TMI Blog2018 (2) TMI 1967X X X X Extracts X X X X X X X X Extracts X X X X ..... t the public policy and amount paid by the same could not be allowed as deductible expenses u/s.37(1A) in view of the explanation to section 37(1), is not sustainable in law. The interest charged at the rate of 2% per month for delayed payment of installment by the assessee-company could not be equated with payment made against the public policy or payment made in contravention of law. We are of the considered view that the interest paid by the assessee on delayed payment of installment to the State of Gujarat is in the nature of financial charges for late payment of installment. In this view of the matter, we hold that no case of disallowance by holding the payment of penal interest as against the public policy could be made out by the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue relates to the deletion of addition of ₹ 12.23 crores made on account of disallowance of penal interest paid to Government of Gujarat. 3. While scrutinising the return of income, the Assessing Officer noticed that the assessee has paid penal interest of ₹ 12,23,58,512/- to Government of Gujarat. The Assessing Officer was of the opinion that the nature of expenditure is of penalty which is not allowable as per provisions of the Income Tax Act, 1961. The Assessing Officer accordingly disallowed an amount of ₹ 12,23,58,512/-. 4. The assessee agitated the matter before the CIT(A) and strongly contended that the impugned payment is not penalty but only interest on delayed payment. Therefore, the disallowance i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the CIT(A) that such late payment is against the public policy and amount paid by the same could not be allowed as deductible expenses u/s.37(1A) in view of the explanation to section 37(1), is not sustainable in law. The interest charged at the rate of 2% per month for delayed payment of installment by the assessee-company could not be equated with payment made against the public policy or payment made in contravention of law. We are of the considered view that the interest paid by the assessee on delayed payment of installment to the State of Gujarat is in the nature of financial charges for late payment of installment. In this view of the matter, we hold that no case of disallowance by holding the payment of penal interest as agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statement of accounts and pointed out that the assessee has actually reduced the asset by the provision which amounts to writing off of bad debts. 12. We have given a thoughtful consideration to the orders of the authorities below. It is true that the assessee debited Profit Loss account by ₹ 5,75,00,227/- and credited the provision for bad and doubtful debts. Hon ble Supreme Court in the case of Vijaya Bank vs. CIT, 323 ITR 166 has observed and held that where assessee bank had written off the impugned bad debts in its books by way of a debit to profit and loss account, simultaneously reducing corresponding amount from loans and advances to debtors depicted on assets side in balance sheet at close of year, the assessee-bank ..... X X X X Extracts X X X X X X X X Extracts X X X X
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