DCIT Vs Narayani Ispat (P) Ltd. (ITAT Kolkata)
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.
Hon’ble Supreme Court in the case of Lachmandas Mathura (supra) has allowed the deduction on account of interest on late deposit of sales tax under section 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 under section 37(1) of the Act. As such interest on delayed payment of service tax and TDS was compensatory and not in the nature of penalty and was, therefore, deductible.
Addition of notional interest to be charged from sundry debtors outstanding for a longer period
In the case before hand, the assessing officer has worked out the interest income on the amount of sundry debtors which were outstanding for more than 6 months. Such interest was added to the total income of the assessee by the assessing officer. The amount of Sundry Debtors represents the amount of sales of goods or services rendered to the customers on credit. The sundry debtors are supposed to make the payment to the assessee on a particular time. Selling the goods or providing services on credit is a common business practice and sometime without the providing the credit to the customers, it is difficult to survive in the competitive markets. On the perusal of assessment order, we find that no date for the 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 assessing officer 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 assessing officer 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 learned Commissioner (Appeals) is correct and in accordance with law and no interference is called for. We hold accordingly. Hence, this ground of Revenue’ appeal is dismissed.
No disallowance of interest claimed under section 36(1)(iii) warranted for interest free advances made out of interest free own fund of assessee
The assessing officer 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.
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. In this regard, learned Departmental Representative has not brought anything contrary to the finding of learned Commissioner (Appeals) suggesting that the borrowed has been diverted in non-business activity. Hence, we hold that there was no diversion of interest bearing fund to the non-business activities of the assessee.
Full Text of the ITAT Order is as follows:-
This appeal by the Revenue is directed against the order of Commissioner (Appeals)-XX, Kolkata dated 28-8-2014. Assessment was framed by ACIT, Range-3, Kolkata under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 11-1-2013 for assessment year 2007-08. The grounds raised by the Revenue per its appeal are as under :–
“1. On the facts and circumstances of the case, the learned Commissioner (Appeals) is not justified in deleting disallowance of interest of Rs. 15,880 on service tax and Rs. 70,000 on TDS because of the fact that the assessee failed to deposit the taxes of other parties to the other parties to the Central Government account within due time.
2. On the facts and circumstances of the case, the learned Commissioner (Appeals) 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 Income Tax Rules.
3. On the facts and circumstances of the case, the learned Commissioner (Appeals) 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 learned Commissioner (Appeals) 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, learned Departmental Representative represented on behalf of Revenue and Shri Manish Tiwari, learned Authorised Representative appeared on behalf of assessee.
2. First issue raised by Revenue in this appeal is that learned Commissioner (Appeals) 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 facts are that assessee is a private limited company and engaged in manufacturing / trading business of iron and steel products. The assessee during the year has claimed the interest & finance expenses in its profit and loss account for Rs. 3,48,00,349.00 which includes the following expenses :–
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