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2022 (1) TMI 350 - AT - Income TaxAddition u/s 36(1)(iii) - assessee has not challenged the alternate addition u/s 36(1)(iii) before the first appellate authority - CIT(A) deleted the addition u/s 14A for the reason that the assessee has not earned any exempt income for the relevant assessment year - HELD THAT:- We find that the assessee has raised ground before the CIT(A) that investments are made in subsidiary and are out of commercial expediency. The assessee has also placed judicial pronouncements in support of its claim. Therefore, the CIT(A) is not justified in sustaining the addition u/s 36(1)(iii) of the I.T.Act without disposing of the assessee’s grounds on merits. Hence, we deem it appropriate to restore this issue to the files of the CIT(A) in the interest of justice and equity. The CIT(A) is directed to afford a reasonable opportunity of hearing to the assessee before he dispose of this issue. It is ordered accordingly. Interest on delayed payment of service tax - AO held the same is not an allowable expenditure u/s 36 nor 37 as interest payable is not permissible for deduction u/s 37 of the I.T.Act since it is a default committed by the assessee in discharge of its statutory obligation - HELD THAT:- Separate sections govern the penal and interest consequences on delay in payment of service tax. This being the case, interest on delay in payment of service tax cannot be held to be penal in nature. The payment of interest is automatic when there is a delay in payment of taxes. Unlike penalty provisions, interest on delayed payment is not the discretion of the Officer. It has to be paid by the assessee and there is no option of waiver of the same by the Tax Officer. Therefore, the payment of interest is compensatory in nature and not in the nature of penalty or fine, disallowable u/s 37 of the I.T.Act. The Hon’ble Apex Court in the case of Mahalakshmi Sugar Mills Co v. CIT reported in [1980 (4) TMI 1 - SUPREME COURT]had examined the issue of disallowance of statutory interest on the ground that the same was penal in nature. The Hon’ble Apex Court reversing the judgment of the Hon’ble Delhi High Court held that interest payable on arrears of cess is in reality part and parcel of the liability to pay cess. As in KAYPEE MECHANICAL INDIA PVT. LTD. [2014 (4) TMI 829 - GUJARAT HIGH COURT]held that the interest payment is an expenditure deductible u/s 37 The Delhi Tribunal in the case of CIT v. Messee Dusseldorf India (P) Ltd. [2009 (12) TMI 1034 - ITAT, DELHI] had held that interest paid for delayed payment of service tax is compensatory in nature and has the same character as service tax and therefore allowable as a deduction. In view of the above judicial pronouncements, we hold that the interest on delayed payment of service tax is compensatory in nature and not penal in nature. Therefore, we direct the A.O. to allow deduction - Decided in favour of assessee.
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