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TMI Blog2024 (5) TMI 1354X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) has erred in deleting the disallowance of Rs. 12;69,0751- made by the A.O on account of travelling expenses.". 2. Ground no. 1 is regarding the addition made by the AO on account of interest on GST/service tax by invoking explanation to section 37(1) of the Act which was deleted by the CIT(A). Ld. DR has submitted that the interest was levied due to default on the part of the assessee in payment of the taxes under GST Act and Rules and therefore, in view of the explanation-1 to section 37(1) of the Act the deduction of such levy is not allowable. Thus, ld. DR has relied upon the order of the AO. 3. On the other hand, Ld. AR of the assessee has submitted that the payment of interest on GST is only in the nature of interest paid on outstanding liability and the same is not in the nature of penal amounting to penalty for an offence or for the purpose any prohibited by law. Thus, Ld. AR has submitted that the CIT(A) is justified in deleting disallowance made by the AO on this account. He has relied upon the judgment of Hon'ble Supreme Court in case of M/s. Mahalakshmi Sugar Mills Co. Ltd. v. Commissioner of Income Tax 123 ITR 828 and submitted that the Hon'ble Supreme Court ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT in ITA No.128/Ind/2020 dated 28.06.2022 has considered and decided this issue in para 14 to 20 as under: "14. Now we take up the last Ground No. 4. The issue involved in this ground is the disallowance of interest expenditure on late payment of TDS amounting to Rs. 2,13,093/-. 15. During assessment proceeding, the Ld. AO observed that the assessee has made delay in payment of TDS and therefore paid interest of Rs. 2,13,093/- u/s 201(1A) of the Act to the Income-tax Department. The assessee has debited this interest expenditure to P&L A/c and claimed as business-deduction u/s 37(1) of the Act. The Ld. AO, however, observed that the interest has been paid on account of delay in payment of TDS deducted and therefore it is in the nature of fine and therefore not allowable as deduction. On this basis, the Ld. AO disallowed the deduction of Rs. 2,13,093/-. 16. The Ld. CIT(A) agreed with the Ld. AO and confirmed the disallowance. 17. Before us, the Ld. AR placed reliance upon the decision of ITAT, Kolkata in DCIT Vs. M/s. Rungta Mines Ltd. ITA No.1531/Kol/2017 order dated 05.10.2018 for assessment-year 2014-15, which is again based on ITA No. 1887/Kol/2016 for assessment-ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bharat Commerce Industries Ltd. Vs. CIT (1998) reported in 230 ITR 733 cannot be applied to the case on hand. Thus, in our considered view, the principle laid down by the Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd. (supra) is not applicable in the instant facts of the case. Thus, we hold that the Assessing Officer in the instant case has wrongly applied the principle laid down by the Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd.(supra). We also find that the Hon'ble Supreme Court in the case of Lachmandas Mathura (Supra) has allowed the deduction on account of interest on late deposit of sales tax u/s 37(1) of the Act. In view of the above, we conclude that the interest expenses claimed by the assessee on account of delayed deposit of service tax as well as TDS liability are allowable expenses u/s 37(1) of the Act. In this view of the matter, we find no reason to interfere in the order of Ld. CIT(A) and we uphold the same. Hence, this ground of Revenue is dismissed." Relying upon this decision, the Ld. AR argued that the interest on late payment of TDS is allowable as business-deduction as held by Hon'ble ITAT, Kolka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated to the failure to deduct or remit the amount. The amount required to be deducted is the amount payable as income-tax. The interest paid for the period of delay takes colour from the nature of the principal amount required to be paid, but not paid within time. The principal amount here would be the income-tax and the interest payable for delayed payment is the consequence of failure to pay the tax and in the circumstances, in the nature of a penalty though not described as such in Sub-section (1A) of Section 201 of the Act. The fact that the income-tax required to be remitted was not income-tax payable by the assessee, but is ultimately for the benefit of and to the credit of the recipient of the income on whose behalf that tax is payable does not in any manner alter the character of the payment, namely, its character as income tax. 9. Learned counsel for the Revenue submitted placing strong reliance on the recent decision of the Supreme Court in the case of Bharat Commerce and Industries Ltd. v. CIT[1998] 230 ITR 733, that payments required to be made by way of income-tax under the Income-tax Act are not deductible as expenditure and the further amounts which a person may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the levy with reference to which such interest is paid and the tax required to be but not paid in time, which rendered the assessee liable for payment of interest was in the nature of a direct tax and similar to the income-tax payable under the Income-tax Act. The interest paid under Section 201(1A) of the Act, therefore, would not assume the character of business expenditure and cannot be regarded as a compensatory payment as contended by learned counsel for the assessee." (ii) Ferro Alloys Corporation Ltd. Vs. CIT(1992) 196 ITR 406 (Bombay High Court): The Hon'ble Court held thus: "3. The point stands concluded against the assessee by the consistent view of this court right from Aruna Mills Ltd. [1957] 31 ITR 153 to CIT v. Ghatkopar Estate and Finance Corporation (P) Ltd. [1989] 177 ITR 222 (Bom). The Delhi High Court in the case of Bharat Commerce Industries Ltd. v. CIT [1989] 180 ITR 37, have also taken the same view. Very fairly, Shri Bhide, learned counsel for the assessee, informs us that there is no decision which has taken a contrary view." 20. Thus we observe that the decision in M/s Rungta Mines Ltd. (Supra) relied upon by Ld. AR does not find support from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ledger account, copy of invoices of these expenses. Further, on complete analysis of ledger account and invoices furnished by the assessee, it is seen that the assessee failed to substantiate the fact that the expenditure incurred by the assessee under the head Travelling expense is wholly and exclusively incurred for the purpose of business. The element of personal nature in these expenses cannot be ruled out in the absence of complete documentary evidences which can prove that the above expenses were incurred wholly and exclusively for the purpose of business. In view of the above facts, the 5% of the said travelling expenses amounting to Rs. 12,69,075/- [ 0.05 deg * 2, 53, 81, 4911 are disallowed being personal in nature and added back to the total income of the assessee. The penalty proceeding u/s 270A of the Act is also initiated for the under-reporting of income." 13. It is manifest from the impugned order of the AO that a general remark has been made by the AO about the personal nature of the expenditure as the AO has stated that element of personal nature in these expenses cannot be ruled out. The AO has not asked the assessee to produce any further supporting evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is profits. Expenditure debited has to be decided from the view point of a prudent businessman and not from the view point of Revenue/AO. The AO cannot merely act on the basis of presumption, guesswork or surmise to make adhoc disallowance of expenses. Adhoc disallowance of expenses can be made by the AO based on specific enquiry and providing evidence as to how these expenses are not wholly and exclusively for the purpose of Appellants business. Adhoc disallowance of expenses cannot be made by the AO based on guesswork. Such an addition based on pure guess work is not sustainable in the eyes of law. Another point to be noted is that similar expenses were debited consistently by the Appellant in earlier AY's and subsequent AY's. The AO cannot make adhoc disallowance of expenses based on presumption or based on outlandish consideration of plugging possible leakage of Revenue. The books of accounts and bills/ vouchers were produced before the AO along with ledger of expenses. The AO cannot make adhoc disallowance merely on basis of conjecture and without any tangible reasons. 7.8 The below mentioned judicial pronouncements support the contention of appellant that adhoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19.09.2018 held that ad-hoc disallowance of expenses cannot be made without any specific enquiry by the AO or without providing any evidence as to how these expenses are for personal use. The AO cannot make ad-hoc disallowance of guess work. Reliance was placed on decision of Hon'ble Apex Court in JJ Enterprises vs. CIT 254 ITR 216 (SC) where it was held that addition made on basis of pure guess work is not sustainable. Reliance was also placed on decisions of Hon'ble ITAT, Lucknow Bench in cases of Kuldeep S Sethi vs. ITO in ITA No. 1446/Alld/1997 and Mukesh Kumar Mahawar vs. ITO Sitapur in ITA No. 615/LKW/2014. h) The Hon'ble Supreme Court in the case of Pr. CIT vs. R. G. Buildwell Engineers Ltd. [2018] 99 taxmann.com 284 (SC) held that " Section 37(1) of the IT Act, 1961 Business expenditure allowability of [onus to prove]. In course of assessment, assessee claimed deduction of expenses towards bricks, machinery repair, cartage, labour expenses etc. Assessing Officer disallowed 10 percent of said expenses on ground that insufficient evidence was adduced. Tribunal set- aside said ad-hoc disallowance on two grounds, firstly assessee's books of account have not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, dated 27.05.2019 (Hon'ble Delhi ITAT) 7.9 In view of the above facts and discussion and respectfully following the judgments outlined above the ad-hoc disallowance made by the AO out of Travelling expenses is held to be made on presumption only. The AO has made this disallowance based on general observation without pointing out any specific evidences/submissions produced before him. The AO has made ad-hoc disallowance of Rs. 12,69,075/- for the reason that Personal element of expenses cannot be ruled out. There is no specific defect pointed out by the AO in the vouchers/bills produced or evidences produced. There is no finding of the AO that these expenses are not genuine. He has made the disallowance based on general observation which is not sustainable. In view of the above facts and respectfully following the judgements outlined above the adhoc disallowance of expenses made by the AO of Rs. 12,69,075/- is not sustainable in the eyes of law and same is hereby deleted. In view of the above discussions, the allowed." 14. Thus, it is clear that the CIT(A) has deleted the disallowance made by the AO by considering the various binding legal precedence on this point. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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