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TMI Blog2015 (10) TMI 1274X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose which is offence or which is prohibited by law. Under these circumstances this expenditure can be said to be compensatory in nature. We can also take support from various judgments available on this issue. Hon’ble Supreme Court in the case of Mahalakshmi Sugar Mills Co. vs. CIT (1980 (4) TMI 1 - SUPREME Court) has held that interest for delayed payment of statutory dues is an allowable deduction u/s.37(1) of the Act. - Decided in favour of assessee Disallowance made on account of labour charges - CIT(A) deleted the addition - Held that:- CIT(A), himself examined this register in the appellate proceedings and found that Provident Fund, ESI, Professional Tax etc. were deducted from the salaries of the workers and this register gave complete information. It was further found by Ld. CIT(A) that the salary paid to each worker was not more than ₹ 10,000/- and that’s why most of the salaried workers were having income below taxable limit. It was further found by Ld. CIT(A) that salary register contained signatures of all the labourers and it was very much before the AO when he had impounded one of the registers. It was finally concluded by the Ld. CIT(A) that nothing advers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The appellant craves leave to add, amend, modify, substitute and/or cancel any of the grounds of appeal. 2. During the course of hearing, the Ld. Counsel appearing on behalf of the assessee made arguments and drew our attention to few pages of the paper books in support of his arguments. On the other hand, Ld. DR also made the submissions relying upon the order of Ld. CIT(A) and AO. After hearing both the sides and going through the material placed before us, the appeal is decided ground wise as under: 3. Ground No.1: In this ground, the assessee has challenged action of Ld. CIT(A) in confirming the disallowance of ₹ 1,95,854/- made by AO on account of ad-hoc disallowance @ 20% on the ground that non business purpose of the expenses could not be ruled out by the assessee. Before the Ld. CIT(A), the assessee submitted as under: The appellant has work outside Mumbai and the labourers are required to stay outside the Mumbai at different sites. The appellant had given the list of the clients for whom the work was carried out during the year. From the list, one can see that the workers have carried out the work at far of places. The labourers are paid expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the action of Ld. CIT(A) in confirming the disallowance of ₹ 4,28,014/- on account of interest paid on account of delayed Service Tax and M-vat paid. The brief facts are that the Ld. AO has made the disallowance by making discussion in para 6 of the assessment order, on the ground that interest paid on delayed payment of services tax and M5 Mazda Decorators. vat is penal in nature and therefore, the same was disallowed. Before the Ld. CIT(A), the assessee submitted as under: During the year, the appellant due to confusion in respect of applicability of Service Tax and Vat could not pay the taxes in time. On account of this, the appellant had paid interest for the delayed payment of the Service Tax and M-vat. It is well settled law that the penalty paid if any, is not allowable under the income Tax but the interest being of compensatory nature is fully allowable. Therefore, disallowance of ₹ 4,28,0141- is totally incorrect. Under the Service Tax Rules, a simple interest of 13% p.a. is payable for delay in payment of Service Tax and penalty is payable on delay in filing of the return. The appellant had during the year paid a penalty of ₹ 5700/- and whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in the case of Commissioner of Income-tax vs Ishwari Khetan Sugar Mills (Pvt.) Ltd., 272 ITR 224(All) has held that interest on delayed payment of provident fund is an allowable deduction u/s37(1) of the Act. Hon ble Delhi High Court in the case of Commissioner of Income-tax vs Delhi Automobiles,272 ITR 381 (Del) has held that interest payments on delayed sales tax is an allowable deduction u/s.37(1) of the Act. Similar view has been taken by Mumbai Bench of ITAT in the case of Chander K. Raichandani (Supra) and by Delhi Bench in the case of M/s. Remfry Sagar Consultants Pvt. Ltd. (order dated 20.07.12in ITA No.5887/Del/2011). Further, Delhi Bench of ITAT in the case of CIT v. Messee Dusseldorf India (P) Ltd. 129 TTJ 81(Del) has held that interest paid for delayed payment of service tax is compensatory in nature and partakes same character as that of service tax and therefore, it is allowable as a deduction. In view of above and respectfully following the judicial pronouncements (supra), we are of the view that interest on late payment of Service Tax and M-VAT to the extent of ₹ 4,28,014/- is an allowable deduction u/s.37(1). Thus, we delete the disallowance made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR relied upon the order of the AO and submitted that expenses were incurred in cash and therefore it was rightly disallowed by the AO. On the other hand, Ld. Counsel heavily relied upon the order of Ld.CIT(A) and submitted that once complete evidences were furnished to the AO in the form of salary register, Return of PF and ESI and having examined the same, the AO was satisfied and nothing wrong was specifically found by the AO. There was no justification to make adhoc disallowance and that has been rightly deleted by the Ld. CIT(A). 15. It is noted by us that before the Ld. CIT(A), assessee had made detailed submissions and these are reproduced below for ready reference: The Assessing Officer has disallowed the part of the (10%) Labour charges on the basis that the expenses were incurred in cash for which no supporting documentary evidences were available. No PAN or any other proof in respect of the payments to whom the payment is made could be produced in spite of opportunity given. The appellant has big work force to carry out the work at different places. It is natural that the payments to the workers have to be made only in cash. In fact no questions were asked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs, the assessee had produced labour registers along with full details for the whole year. It was further noted by Ld. CIT(A) that one of these registers was impounded by the AO and it was released after due verification. Ld. CIT(A), himself examined this register in the appellate proceedings and found that Provident Fund, ESI, Professional Tax etc. were deducted from the salaries of the workers and this register gave complete information. It was further found by Ld. CIT(A) that the salary paid to each worker was not more than ₹ 10,000/- and that s why most of the salaried workers were having income below taxable limit. It was further found by Ld. CIT(A) that salary register contained signatures of all the labourers and it was very much before the AO when he had impounded one of the registers. It was finally concluded by the Ld. CIT(A) that nothing adverse could be pointed out by the AO and accordingly disallowance was deleted. We have further noticed that Ld. CIT(A) has passed very reasoned order after personally examining all the facts which were furnished before the AO by assessee. The reasons and findings given by the Ld. CIT(A) are based upon the evidences and decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. The fact is that the funds were transferred to the Partners Accounts. It may be slated that the no interest has been paid to the partners on their Capital Account. The Partners Capital Accounts are interest free account to the firm. Without prejudice to above, there is no nexus of diverting the interest bearing funds. In view of the above, no interest can be disallowed. Without prejudice to above, it may be stated that the loans were given on.ly for a part of the period therefore, interest cannot be disallowed on the loans taken. 21. After considering submissions of the assesee, Ld. CIT(A) observed that the assessee firm was having interest free funds of ₹ 1,19,27,831/- in the form of credit balance of the partners as on 31.03.2008. The loans on which no interest had been charged is ₹ 30,50,000/- only and therefore, disallowance made by the AO was deleted. It is noted by us that factual findings have been given by the Ld. CIT(A) that ample amount of funds of the partners were lying with the assesee firm, on which no interest has been paid by the assessee firm to its partners. These factual findings have not been rebutted by the Ld. DR. The findings ..... X X X X Extracts X X X X X X X X Extracts X X X X
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