SJS MOTORS,MEERUT V. CIRCLE 1(1) , MEERUT

ITA 5025/DEL/2024

AI Insights

The case involves SJS Motors, a partnership firm engaged in the business of authorized sales and service of Tata Motors, which appealed against the order of the Income Tax Officer, Circle-1(1), Meerut. The dispute centered on the treatment of Rs 17,71,380 paid as interest for the late payment of GST and VAT. The Assessing Officer had disallowed this amount, considering it penal in nature, under section 37 of the Income-tax Act. The Tribunal, referencing the Supreme Court's decision in Lachmandas Mathuradas v. CIT, concluded that the interest was compensatory, as it was intended to cover the delay in remitting statutory dues to the government, and thus, should be allowed as a deduction.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705928 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2018-2019
• Other Referred Cases: Lachmandas Mathuradas v. CIT, Saraya Sugar Mills (P.) Ltd. v. CIT, Triveni Engg. Works Ltd. v. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANISH GUPTA
• Assessee Lawyers: ROHIT AGGARWAL
• Section: 143(3); 37

Judgement Text

"INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No. 5025/Del/2024 (Assessment Year: 2018-19) SJS Motors, 58, OPP Dewan Textile, Delhi Road, Meerut Vs. Income Tax Officer, Circle-1(1), Meerut (Appellant) (Respondent) PAN: ABBFS1262L Assessee by : Shri Rohit Aggarwal, CA Revenue by: Shri manish Gupta, Sr. DR Date of Hearing 20/05/2025 Date of pronouncement 04/07/2025 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.5025/Del/2024 for AY 2018-19, arises out of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. NFAC’, in short] in Appeal No. ITBA/NFAC/S/250/2024-25/1067938127(1) dated 23.08.2024 against the order of assessment passed u/s 143(3) r.w.s. 143(3A) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 22.03.2021 by the Assessing Officer, National e-Assessment Centre, Delhi (hereinafter referred to as ‘ld. AO’). 2. The only issue to be decided in this appeal is as to whether the interest paid on delayed remittance of GST / VAT could be treated as compensatory or penal in nature for the purpose of allowability of deduction. ITA No. 5025/Del/2024 SJS Motors Page | 2 3. We have heard the rival submissions and perused the materials available on record. The Assessee is a partnership firm carrying on the business of authorized sales and service agent of M/s Tata Motors Limited (commercial vehicles). The return of income for the assessment year 2018-19 was filed by the Assessee firm on 31-10-2018 declaring total income of Rs 1,30,42,058/-. In the scrutiny assessment proceedings, the learned AO sought to treat a sum of Rs 17,71,380/- shown by the Assessee on account of interest paid for late payment of GST and VAT to be penal in nature and accordingly disallowed the same under section 37 of the Act. The Assessee submitted that the said interest payment would be compensatory in nature as it was incurred only for delayed remittance of statutory dues to the account of the Central Government. However, the plea of the Assessee was not appreciated by the learned CITA which makes the Assessee aggrieved to come in appeal before us. 4. It is not in dispute that the Assessee had indeed made payment of interest on late payment of VAT and GST in the sum of Rs 17,71,380/-. The issue as to whether the said interest payment would be compensatory in nature so as to make it allowable deduction was subject matter of consideration by the Hon’ble Supreme Court in the case of Lachmandas Mathuradas v. CIT reported in 254 ITR 799(SC). The Operative portion of the said decision is reproduced here under:- “3. While granting special leave to appeal, the appeal has been confined to question Nos. 1 and 2 only. 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 Full 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 ITA No. 5025/Del/2024 SJS Motors Page | 3 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 Sugar Mills (P.) Ltd. v. CIT decided on 29-2-1996. In that view of the matter, the appeal is allowed and question Nos. 1 and 2 are answered in favour of the assessee and against the revenue. No order as to costs.” 5. Respectfully following the said decision, we hold that the interest paid on delayed remittance of GST and VAT would be allowable deduction as it is only compensatory in nature and not penal in nature. Accordingly, the grounds raised by the Assessee are allowed. 6. In the result, the appeal of the Assessee is allowed. Order pronounced in the open court on 04/07/2025. -Sd/- -Sd/- (VIKAS AWASTHY) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 04/07/2025 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "