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Income Tax Appellate Tribunal - Cochin

M/S.Jai Motors, Kollam vs The Acit, Circle-1, , Kollam on 1 August, 2018

      IN THE INCOME TAX APPELLATE TRIBUNAL
               COCHIN BENCH, COCHIN

          Before Shri George George K, Judicial Member

     ITA No.592/Coch/2017 : Asst.Year 2008-2009

M/s.Jai Motors                           The Asst.Commissioner of
Beach Road                       Vs.     Income-tax, Circle - 1
Kollam                                   Kollam.
PAN : AAAFJ8220H.
        (Appellant)                             (Respondent)

                Appellant by : Sri. Iype Mathew
             Respondent by : Sri. A.Dhanaraj, Sr.DR

                                        Date of
Date of Hearing : 19.07.2018            Pronouncement : 01.08.2018



                              ORDER

This appeal at the instance of the assessee is directed against CIT(A)'s order dated 07.09.2017. The relevant assessment year is 2008-2009.

2. The grounds raised read as follows:-

"(1) The order of the Commissioner of Income Tax (Appeals)-III, Kochi, is against law, facts and circumstances of the case.

(2) The Commissioner of Income Tax Appeals has erred in holding that the interest on delayed payment of service tax was penal in nature and not compensatory in nature. Without requiring any particulars regarding the reason for the delay in remitting the service tax, he has dismissed the Appeal of the Appellant.

M/s.Jai Motors.

(3) The CIT should have considered the fact that the interest paid related to the financial years 2004- 2005 , 2005-2006 and 2006-2007 and no service tax was collected by the Appellant from its customers and the payment of interest was consequent to an order passed by the Service Tax Authorities subsequently. So the interest was paid from the Appellant's own funds and therefore was allowable under the Income Tax Act.

(4) The CIT has erred in not following the decisions of the Supreme Court in the case of Lachma das Mathuradas Vs. CIT 254 ITR 799 and of the Kerala High Court in the case of CIT Vs. Pachiphilip & Co. 212 ITR 75 stating that those decisions were in respect of belated payment of Sales Tax and Kist under the Abkari Act. He should have noted that in both the above cases interest was paid for the belated payments as in the case of the Appellant and therefore the ratio of the above cases were squarely applicable to the Appellant's case.

(5) The Appellant craves leave to adduce additional grounds at the time of hearing."

3. Briefly stated the facts of the case are as follows:

3.1 The assessee is a firm engaged in the business of spare parts and is having service centre. For the assessment year 2008-2009, the return of income was filed on 18.09.2008 declaring total income of Rs.7,91,730. Scrutiny assessment u/s 143(3) of the I.T.Act was completed vide order dated 24.12.2010. In the assessment completed u/s 143(3), the Assessing Officer had added back a sum of Rs.1,85,697. An amount of Rs.1,85,697 was claimed as a deduction by the assessee, being interest on service tax paid. The Assessing 3 ITA No.592/Coch/2017 M/s.Jai Motors.

Officer held that the interest on service tax is not an allowable deduction.

4. Aggrieved by the order of the Assessing Officer, the assessee preferred appeal to the first appellate authority. Before the first appellate authority, it was submitted that the interest payment was compensatory in nature and therefore, was an allowable deduction going by the judgment of the Hon'ble Supreme Court in the case of Lachmandas Mathuradas v. CIT [(2002) 254 ITR 799 (SC)] and the judgment of the Hon'ble Kerala High Court in the case of CIT v. Pachi Philip and Co. [(1995) 212 ITR 75 (Ker.)]. The CIT(A) however dismissed the appeal of the assessee by observing as under:-

"3. I considered the appellant's explanation bearing in mind the Hon'ble Supreme Court and Hon'ble jurisdictional High Court decisions relied on by them. The Hon'ble Supreme Court decision relied on by the appellant is not applicable to them since the same is on arrears and outstanding balance of sales tax but not on payment in default of service tax. As per the decision payment of interest on s les tax alone can be considered as not penal in nature but not the interest on service tax since the same is not on merchandise but on services rendered. Further, delay in making the payment of arrears and outstanding sales tax might have been caused due to certain amount of hardship the assessee in the said case might have had which in turn could have been considered by the Hon'ble Court. Similarly, the decision of Hon'ble jurisdictional High Court of Kerala relied on by the appellant is also not on default in payment of service tax but on interest payable on Abkari Act for delayed payment of Kist without which the individual / entities cannot 4 ITA No.592/Coch/2017 M/s.Jai Motors.

get license to run liquor shop. Here is the case, the appellant claimed to have collected service tax from the end users of service by undertaking responsibility both to collect the tax and to pay the same to the exchequer within stipulated time. The service tax collected at any point of given time cannot be the appellant's own money but of the Government which in turn to be credited to the exchequer. Here, the appellant perform the role of custodian of the money collected and allowed to retain for some time but to be credited to the Government account within due date under the respective Act. Any delay in crediting the amount to the Government must have justifiable reason without which the delay caused cannot be construed as genuinely caused. Any interest paid for the delay caused without adducing justifiable reason would rightly attract penal action which in turn cannot be seen as compensatory in nature. It is not the case of the appellant that they have had genuine difficulties in making the payment within stipulated date. It is also not the case of the appellant that the charging of interest on delayed payment of service tax can be brought into the ambit of section 37 of the Income Tax Act more particularly when no reason for the delay caused is adduced. Under the Income Tax Act, the expenditure which is penal in nature similar to that of the appellant which has not explained yet the reason for the delay caused in making the payment, cannot be allowed at all. In the absence of reason explained for the delay caused in making the payment to the exchequer, I have no other option but to agree with the Assessing Officer for the disallowance made. Accordingly, the disallowance made of Rs.l,85,697 is hereby confirmed."

5. The assessee being aggrieved, has filed the present appeal before the Tribunal. The learned Counsel reiterated the submissions made before the Income-tax authorities. Further, the learned AR had furnished the details of the interest paid 5 ITA No.592/Coch/2017 M/s.Jai Motors.

for the delayed payment of service tax. The learned Departmental Representative, on the other hand, supported the orders of the Assessing Officer and the CIT(A).

6. I have heard the rival submissions and perused the material on record. The judicial pronouncements on the issue are very clear. If a payment is compensatory, the same is an allowable deduction under the Income-tax Act. On the other hand, if the payment is penal in nature, the same cannot be allowed as a deduction. In the instant case, the assessee had paid interest at the rate of 15% on the delayed payment of service tax. Admittedly in this case the service taxes were not collected by the assessee from its customers. The assessee on its own had paid the service tax along with the interest at the rate of 15%. It is clearly discernable from the provisions of the concerned Act that the interest paid by assessee was compensatory and not penal. There are other provisions under the Service-tax Act which are penal in nature. The interest paid by the assessee at the rate of 15%, are not payments made under the penal provisions. Therefore, going by the dictum laid down by the judgments of the Hon'ble Supreme Court in the case of Lachmandas Mathuradas v. CIT (supra) and the judgment of the Hon'ble Kerala High Court in the case of CIT v. Pachi Philip and Co. (supra), I hold that the interest paid for the service tax payment was not penal in nature but only compensatory. Hence, the same is to be allowed as deduction under the Income-tax Act. It is ordered accordingly.

M/s.Jai Motors.

7. In the result, the appeal filed by the assessee is allowed.

Order pronounced on this 01st day of August, 2018.

Sd/-

(George George K.) JUDICIAL MEMBER Cochin ; Dated : 01st August, 2018.

Devdas* Copy of the Order forwarded to :

1. The Appellant

2. The Respondent.

3. The CIT (Appeals), Thiruvananthapuram.

4. The Pr.CIT, Thiruvananthapuram.

5. DR, ITAT, Cochin

6. Guard file.

BY ORDER, (Asstt. Registrar) ITAT, Cochin