IS AKIN TO THE CASE OF A DELAYED PAYMENT TO A CREDITOR FOR A TRADING LIABILITY OR BUSINESS EXPEND ITURE, AND FOR WHICH INTEREST STANDS CONTRACTUALLY PAID, OR SETTLED TO BE PAID, TO THE C ONCERNED CREDITOR. WE ARE ALSO CONSCIOUS AND COGNIZANT OF THE FACT THAT INTEREST UNDER REFER ENCE MAY RELATE TO, IF ONLY IN PART, FOR THE PERIOD OUTSIDE THE CURRENT YEAR AS WELL. SO HOWEVER , THE SAME ARISING UNDER A LAW, IN FORCE FOR THE TIME BEING, WOULD STAND TO BE COVERED BY THE PROVISION OF SECTION 43B. ACCORDINGLY, THE IMPUGNED INTEREST, IRRESPECTIVE OF THE PERIOD TO WHICH IT MAY RELATE TO, WOULD STAND TO BE DEDUCTED ONLY ON PAYMENT. THE ASP ECT OF ITS PAYMENT, I.E., DURING THE CURRENT YEAR, WOULD THEREFORE ALSO NEED TO BE CONFI RMED. 3.3 IN OUR VIEW, THEREFORE, THE ASSESSEE, SUBJECT T O THE FOREGOING VERIFICATIONS BY THE A.O., DESERVES TO SUCCEED. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, ASSESSEES APPEAL IS DISPOSED OF ON THE AFORESAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 14, 201 4 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 0+ MUMBAI; 1) DATED : 14.03.2014 *.)../ JV , SR. PS 4 ITA NO. 7610/MUM/2012 (A.Y. 2009-10) SANJIV HASMUKH DESAI VS. ASST. CIT ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. 4*5 6 %)78 , , 78/ , 0+ / DR, ITAT, MUMBAI 6. 6 9: ; + / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , 0+ / ITAT, MUMBAI