2019 (7) TMI 925 - AT - Income Tax

Disallowance u/s 36(1)(va) read with 2(24)(x) for late payment of Employees Contribution to PF/ESI - paid within due date of filing of return - HELD THAT - If the assessee deposits PF and ESI before the due date of filing of return of income then it would be considered sufficient compliance and no addition should be made on account of late payment of PF and ESI. For that we rely on the judgment of the Jurisdictional Hon ble Calcutta High Court in the case of Vijay Shree Ltd. 2011 (9) TMI 30 - CALCUTTA HIGH COURT wherein it was held that if the assessee deposited PF and ESI within the due date prescribed it u/s 139(1) then no disallowance should be made. That being so, we decline to interfere in the order passed by the Ld. CIT(A), his order on this issue, is hereby upheld and grounds raised by the revenue is dismissed. Disallowance under the head interest on TDS, VAT, entry tax and professional tax - HELD THAT - We note that the interest on VAT, TDS and interest on entry tax and interest on professional tax are allowable expenditure u/s 37(1) of the Act, as these expenses normally incurred by the assessee in doing the business. We also note that the interest on arrears of sales tax is compensatory in nature and therefore allowable expenditure u/s 37(1) as has been held by the Hon ble Supreme Court in the case of Lachmandas Mathurdas vs. CIT 1997 (12) TMI 16 - SUPREME COURT Disallowance under the head interest on service tax and service tax RCM - HELD THAT - We note that interest on service tax is an allowable expenditure. Not only that interest on service tax is compensatory in nature and it is not in the nature of penalty therefore the same is allowable expenditure as held by the Hon ble Supreme Court in the case of Lachmandas Mathuradas (supra). Therefore respectfully following the judgment of the Hon ble Supreme court, we do not find any infirmity in the order passed by the ld. CIT(A) therefore we confirm the order passed by the ld. CIT(A). - Decided against revenue

Summary

Issues:
1. Disallowance of late payment of Employees' Contribution to PF/ESI under sections 36(1)(va) and 2(24)(x).
2. Disallowance of interest on TDS, VAT, Entry Tax, and professional Tax under section 37(1).
3. Disallowance of interest on service tax and service tax RCM.

Analysis:

Issue 1: Disallowance of late payment of Employees' Contribution to PF/ESI
- The Revenue challenged the deletion of disallowance made by the Assessing Officer under sections 36(1)(va) and 2(24)(x) for late payment of employees' contribution to PF/ESI.
- The Assessing Officer disallowed the amounts due to non-deposit of employees' contributions before the due date, but the CIT(A) deleted the addition.
- The ITAT upheld the CIT(A)'s decision, citing compliance with the due date of filing income tax return under section 139(1) as sufficient, relying on a judgment of the Calcutta High Court in a similar case.

Issue 2: Disallowance of interest on TDS, VAT, Entry Tax, and professional Tax
- The Revenue contested the deletion of disallowance of interest on TDS, VAT, Entry Tax, and professional Tax by the CIT(A).
- The Assessing Officer disallowed these expenses under section 37(1) as not incurred for business purposes, but the CIT(A) reversed the decision.
- The ITAT upheld the CIT(A)'s order, stating that these expenses are allowable under section 37(1) and cited a Supreme Court judgment to support the decision.

Issue 3: Disallowance of interest on service tax and service tax RCM
- The Revenue appealed against the CIT(A)'s decision to allow the deduction of interest on service tax and service tax RCM.
- The Assessing Officer disallowed these expenses, but the CIT(A) allowed the appeal.
- The ITAT upheld the CIT(A)'s decision, stating that interest on service tax is compensatory and not penal, following a Supreme Court judgment.

In conclusion, the ITAT dismissed the Revenue's appeal in all three issues, upholding the CIT(A)'s decisions based on legal provisions and relevant judicial precedents.