Manglam Arts Vs PCIT (ITAT Jaipur)
ITAT Jaipur held that interest paid on TDS is compensatory in nature and is a business expenditure allowable u/s 37(1) of the Income Tax Act
Facts- The assessee is engaged in the business of manufacturing and export of wooden handicrafts, durries, rugs, textile items, etc. AO completed assessment u/s. 143(3) after making addition towards litigation expense and employee’s contribution to provident fund.
PCIT issued notice u/s 263 and directed AO to make disallowance u/s 14A; penalty & fine; interest on delayed payment of TDS; u/s. 40(a)(ia) and prior period expenses.
Conclusion- Held that payments towards late fees for filing TCS/ GST Return is not an offence prohibited by law. Hence, the ground of the assessee is allowed.
Held that Hon’ble PCIT in case of Shriram General Insurance Company Ltd. has held that interest paid on TDS is compensatory in nature and is a business expenditure allowable u/s 37(1) of the Act as held by Hon’ble Karnataka High Court in case of Oriental Insurance Co. Thus, when the same PCIT has not drawn any adverse inference in the said case, the addition proposed in the present case u/s 263 is against law in as much as where there is one possible view then on that issue section 263 cannot be invoked.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This appeal of the assessee is directed against the order of the ld. PCIT, Jaipur-2 dated 29-03-2023 for the assessment year 2018-19 in the matter of Section 263 of the Act wherein the assessee has raised the following grounds of appeal.
1. The order passed by Ld. PCIT u/s 263 of the Act holding that assessment order passed u/s 143(3) dt. 12.02.2021 is erroneous and prejudicial to the interest of revenue is illegal & bad in law.
2. The Ld. PCIT has erred on facts and in law in computing the disallowance u/s 14A read with Rule 8D(2) of the Act at Rs.96,38,869/- ignoring that assessee has not incurred any expenditure in relation to exempt income and at the same time directing the AO to verify, examine and finalize the assessment in accordance with the prevailing law.
3. The Ld. PCIT has erred on facts and in law in holding that amount of Rs.46,666/- debited to P&L A/c under the head penalty & fine is not allowable even when such amount is not in the nature of penalty & fine and at the same time directing the AO to verify, examine and finalize the assessment in accordance with prevailing law.
4. The Ld. PCIT has erred on facts and in law in holding that interest on delayed payment of TDS of Rs.1,86,701/- should be added to the total income of the assessee ignoring that there are contrary decisions on this issue and at the same time directing the AO to verify, examine and finalize the assessment in accordance with the prevailing law.
5. The Ld. PCIT has erred on facts and in law in holding that Rs.13,520/- is disallowable (being 30% of alleged interest paid of Rs.45,069/-) u/s 40(a)(ia) of the Act ignoring that assessee has neither paid such interest nor any other amount liable for TDS and at the same time directing the AO to verify, examine and finalize the assessment in accordance with the prevailing law.
6. The Ld. PCIT has erred on facts and in law in holding that prior period expenses of Rs.23,41,675/- is not eligible for deduction against the profit of current year as nothing is brought on record to justify that such expenses crystallized during the year under consideration ignoring that this issue has already been considered by AO in the original assessment proceedings and in earlier year it was allowed by CIT(A).
2.1 Apropos ground No.1 of the assessee, brief facts of the case are that the assessee is engaged in the business of manufacturing and export of wooden handicrafts, durries, rugs, textile items, etc. It filed the return declaring total income of Rs.31,43,91,380/-. The return was selected for complete scrutiny proceedings by issue of notice under section 143(2) of the Act dated 22 September 2019. Thereafter, a detailed questionnaire dated 2 December 2020 was issued under section 142(1) of the Act, inter-alia, requiring the assessee to furnish details of deductions, exemptions and rebate claimed during the year along with supporting documents. The assessee furnished detailed replies vide submission dated 7 October 2019, 16 December 2020, 11 January 2021, 27 January 2021 and 10 February 2021. The AO considering the same assessed the total income vide order u/s 143(3) dt. 12.02.2021 at Rs.34,36,45,410/- making addition on account of following items:
a. Litigation expense on property of Rs 2,37,00,000
b. Employee’s contribution to Provident Fund of Rs 27,71,013
2.2 The Ld. PCIT issued notice u/s 263 dt. 15.02.2023 (PB 1-3) on the ground that faceless assessing officer (FAO) has not made addition on seven issues as is evident from the audited accounts/ tax audit report. The assessee filed detailed explanation vide letter dt. 24.02.2023 (PB 4-40) and 08.03.2023 (PB 41-51) explaining each of the issues and highlighting that how the same is considered in original assessment proceedings. The Ld. PCIT after considering the same, at Para 5.5, Pg 7-11 of the order accepted the explanation on two issues but directed the AO to make addition on the following issues as summarized at Para 12 of the order:-
