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2019 (7) TMI 86 - AT - Income TaxRevision u/s 263 - Interest amount debited in the Profit and Loss Account under the garb of belated payment of VAT, Service Tax and TDS are penal in nature and as such should not be allowable under section 37(1) - assessment U/s 143(3) by AO - HELD THAT - As decided in M/s Naaraayani Sons Pvt. Limited 2018 (8) TMI 1362 - ITAT KOLKATA held that interest expense on late deposit of VAT, service tax, TDS etc are allowable expenditure under section 37(1). Interest on late deposit of VAT, service tax, TDS etc are allowable expenditure under section 37(1) of the Act and the assessing officer has taken a possible view therefore order passed by the assessing officer u/s 143(3) dated 11.05.2016, is neither erroneous nor prejudicial to the interest of Revenue and cannot be held to be unsustainable in law. Therefore, we quash the order passed by the ld Pr.CIT U/s 263 of the Act. - Decided in favour of assessee.
Issues Involved:
1. Validity of the order passed by the Principal Commissioner of Income Tax (Pr.CIT) under section 263 of the Income Tax Act, 1961. 2. Justification for initiating proceedings under section 263 regarding the deductibility of interest on delayed payment of VAT, Service Tax, and TDS. Issue-wise Detailed Analysis: 1. Validity of the order passed by the Principal Commissioner of Income Tax (Pr.CIT) under section 263 of the Income Tax Act, 1961: The assessee challenged the correctness of the order dated 06.02.2019 passed by the Pr.CIT under section 263 of the Income Tax Act, 1961. The Pr.CIT held that the order passed by the Assessing Officer (AO) under section 143(3) on 11.05.2016 was erroneous and prejudicial to the interest of the revenue. The assessee argued that the order by the Pr.CIT was bad in law and should be quashed. The Tribunal examined whether the Pr.CIT had the requisite jurisdiction to invoke revisional powers under section 263. It was noted that for the Pr.CIT to exercise this power, the order of the AO must be both erroneous and prejudicial to the interest of the Revenue. The Tribunal referred to the judgment of the Hon’ble Supreme Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC), which established that twin conditions need to be satisfied for the exercise of revisional jurisdiction: the order must be erroneous and prejudicial to the interest of the Revenue. The Tribunal concluded that the AO had adopted a permissible view in law by allowing the interest on delayed payment of VAT, Service Tax, and TDS as expenditure under section 37(1) of the Act. Therefore, the order of the AO was neither erroneous nor prejudicial to the interest of the Revenue. 2. Justification for initiating proceedings under section 263 regarding the deductibility of interest on delayed payment of VAT, Service Tax, and TDS: The Pr.CIT initiated proceedings under section 263 on the grounds that the assessee had debited an expenditure of ?3,45,633/- under the head "Interest on delay payment of VAT, Service Tax, and TDS," which the Pr.CIT considered penal in nature and not deductible under section 37(1) of the Act. During the scrutiny assessment under section 143(3), these expenses were allowed as deductions, which the Pr.CIT found erroneous and prejudicial to the interest of the Revenue. The assessee admitted that the interest amount was inadvertently overlooked and should not have been allowed as a deduction. However, the Tribunal noted that there is no estoppel against the law, and what is not otherwise taxable cannot become taxable merely because the assessee admitted it. The Tribunal emphasized that the chargeability is dependent on the charging section, which needs to be strictly construed. The Tribunal referred to the decision of the Coordinate Bench in the case of M/s Naaraayani Sons Pvt. Limited, which held that interest expenses on the late deposit of VAT, Service Tax, and TDS are allowable under section 37(1) of the Act. The Tribunal also cited the Hon’ble Supreme Court's judgment in Lachmandas Mathura Vs. CIT, which allowed the deduction of interest on late deposit of sales tax as compensatory and not penal in nature. Based on these precedents, the Tribunal concluded that the interest on late deposit of VAT, Service Tax, and TDS is indeed allowable under section 37(1) of the Act. Therefore, the AO's decision to allow these expenses was a permissible view in law, and the order was neither erroneous nor prejudicial to the interest of the Revenue. Conclusion: The Tribunal quashed the order passed by the Pr.CIT under section 263 of the Act, holding that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. The appeal of the assessee was allowed.
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