2018 (10) TMI 672 - AT - Income Tax

Business Expenditure u/s 37(1) - punitive charges paid by the assesse to railways for overloading of wagon - Interest on late deposit of TDS - Deduction u/s 14A - Held that - CIT(A) has rightly deleted the additions - Decided against the revenue.

Issues Involved:
1. Deletion of addition/disallowance of Railways Punitive charges.
2. Deletion of addition/disallowance of belated interest deposit on TDS.
3. Deletion of disallowance of undisclosed interest from CESC Ltd.
4. Deletion of addition made on account of disallowance u/s. 14A r.w. Rule 8D(2)(iii).

Issue-wise Detailed Analysis:

1. Deletion of addition/disallowance of Railways Punitive charges:
The Revenue challenged the deletion of an addition of ?6,55,30,392/- made by the AO on account of Railways Punitive charges. The AR argued that the issue was already settled in favor of the assessee by a previous ITAT order dated 10-01-2018. The Tribunal found the facts and circumstances of the case identical to the earlier year and upheld the CIT(A)'s order, which relied on the ITAT Mumbai's decision in Taurian Iron & Steel Co. Pvt. Ltd vs. ACIT, where punitive charges paid to railways were deemed compensatory and not disallowable under section 37(1). The Tribunal concluded that the punitive charges were compensatory for overloading and not a penalty for any infraction of law, thus confirming the CIT(A)'s deletion of the addition.

2. Deletion of addition/disallowance of belated interest deposit on TDS:
The Revenue contested the deletion of an addition of ?77,176/- made by the AO for belated interest deposit on TDS. The AR cited a previous ITAT order dated 06-04-2018, which favored the assessee. The Tribunal found the facts similar and referenced the Supreme Court's decisions in Bharat Commerce Industries Ltd and Lachmandas Mathura, which allowed interest on late deposit of taxes as a deductible expense under section 37(1). The Tribunal upheld the CIT(A)'s order, confirming that interest on delayed TDS payment is an allowable deduction, dismissing the Revenue's ground.

3. Deletion of disallowance of undisclosed interest from CESC Ltd:
The Revenue argued that the AO added ?48,920/- for unaccounted interest received from CESC Ltd, which the CIT(A) deleted by accepting fresh evidence without a remand report. The AR explained that the interest was paid in March 2014 but adjusted in the April 2014 electricity bill. The Tribunal noted that the assessee claimed TDS credit in both AY 2014-15 and AY 2015-16, which is impermissible. The Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for fresh consideration, allowing the Revenue's ground for statistical purposes.

4. Deletion of addition made on account of disallowance u/s. 14A r.w. Rule 8D(2)(iii):
The Revenue challenged the CIT(A)'s direction to re-compute disallowances under Rule 8D(2)(iii) based on investments yielding exempt income. The Tribunal found that the AO did not record satisfaction as required under section 14A(2). The Tribunal referred to the Calcutta High Court's decision in REI Agro Ltd, which held that only investments yielding exempt income should be considered for disallowance under Rule 8D. The Tribunal upheld the CIT(A)'s order, directing the AO to re-compute the disallowance accordingly, dismissing the Revenue's ground.

General Issue:
Ground no. 6 raised by the Revenue was deemed general and required no adjudication, thus dismissed.

Conclusion:
The appeal by the Revenue was partly allowed for statistical purposes. The Tribunal upheld the CIT(A)'s orders on most grounds, except for the issue of undisclosed interest from CESC Ltd, which was remanded to the AO for fresh consideration. The order was pronounced on 05-10-2018.

← Previous Next →