Narayani Ispat Pvt. Ltd., Kolkata V. ACIT, CIRCLE - 3, KOLKATA, Kolkata

ITA 80/KOL/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6028 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 12-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANKAR KR HALDER JCIT LD
• Assessee Lawyers: MANISH TIWARI F C A LD
• Section: 37(1); 139

Judgement Text

ITA NO . 80/KOL/2018 M/S. N ARAYANI ISPAT PVT. LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH D , KOLKATA (BEFORE SHRI A.T. VARKEY , J.M. & DR.A.L.SAINI, A.M.) ITA NO. 80 /KOL/201 8 ASSTT. YEAR : 20 11 - 12 M/S. NARAYANI ISPAT PVT. LTD PAN: AABCN - 1555D VS ACIT, CIR - 3 , KOLKATA ( A PPELL ANT/ASSESSEE ) (R ESPONDENT / DEPARTMENT ) APPELLANT BY : SHRI MANISH TIWARI, FCA, LD.AR RESPONDENT BY : SHRI SANKAR KR. HALDER, JCIT, LD.AR DATE OF HEARING : 31 - 12 - 2018 DATE OF PRONOUNCEMENT: 23 - 01 - 2019 ORDER PE R DR. A.L.SAINI, A.M .: THE CAPTIONED APPEAL FILED BY THE A SSESSEE , PERTAINING TO ASSESSMENT YEAR 2011 - 12 , IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME - TAX (APPEALS) - 1 , KOLKATA IN APPEAL NO . 429/CIT(A) - 1/C - 1(2)/2014 - 15 , DATED 02 - 12 - 2017 , WHICH IN TURN ARISE S OUT OF AN ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S.143(3) OF THE INCOME - TAX ACT, 1961 (IN SHORT, THE ACT), DATED 26 - 03 - 2014 . 2. WHEN THIS APPEAL WAS CALLED OUT FOR HEARING, THE LD. COUNSEL FOR THE ASSESSE E IN VITED OUR ATTENTION TO THE ORDER DATED 30 - 08 - 2017 , IN ASSESSEES CASE , FOR THE A.Y 2010 - 11 , PASSED BY THE DIVISION BENCH (ITAT, KOLKATA), WHEREBY THE ISSUE S OF INTEREST ON SERVICE TAX AND INTEREST PAYMENT ON TDS LIABILITY WERE DISCUSSED AND ADJUDICATED . LE ARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PRESENT APPEAL IS SQUARELY COVERED BY THE AFORESAID ORDER OF THE TRIBUNAL, A COPY OF WHICH WAS ALSO PLACED BEFORE THE BENCH. ITA NO . 80/KOL/2018 M/S. N ARAYANI ISPAT PVT. LTD 2 3 . LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT HAVE MUCH TO SAY BUT HE NEVERTH ELESS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 4 . WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE DIVISION BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 29TH SEPTEMBER 2016. IN THIS ORDER, TH E TRIBUNAL HAS INTER ALIA OBSERVED AS FOLLOWS: 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, AO HAS DISALLOWED THE INTEREST EXPENSES INCURRED BY THE ASSESSEE ON ACCOUNT OF LA TE DEPOSIT OF SERVICE TAX AND TDS AFTER HAVING RELIANCE ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF BHARAT COMMERCE INDUSTRIES LTD. VS. CIT (1998) (SUPRA). THE RELEVANT EXTRACT OF THE JUDGMENT READS AS UNDER : FACTS DURING THE YEAR UNDER CO NSIDERATION, THE ASSESSEE FAILED TO PAY ADVANCE TAX EQUIVALENT TO 75 PER CENT OF ESTIMATED TAX. THE ASSESSING OFFICER LEVIED INTEREST UNDER SECTION 215 AS WELL AS UNDER SECTION 139. THE ASSESSEE CLAIMED THAT SINCE TAXES WHICH WERE PAYABLE WERE DELAYED, THE ASSESSEE'S FINANCIAL RESOURCES INCREASED WHICH WERE AVAILABLE FOR BUSINESS PURPOSES. HENCE, THE INTEREST WHICH WAS PAID TO THE GOVERNMENT WAS INTEREST ON CAPITAL THAT WOULD BE BORROWED BY THE ASSESSEE OTHERWISE. HENCE, THE AMOUNTS SHOULD BE ALLOWED AS DED UCTION. 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 RESPECT OF A STATUTORY LIABILITY TO PAY ADVANCE TAX, THE AMOUNT PAID AND THE EX PENDITURE 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 THE CASE OF PAYMENT OF INCOME TAX AND INTEREST FOR DELAYED PAYMENT OF INCOME - TAX OR ADVANCE TAX ARISES ON THE COMPUTATION OF THE PROFITS AND GAINS OF BUSINESS. THE TAX WHICH IS PAYABLE IS ON THE ASSESSEE'S INCOME AFTER THE INCOME IS DETERMINED . THIS CANNOT, THEREFORE, BE CONSIDERED AS AN EXPENDITURE FOR THE PURPOSE OF EARNING ANY INCOME OR PROFITS. INTEREST WHICH IS PAID FOR DELAYED PAYMENT ITA NO . 80/KOL/2018 M/S. N ARAYANI ISPAT PVT. LTD 3 OF ADVANCE TAX ON SUCH INCOME CANNOT BE CONSIDERED AS EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. UNDER THE ACT, THE PAYMENT OF SUCH INTEREST IS INEXTRICABLY CONNECTED WITH THE ASSESSEE'S TAX LIABILITY. IF INCOME - TAX ITSELF IS NOT PERMISSIBLE DEDUCTION UNDER SECTION 37, ANY INTEREST PAYABLE FOR DEFAULT COMMITTED BY THE ASSESSEE IN DISCHARG ING HIS STATUTORY OBJECTION UNDER THE ACT, WHICH IS CALCULATED WITH REFERENCE TO THE TAX ON INCOME, CANNOT BE ALLOWED AS A DEDUCTION. THEREFORE, IT WAS TO BE HELD THAT DEDUCTION OF INTEREST LEVIED UNDER SECTIONS 139 AND 215 WOULD NOT BE ALLOWABLE UNDER SEC TION 37. IN THE ABOVE JUDGMENT, THE CLAIM OF THE ASSESSEE FOR INTEREST EXPENSES WAS DENIED AS IT DEFAULTED TO MAKE THE PAYMENT OF ADVANCE TAX AS PER THE PROVISIONS OF THE ACT. THE ADVANCE TAX IS NOTHING BUT INCOME TAX ONLY WHICH THE ASSESSEE HAS TO PAY O N HIS INCOME. IN THE INSTANT CASE THE DEFAULT RELATES TO THE DELAY IN THE PAYMENT OF ADVANCE TAX AND CONSEQUENTLY INTEREST WAS CHARGED ON THE DELAYED PAYMENT OF ADVANCE TAX. IN THE ABOVE JUDGMENT THE HONBLE APEX COURT HELD THAT AS INCOME TAX PAID BY THE A SSESSEE IS NOT ALLOWABLE DEDUCTION AND THEREFORE INTEREST EMANATING FROM THE DELAYED PAYMENT OF INCOME TAX (ADVANCE TAX) IS ALSO NOT ALLOWABLE DEDUCTION. HOWEVER , THE FACTS OF THE INSTANT CASE BEFORE US ARE DISTINGUISHABLE AS IN THE CASE BEFORE US THE INTE REST WAS PAID FOR DELAYED PAYMENT OF SERVICE TAX & TDS. THE INTEREST FOR THE DELAY IN MAKING THE PAYMENT OF SERVICE TAX & TDS IS COMPENSATORY IN NATURE. AS SUCH 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 HONBLE APEX COURT IN THE CASE OF LACHMANDAS MATHURA VS. CIT REPORTED IN 254 ITR 799 IN FAVOUR OF ASSESSEE. THE RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED BELOW : THE HIGH COURT HAS PROCEEDED ON THE BASIS THAT THE INTEREST ON ARREARS OF SALES TAX IS PENAL IN NATURE AND HAS REJECTED THE CONTENTION OF THE ASSESSEE THAT IT IS COMPENSATORY IN NATURE. IN TAKING THE SAID VIEW THE HIGH COURT HAS PLACED RELIANCE ON ITS FU LL BENCH'S DECISION IN SARAYA SUGAR MILLS (P.) LTD. V. CIT [1979] 116 ITR 387 (ALL.) THE LEARNED COUNSEL APPEARING FOR THE APPELLANT - ASSESSEE STATES THAT THE SAID JUDGMENT 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 QUESTION HAS ALSO BEEN CONSIDERED BY THIS COURT IN CIVIL APPEAL NO. 830 OF 1979 TITLED SARAYA SU GAR MILLS (P.) LTD. V. CIT DECIDED ON 29 - 2 - 1996. IN THAT VIEW OF THE MATTER, THE APPEAL IS ALLOWED AND QUESTION ITA NO . 80/KOL/2018 M/S. N ARAYANI ISPAT PVT. LTD 4 NOS. 1 AND 2 ARE ANSWERED IN FAVOUR OF THE ASSESSE AND AGAINST THE REVENUE. IN VIEW OF THE ABOVE JUDGMENT, THERE REMAINS NO DOUBT THAT THE INT EREST 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 TDS PROVISIONS. THE ASSESSEE CLAIMS THE SPECIFIED EXPENSES OF CERTAIN AMOUNT 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 EXCHEQUER. THUS THE TDS AMOUNT DOES NOT REPRESENT THE TAX OF THE ASSESSEE BUT IT IS THE TAX OF THE PARTY WHICH H AS BEEN PAID BY THE ASSESSEE. THUS ANY DELAY IN THE PAYMENT OF TDS BY THE ASSESSEE CANNOT BE LINKED TO THE INCOME TAX OF THE ASSESSEE AND CONSEQUENTLY THE PRINCIPLES LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF BHARAT COMMERCE INDUSTRIES LTD. VS. CIT (1998) REPORTED IN 230 ITR 733 CANNOT BE APPLIED TO THE CASE ON HAND. THUS, IN OUR CONSIDERED VIEW, THE PRINCIPLE LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF BHARAT COMMERCE INDUSTRIES LTD. (SUPRA) IS NOT APPLICABLE IN THE INSTANT FACTS OF THE 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 FIND THAT THE HON'BLE SUPREME COURT IN THE CASE OF L ACHMANDAS MATHURA (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 ABOVE, WE CONCLUDE THAT THE INTEREST EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT 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, WE 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 . A S THE ISSUE IS SQUAREL Y COVERED IN FAVOUR OF ASSESSE IN ASSESSEES OWN CASE (SUPRA) AND THERE IS NO CHANGE IN FACTS AND LAW AND THE LD. DR FOR THE R EVENUE HAS NOT CONTROVERTED THE FINDINGS OF THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE S ( SUPRA ), THEREFORE, RESPECTFULLY ITA NO . 80/KOL/2018 M/S. N ARAYANI ISPAT PVT. LTD 5 FOLLOWI NG THE SAID ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE ( SUPRA ) , WE ALLOW THE ASSESSEES APPEAL . 6 . IN THE RESULT, THE APPEAL OF THE ASSESSE E IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 - 01 - 2019 SD/ - SD/ - ( A.T VARKEY ) (DR. A.L.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23 - 01 - 2019 *PRADIP (SR.PS) COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT/ ASSESSEE : M/S . NARAYANI ISPAT PVT. LTD 23A, N.S ROAD, 7 TH FLOOR, ROOM NO. 31, KOLKATA - 700 001. 2 THE RESPONDENT/ DEPARTMENT: ASSISTANT COMMISSIONER OF INCOME TAX, CIR - 3 , AAYKAR BHAWAN, P - 7, CHOWRINGHEE SQUARE, KOLKATA - 700 069. 3. THE CIT - , 4. THE CIT(A) - , 5. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, ASST. REGISTRAR ITAT, KOLKATA BENCHES