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2020 (9) TMI 88 - AT - Income TaxExpenditure u/s 37(1) - expenditure claimed on account of Interest on delayed payment of entry tax and secondly on account of Charges on delayed supply of books to M.P. Text Book Corporation Ltd - AO has disallowed expenditure by relying on the judgment in the case of Bharat Commerce and Industries Ltd. 1998 (3) TMI 2 - SUPREME COURT - HELD THAT - The issue before Hon'ble Supreme Court was regarding interest paid for delayed payment for advance tax. However, the issue in present case is related to payment made by the assessee on account of delay in supply of books. Therefore, disallowing the entire amount by the Assessing Officer was not justified. Hence, the Assessing Officer is directed to delete the addition made on account of disallowance of expenditure related to delay in supply of the books. Regarding interest on entry tax and TDS division bench of this Tribunal in the case of M/s Naarayani Sons Pvt. Ltd. in 2018 (8) TMI 1362 - ITAT KOLKATA after considering the judgment of Hon'ble Supreme Court in the case of Bharat Commerce and Industries Ltd. vs. CIT (Supra) decided the issue in favour of the assessee
Issues Involved:
1. Disallowance of interest on Entry Tax under section 37(1) of the Income Tax Act, 1961. 2. Disallowance of charges for delay in supply under section 37(1) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Disallowance of Interest on Entry Tax: The assessee, engaged in the business of offset printing, filed an appeal against the disallowance of interest on delayed payment of entry tax amounting to ?2,220 under section 37(1) of the Income Tax Act, 1961. The assessee argued that this interest should be considered as a deductible expenditure. The reliance was placed on the judgment of the Hon’ble Supreme Court in the case of Laxmi Sugar Mills Co Ltd Vs. CIT, which held that interest paid under section 3(3) of the Cess Act is not a penalty but a deductible expenditure. Additionally, the assessee cited the ITAT decision in M/s Naaraayani Sons Pvt. Limited, which allowed interest expenses on late deposit of VAT, service tax, and TDS as deductible under section 37(1). The Tribunal agreed with the assessee, noting that the interest on delayed payment of entry tax is an expenditure laid out wholly and exclusively for the purpose of the business. The Tribunal found that the lower authorities were unjustified in making the disallowance and directed the Assessing Officer (AO) to delete the addition. 2. Disallowance of Charges for Delay in Supply: The second issue involved the disallowance of charges amounting to ?50,256 for delay in the supply of books to M.P. Text Book Corporation Ltd. The assessee contended that these charges were contractual obligations under the tender agreement and not penalties for any infraction of law. The assessee supported this claim with the ledger account and payment release bills showing deductions made from the supply bills. The Tribunal considered the decision of the Coordinate Bench in Chaudhary Hammer Works Ltd. vs. ACIT, which distinguished between penalties for breach of law and liquidated damages/compensation for late delivery. The Tribunal concluded that the charges for delay in supply were inherent risks and incidental to the business, and thus, allowable under section 37(1). The Tribunal found that the AO’s reliance on the Supreme Court judgment in Bharat Commerce and Industries Ltd. vs. CIT, which dealt with interest on delayed payment of advance tax, was misplaced in this context. The Tribunal directed the AO to delete the addition made on account of charges for delay in supply, finding that the disallowance was not justified. Conclusion: The Tribunal allowed the appeal of the assessee, directing the AO to delete the disallowances related to interest on entry tax and charges for delay in supply. The Tribunal emphasized that both expenditures were laid out wholly and exclusively for the purpose of the business and thus deductible under section 37(1) of the Income Tax Act, 1961. Order Pronouncement: The order was pronounced in the open court on 26.08.2020.
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