2020 (9) TMI 760 - AT - Income Tax

Delayed payment of certain Govt. dues - differential amount of tax (Normal rate Concessional Rate) and interest on delayed payment of Sales Tax - non-submission of certain forms - HELD THAT - Since the requisite forms could not be deposited by the assessee to the Sales Tax Department, therefore, the assessee company was required to deposit the sales tax amount at normal rate as against concessional rate of tax, resultantly, the differential amount was deposited by the assessee company. Such amount of tax deposited by the assessee company is certainly not in the nature of penalty for contravention of any law. It was only a tax which was paid by the assessee company as route of concessional rate of tax was blocked as the assessee was not able to deposit the requisite forms with the Sales Tax Department. In the case of Malwa Vanaspati Chemicals Co 1996 (10) TMI 5 - SUPREME COURT had held that where the assessee had to pay the amount of tax at actual rates instead of concessional rates and something more, then it comprises both the elements of compensation and penalty. Therefore, compensation insofar as payment of tax at full rate is obligatory and something more, is in the character of a penalty. Hence, the assessee shall be entitled to the deduction u/s 37(1) of the Act insofar as the payments partake the element of compensation i.e. upto 100% of the sales tax rate actually payable. We do not concur with the findings of the ld. CIT(A) and we are of the considered view that the differential amount of tax (Normal rate Concessional Rate) and interest on delayed payment of Sales Tax amounting deposited by the assessee is not in the nature of penalty for contravention of any law. Therefore, the assessee is entitled for deduction of such amount u/s 37(1) - Decided in favour of assessee.

Issues Involved:
1. Disallowance of ?2,74,978/- incurred on delayed payment of certain government dues.
2. Disallowance of ?1,82,756/- incurred due to non-submission of certain forms.

Issue 1: Disallowance of ?2,74,978/- on Delayed Payment of Government Dues

Facts:
The assessee claimed interest of ?2,74,978/- paid on delays in payment of sales tax demand, service tax, and custom duty, asserting these as business expenditures allowable under Section 37(1) of the Income Tax Act, 1961.

Assessing Officer's (AO) View:
The AO disallowed the claim, reasoning that the interest and additional tax were due to the violation of due dates under the respective laws, thus not allowable as business expenditure.

Commissioner of Income Tax (Appeals) [CIT(A)]'s View:
The CIT(A) upheld the AO's disallowance, stating that the interest on statutory dues was a contravention of the respective laws, hence not allowable under Section 37(1).

Appellate Tribunal's (ITAT) Analysis:
The ITAT noted that the interest paid on delayed payments of sales tax, custom duty, and service tax is compensatory rather than penal. It relied on several judicial precedents, including the Hon'ble Supreme Court's decision in Malwa Vanaspati & Chemical Co. and the Hon'ble M.P. High Court's decision in Simplex Structural Works, which held that differential tax amounts paid due to non-submission of forms should be allowed as business expenditure under Section 37(1). The ITAT also cited the Hon'ble Jurisdictional High Court's decision in Udaipur Distillery, which stated that interest on delayed payment of sales tax is a statutory obligation and should be considered an expenditure spent wholly and exclusively for business purposes.

Conclusion:
The ITAT concluded that the interest of ?2,74,978/- paid on delayed payment of statutory dues is not in the nature of penalty for contravention of any law. Therefore, the assessee is entitled to deduction of such amount under Section 37(1).

Issue 2: Disallowance of ?1,82,756/- Due to Non-Submission of Forms

Facts:
The assessee made inter-state sales at concessional rates of sales tax against "C" forms under the Central Sales Tax Act, 1956. However, the requisite forms were not obtained from buyers and deposited with the Sales Tax Authorities, leading to the imposition of normal tax rates and a differential amount of ?1,82,756/-.

Assessing Officer's (AO) View:
The AO disallowed the differential tax amount, treating it as a consequence of contravention of law.

Commissioner of Income Tax (Appeals) [CIT(A)]'s View:
The CIT(A) upheld the AO's disallowance, aligning with the view that the differential tax amount was due to non-compliance with statutory requirements.

Appellate Tribunal's (ITAT) Analysis:
The ITAT observed that the differential tax amount was not a penalty but a tax paid at normal rates due to the inability to submit the requisite forms. The ITAT referenced the Hon'ble Supreme Court's judgment in Malwa Vanaspati & Chemical Co., which distinguished between compensatory tax payments and penalties. The ITAT also cited the Hon'ble M.P. High Court's ruling in Simplex Structural Works, affirming that differential tax amounts should be allowed as business expenditure under Section 37(1).

Conclusion:
The ITAT determined that the differential tax amount of ?1,82,756/- paid by the assessee is not a penalty but a compensatory tax payment. Thus, it is allowable as a business expenditure under Section 37(1).

Final Judgment:
The ITAT allowed the appeal filed by the assessee, granting deductions for both the differential tax amount of ?1,82,756/- and the interest on delayed payment of statutory dues amounting to ?2,74,978/-.

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