2020 (2) TMI 22 - AT - Income Tax

Disallowing the interest on late payment of TDS - HELD THAT - As decided in own case 2020 (1) TMI 1094 - ITAT JAIPUR we sustain the addition on account of late payment of TDS. Interest paid by the assessee on account of late payments of Sales Tax, Excise Service Tax and EPF - we rely upon the decision of CIT vs Western India State Motors 1988 (3) TMI 22 - RAJASTHAN HIGH COURT wherein it has been said that interest payment of delayed payment of statutory liabilities is allowable as business expenditure. Therefore, the amount of interest paid in respect of late deposit of statutory/Govt. liabilities also partake the character of an expenses which is allowable as expenditure u/s 37(1). We are also fortified by the decision of Hon'ble Supreme Court in the case of Lachmandas Mathura vs CIT 1997 (12) TMI 16 - SUPREME COURT wherein it was held that when any statutory dues are paid delayed and interest is paid for delayed payment then it is compensatory in nature and allowable expenditure for business u/s 37 - no doubt that delay in making payment of statutory liabilities or interest expenses on delayed payment are compensatory in nature and this is allowable expenditure in business u/s 37. Therefore, we direct the AO to allow the claim of payment of interest made by the assessee on account of late payment of Sales Tax, on account of late payment of Excise and Service Tax and on account of late payment of EPF. Addition on account of claim of loss by theft - HELD THAT - As per facts of the present case, since the assessee was hopeful of getting the recovery of amount but it was only when the assessee during the year under consideration had come to conclusion that recovery is impossible or chance of recovery became remote, therefore, the assessee had rightly made his claim during the year under consideration. Therefore, in view of the decision of CIT vs Durga Jewellers 1987 (11) TMI 35 - MADHYA PRADESH HIGH COURT we allow the claim of the assessee and direct the AO to delete the addition made on account of claim of loss of theft.

Summary

Issues Involved:
1. Addition of ?3,94,946/- for delayed payment of ESI and PF under Section 2(24)(x) read with Section 36(1)(va) of the Income Tax Act, 1961.
2. Addition of ?11,45,410/- on account of claim of loss by theft.

Issue-wise Detailed Analysis:

1. Addition of ?3,94,946/- for Delayed Payment of ESI and PF:

The assessee challenged the confirmation of the addition of ?3,94,946/- by the CIT(A) under Section 2(24)(x) read with Section 36(1)(va) of the Income Tax Act, 1961, on account of delay in payment of ESI and PF. The assessee argued that the interest payments were compensatory and not penal in nature. The assessee cited several judgments, including CIT v. Oriental Insurance Co. Ltd (315 ITR 102), which held that interest on late deposit of TDS is compensatory and not penal.

The AO disallowed the interest payments, categorizing them as expenses for the violation of law. The CIT(A) upheld the disallowance, distinguishing between interest payments for business transactions and those for delayed statutory liabilities. The ITAT reviewed the case and noted that the issue of interest on late payment of TDS had already been decided against the assessee in a previous year by the Coordinate Bench. However, the ITAT allowed the interest payments on late payments of Sales Tax, Excise & Service Tax, and EPF, citing the compensatory nature of these payments as per the decision in CIT vs Western India State Motors (1988) 174 ITR 116 (Raj) and Lachmandas Mathura vs CIT (254 ITR 799).

2. Addition of ?11,45,410/- on Account of Claim of Loss by Theft:

The assessee claimed a deduction of ?11,45,410/- due to a theft that occurred in FY 2013-14, but the claim was made in AY 2016-17. The AO disallowed the claim, stating it should have been made in AY 2014-15 when the theft occurred. The CIT(A) upheld the disallowance, emphasizing that the loss should be accounted for in the year of occurrence as per the mercantile system of accounting.

The ITAT considered the facts and noted that the assessee was hopeful of recovery until the year under consideration, making the claim valid for AY 2016-17. The ITAT relied on CIT vs Durga Jewellers (172 ITR 0134), which allows the deduction of embezzlement losses when recovery becomes impossible or remote. The ITAT directed the AO to delete the addition, allowing the assessee's claim for the loss by theft.

Conclusion:

The appeal was partly allowed. The ITAT upheld the addition of ?83,768/- for the late payment of TDS but allowed the deduction for interest paid on late payments of Sales Tax, Excise & Service Tax, and EPF. Additionally, the ITAT allowed the claim of ?11,45,410/- for the loss by theft, directing the AO to delete the corresponding addition.