2022 (7) TMI 380 - AT - Income Tax

Addition on account of interest income earned on grant and subsidy received from Govt. - HELD THAT - The only basis of non-taxation of interest income in the hands of assessee, was the term or condition of the scheme under which subsidy or grant was received. If the term or condition dictates that the interest income shall form part of the subsidy or if an inference can be culled out from the scheme of subsidy that the interest income shall be expended over the project and liable for refund to the Govt. if not utilised or that the assessee is merely acting as an extended arm of the Govt., then only the interest income of Rs. 53,03,707/- earned by the assessee shall not be taxable and this is the precise contention of the Ld. CIT(A). Assessee has also submitted before the Ld. AO as per the norms of the grant this amount too has to be expended over the Project itself and liable for refund in case of non-expended . However we observe that the assessee has not produced the scheme of subsidy or any documentary evidence before the lower authorities to support his submission. Even the Ld. CIT(A), though accepting the judgements, has also noted in his order that the assessee has not given any evidence. Therefore the lower authorities were not able to verify the contention of assessee or the applicability of judgements. In such circumstances, we feel it appropriate to give one more opportunity to the assessee to submit the relevant evidences to the Ld. AO so that the Ld. AO can ascertain the correct position and decide the issue properly in accordance with the judgements narrated above. Therefore, we remand this issue back to the file of Ld. AO. The Ground No. 2 is thus allowed for statistical purposes. Disallowance of interest expenditure on late payment of TDS - HELD THAT - We are consciously aware that the decisions of Hon'ble High Courts would prevail over the decision of Hon'ble ITAT, Kolkata. Therefore, respectfully following the decisions of Hon'ble High Courts, we are inclined to hold that the interest on late payment of TDS is not allowable as business deduction and the lower authorities have rightly disallowed the same.

Summary

Issues Involved
1. Condonation of delay in filing the appeal.
2. Addition of interest income on grants and subsidy.
3. Disallowance of bad-debt claim.
4. Disallowance of interest on late payment of TDS.

Detailed Analysis

1. Condonation of Delay in Filing the Appeal
The appeal was filed after a delay of 3 years and 276 days. The appellant argued that the delay was caused by the former Finance-in-charge, who did not take action on the order received. Subsequent Finance-in-charges were unaware of the order until it was discovered in February 2020. The Tribunal found sufficient cause for the delay, noting there was no malafide intention, and condoned the delay to grant justice.

2. Addition of Interest Income on Grants and Subsidy
The assessee, a co-operative society, received grants and subsidies from the government, which were held in bank deposits, earning interest. The AO added Rs. 53,03,707/- as income, arguing it was a revenue receipt. The assessee contended that the interest income should not be taxed as it was to be expended on the project or refunded if not used. The CIT(A) upheld the AO's decision, noting the absence of evidence that the interest should be added to the grant.

The Tribunal analyzed various judgments, including CIT, Gandhinagar Vs. Gujarat State Police Housing Corporation Ltd. and CIT-II Vs. Sar Infracon Pvt. Ltd., which held that interest earned on government grants is not taxable if it forms part of the grant. However, the Tribunal observed that the assessee did not provide documentary evidence to support its claim. Thus, the issue was remanded back to the AO for verification of the scheme and conditions of the grant.

3. Disallowance of Bad-Debt Claim
The assessee withdrew this ground during the hearing. Therefore, no adjudication was required.

4. Disallowance of Interest on Late Payment of TDS
The AO disallowed Rs. 2,13,093/- claimed as a business deduction for interest on late payment of TDS, considering it a fine. The CIT(A) upheld this decision. The assessee relied on ITAT, Kolkata's decision in DCIT Vs. M/s. Rungta Mines Ltd., which allowed such interest as a business deduction.

The Tribunal, however, noted conflicting views from higher courts. The Madras High Court in CIT Vs. Chennai Properties and Investment Ltd. and the Bombay High Court in Ferro Alloys Corporation Ltd. held that interest on late payment of TDS is not deductible as it is akin to a penalty. Respecting these higher court decisions, the Tribunal upheld the disallowance of the interest on late payment of TDS.

Conclusion
The appeal was partly allowed for statistical purposes, with the issue of interest income on grants and subsidy remanded back to the AO for further verification. The disallowance of interest on late payment of TDS was upheld, and the ground related to bad-debt claim was withdrawn by the assessee.