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TMI Blog2021 (12) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... tax deducted at source (TDS). 3. Briefly the facts are, the assessee is a resident company. For the assessment year under dispute, the assessee filed its return of income on 30.09.2015 declaring total income of Rs. 2,96,43,520/-. In course of assessment proceedings, the Assessing Officer (AO) while verifying the financial statement of the assessee noticed that the assessee has debited an amount of Rs. 12,40,902/- to the profit and loss account towards interest on TDS. On further verification, he found that the interest has been charged for delayed payment of TDS amount to the Government account. When called upon to justify the deduction claimed, the assessee relied upon the decision of the Tribunal in case of DCIT vs. M/s Narayani Ispat Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Authorized Representative of the assessee submitted, the decisions relied upon by the learned Departmental Representative would not be applicable to assessee's case. Elaborating further, he submitted, the decision of the ITAT Bangalore Bench in case of Velankani Information Systems vs. DCIT (supra) would not be applicable as the nature and character of interest has not been properly appreciated. He submitted, in case of TDS, it is deducted from the gross expenditure paid/payable to the third parties. Whereas, the gross expenditure is eligible for deduction. He submitted, in that scenario, the interest amount would partake the character of principal amount, hence, will be a deductible expenditure. Therefore, he submitted, interest charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 37(1) of the Act. There is no dispute that interest of Rs. 12,40,902/- was charged for delay in remitting the TDS collected to the Government account. Assessee has debited such interest to the profit and loss account as expenditure. It is the case of the assessee that since such interest payment is not of penal nature and was paid in course of regular business, it is allowable deduction. 9. Aforesaid claim of the assessee has to be tested keeping in perspective the ratio laid down in certain judicial precedents cited before us. In case of Bharat Commerce & Industries Ltd. vs. CIT (supra) relied upon by the departmental authorities, the Hon'ble Apex Court while considering the allowability of interest paid for non-payment of advance tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the assessee in support of his submission that the interest paid by the assessee was merely compensatory in character besides relying on the case of Mahalakshmi Sugar Mills Co. (supra) also relied on the decisions of the Apex Court in the cases of Prakash Cotton Mills (P.) Ltd. v. CIT[1993] 201 ITR 684/67 Taxman 546 ; Malwa Vanaspati & Chemical Co. v. CI 1997 225 ITR 383 and CIT vs Ahmedabad Cotton Mfg. Co. Ltd. v.CI 1994 205 ITR 163. In all those cases, 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 busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dictional High Court held that such deduction is not allowable. At this stage, we must observe that in the following cases the Coordinate Benches have taken a view favoring to the assessee by holding that interest paid on delayed remittance of TDS is eligible for deduction under section 37(1) of the Act. 1. DCIT vs. M/s Narayani Ispat Pvt. Ltd. (supra) 2. M/s Essar Projects India Ltd. vs. ACIT (supra) 3. Mukand Ltd. vs. ITO (supra) 11. However, in none of these cases either the decision of the Hon'ble Supreme Court in case of Bharat Commerce and Industries Ltd. vs. CIT (supra) was considered, or the decisions of the Hon'ble jurisdictional High Court in case of Ferro Alloys Corporation Ltd. vs. CIT and the decision of Hon'ble Madras H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lude interest and penalty. Thus, in the context of specific provisions contained under the said Act, the Hon'ble Supreme Court held that tax due would not include interest and penalty. 14. Thus, as could be seen, the issue before the Hon'ble Supreme Court in case of Harshad Shantilal Mehta vs. Custodian (supra) is different from the issue involved in the present appeal. In any case of the matter, the decision of the Hon'ble jurisdictional High Court in case of Ferro Alloys Corporation Ltd. vs. CIT (supra) and the decision of the Hon'ble Madras High Court in case of CIT vs. Chennai Properties & Investment Ltd. (supra) are not only directly on the issue but are in favour of the revenue. Therefore, respectfully following the aforesaid two dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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