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TMI Blog2024 (10) TMI 1146X X X X Extracts X X X X X X X X Extracts X X X X ..... hence it is disallowable. 3. The Ld. Addl. Commissioner of Income Tax (Appeals) wrongly construed that based on the decision of Hon'ble High Court of Mumbai in the case of PCIT Vs Sushil Gupta (2019) 102 Taxmann.com 409/262 Taxman 41 (Bom.) and CIT Vs Rane Brake Linings Ltd. (2001) 115 Taxman 367 (Mad.) CIT Vs Jayaram Metal Industries (2007) 158 Taxman 169 (Kar.) Based on the above 3 decisions, the Appeal has been held against the Appellant. 4. The Appellant submits that all the above decisions are distinguishable and they are in respect of levy of penalty for violation of law and not relating to the interest payment. 5. The Appellant further states that based on the decision of Hon'ble Apex Court in the case of Mahalaxmi Sugar Mills Co.Ltd Vs CIT (1980) 3 Taxman 52(SC) and LachmandasMathuradas Vs CIT (2002) 122 Taxman 828(SC), the interest payment on late remittance of additional Customs Duty shall be considered as only compensatory in nature and is therefore allowable u/s. 37 of Income tax Act, 1961. 6. Further, the penalty of which has been levied by the Central Excise Department during later Assessment Year. has been disallowed by the Appellant itself in the computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- was also levied by the Settlement Commission. The Assessing Officer though allowed the additional customs duty paid as business expenditure in the year of payment i.e. Asst. Year 2013-14, he has disallowed interest paid on additional customs duty of Rs. 4,26,569 paid in the financial year relevant to Asst. Year 2013-14. The reason for disallowance in the opinion of the Assessing Officer was that the interest payment is in the nature of penalty and hence not an allowable expenditure as the interest liability occurred due to misclassification and suppression of facts by the assessee. Hence, it comes within the ambit of disallowance u/s 37 of the Act. 2.1 Aggrieved by the order dated 28.11.2019 passed u/s. 143(3) r.w.s 147 of The Act, the assessee filed an appeal before the then CIT(A)-4, Bengaluru on 20.12.2019. During the appellate proceedings, the assessee was given an opportunity of being heard vide notice dated 14.03.2020. In response to the same, the assessee vide letter dated 09.11.2020 filed its submissions. This appeal was later assigned to the National Faceless Assessment Centre on 20.11.2020. The assessee was given opportunities of being heard vide notices dated 24.12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commission in its order dated 19.03.2015 had upheld the action of Customs and Central excise Authorities regarding various violations of the provisions of Customs Act, 1962, by the assessee and has stated that had it not been for the investigation conducted by the officers of Directorate of Revenue Intelligence, the loss of Revenue would have gone unnoticed. The Settlement Commission, Chennai bench vide order dated 19.03.2015 held that the Assessee company had misclassified the three imported consignments with an intention to evade payment of countervailing duty. This Act of the assessee exhibited certain amount of dishonesty and accordingly the Settlement Commission ordered the assessee to pay additional customs duty of Rs. l,40,87,305/- and interest of Rs. 1,25,46,377/-. Over and above, the additional Customs Duty and interest, penalty of Rs. 9,00,000/- was also levied by the Settlement Commission. The learned Assessing Officer has disallowed interest paid on additional customs duty of Rs. 4,26,569/- in the Asst. Year 2013-14. This interest payment was due to misclassification and suppression of facts by the assessee. Hence, she submitted that the said interest payment of Rs. 4,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delayed payment of custom duty. Out of total interest of Rs. 1,25,73,583/- the assessee claimed Rs. 4,26,569/- paid on 18/03/2013 related to Asst. year 2013-14. Apart from this, a sum of Rs. 9 lakhs was also levied as penalty which has been paid during the assessment year 2016-17 and in the computation of income for the assessment year 2016-17, the assessee company has Suo motu disallowed this sum, since it is in the nature of penalty (Pg. 44 of appeal bunch). The assessee company claimed interest as expenditure in the respective year of payment on the ground that it is compensatory in nature and the claim of interest is revenue expenses incurred wholly and exclusively for the purpose of business. Further, the assessee claimed that the interest payment is neither personal in nature nor for any infringement/violation of any law. We are also of the opinion that interest and penalty are two separate and distinct levies. Interest cannot be considered as penalty at any point of time even by any stretch of imagination. At this juncture, it is worthwhile here to mention the relevant provisions of section 37(1), which is reproduced below for ease and reference and convenience: 37(1) Any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses of the assessee. c) Laid out or expended wholly and exclusively for the purpose of business/profession. 5.2 Further, the explanation (1) uses the expression "expenditure incurred by an assessee for any purpose, which is an offence or which is prohibited by law". Explanation (3) clarifies the expression "Expenditure incurred by an assessee for any purpose, which is an offence or which is prohibited by law used in explanation (1)". In our view, assessee has claimed interest as an expenditure which is nothing but a compensation for delay in payment of taxes and thus, compensatory in nature. The claim of interest as revenue expenses is in accordance with provisions of section 37(1) of the Act since in our view the same is neither the capital expenditure nor personal in nature and it is incurred wholly and exclusively for the purpose of business. Further, we also note that for any infringement/violation of any law, penalty is levied separately as can be seen in the present case apart from interest of Rs. 1,25,73,583/- on delayed payment of custom duty, the penalty of Rs. 9 lakhs was also levied. The assessee company in his computation of income for the Asst. year 2016-17 has alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue under consideration in the present case. In fact, in the present case, the sole consideration is whether payment of interest is compensatory in nature or is equal to penalty for breach or infringement of any law. 5.9 We are of opinion that on the similar issue, the Hon'ble Supreme Court in the case of Mahalakshmi Sugar Mills Company Ltd. Vs. CIT reported in (1980) 3 Taxman 52 (SC) dated 9.4.1980 held as under: "10. In our opinion, the interest paid under section 3(3) of the Cess Act cannot be described as a penalty paid for an infringement of the law. As that is the only ground on which the revenue resists the claim of the assessee to a deduction of the interest under section 10(2)(xv) of the 1922 Act, the assessee is entitled to succeed. There is no dispute that the payment of interest represents expenditure laid out wholly or exclusively for the purpose of the business. There is also no dispute that it is in the nature of revenue expenditure." 5.10 Further, Hon'ble Supreme Court in the case of Lachmandas Mathuradas Vs. CIT reported in 254 ITR 799 (2002) (SC) held as under: 3. While granting special leave to appeal the appeal has been confined to questions Nos. 1 and 2 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... frequent delays, while the former is to compensate the contribution of the payments in view of the involved. The concepts are distinct and separate. The compensatory payment has been *deductible, because it is an accretion to the main payment as observed by the Supreme Court in Mahalaxmi Sugar Mills Co. Vs. Commissioner Tax, Delhi, AIR 1980 SC 754. The above decision of the Supreme was followed by the Appellate Tribunal. In the said, case, there was certain delay in the payment of sugarcane cess. The payer had to pay interest delayed payment. This interest was held by the Supreme Court to be compensatory in nature and not a penalty and consequently deduction was permitted. We do not find any difference in principle between the said decision Supreme Court and the facts of the instant case. 5. The decision of this court in Commissioner of Income Tax, Karnataka-Il Vs. Mandya National Paper Mills Ltd., ILR (1985) KAR 1298, again highlights these principles. Under section 13(2) of the Karnataka Sales Tax Act, delayed payment of sales tax, "penalty" is levied. This penalty under section 13(2). of the Sales tax Act was held to be interest payable for delayed payment consequently, this c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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