M/s M. J. Exports Pvt. Ltd. Vs DCIT (ITAT Mumbai)
The facts in brief are that the Collector of customs levied customs duty and penalty on the goods imported by the assessee in F.Y. 1988-89 vide order dated 28th January 1994 and subsequently, levied interest for not paying the customs duty and penalty in time. The assessee charged Rs.3,88,05,315/- as interest to profit and loss account by claiming that the liability crystallized in the year under appeal since the payment of interest was made on various dates between 12.12.2006 to 28.08.2007. The learned Assessing Officer disallowed the amount of Rs.3,88,05,315/-, which was paid to the customs authorities, on the ground that the interest liability crystallized in F.Y. 2001-02. The assessee disputed the levy of customs duty and penalty. Finally, the Hon’ble Apex Court upheld the levy of customs duty and penalty vide order dated 14.08.2001. In view of this factual matrix the learned Assessing Officer held that liability of paying interest also crystallized in F.Y. 2001-02 itself as payment of interest is mandatory u/s. 28AA of the Customs Act 1962. The assessee disputed the levy of interest before the Hon’ble High Court. It is noted that the assessee challenged the interest payment before various authorities and ultimately against the interest demand a Writ Petition was filed before the Hon’ble Bombay High Court (WP No. 338/2006) order dated 28th March 2006 (pages 9 to 23 of the Paper-book). The stand of the Revenue is that the levy of interest is applicable from the date when the Hon’ble Apex Court confirmed the liability of customs duty and penalty. The issue before us whether the interest on delayed payment is allowable expenditure or not. There is no dispute to the fact that the assessee made the payment of the interest also. In such a situation, we are of the view that the payment of interest is an allowable deduction u/s. 37(1) of the Income Tax Act. The Hon’ble Apex Court in Mahalaxmi Sugar Mills Co. vs. CIT (1980) 123 ITR 429 (SC), reversing (1972) 85 ITR 320 (Delhi) held that interest paid for delayed payment of such taxes is a deductible item of expenditure. The ratio laid down in Kamlapat Motilal vs. CIT (104 ITR 783) (Allahabad) and Russel Properties Pvt. Ltd. (1982) 137 ITR 358 (Cal). In view of the decision from Hon’ble Apex Court in Mahalaxmi Sugar Mills case (supra), the following decisions were impliedly overruled on the point:-
i) Vishnu Sugar Mills Ltd. vs. CIT 113 ITR 583 (Cal)
ii) Saraya Sugar Mills P. Ltd. vs. CIT 116 ITR 387 (Allahabad) (FB)
iii) CIT vs. L H Sugar Factories & Oil Mills Pvt. Ltd. (123 ITR 596) (Allahabad)
iv) CIT vs. Lachhmandas Mathuradas 124 ITR 411 (Allahabad)
7. On the issue of interest for delayed payments reference may be made to Triveni Engineering Works Ltd. vs. CIT (1983) 144 ITR 732 (Allahabad) (FB); CIT vs. Laxmidevi Sugar Mills Pvt. Ltd. (2000) 241 ITR 131, 132 (Allahabad); Raj Narayan Agarwal vs. CIT (2003) 259 ITR 720, 722 (Del); CIT vs. Delhi Automobiles (2005) 272 ITR 381, 382 (Del) wherein interest paid on delay in paying sales tax was held to be deductible. Admittedly, there are contrary decisions also wherein it was held that interest on delayed payments is not an allowable deduction. The ratio laid down in CIT vs. J K Synthetics Ltd. (2009) 309 ITR 371 (Del) further supports the case of the assessee.
