2024 (4) TMI 1069 - AT - Income Tax

AO/CPC jurisdiction u/s 143(1) to carry out 43B(a) disallowance - Disallowance of interest on Maharashtra Value Added Tax Act, 2002 MVAT u/s 43B(a) of the Act made in view of clause 26(i)(B)(b) of Tax Audit Report - HELD THAT - In the present case, from clause 26(i)(B)(b) of the TAR it was on face of the record before the Ld. AO/CPC that the appellant while computing its taxable income did fail to disallow the interest payable which remained unpaid by the expiry of time limit prescribed u/s 139(1) of the Act. Thus, impugned disallowance u/s 43B(a) of the Act carried out on the basis of return and accompany TAR finds support in Khatau Junkar 1992 (2) TMI 67 - BOMBAY HIGH COURT which the appellant also relied in its written submission. Going a step further in Rohan Korgaonkar Vs DCIT 2024 (2) TMI 1373 - BOMBAY HIGH COURT their Hon ble lordships have recently held that, once the principle involved in matter of disallowance is settled by binding judicial precedents, the circumstance that the disallowance is carried out u/s 143(1)(a) through prima-facie adjustment makes no difference. The principle that the item falling u/c (a) of section 43B of the Act is entitled for deduction on actual payment basis is settled by the catena of judicial precedents, therefore the disallowance thereof carried out u/s 143(1)(a) of the Act in view of Rohan Korgaonkar 2024 (2) TMI 1373 - BOMBAY HIGH COURT cannot be faulted with. In view thereof we find no infirmity with the orders of tax authorities in carrying out the disallowance through prima-facie adjustment u/c (iv) of u/s 143(1)(a) of the Act. The ground therefore stands dismissed. Whether interest on sales-tax/MVAT is deductible as an expenditure only upon actual payment? - According to section 30(3) of MVAT Act, if any tax remains unpaid up to one month after the end of the period of assessment, then the dealer is liable to pay simple interest at the rates as specified from time to time, on such tax for each month or part thereof from the date immediately following the last date of the period for which the dealer has been assessed till the date of the order of assessment. Thus s/s 30 of MVAT Act the assessee dealer is exposed to payment of interest in twin situation viz; (i) for delay in getting registered and (ii) for delay in discharging of sales tax liability incurred thereunder. The plain reading of aforestated provision amply clarify the nature of interest as compensatory for delayed compliance and in no manner capable of suggesting it to be in the nature of penalties for non-compliance. Now coming to the provisions of section 43B of the Act we note that, the clause (a) does not explicitly provides for the term interest , so has to fall for vanilla disallowance. On the other hand, the clause (a) is abundantly clear, plain, and unambiguous, prowess capable of giving flawless meanings to items specified therein. Therefore items specified therein should be given ordinary meaning without adding thereto or modifying them. The application of golden rule of interpretation requires the words of the statute must prima-facie being given their ordinary meaning. That is to say when the words of the statute are clear, plain and unambiguous, then it is to be given natural meaning, irrespective of its consequences. Revenue s proposition to read clause (a) of section 43B of the Act the terms taxes/duties so as to include therein the term interest therein would be ferocious and therefore impermissible in view of the decision of the Hon ble Apex Court in Britania Industries Ltd. Vs CIT 2005 (10) TMI 30 - SUPREME COURT wherein the matter of interpretation of fiscal laws, their Hon ble Lordships have categorically led that, when the language of a statute is clear and unambiguous, the courts are to interpret the same in its literal sense and not to give a meaning which would cause violence to the provisions of the statute. Thus referring to judicial precedents laid by Hon ble Calcutta High Court in case of Hindustan Motors Limited . 1995 (7) TMI 26 - CALCUTTA HIGH COURT and SHANKAR TRADING CO P. LTD VERSUS CIT 2012 (1) TMI 91 - DELHI HIGH COURT we hold that, in absence statutory provisions i.e. specific entry u/c (a), the interest liability incurred against delayed discharge of statutory liability is entitled for deduction u/s 37(1) of the Act without subjecting it disallowance u/s 43B(a) of the Act. The Revenue could hardly place on record any contrary decisions of Hon ble Jurisdictional High Court thus warranting us to deviate from above. Consequently we set-aside the impugned order confirming the disallowance of interest payable on MVAT statutory liability u/s 43B (a) of the Act and direct the Ld. AO to delete the impugned disallowance being contra-legem. The ground number 2 stands accordingly allowed. Levy of interest u/s 234A, 234B 234C is mandatory and not at the discretionary of tax authorities - See Anjum H Ghaswala 2001 (10) TMI 4 - SUPREME COURT Appeal of assessee is partly allowed.

Summary

Issues Involved:

1. Jurisdiction of AO/CPC u/s 143(1) to disallow expenses u/s 43B.
2. Deductibility of interest on MVAT as an expenditure only upon actual payment.
3. Charging of interest u/s 234A, 234B, and 234C.

Summary:

The DIN & order No. ITBA/NFAC/S/250/2022-23/1045760461(1) dt. 21/09/2022 passed u/s 250 of the Income-tax Act, 1961 by the National Faceless Appellate Centre for AY 2019-20 is challenged by the assessee.

1. Jurisdiction of AO/CPC u/s 143(1) to disallow expenses u/s 43B:

The assessee's return was processed summarily u/s 143(1), determining total income at Rs. 35,65,320/- due to disallowance of interest on MVAT u/s 43B(a). The assessee appealed, but the NFAC upheld the disallowance, stating, "the CPC is within its statutory power to make such adjustment as the appellant's statutory auditor himself has disallowed the impugned amount." The Tribunal referenced 'Khatau Junkar Ltd. Vs DCIT' [1992, 196 ITR 55 (Bom)] and 'Rohan Korgaonkar Vs DCIT' [2024, 159 taxmann.com 321], concluding that the AO/CPC has jurisdiction to disallow the expenses u/s 43B(a) through prima-facie adjustment u/s 143(1)(a).

2. Deductibility of interest on MVAT as an expenditure only upon actual payment:

The Tribunal examined whether interest on sales-tax/MVAT is deductible only upon actual payment. It noted that section 43B(a) lists expenses deductible on actual payment, which does not explicitly include 'interest.' Citing judicial precedents such as 'Shree Pipes Vs DCIT' [2007, Taxmann 442 (Raj)] and 'CIT Vs Andhra Sugars' [2014, 367 ITR 195 (AP&T)], the Tribunal found that interest on unpaid taxes can attract section 43B(a). However, they also considered contrary views, such as 'Hindustan Motors Limited Vs CIT' [1995, 218 ITR 450 (Cal)], and concluded that interest on MVAT is compensatory, not penal. Hence, it is deductible u/s 37(1) without disallowance u/s 43B(a). The Tribunal directed the AO to delete the disallowance, stating, "in absence statutory provisions i.e. specific entry u/c (a), the interest liability incurred against delayed discharge of statutory liability is entitled for deduction u/s 37(1) of the Act without subjecting it disallowance u/s 43B(a) of the Act."

3. Charging of interest u/s 234A, 234B, and 234C:

The Tribunal found the ground meritless, referencing 'Anjum H Ghaswala' [2001, 252 ITR 449] and 'CIT Vs Hindustan Bulk Carriers' [2002, 259 ITR 449], which held that levy of interest u/s 234A, 234B & 234C is mandatory. The Tribunal stated, "levy of interest u/s 234A, 234B & 234C is mandatory and not at the discretionary of tax authorities."

In conclusion, the appeal of the assessee is PARTLY ALLOWED, with the order pronounced on 24th April 2024.