Kadharegowda Siddaraju Vs ITO (ITAT Bangalore)
In the case of Kadharegowda Siddaraju Vs ITO (ITAT Bangalore), the assessee, an individual taxpayer, challenged the decision of the CIT(A) in confirming the disallowance of VAT penalty payments as a deductible expense under Section 37 of the Income Tax Act. The disputed amount was Rs. 2,74,202/- and pertained to payments made towards VAT arrears for the assessment year 2018-19. The assessee had filed the return of income on 31.10.2018, declaring a total income of Rs. 3,93,310/- and was later subjected to a scrutiny assessment, which resulted in the addition of Rs. 2,74,202/- by the Assessing Officer (AO), who disallowed the payment of VAT penalties.
The primary issue raised by the assessee was whether the payment made towards VAT arrears, which was not penal in nature, should be allowed as a deduction under Section 37. The assessee argued that the Karnataka VAT authorities had waived the penalties for the assessment years 2014-15 and 2016-17, and only the arrears of VAT were paid in the relevant assessment year. Despite submitting the order of waiver to both the AO and CIT(A), it was not considered, leading to the dispute. The learned AR contended that since the payment was not a penalty, it should be allowed as a business expense under Section 37 of the Act.
