TMI Blog2024 (1) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... n question has to be judged in the parameters of Sec.40(a)(iib) In our considered view this contention of the ld AR is completely out of context as we have already held that Sec.40(a)(ii) is not relevant to the present issue before us at all. Interest on late payment of TDS paid u/ s 201/ 201(1A) - whether an allowable expenses? - Levy of interest on delayed payment of TDS u/s.201(1A) though held to compensatory in nature, the allowability of the same cannot be decided simply based on that. The levy of 201(1A) is a levy for delay in the remittance of tax that is deducted and not paid into the government account and is levied towards the use of funds belonging to the exchequer. The interest u/s.201(1A) can be equated to the levy of interest u/s.234. Interest u/s.234 is a levy on delay in the payment of income tax and the TDS is nothing but the income tax paid on behalf of the payee and therefore the interest on the same u/s.201(1A) is also in the nature of interest levied on the income tax. On that count also interest on delayed payment of TDS cannot be claimed as a deduction. Non-giving of full TDS credit u/s 199 of the Act read with Rule 37 of the I.T. Rules - griev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiny of the facts of the case, the ld. AO in this case has given cogent reasons that it has been taxed by disallowing that expenditure in the assessment year under consideration. It is an admitted fact that the assessee has wrongly claimed the expenditure on legal and professional charges and later when it was detected, the same was offered for taxation. When the evidence and records disclose that the assessee has wrongly claimed the expenditure in its profit loss account and accepted the same and when the department has detected it during the course of survey, now assessee is precluded from denying the tax liability on this count. Accordingly, we do not find any merit on this issue, this ground of appeal is rejected. A.R. alternatively made a plea before us that if it is considered as income in this assessment year under consideration, the same amount is to be considered as a work in progress in subsequent assessment years and corresponding deduction to be given - Tribunal after giving opportunity of hearing to both the parties to the appeal or pass such order thereon as it thinks fit, the power confines to pass orders on the subject matter of appeal before us and the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Completion Method and revenue is never recognised based on Form 26AS. 6. The Officers below erred in law and fact in restricting TDS credit under the facts and circumstances of the case. 7. That Officers below erred in the computation by adopting the figures incorrectly and hence the consequential demand is liable to be annulled. 8. The Appellant submits that each of the above grounds are mutually exclusive and without prejudice to one another. 9. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of objection at any time before or at the time of hearing before the Honourable Income Tax Appellate Tribunal (Tribunal'), so as to enable the Hon ble Tribunal to decide on the appeal in accordance with the law. For these and other grounds that may be urged at the time of hearing of appeal, the Appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity. 2. The assessee has raised additional grounds as follows: 1. In respect of admission made in survey: i. The order of assessment passed by the learned assessing officer under section 143[31 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 234B and 234D is not in accordance with law as the rate, amount and method for calculating interest is not discernible from the order of assessment. 4. The Appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal. 5. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered. 3. At the outset, it is observed that the appeal has been filed by the assessee on 23.1.2023. The appellate order has been received by the assessee on 2.12.2021. The time limit to file appeal before this Tribunal is 60 days from the date of receipt of the order of the NFAC. Hence, there was a delay of 351 days in filing the appeal before this Tribunal. The delay between 2.12.2021 to 29.5.2022 i.e. 178 days is covered by the order of Hon ble Supreme Court in Miscellaneous Application No.665 of 2021 and 21 29 of 2022 in SMW(C) No.3 of 2020, dated 10.1.2022, the intervening period has been excluded while computing the limitation period as per Para 5. III as under: In cases where the limitation would have expired during the period between 15.3.202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudication. 7. Ground Nos.3 4 are reproduced as under: 3. The Officers below failed to appreciate that the interest paid on late payment of is not being in the nature of penalty and hence disallowance of same is unwarranted and uncalled for in the facts and circumstances of the case. 4. The learned officers below erred by not considering the submissions made by the appellant that the interest on late payment of TDS paid u/ s 201/ 201(1A) is an allowable expenses. 7.1 After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee s own case in ITA No.503/Bang/2022 the Tribunal vide order dated 1.8.2022 held as under: 11. We have considered the rival submissions and perused the material on record. The coordinate Bench of this Tribunal in Velankani Information Systems Ltd. (supra) dealt with this issue and held that interest on delayed payment of TDS cannot be allowed as deduction. The relevant observations of the Tribunal are as follows:- 21. As far as delay in remittance of tax deducted at source u/s. 201(1A) of the Act is concerned, we find that the Hon'ble Madras High Court has taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounts payable by it as income-tax, and utilising the same as capital in its business, to contend that the interest paid for the period of delay in payment of tax amounted to a business expenditure . (emphasis supplied) 22. The decision cited by the ld. counsel for the assessee of Kolkata Bench of the Tribunal on the issue is contrary to the decision of the Hon'ble Madras High Court. Though the decision of the Tribunal is later in point of time, judicial discipline demands that the decision of the Hon'ble Madras High Court is to be followed. It is also worthwhile to mention that the Kolkata Bench of Tribunal in the case of Narayani Ispat (P.) Ltd. (supra), which was cited by the ld. counsel for the assessee, did not consider or did not have an occasion to consider the decision of the Hon'ble Madras High Court in the case of Chennai Properties and Investment Ltd. (supra). In these circumstances, we follow the decision of the Hon'ble Madras High Court uphold the order of the CIT(A) insofar as it relates to disallowance of interest on delayed remittance of tax deducted at source u/s. 201(1A) of the Act. 12. Following the above decision of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest is in any way an expense incurred wholly or exclusively for the purpose of assessee's business. Nor is it a payment made for the purpose of preserving and protecting the assessee's business as in the case of Birla Cotton Mills (supra). Apart from section 37, the assessee has also present into service Section 36(1) (iii) which permits deduction in respect of the amount of interest paid in respect of capital borrowed for the purposes of the assessee's business or profession. For the reasons set out earlier, the claim for deduction under section 36(1)(iii) is also misconceived just as the assessee's claim under section 37 is misconceived. In the premises, the question raised has to be answered in favour of the revenue and against the assessee. The appeals are, therefore, dismissed with costs. 16. Therefore it is clear that the basis why tax or interest is not allowed as deduction u/s. 37(1) of the Act is on the reasoning that it cannot be regarded as an expense incurred wholly or exclusively for the purpose of Assessee s business. Therefore the allowability of interest on taxes paid should not be looked out from the definition of tax as given in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or penalty as well? We are concerned in the present case with penalty and interest under the Income Tax Act. Tax, penalty and interest are different concepts under the Income Tax Act. The definition of tax under Section 2(43) does not include penalty or interest. Similarly, under Section 157, it is provided that when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand as prescribed. Provisions for imposition of penalty and interest are distinct from the provisions for imposition of tax. Learned Special Court judge, after examining various authorities in paragraphs 61 to 70 of his judgment, has come to the conclusion that neither penalty nor interest can be considered as tax under Section 11(2)(a). We agree with the reasoning and conclusion drawn by the Special Court in this connection. 20. As can be seen from the issue involved in the aforesaid case, it was a case where the Hon ble Court had to decide whether interest liability is also liability within the meaning of Sec.11(2)(a) of the Special Act. The aforesaid decision rendered in a differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice of demand as prescribed. The provisions for imposition of penalty and interest are distinct from the provisions for imposition of tax. 10. The decision of the Supreme Court was delivered in an appeal which arose out of the Special Court (Trial of Offences Relating to Transaction in Securities) Act, 1992. The interpretation which has been placed on the provisions of Section 2(43) and the observations of the Supreme Court noted earlier, however, bind this Court as regards the ground on which the reopening of the assessment has been sought in this case. 22. It can thus be seen that the aforesaid observations were in a different context of full and fair disclosure of material facts and the ratio cannot be extended to the allowability of deduction u/s. 37(1) of the Act. 23. In the case of CIT vs Oryx Finance Investment (P) Ltd (2017) 83 taxmann.com 194 (Bombay) it was held that for the purpose of penalty u/s. 221 tax in arrears would not include interest payable u/s. 220(2) and not applicable to allowing interest paid u/s. 201(1A) of the Act as deduction u/s. 37(1) of the Act. 24. The case of Maganbhai Hansrajbhai Patel vs ACIT [2012] 26 taxmann.com 226 (G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... context of allowability of Gallonage fee, licence fee and shop rental (kist) incurred towards retail trading of foreign liquor and therefore in a completely different context that cannot be equated to assessee s case. 28. In Krishna Bhagya Jala Nigam Ltd vs ACIT [2022] 134 taxmann.com 101 (Bangalore - Trib.) it was held that guarantee commission was paid in consideration for State Government agreeing to suffer a detriment in event of assessee not repaying loan guarantee commission was not in nature of a 'levy' on a State Government undertaking by State Government and it was purely a contractual payment and did not fall within purview of section 40(a)(iib). 29. We have in the earlier part of this order already held that the question whether interest paid u/s. 201(1A) of the Act is an allowable business expenditure has to be examined within the parameters of Sec.37(1) of the Act and not on the basis of the prohibition contained in Sec.40a(ii) of the Act. Sec.37(1) of the Act provides that expenditure which is not capital or personal in nature laid out or expended wholly and exclusively for the purpose of business shall be allowed in computing the income chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed as penalty and has to be paid for failure on the part of the assessee to deduct tax at source. 32. In all these judgments, the issue under consideration was the mode of computation of interest u/s. 201(1A) and in that context, courts have held that it is compensatory in nature. In none of these decisions the issue of allowability of interest delayed payment of TDS as business expenditure arose and hence have no nexus to the assessee s case. 33. The ld AR relied on the following decisions to submit that compensatory payment should be allowed as a business expenditure u/s. 37(1). (i) P. Venganna Setty (2021) 133 taxmann.com 368 (Bang Trib) (ii) Mandya National Paper Mills Ltd (1985) 20 Taxmann 231 (Karnataka) (iii) Lachmandas Mathuradas (2002) 122 Taxmann 828 (SC) 34. The circumstance in which the interest u/s. 201(1A) is held to be compensatory is discussed in the above paras and therefore the submission of allowability of interest u/s. 201(1A) on that basis is not tenable. Besides the above, the law laid down by the Hon ble Supreme Court in the case of Bharat Commerce (supra) in the context of allowability of interest as deduction u/s. 37(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the decision of the Madras High Court in the case of Standard Polygraph Machines (2002) 124 Taxman 669 (Madras) stating that the same judge who authored the decision of Chennai Properties (supra) had in 2002 authored this decision where it was held that the TDS amount on paid on account of contractual obligation will not take colour of tax and hence to be treated as expenditure. This submission of ld AR is a complete misunderstanding of the facts of the case where the TDS is paid by the assessee as part of a contractual obligation over and above the contractual amount and therefore was treated as a business expenditure. This is interpreted out of context by the ld AR to state that TDS is not a tax but an obligation which in our view is illogical. 40. The ld AR submitted the below decisions of Tribunal where interest on delayed payment of TDS is allowed as a deduction. However following the Doctrine of Stare Decisis, we are bound by the decision of Hon ble High Court and therefore the below decisions cannot be followed in assessee s case (i) Resolve salvage Fire India (P) Ltd (2022) 139 taxmann.com 196 (Mum.Trib) (ii) STUP Consultants Pvt Ltd (ITA No5827/Mum/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 The grievance of the assessee in these ground is with regard to non-giving of full TDS credit u/s 199 of the Act read with Rule 37 of the I.T. Rules. The contention of the assessee is that TDS has been deducted not only on gross receipts of sale but also on mobilization advances and advance bill raised. But such advances are running bills raised by assessee which are not the sale receipts in the assessment year under consideration spread to more than 1 assessment year and the assessee has already offered the income emanated from these receipts in earlier assessment year or subsequent assessment years but corresponding TDS has not been given. 9. The ld. D.R. submitted that a perusal of the assessment order shows that this contention of the assessee is actually accepted by the A.O. in principle. The AO accepts that the mobilization advance etc. is spread over several years and should accordingly be taxed spread over those very years. But if that is the case, the assessee cannot take credit of the entire TDS in one year itself. If the income is being declared over several years on pro-rata basis, then naturally the TDS credit should be claimed over those very years. This is what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue during the hearing) to make addition of Rs. 1.42 crores on the premise that the same was on account of; a) Cross charge of common expenditure (Marketing and Admin) not considered for AY 2013-14 and 2014-15, and b) Legal expenditure was to be treated as WIP (To be carried forward) and not revenue expenditure. 11.3 In this regard, the ld. A.R. submitted that the addition based solely on the basis of a sworn statement, which is contrary to the audited financials and which does not have evidentiary value, shall not be the sustained as it is not based upon any deficiency, which would require additions to income. The assessee placed reliance upon the decision in CIT v S Khader Khan Son 352 ITR 480 (SC). Without prejudice, it is settled position of law that consent does not confer jurisdiction The work sheet of the said expenditure is stated at question 7 of the sworn statement and the chart has been appended in respect of legal and professional charges debited to P L ac ount can be transferred to WIP' of Rs. 1.42 crores. The ld. A.R. submitted that the total Legal expenditure incurred is only Rs. 44,89,312/- (Sch 21 Other Expenses) and thus the debit to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... survey at the business premises of the assessee. Statement was recorded u/s 139(1) of the Act from the Chairman and Managing Director of assessee company on 22.1.2016 and during the course of survey, he stated that he answered to question No.9 as follows: 9. Are the above-mentioned expenses incurred in the case of M/s. Expat Properties India and Expat Engineering India Ltd. also? Have you taken it as work-in- progress or debited it in P L account, Please explain. Ans: Expenses incurred as compensation have been debited to Profit and Loss account in the case of EPIL also. We are herewith offering this additional income to taxation as follows: FY 2012-13 -Rs.12.76 lakhs FY 2013-14 -Rs.84.19 lakhs FY 2014-15 -Rs.59.75 lakhs In the case of EEIL, legal and professional charges have been incurred towards projects which have been debited to P L account, and needs to be added back to WIP and we are offering the following additional income to taxation. FY 2012-13 -Rs.47.84 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is admitted fact that assessee has overstated the expenditure in the P L account by showing the capital expenditure as revenue expenditure with regard to legal and professional charges by charging the same to the P L account. By this action assessee overstated the expenditure and understated the income. This fact has been detected in the course of survey u/s 133A of the Act and Chairman and Managing Director of the assessee company has accepted to offer it for taxation. As such, once the Managing Director of assessee company has acknowledged that capital expenditure has been treated as a revenue expenditure and charged to P L account and stopped further enquiry at the end of department and agreed to offer the same for taxation in these assessment years and never being retracted the same at any assessment stage or first appellate stage, now by way of additional ground before us assessee challenges the same. 14.2 In our opinion, the expenditure has been wrongly accounted in the books of accounts and the same has been accepted by the assessee as wrong and offered it for taxation, which was not open to the assessee to take a reverse stand so as to take benefit of its own mistake. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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