TMI Blog2019 (10) TMI 836X X X X Extracts X X X X X X X X Extracts X X X X ..... old the same Disallowance of the interest on service tax - deduction u/s 37(1) disallowed - HELD THAT:- CIT(A) did not find favour with the view taken by the A.O, and observed, that as the payment of interest was compensatory in nature, therefore, the same was rightly claimed as a deduction u/s 37 by the assessee. We have given a thoughtful consideration to the issue before us and are unable to persuade ourselves to subscribe to the view taken by the A.O. We find that Sec.75 of the Finance Act, 1994, which envisages levy of interest on late service tax payment is compensatory in nature and cannot be characterised as a levy of penalty. Levy of penalty under the Service Tax Act is contemplated in Sec.76 of the Finance Act, 1994. Accordingly, as the payment of interest on late service tax payment by the assessee is found to be compensatory in nature, therefore, the same in our considered view could not have been held as not allowable as a deduction under Sec.37(1) of the Act. We thus finding no infirmity in the order of the CIT(A), who in our considered view had rightly vacated the disallowance of the interest on late service tax payment made by the A.O, uphold his order to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that on the grounds stated above, the order of the Ld. CIT(A)-52, Mumbai, may be set aside and that of the Assessing Officer be restored. 2. Briefly stated, the assessee company which is engaged in the business of custom house agent (CHA), clearing and forwarding, transportation and logistics had e-filed its return of income for A.Y. 2013-14 on 11.10.2013, declaring its total loss at (-) ₹ 39,87,581/-. The return of income filed by the assessee company was processed as such under Sec.143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec.143(2). 3. During the course of the assessment proceedings it was observed by the A.O that the assessee had outstanding trade payables of ₹ 73,36,425/- in its books of account for the last more than 3 (three) years. It was observed by the A.O, that the opening and closing balances in the accounts of the respective parties had remained the same and there were no transactions even during the year under consideration. Also, it was observed by the A.O, that the assessee had not furnished the complete names of the parties along with their addresse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 4,84,307/-was concerned, it was observed by the CIT(A), that the payment of the said amount was towards interest on account of delay in deposit of the amount of service tax as envisaged in Sec.75 of the Finance Act, 1994. The CIT(A) was of the view that as the aforesaid payment of interest was compensatory in nature and not by way of a penalty, therefore, the same was rightly claimed by the assessee as a deduction under Sec. 37(1) of the Act. 5. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Departmental Representative (for short D.R ) relied on the order of the A.O. It was submitted by the ld. D.R, that as the liabilities aggregating to ₹ 73,36,425/- were outstanding in the books of account of the assessee for more than last 3 years, therefore, the A.O had rightly added the same under Sec. 41(1) of the Act. As regards the disallowance of the claim of interest paid on service tax of ₹ 4,84,307/-, it was submitted by the ld. D.R, that as the same was in the nature of a payment towards penal interest, therefore, it was not allowable as a deduction under Sec.37 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, the aforesaid addition of ₹ 73,36,425/- was made by the A.O for the standalone reason that the liability of the assessee towards the said creditors was outstanding in its books of accounts for more than 3 years. Accordingly, merely for the reason that trade payables of ₹ 73,36,425/- were outstanding in the books of accounts of the assessee for last many years the A.O had characterised the same as a ceased liability. Apart there from, we find that the A.O had also doubted the genuineness of the said outstanding liability of ₹ 73,36,425/- of the assessee towards the aforesaid sundry creditors. 8. We have given a thoughtful consideration to the issue before us and find substantial force in the contention advanced by the ld. A.R, that merely for the reason that the aforesaid trade payables were outstanding in the books of account of the assessee for the last many years, they could not have been held to have ceased in terms of Sec. 41(1) of the Act. As per Sec.41(1), it is only where allowance of deduction has been made in the assessment for any year in respect of loss, expenditure or trade liability incurred by the assessee (hereina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration, we are of the considered view, that as the respective amounts had not been credited in the books of account of the assessee during the year under consideration, therefore, for the said reason itself the provisions of Sec.68 were clearly ousted and no addition of the said amount could have been made in the hands of the assessee under the said statutory provision during the year under consideration. We thus not finding any infirmity in the order of the CIT(A), to the extent he had vacated the addition of ₹ 76,36,425/- made by the A.O u/ss. 41(1)/68 of the Act, therefore, uphold the same. The Grounds of appeal No.1 and 2 raised by the revenue are dismissed. 9. We shall now advert to the disallowance made by the A.O of the interest on service tax of ₹ 4,84,307/- paid by the assessee, which thereafter had been vacated by the CIT(A). As is discernible from the orders of the lower authorities, the assessee had paid the aforesaid amount of interest on account of delay in payment of service tax. The A.O was of the view, that as the assessee had to make the payment of the aforesaid interest because of violation of service tax rules, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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