Case Law Details
Gem Electro Mechanicals Pvt. Ltd. Vs ACIT (ITAT Jaipur)
Since there was delay in depositing the aforesaid amount of sales tax, therefore, the assessee was made to deposit interest amounting to Rs. 2,71,826/- on such delayed payment of sales tax amount and Rs. 3,152/-on delayed payment of Excise/Custom Duty & Service Tax. The AO during the course of assessment proceeding disallowed the claim of the assessee for the sole reason that same had been incurred on account of violation of law.
we found that since the requisite forms could not be deposited by the assessee to the Sales Tax Department, therefore, the assessee company was required to deposit the sales tax amount at normal rate as against concessional rate of tax, resultantly, the differential amount was deposited by the assessee company. In our view, such amount of tax deposited by the assessee company is certainly not in the nature of penalty for contravention of any law. It was only a tax which was paid by the assessee company as route of concessional rate of tax was blocked as the assessee was not able to deposit the requisite forms with the Sales Tax Department. On similar circumstances, the Hon’ble Supreme Court in the case of Malwa Vanaspati & Chemicals Co. (1972) 92 Taxman 537 (SC) had held that where the assessee had to pay the amount of tax at actual rates instead of concessional rates and something more, then it comprises both the elements of compensation and penalty. Therefore, compensation insofar as payment of tax at full rate is obligatory and something more, is in the character of a penalty. Hence, the assessee shall be entitled to the deduction u/s 37(1) of the Act insofar as the payments partake the element of compensation i.e. upto 100% of the sales tax rate actually payable. Similarly, the Hon’ble M.P. High Court in the case of Simplex Structural Works [1983] 12 Taxman 176 had held that the differential amount of tax (Normal Rate — Concessional Rate) subsequently deposited should be allowed under section 37(1). The Hon’ble Jurisdictional High Court in Udaipur Distillery [1986] 24 TAXMAN 282 held that, “The liability of interest on delayed payment of sales tax is a statutory obligation of the dealer and is automatic as no specific order is required. Thus, it is a part of sales tax and as the sales tax is paid by a dealer for the purpose of carrying on business, the amount of interest will for all purposes be considered to be an amount spent wholly and exclusively for the purpose of business. It may be stated that it is well settled that neither necessity nor motive nor reasonableness is the test for allowing deduction of expenditure spent wholly and exclusively for the purpose of business under section 37. It follows, therefore, that the amount of interest paid by the assessee on the sales tax is an allowable deduction under section 37. The Bench has also taken into consideration the case laws relied on by the ld. DR but it did not find applicable in the present facts and circumstances of the case. Hence, taking into consideration the present facts, circumstances of the case and the case laws discussed hereinabove, we do not concur with the findings of the ld. CIT(A) and we are of the considered view that the differential amount of tax (Normal rate – Concessional Rate) amounting to Rs. 1,82,756/- and interest on delayed payment of Sales Tax amounting to Rs. 2,74,978/-(Rs. 2,71,826/- plus Rs. 3,152/-) deposited by the assessee is not in the nature of penalty for contravention of any law.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal has been filed by the assessee against the order of ld.CIT (A)- 2, Jaipur dated 08.11.2019 for the Assessment Year 201617 passed under 143(3) of the Income Tax Act, 1961 on the grounds mentioned hereinbelow.
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