Income Tax Appellate Tribunal - Mumbai
Acit 14 (1)(2), Mumbai, Mumbai vs Shriram Chits Maharastra Limited, ... on 3 June, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "B" MUMBAI
BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER)
AND
SHRI RAJ KUMAR CHAUHAN (JUDICIAL MEMBER)
ITA No. 66/MUM/2024
Assessment Year: 2017-18
ACIT-14(1)(2), Shriram Chits Maharashtra Ltd.,
Room No. 455, 4th floor, Wockhardt Towers, Level 2, East
Aayakar Bhavan, M.K. Road, Vs. Wing C2, G Block Bandra Kurla
Mumbai-400020. Complex, Bandra East,
Mumbai-400051.
PAN NO. AAECS 7592 Q
Appellant Respondent
Assessee by : Mr. Raghav Menon
Revenue by : Mr. Ashok Kumar Ambastha, Sr. DR
Date of He aring : 30/05/2024
Date of pronouncement : 03/06/2024
ORDER
PER OM PRAKASH KANT, AM
This appeal by the Revenue is directed against order dated 10.11.2023 passed by the Ld. Commissioner of Income-tax (Appeals) - National Faceless Appeal Centre, Delhi [in short 'the Ld. CIT(A)'] for assessment year 2017-18, raising following grounds:
Shriram Chits Maharashtra Ltd. 2 ITA No. 66/MUM/2024
1. Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) erred by deleting the addition made by AO on account of understatement of income from foreman commission ignoring the fact that the assessee receives 5% commission from chit fund and pays 1% co mmission to agents thereby resulting in commission ratio of 5:1 in commission receipt & payments and assessee fails to show income in this proportion in relation to commission payment claimed?
2. 02. Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) erred by deleting the addition made by AO on account of interest incurred for delayed payment of service tax dues of Rs. 31,080/, just relying upon the submissions of the assessee and thereby ignoring the fact that interest incurred payment of service tax is penal in nature and not for delayed payment compensatory in nature and is not allowable business expenditure under section 37(1) of the income Tax Act, 1961.
3. 03. Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) erred by dele ting the addition made by AO deleting un reconciled FD interest income reflected in Form on account of un-
26AS of Rs. 18,046/ ignoring the fact that the 26AS shows that the assessee has received interest income of Rs, 18,046/-from 18,046/ FDR on which TDS has been deducted.
4. 04 The Appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
2. We have heard rival submission of the parties and perused the relevant material on record. The Ld. counsel for the asses assessee, who appeared virtually, submitted that issue-in-dispute issue dispute raised in the appeal are covered by various decisions cited by the Ld. CIT(A) in the impugned order.
2.1 The Ld. Departmental Representative (DR) on the other hand relied on the order of the Assessing Ass Officer.
2.2 As far as ground No. 1 of the appeal relating to addition of Rs.5,23,55,080/- on account of foremen commission income is concerned, the relevant finding of the Ld. CIT(A) is reproduced as under:
Shriram Chits Maharashtra Ltd. 3 ITA No. 66/MUM/2024
"3.2 Adjudicating Authority: I have gone 3.2 Finding and Decision of the Adjudicating through the facts of the case, submission of the appellant and material available on record. I find that addition on account of commission income of Foreman has been a recurring issue on which additions were made by ng Authority in earlier years and were thereafter, adjudicated the Assessing by Commissioner (Appeals) and Hon'ble jurisdictional Tribunal. The Hon'ble ITAT, Mumbai had considered this issue in ITA No. 1789/Mum/2015 dated 17.03.2017 for AY 2010-11 2010 11 and had given the owing findings for deleting the addition made on account of difference following between the Foreman commission receivable and the Foreman commission actually received:
" 10. We have heard the counsel of both the parties and we have also perused the material placed on record as well as the orders passed by the revenue authorities. Before we decide the merits of the case it is necessary to evaluate the orders passed by Ld. CIT(A). The operative portion is reproduced below:
below:-
commission of 5% on the total chit "I find that the appellant earns a commission fund collection. Such, chit schemesare-normally-of-30.
schemesare 30. months to 50 months duration. Therefore, the said commission of 5% is spread over a period of more than 2 to 5 years. It is also seen that the assessee earns commission on a m onth to month basis on the month monthly collection made and on the successful bidding by the subscribers. However, the agents are paid a commission of 1% of the total chit value, in respect of each subscriber enlisted by him provided such subscriber pays at leastleast four months instalment, immediately on receipt of four such instalment. Thus there is no co relation between the foreman commission earned and definite co-relation the agency commission paid. The appellant also may have to make additional expenditure on failed chit collections. Therefore, the addition made by the AO in computing the income of Shriram Chits Maharashtra Ltd. the appellant by applying 5 times of the payment of commission to the agents is not based on any objective yard stick. In view of the above, the addition of Rs.4,72,17,435/-
Rs.4,72,17,435/ made by the AO is deleted."
After analyzing the aforementioned order passed by Ld. CIT(A) and after hearing the arguments of both the parties, we find that the CIT(A) has taken into consideration that the assessee earned commission of 5% on the total chit fund collection. The said mmission is spread over the total period of scheme and in this commission way the assessee earns commission on a month to month basis on the monthly collection made and on the successful biding by the subscribers. As per the facts, the agents are paid a commission of 1% of the total chit fund value in respect of each subscriber enlisted by him provided such subscribers pays at least 4 months installment, immediately on receipt of 4 such installments and in co relation between the foremen this way there is no definite co-relation commission earned and the agency commission paid. After appreciating the facts, the Ld. CIT(A) had rightly decided that the addition made by the AO in computing the income of the assessee Shriram Chits Maharashtra Ltd. 4 ITA No. 66/MUM/2024 by applying five times of the payment of the commission to the agentss is not based on any objective yardsticks, therefore deleted the said additions. We have also noticed that the Ld. CIT(A) while deciding this issue had also taken into consideration the submission made by assessee which are contained in para no. 4 also the findings of AO which are contained in para No .3 of and also CIT(A)'s order.
Apart from the above, the Ld. DR appearing for the applicant has also not placed on record any new facts or contrary judgments of rebut the findings higher courts before us in order to controvert or rebut recorded by learned CIT(A), and therefore, there are no reasons for us to deviate from or interfere into the well reasoned findings well-reasoned recorded by the Ld. CIT(A). Therefore, after hearing both the parties and analyzing the impugned order, we are of the considered view that the findings so recorded by the Ld. CIT(A) are judicious and reasoned. Accordingly, we uphold the same and dismiss this well-reasoned.
ground of appeal filed by revenue."
co ordinate bench was followed subsequently This decision of the co-ordinate subsequentl by the Hon'ble ITAT in ITA No. 3639/Mum/2016 dated 18.01.2018 (AY 2011-12), 2011 ITA No. 947/Mum/2017 (AY 2013-14)2013 14) & ITA No. 729/M/2023 dated 2014 15): Further, to what has been stated by the higher 31.05.2023 (AY 2014-15):
Judiciary, I would also like to add that Assessing Authority has also failed Assessing to substantiate/establish that Foreman commission income over and above of what is disclosed in the regular books of accounts was also received by the appellant. Nor any discrepancy in the books of accounts meriting possible action under section 145(3) of the Act has been brought into consideration. Therefore, as there is no change in factual position of the impugned addition, and additions suffers from deficiencies pointed highest fact finding supra, respectfully following the decisions of the highest 5,23,55,080/-- on account of authority on this issue, the addition of Rs. 5,23,55,080/ Foreman commission income is hereby deleted. Accordingly, this ground is treated as Allowed."
Allowed.
2.3 Since, the Ld. CIT(A) has followed binding precedent on the issue in dispute in the case of assessee itself, therefore, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and accordingly, accordingly we uphold the same. The ground No. 1 of the appeal of the Revenue is accordingly dismissed.
2.4 The ground No. 2 of the appeal of the Revenue is concerned with interest incurred for delayed payment of service tax of Shriram Chits Maharashtra Ltd. 5 ITA No. 66/MUM/2024 Rs.31,080/-, which has been allowed by the Ld. CIT(A). The relevant finding of the Ld. CIT(A) is reproduced as under:
"4.2 4.2 I have gone throu through gh the facts of the case, submission of the appellant, assessment order and material available on record. While appellant has case laws which have held that such interest furnished a number of case-laws payments, being compensatory in nature, become eligible for claim cla as an allowable business expenditure under section 37(1) of the Act, in some of the recent judgments, Hon'ble Tribunal have given contrary judgments by further specifically examining the nature of the delayed statutory interest tax Act, thereby payment in the context of specific provisions of the Income-tax case laws on the subject. In this context, I distinguishing with the available case-laws would like to rely upon decision of Hon'ble Delhi ITAT in the case of Universal Energies Pvt. Ltd. dated 26.07.2022 in ITA No. No. 2761/Del/2018. The relevant portion of the order is extracted as under:
4. We have considered the order of the AO and facts on records and find that the assessee has submitted copy of ledger account of interest on TDS is not allowable expenses as per IT Act, 1961. The assessee itself also agreed that interest on TDS is not allowable expenses, therefore, the AO disallowed the expenses of interest on Rs.9,70,248/-. Interest on TDS is not an allowable TDS of Rs.9,70,248/ expenditure. In this case the assessee itself agreedagre for the assessment before the AO and this fact is not disputed by the ld. AR in the appellate proceeding. It is undisputed law that income tax inputs interest, penalty also and the same is not allowable as per provisions of Section 40(a)(ii) of the Act. Notwithstanding the contentions of the assessee before the revenue authorities, we have examined the issue of allowability as per the provisions of Income Tax Act and in the background of the various judicial pronouncements.
Income tax Act mandates Assessee to pay
5. Sec. 201(1A) of the Income-tax simple interest @ 1.5% per month or part of the month in case of delay in remittance of TDS amount deducted, to the treasury of the Central Government. The pertinent question arises in the instant interest paid on late payment of TDS after appeal is whether the inte deduction can be claimed as expenditure for determining the taxable income.
6. For claiming an expenditure and arriving at the taxable income, the I.T. Act, 1961 fundamentally stipulates twin conditions viz. allowance of expenditure as per Sec.30 to 37 of the Act and non- non allowable expenditure as per section 40, 43B. The same are applicable for claiming the interest paid on late remittance of TDS.
7. Interest as defined in section 2(28A) of the Act means interest payablee in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect Shriram Chits Maharashtra Ltd. 6 ITA No. 66/MUM/2024 of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. Hence, Section 36(1)(iii) of the Act allows a deduction for interest paid on capital borrowed while computing the business income of the taxpayer. It provides deduction of the interest paid in respect of capital borrowed borro for the purpose of the business or profession.
8. In the case of K.M.S. Lakshmanier And Sons vs. CIT 1953 AIR 145:1953 SCR 1057 (SC) it was held that the expression "borrowed money" means real borrowing or real lending. It must be construed natural and ordinary meaning and implies a real borrowing in its natural and real lending. It requires the existence of a borrower and a lender and accordingly there must be a real borrowing.
9. Unlike section 2(28A), clause (iii) of section 36(1) does not use the term 'debt incurred'. Hence, section 2(28A) defines 'interest' in a wider sense whereas Section 36(1)(iii) has used it in a restrictive manner. Therefore, it may be concluded that there must be a loan on which interest is paid for claiming allowance u/s 36(1)(iii) of o the Act. Existence of lender and borrower are must in case of a loan transaction. Hence, it can be safely concluded that non non-payment of taxes does not amount to the borrowing of capital from the Government and hence interest paid for delayed deposit of taxes t is not covered under section 36(1)(iii) of the Act. Section 37 is a residuary section which allows business expenditure in computing the taxable business income of an Assessee. Expenses allowed as deductions against Profits and Gains of Business or Pr Profession are covered from Section 30 to 36 of the Act. Section 37(1) provides that any expenditure incurred (except expenditure described in sections 30 to 36, capital expenditure or personal expenses of the assessee), wholly and exclusively for the purpos es of the business purposes or profession shall be allowed in computing the income chargeable under the head, "Profits and Gains of Business or Profession".
Interest on late payment of TDS is not covered under Section 30 30-36 consideration u/s 37. It is neither of the Act and thus qualifies for consideration capital expenditure nor personal expenditure of the Assessee. Further, Courts have time and again held that interest expenses on late payment of taxes which are compensatory in nature should be exclusively for the purposes of the treated as expended wholly and exclusively business or profession since responsibility of payment of taxes including deduction and remittance of TDS is part and parcel of the business operations and the assessee has no right to utilize such others on behalf of the government.
monies collected from others
10. We have also gone through the Apex Court observations in this regard in the case of Lachmandas Mathura Vs. CIT reported in 254 ITR 799 are as follows:
"The High Court has proceeded on the basis that the rears of sales tax is penal in nature and has interest on arrears rejected the contention of the assessee that it is compensatory in nature. In taking the said view the High Shriram Chits Maharashtra Ltd. 7 ITA No. 66/MUM/2024 Court has placed reliance on its Full Bench's decision in 16 ITR 387 (All.) Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 The learned counsel appearing for the appellant-assessee appellant states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni Engg. Works Ltd. v. CIT [1983] 144 ITR 732 (All.) (FB), wherein it has been held that interest on arrears of tax is compensatory in nature and not penal. This question has also been considered by this Court in Civil Appeal No. 830 of 1979 titled Saraya Sugar Mills (P.) Ltd. v. CIT decided on e matter, the appeal is allowed 29-2-1996. In that view of the and question Nos. 1 and 2 are answered in favour of the assessee and against the revenue."
11. The payment of interest takes colour from the nature of the levy with reference to which such interest is paid and the tax required requir to be but not paid in time, which rendered the assessee liable for payment of interest was in the nature of a direct tax and similar to the income tax Act. The interest paid income-tax payable under the Income-tax under Section 201(1A) of the Act, therefore, would not assume the character of business expenditure and cannot be regarded as a compensatory payment.
12. The Income Tax Appellate Tribunal (ITAT), Delhi Bench in the case of M/s. New Modern Bazaar Departmental Store Pvt. Ltd. is a interest on Late Payment of TDS does not Pvt. Ltd. held that the interest constitute Business Expenditure. In this case the assessee argued before the ld. CIT(A) that interest on late deposit of TDS is compensatory and not penal in nature. The ld. CIT(A) held that interest paid under the pr ovisions of the Act is not a deductible provisions expenditure, not compensatory in nature. Thus, he confirmed the action of the Assessing Officer. The assessee submitted that the interest is compensatory in nature and a part of business Had the same amount has been taken operations of the assessee. Had as loan from a bank, the interest paid on the same anyway would have been allowed as deduction u/s 36. The Revenue submitted that interest on late deposit of TDS is neither an expenditure wholly for the purpose of business and further it and exclusively incurred for is a payment, which is in the form of tax so it is not an allowable expenditure. The ITAT dismissed the appeal of the assessee.
13. The Hon'ble Madras High Court in CIT Vs. Chennai Properties (1999) 239 ITR 435 (Mad.) has held that interest & Investment Ltd. (1999) under section 201(1A) paid by the assessee does not assume the character of business expenditure and also cannot be regarded as compensatory payment.
14. This decision of Hon'ble Madras High Court has also been ollowed by various benches of ITAT, specifically in Velankani followed Information Systems Limited Vs. DCIT [2018] taxmann.com 599 (Bangalore Trib.) as under: -
(Bangalore-
Shriram Chits Maharashtra Ltd. 8 ITA No. 66/MUM/2024 "As far as delay in remittance of TDS u/s 201(1A) of the Act is concerned, we find that the Hon'ble Madras Mad High Court has taken a view that interest u/s 201(1A) is also in the nature of tax and notwithstanding the fact that is not the tax liability of the assessee, the same cannot be allowed as deduction. The following were the relevant observations of the Hon'ble Madras High Court: -
1. As already noticed the payment of interest takes colour from the nature of the levy with reference to which such interest is paid and the tax required to be but not paid in time, which rendered the assessee liable for payment of interest was in the nature of a direct tax and similar to the tax payable under the Income Tax Act. The interest income-tax paid u/s 201(1A) of the Act, therefore, would not assume the character of business expenditure and cannot be regarded as a compensatory payment.
2. Counsel for the assessee in support of his submission that the interest paid by the assessee was merely compensatory in character besides relying on the case of Makalakshmi Sugar Mills Co. also relied on the decision of the apex courtt in the cases of Prakash Cotton Mills Pvt. Ltd.
V. CIT [1993] 201 ITR 684; Malwa Vansapati and Chemical Co. v. CIT [1997] 225 ITR 383 and CIT vs. Ahmedabad Cotton Manufacturing Co. Ltd. [1994] 205 ITR 163. In all these cases, the court was concerned with an indirect tax payable by the assessee in the course of its business and admissible as business expenditure.
3. The ratio of those cases is not applicable here. Income-
Income tax is not allowable as business expenditure. The amount of tax deducted is not an item of expenditure.
4. We therefore, follow the decision of Hon'ble Madras High Court and uphold the order of CIT(A) in so far as it relates to disallowance of interest on delayed payment of TDS u/s 201(1A) of the Act."
15. Further, the Co TAT Bangalore in the case of Jindal Co-ordinate Bench of ITAT Aluminimum Limited ITA No. 31/Bang/2019 having similar facts where interest on TDS is held as ineligible business expenditure.
16. Hence, we have no hesitation to hold that interest payment on late payment of TDS is not eligible business expenditure for deduction and it is not compensatory in nature. Payment of interest on late deposit of TDS levied u/s 201(1A) is neither an expenditure only and exclusively incurred s not allowable as for the purpose of the business and therefore the same iis deduction u/s 37(1) of the Act.
17. Therefore, the disallowance made by the AO is hereby confirmed. The ground of appeal is dismissed.
Shriram Chits Maharashtra Ltd. 9 ITA No. 66/MUM/2024 Respectfully following the above quoted decision of the Hon'ble Tribunal wherein the existing catena ofof judicial precedents on the issue of interest payment for delayed TDS payment have been examined in in-depth and 25,163/ on account of interest incurred distinguished, the addition of Rs. 25,163/- on delayed TDS payment is hereby confirmed. However, with respect to the interest incurred for delayed payment of service tax dues, no contrary judgment has come to my notice. Hence, respectfully following the available judicial precedents on this subject, as quoted and cited by the Rs.31,080/ is hereby deleted by holding it an appellant, the addition of Rs.31,080/-
allowable business expenditure under section 37(1) of the Act. This Ground is hence, partly allowed.
allowed."
2.5 Rs.31,080/ in respect of interest While allowing the relief of Rs.31,080/- incurred for delayed payment of the service tax, the Ld. CIT(A) has followed binding precedent on the issue in dispute and therefore, we do not find any infirmity in the order of the Ld. CIT(A CIT(A) on the issue accordingly, we uphold the same. The ground No. 2 in dispute and accordingly accordingly dismissed.
of the appeal of the Revenue is accordingly 2.6 The ground No. 3 of the appeal of the Revenue is related to addition of Rs.18,046/ Rs.18,046/- on account of unrecorded FD interest income. The relevant finding of the Ld. CIT(A) reproduced as under:
"5.2 5.2 I have gone through the facts of the case, submission of the appellant, case, assessment order and material available on record. It is seen that by debiting the interest expenditure on account of premature encashment of two FDs, the appellant was correctly recognizing the fact that such an eady credited in the P&L A/c does not represent his income. amount already Hence, appellant by debiting an equivalent amount in P&L A/c, was squaring off the transaction which did not result in income. It is a trite law that under Income Income-tax, only the Real Income is taxable ble and not the hypothetical income. Hence, following this legal principle, the addition is hereby deleted. Accordingly, this Ground is hereby allowed."
allowed.
2.7 We find that the interest in form no. 26 was reported for the full maturity period of fixed deposit but the assessee encashed the fixed deposit prematurely. The Ld. CIT(A) has allowed relief to the assessee after verification of the interest credited on Fixed deposits Shriram Chits Maharashtra Ltd. 10 ITA No. 66/MUM/2024 for full maturity period and interest debited for the period from the d the fixed deposits prematurity and final maturity assessee encashed period. In our opinion, the Ld CIT(A) has correctly allowed relief to the assessee. We do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and accordingly, accordingly we uphold the same.
The ground No. 3 of appeal of the Revenue is accordingly dismissed.
2.8 s.. 4 and 5 of the appeal are general in nature The ground Nos and same are dismissed as infructuous.
3. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on 03/06/2024.
03 Sd/-- Sd/-
Sd/
(RAJ KUMAR CHAUHAN)
CHAUHAN OM PRAKASH KANT)
(OM KANT
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 03/06/2024
Rahul Sharma, Sr. P.S.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. CIT
4. DR, ITAT, Mumbai
5. Guard file.
BY ORDER,
//True Copy//
(Assistant Registrar)
ITAT, Mumbai