2019 (9) TMI 315 - HC - Income Tax

Payment of interest on delayed payment of Custom Duty and Penalty - whether such interest was penal in nature and hence not allowable u/s. 37 - Tribunal allowed claim of assessee - HELD THAT - no substantial question of law. Message for the tribunal - Tribunal after recording that the issue stands covered by various decisions of the Supreme Court and the various High Courts cases observes admittedly, there are contrary decisions where it is held that interest paid on delayed payments cannot be allowed as deduction in the assessment proceedings. The above statement in the impugned order led us to direct the counsel appearing for the parties to examine the law on this issue and to bring to our attention any decision contrary to the view taken by the Supreme Court in Mahalaxmi Sugar Mills 1980 (4) TMI 1 - SUPREME COURT and other High Courts decisions. We are now informed by Counsel for both sides that there are no decisions contrary to the view taken by the Hon ble Supreme Court in Mahalaxmi Sugar Mills (supra) and the various High Court decisions referred to in the impugned order of the Tribunal. All this effort and time would have been saved if the Tribunal had made specific reference to contrary decisions or not stated so in the absence of referring to the citations. Therefore, we would request the Tribunal to be specific about the decisions and make a mention of the citation in the order and not make general observations as in this case.

Summary

Issues:
1. Allowance of claim for interest on delayed payment of Custom Duty and Penalty under Section 37 of the Income Tax Act, 1961.
2. Entitlement to claim expenditure under Section 43B of the Income Tax Act.

Analysis:

Issue 1: Allowance of claim for interest on delayed payment of Custom Duty and Penalty under Section 37 of the Income Tax Act, 1961:
The appeal challenged the order by the Income Tax Appellate Tribunal (Tribunal) for Assessment Year 2007-08, allowing the claim of the Assessee for interest on delayed payment of Custom Duty and Penalty. The Revenue contended that such interest was penal and not allowable under Section 37 of the Act. The Tribunal relied on the decision in Mahalxmi Sugar Mills Co. v/s. CIT 123 ITR 429 and Section 43B of the Act to support the Assessee's claim. However, the Tribunal noted contrary decisions without specifying them. The Revenue sought time to find contrary decisions but failed to do so. The High Court observed that the Tribunal should have referenced specific contrary decisions instead of making general observations. As no contrary decisions were found, the High Court concluded that this issue did not give rise to any substantial question of law and dismissed the appeal.

Issue 2: Entitlement to claim expenditure under Section 43B of the Income Tax Act:
The High Court's decision on the first issue rendered the second issue moot. Since the first issue was resolved in favor of the Assessee based on the Supreme Court's decision and various High Court cases, the High Court determined that no substantial question arose for consideration regarding the entitlement to claim expenditure under Section 43B. Consequently, this issue was not entertained, and the appeal was dismissed.

In summary, the High Court upheld the Tribunal's decision to allow the Assessee's claim for interest on delayed payment of Custom Duty and Penalty under Section 37 of the Income Tax Act, 1961, based on relevant legal precedents. The appeal was dismissed as no contrary decisions were found, and the issue did not give rise to any substantial question of law. The second issue regarding entitlement to claim expenditure under Section 43B was not entertained due to the resolution of the first issue in favor of the Assessee.