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TMI Blog2019 (7) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... ld.AR For the Department : Shri A.K. Nayak, CIT, ld.Sr.DR ORDER PER DR. A.L.SAINI, A.M.: The captioned appeal filed by the Assessee, pertaining to assessment year 2014-15, is directed against the order passed by the Principal Commissioner of Income Tax, Kolkata under section 263 of the Income Tax Act, 1961, dated 06.02.2019. 2. By way of this appeal, the assessee appellant has challenged correctness of the order dated 06.02.2019, passed by the learned Principal Commissioner of Income Tax, Kolkata under section 263 of the Income Tax Act, 1961, wherein the Pr.CIT held that order passed by assessing officer U/s 143(3), dated 11.05.2016 was erroneous and prejudicial to the interest of the revenue. Grievances raised by the assessee are as follows. 1.For that on the facts and in the circumstances of the case, the order passed by the ld. Principal CIT u/s. 263 of the Act is bad in law and is liable to be quashed. 2.For that the Ld. Principal CIT was not justified in initiating proceedings u/s. 263 inasmuch as it has been held in various decisions that interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That admittedly both the assessee and the AO overlooked the said amount during proceedings under section 143(3) of the 1.T Act, 1961 and without adding back the said amount allowed the same fully. That in the circumstances as above, the assessment order dated: 11.05.2016 passed under section 143(3) of the IT Act, 1961 is erroneous and prejudicial to the interest of revenue and the assessee has no objection if the assessment order dated 11.05.2016 be revised under section 263 of I.T Act, 1961 by your honour considering the statements made in para above. 5. The learned Principal Commissioner of Income Tax, has gone through the reply of the assessee and noticed that assessee has himself confessed and accepted that the he had inadvertently overlooked the matter. It was observed by the Pr.CIT that the assessee had not suo-motto disallowed such expenses being penal in nature and not incidental to the business of the assessee company. Since the assessee had admitted the lapse and had expressed its no objection if the impugned assessment order is revised u/s. 263 of the Act. Since the assessee has also admitted the aforementioned error in the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould make such an inquiry prudent that the word erroneous in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. We derive support for the proposition as stated above from the decision of the Hon ble Delhi High Court in the case of Gee Vee Enterprises 99 ITR 375 (Del). 10. We note that the assessee company has challenged in the first place, the very usurpation of jurisdiction by ld. Principal CIT to invoke his revisional powers enjoyed u/s 263 of the Act. Therefore, first we have to see whether the requisite jurisdiction necessary to assume revisional jurisdiction is there existing before the Pr. CIT to exercise his power. For that, we have to examine as to whether in the first place the order of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was observed by the Pr.CIT that the assessee had not suo-motto disallowed such expenses (VAT, service tax, TDS etc.) being penal in nature and not incidental to the business of the assessee company. Since the assessee has also admitted the aforementioned error in the assessment order therefore, ld Pr.CIT noted that it is a fit case for setting aside the assessment order for limited purpose to rectify the error as brought out above. Also, during the course of assessment proceedings, the Assessing officer had failed to take appropriate measures by disallowing the said expenses ( Interest on late deposit of VAT, service tax, TDS) u/s 37(1) of the Act, therefore, Ld. Pr.CIT, held that assessment order passed by AO under section 143(3) dated 11.05.2016 was erroneous and prejudicial to the interest of revenue. We note that there is no estopple against the law. What is not otherwise taxable cannot become taxable because of admission of assessee. Nor can there be any waiver of the right otherwise admissible to the assessee in law. The chargeability is not dependent on the admission of or waiver by the assessee. The chargeability is dependent on the charging section, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 215 as well as under section 139. The assessee claimed that since taxes which were payable were delayed, the assessee's financial resources increased which were available for business purposes. Hence, the interest which was paid to the Government was interest on capital that would be borrowed by the assessee otherwise. Hence, the amounts should be allowed as deduction. The revenue did not allow such deduction. The High Court affirmed the view. On appeal to the Supreme Court: HELD When interest is paid for committing a default in respect of a statutory liability to pay advance tax, the amount paid and the expenditure incurred in that connection is in no way connected with preserving or promoting the business of the assessee. This is not expenditure which is incurred and which has to be taken into account before the profits of the business are calculated. The liability in the case of payment of income tax and interest for delayed payment of income-tax or advance tax arises on the computation of the profits and gains of business. The tax which is payable is on the assessee's income after the income is determined. This cannot, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its Full Bench's decision in Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR 387 (All.) The learned counsel appearing for the appellant-assessee states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni Engg. Works Ltd. v. CIT [1983] 1441TR 732 (All.) (FB), wherein it has been held that interest on arrears of tax is compensatory in nature and not penal. This question has also been considered by this Court in Civil Appeal No. 830 of 1979 titled Saraya Sugar Mills (P.) Ltd. v. CIT decided on 29-2-1996. In that view of the matter, the appeal is allowed and question Nos. 1 and 2 are answered in favour of the assessee and against the revenue. In view of the above judgment, there remains no doubt that the interest expense on the delayed payment of service tax is allowable deduction. The above principles can be applied to the interest expenses levied on account of delayed payment of TDS as it relates to the expenses claimed by the assessee which are subject to the TDS provisions. The assessee claims the specified expenses of certain amount in its profit loss account and thereafter t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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