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TMI Blog2017 (10) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case, the Ld. CIT(A) is not justified in deleting addition of Rs. 45,71,900/- as unexplained expenditure on account of freight payments to M/s Balajee Roadways, after admitting fresh evidence in contravention to Rule 46A of the IT Rules. 3. On the facts and circumstances of the case, the Ld. CIT(A) is not justified in deleting addition of Rs. 13,13,396/- on account of interest on sundry debtors. 4. On the facts and circumstances of the case, the Ld. CIT(A) is not justified in deleting addition of Rs. 4,33,172/- on account of interest on loans and advances. 5. That the appellant craves leave to amend, modify or alter any grounds of appeal during the course of hearing of this case." Shri Arindam Bhattacharjee, Ld. Departmental Representative represented on behalf of Revenue and Shri Manish Tiwari, Ld. Authorized Representative appeared on behalf of assessee. 2. First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for Rs. 15,880/- and Rs. 70,777/- on account of interest expenses on the late deposit of service tax and Tax Deducted at Source (TDS) respectively. 3. Briefly, stated fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed the same following the decision of Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd. Vs. CIT 230 ITR 733(SC). However, in that case the dispute was related to allowability of interest u/s.139 & 215 of the IT Act, 1961 whereas in the present case the expenditure related to interest paid on service tax and interest paid on TDS. In view of the facts and submission of the appellant, I find that the expenses are allowable u/s. 37 of the IT ct, 1961 as the same were incurred wholly and exclusively for the purpose of business. Therefore, the AO was not justified to disallow the same. Hence, he is directed to delete the addition." The Revenue, being aggrieved, is in appeal before us. 6. Ld. DR before us vehemently relied on the order of AO whereas Ld. AR for the assessee relied on the order of Ld. CIT(A). 7. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, AO has disallowed the interest expenses incurred by the assessee on account of late deposit of service tax and TDS after having reliance on the judgment of Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd. Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the assessee has to pay on his income. In the instant case the default relates to the delay in the payment of advance tax and consequently interest was charged on the delayed payment of advance tax. In the above judgment the Hon'ble Apex Court held that as Income Tax paid by the assessee is not allowable deduction and therefore interest emanating from the delayed payment of income tax (advance tax) is also not allowable deduction. However the facts of the instant case before us are distinguishable as in the case before us the interest was paid for delayed payment of service tax & TDS. The interest for the delay in making the payment of service tax & TDS is compensatory in nature. As such the interest on delayed payment is not in the nature of penalty in the instant case on hand. The issue of delay in the payment of service tax is directly covered by the judgment of Hon'ble Apex Court in the case of Lachmandas Mathura Vs. CIT reported in 254 ITR 799 in favour of assessee. The relevant extract of the judgment is reproduced below : "The High Court has proceeded on the basis that the interest on arrears of sales tax is penal in nature and has rejected the contention of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court in the case of Lachmandas Mathura (Supra) has allowed the deduction on account of interest on late deposit of sales tax u/s 37(1) of the Act. In view of the above, we conclude that the interest expenses claimed by the assessee on account of delayed deposit of service tax as well as TDS liability are allowable expenses u/s 37(1) of the Act. In this view of the matter, we find no reason to interfere in the order of Ld. CIT(A) and we uphold the same. Hence, this ground of Revenue is dismissed. 8. Next issue raised by Revenue in ground No. 2 is that Ld. CIT(A) erred in deleting the addition made by the AO for Rs. 45,71,900/- on account of unexplained freight expenditure after admitting fresh evidences in contravention to the provisions of rule 46A of Income Tax Rules 1962. 9. The AO during assessment proceeding observed the difference in amount of freight expenses shown by the assessee as detailed under : i) Amount shown in the profit & loss account for Rs. 6,95,20,359.00 ii) Amount shown in the tax audit report for Rs. 8,62,73,035.00 iii) Amount shown as per section 40A(2)(b) in tax audit Rs. 8,68,95,895.00 The AO accordingly in view of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audit report and such figures appearing as per notes on account of did not call for any adverse inference as the reconciliation of the said was filed before the AO which has been mentioned at page of the assessment order. In view of the facts and circumstances of the case, I find that it was not an unexplained expenditure as held by the AO. The difference in figures was satisfactorily reconciled before the AO as appearing in the assessment order itself. Under these circumstances, neither the amount remained unexplained nor it was debited to the P & L A/./c. Further, this is not a case where the appellant had made an such payment to M/s Shreee Balaji Roadways. Therefore, the addition made by the AO of Rs. 45,71,900/- is directed to be deleted." The Revenue, being aggrieved, is in appeal before us. 11. Ld. DR before us assailed that Ld. CIT(A) has deleted the addition made by the AO after admitting the additional evidence in contravention to the provision of Rule 46A of the Income Tax Rules, 1962. He further submitted that the freight expenses to the tune of Rs. 45,71,900/- was remained unexplained by the assessee at the time of assessment proceedings, therefore the addition was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing with them. Therefore the AO was of the view that the interest bearing fund of the assessee got blocked in the debtors from whom no interest income is being charged. On question by the Assessing Officer, the assessee submitted as detailed under : i) The dispute in respect to eight (8) debtors for Rs. 99,11,880.00 is pending in the court of law and therefore as a matter of prudent business policy no interest is being charged. ii) There is another dispute in respect to Sundry Debtors amounting to Rs. 10,37,608.00 with regard to the rate of the goods and accordingly no interest is being charged. iii) Similarly no interest is being charged from the remaining debtors amounting to Rs. 57,72,348.00 only on the ground that the assessee has regular business dealing with such debtors. Any charge of interest from them will affect the business dealing with them. However, the assessee failed to submit any documentary in respect of sundry debtors amounting to Rs. 99,11,880.00 only. Therefore the AO following the earlier year assessment order for the year 2009-10 charged interest @ 12% on the outstanding sundry debtors of Rs. 1,09,49,488/- (9911880 + 1037608) only. Thus, the AO worked o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment from the sundry debtor was brought on record. There was no information available suggesting that the assessee was entitled for interest on the outstanding amount of sundry debtors. Thus, it cannot be said that the income from interest had actually accrued to the assessee during the year under consideration. The decision for the charging the interest from the sundry debtors totally depends upon the assessee. The AO cannot sit on the arm-chair of the assessee and direct for the recovery of interest on the amount of sundry debtors which are due for payment. The assessee has to consider business expediency for charging interest from the sundry debtors which are outstanding in the books. Thus, in our considered view, we hold that the addition made by the AO for the interest on the amount of sundry debtors outstanding in the books of account is not sustainable. In the light of above reasoning, we hold that the order of the Ld. CIT(A) is correct and in accordance with law and no interference is called for. We hold accordingly. Hence, this ground of Revenue' appeal is dismissed. 18. Next issue raised by Revenue in ground No.4 is that Ld. CIT(A) erred in deleting the addition mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the advances/balances, I find that it was not a case where the loan funds on which interest was being paid were diverted for nonbusiness purpose. All the advances are related for the purpose of business only. Under these circumstances, calculation of interest thereon and disallowing the claim of interest of the appellant was not justified." The Revenue, being aggrieved, is in appeal before us. 21. Before us Ld. DR vehemently relied on the order of AO and he left the issue to the discretion of the Bench whereas Ld. AR for the assessee relied on the order of Ld. CIT(A) and stated that issue may be decided on merit. 22. We have heard the rival contentions of both the parties and perused the material available on record. The AO in the instant case was of the view that the interest bearing fund has been diverted for non-business activities and accordingly, he disallowed the interest @ 9% per annum on the amount of advance. 22.1 On perusal of appellate order, we find that assessee was having its own capital for Rs. 8,84,73,905/- at the end of financial year under consideration. We note that the own fund of assessee was sufficient enough to make the advance of Rs. 48,13,023/- only. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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