2019 (11) TMI 915 - AT - Income Tax

Interest paid on late deposit of TDS - Allowable deduction u/s 37(1) - in the nature of penal interest or not - additions towards interest on late deposit of TDS confirmed on the ground that despite being asked by him, the assessee did not file any reply to justify its claim - HELD THAT - CIT(A) confirmed the disallowance made by the AO on the ground that interest on late payment of TDS is not an allowable expenditure u/s 37(1) as it was in the nature of penal interest. It is the submission of the ld. counsel that in view of the various decisions of the coordinate Benches of the Tribunal on this very issue, such disallowance is uncalled for. It is also his alternate submission that the matter may be restored to the file of the Assessing Officer since various decisions relied on by the assessee have not been considered - restore the issue to the file of the Assessing Officer with a direction to give one more opportunity to the assessee to substantiate its claim of allowability of interest paid on late deposit of TDS. The ground raised by the assessee is accordingly allowed for statistical purposes. Demurrage charges deducted by the customers for not completing the project in time - HELD THAT - CIT(A) upheld the action of the AO. It is the submission of the ld. counsel for the assessee that the same is not for violation or infraction of any statutory provisions and the same is compensatory in nature for not completing the project in time. I find merit in the above argument of the ld. counsel. A perusal of the paper book page 83 shows that as per the terms and conditions for undertaking the work awarded by National Institute of Electronics and Information Technology, Gangtok, the assessee is liable to pay penalty @ 0.10% of the quoted rate per day for non-completion of the project within six weeks from the date of receiving the work order. The same, in my opinion, is not for violation of any statutory law, but, will amount to compensatory in nature. Pune bench of the Tribunal in the case of Shanti Commodities 2014 (12) TMI 344 - ITAT PUNE has held that penalties paid for violation of rules laid by Forward Market Commission being in the nature of civil liability similar to compounding fees and not fee for any serious violation of provisions of law was to be allowed u/s 37(1) - CIT(A) is not justified in sustaining the addition. Disallowance of being the amount of Pooja Expenses - Allowable revenue expenses - HELD THAT - In the instant case, has failed to prove the nexus. While the expenses incurred on the occasion of its fifth anniversary day is an allowable expenditure, however, the day-to-day pooja expenses in the office of the company, in my opinion, cannot be allowed as an allowable expenditure. However, the nature of bifurcation is not available - restore the issue to the file of the AO with a direction to give an opportunity to the assessee to give a bifurcation and the puja expenses incurred on the fifth anniversary day of the company may be allowed as an expenditure whereas the day-to-day pooja expenses cannot be allowed as an expenditure. The Assessing Officer shall decide the issue as per fact and law, after giving due opportunity of being heard to the assessee.

Summary

Issues Involved:
1. Disallowance of interest paid on late deposit of TDS.
2. Disallowance of demurrage charges.
3. Disallowance of Pooja expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Interest Paid on Late Deposit of TDS:

The assessee contested the disallowance of ?75,449/- as interest paid on late deposit of TDS. The Assessing Officer disallowed this amount under section 37 of the IT Act, considering it as penal in nature. The CIT(A) upheld this decision. The assessee argued that the delay in TDS payment is not linked to income-tax and cited various tribunal decisions supporting their claim. The Tribunal found merit in the assessee’s argument that the lower authorities did not consider these decisions. Therefore, the matter was restored to the Assessing Officer to give the assessee another opportunity to substantiate the claim. The ground was allowed for statistical purposes.

2. Disallowance of Demurrage Charges:

The assessee challenged the disallowance of ?37,654/- as demurrage charges for not completing a project on time. The Assessing Officer disallowed this amount, considering it as penalty charges without evidence of actual expenses related to corresponding earnings. The CIT(A) upheld this decision. The assessee argued that these charges were compensatory, not penal, and referred to a job description for NIELIT, Gangtok, which included a penalty clause for delayed completion. The Tribunal agreed with the assessee, noting that the charges were compensatory and not for statutory violations. The Tribunal cited the Pune Bench decision in Shanti Commodities, which allowed similar expenses. Consequently, the Tribunal set aside the CIT(A)’s order and allowed the ground.

3. Disallowance of Pooja Expenses:

The assessee disputed the disallowance of ?69,741/- for Pooja expenses. The Assessing Officer disallowed this amount, stating it was not exclusively for business purposes. The CIT(A) upheld this decision, noting that the Pooja was not akin to the case in Dalmia Cement where it was held near the factory for workers. The assessee argued for commercial expediency and cited the Gujarat High Court’s decision in Commercial Ahmedabad Mills, which allowed similar expenses. The Tribunal found that while the fifth anniversary Pooja expenses could be allowed, day-to-day Pooja expenses could not. The Tribunal restored the issue to the Assessing Officer to allow bifurcation and decide accordingly. This ground was allowed for statistical purposes.

Conclusion:

The appeal was allowed for statistical purposes with directions to the Assessing Officer to re-examine the claims for interest on late deposit of TDS and Pooja expenses, while the disallowance of demurrage charges was set aside. The decision was pronounced in open court on 26.09.2019.