TMI Blog2021 (7) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 - Shri Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member For the Appellant : Shri K.P. Srinivas, CA For the Respondent : Shri Muzaffar Hussain, CIT(DR)(ITAT), Bengaluru ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER This appeal by the assessee is directed against the order of Principal CIT, Bengaluru-4, Bengaluru [PCIT] passed u/s. 263 of the Income-tax Act, 1961 [the Act] dated 25.7.2018. 2. The PCIT on verification of the case records noticed that the assessment concluded by the AO for A.Y. 2015-16 on 10.11.2017 u/s 143(3) of the Act is erroneous and prejudicial to the interest of revenue for the following reasons:- 1. From clause No. 23 of Form 3CD under the heading 'Particulars of payment made to persons specified in Section 40A(2)(b), the assessee has made commission payment of ₹ 48,31,7131- to its associate enterprises M/s Aero Finance Management, France. However, the assessee has not deducted tax u/s 195 on the commission payments. 2. A sum of ₹ 4,04,847/- has been debited to the profit and loss account being interest on delayed payment of taxes. However, the assessee has not disallowed the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not in the nature of interest. This was inadvertently accounted as interest expenses in the books due to oversight. Interest on delayed payment of TDS and indirect taxes is only compensatory in nature and is therefore eligible for deduction u/s 37 as a business expenditure. The assessee relied on the Hon'ble Supreme Court in the case of Prakash Cotton Mills Pvt. Ltd. Vs CIT 11993] 201 ITR 684 (SC.) . 7. Regarding interest on delayed payment of Entry tax ₹ 11,69,036/-, it was submitted that penalty on entry tax amounting to ₹ 1,15,0241-, was inadvertently omitted to be disallowed u/s 37 and was erroneously claimed as an allowable expenditure. Thus the same may be considered for disallowance. All interest costs incurred on assets after the asset is put to use is a revenue expenditure. As assets were put to use in the respective years and interest is for delayed payment, all this expenditure is revenue in nature. Moreover, proviso to Sec.36(1)(iii) is with reference to money borrowed for the purpose of acquisition of asset and not in respect of delay in payment of an indirect tax. Interest on delayed payment' of indirect tax is covered by the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness activity of the applicant. Sections 5 and 9 of the Act thus proceed on the assumption that income has a situs and the situs has to be determined according to the general principles of law. The words 'accrue' or 'arise' occurring in section 5 have more or less a synonymous sense and income is said to accrue or arise when the right to receive it comes into existence. No doubt the agents rendered services abroad and have solicited orders, but the right to receive the commission arises in India when the order is executed by the applicant in India. The fact that the agents have rendered services abroad in the form of soliciting the orders and the commission is to be remitted to them abroad are wholly irrelevant for the purpose of determining the sites of their income. We follow the ruling of this Authority in Rajiv Malhotra AAR 671 of 2005, 234 ITR 564. We therefore hold that the income arising on account of commission payable to the two agents is deemed to accrue and arise in India, and is tenable under the Act in view of the specific provision of Section 5(2)(b) read with section 9(1)(i) of the Act. The provision of section 195 would apply, and the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsatory payment as contended by learned counsel for the assessee. 14. In the above case the Hon'ble Madras High Court distinguished the Prakash Cotton Mills Pvt Ltd. vs CIT (1993)(201 ITR 684)(SC) in which the court was concerned with an indirect tax payable by the assessee in the course of its business and admissible as business expenditure. Further liability for interest which had been incurred by the assessee therein was regarded as compensatory in nature and allowable as business expenditure. 15. In respect of allowability of entry tax the assessee submitted that the penalty on entry tax amounting to ₹ 1,15,024 may be considered for disallowance and balance amount of ₹ 10,51,837 may be allowed as revenue expenditure as the assets are capitalised in the respective years and the interest on delayed payment of entry tax incurred subsequently in the year under consideration. The PCIT observed that the contention of assessee is not acceptable and the entry tax and interest on entry tax pertaining to capital assets needs to be capitalised irrespective of the year in which it was incurred and directed the AO to verify this aspect and disallow accordingly. 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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