Any delay in payment of TDS by assessee cannot be linked to income tax of assessee.

This appeal by the assessee is directed against order of the Commissioner of Income Tax Appeals [CIT(A)]-3, Bhopal dated 29.08.2019 pertaining to the assessment year 2017- 18. The assessee has raised following grounds of appeal:

“1. That on the facts and in the circumstances of the case, the decision is contrary to law materially incurred and unsustainable in law, hence the same may kindly be quashed.

2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred and was not justified in disallowing interest on Entry Tax amounting to Rs.2220/- u/s 37(1) of the Income Tax Act 1961 and therefore, the same be allowed and addition made be deleted.

4. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred and was not justified in disallowing charges for delay in supply amounting to Rs.50256/- u/s 37(1) of the Income Tax Act,1961 and therefore the same be allowed and addition made be deleted.

5. That the appellant craves leave to add, amend, alter substitute, modify or withdraw any of the above ground(s) at the time of hearing of the appeal.”

2. The facts giving rise to the present appeal are that the assessee is a company engaged in the business of offset printing. The company is running a printing press with the help of various sophisticated and high tech equipment and printing units. A search action was carried out u/s 132 of the Income Tax Act, 1961(hereinafter referred as ‘the Act’). The case of the assessee was centralized and a consolidated assessment order u/s 153A r.w.s. 143(3) of the Act for A.Ys. 2011-12 to 2017-18 was passed vide order dated 28.12.2018, thereby for the assessment year under appeal an addition of Rs.52,873/- was made by the Assessing Officer on account of interest on TDS, interest on entry Tax and payment of penalty on delay in supply of printing material.

3. Aggrieved against this the assessee preferred an appeal before Ld. CIT(A), who also sustained the addition.

4. Now the assessee is in appeal before this Tribunal. Ld. counsel for the assessee reiterated the submissions as made in the written synopsis. The submissions of the Ld. counsel for the assessee are reproduced as under:

1. That the Appellant is company incorporated under the provision of Companies Act, 1956 and is engaged in the business of offset printing. That the Assessee Company is running a printing press with the help of various sophisticated and high tech equipment ad printing units. Regular return u/s 139 (1) of the Act was filed on 30/03/2018 declaring to total income of Rs 8,85,010/-.

2. That during the course of Assessment the Ld Assessing officer vide order made ad hoc disallowance u/s 37 (1) of the Act on expenditure claimed on account of Interest on delayed payment of entry tax of Rs 2,220 and secondly on account of Charges on delayed supply of books to M.P. Text Book Corporation Ltd of Rs 50,256/-. That being aggrieved by the order of Ld AO assessee filed Appeal before the Ld CIT(A) wherein Ld CIT (A) without considering the submission of Assessee uphold the disallowance u/s 37 of the Act.

3. That being aggrieved by the order of Ld subordinate authorities the Assessee has filed Appeal before your Lordship 4. As submitted in the present case of Ld subordinate authorities has made disallowance u/s 37 of the Act :-

Nature of disallowance Amount Interest on delayed payment of entry tax 2,220

Charges on delayed supply of books to M.P. Text Book Corporation Ltd. 50,256

5. In Ground No. (1), the objection raised is in respect to delayed payment of entry tax.

5.1 It is submitted that in view of the judgment of Hon’ble Supreme Court in the case of Laxmi Sugar Mills Co Ltd Vs. CIT reported in 123 ITR 429 (SC), this is a deductible expenditure u/s. 37(1) of the Act. the Hon’ble Supreme Court has held as under :

5.2 In our opinion, the interest paid under s. 3(3) of the Cess Act cannot be described as a penalty paid for an infringement of the law. As that is the only ground on which the revenue resist the claim of the assessee to a deduction of the interest under s. 10(2)(xv) of the Indian I.T. Act, 1922, the assessee is entitled to succeed. There is no dispute that the payment of interest represents expenditure laid out wholly or exclusively for the purpose of the business. There is also no dispute that it is in the nature of revenue expenditure.

5.3 Reliance s also placed in case of M/s Naaraayani Sons Pvt. Limited, in ITA No. 1796-1798/Kol/2017, vide order dated 21.08.2018 the Hon’ble Tribunal held that interest expense on late deposit of VAT, service tax, TDS etc are allowable expenditure under section 37(1) of the Act. the observation are as under :

In view of the above judgement, there remains no doubt that the interest expense on the delayed payment of service tax is allowable deduction. The above principles can be applied to the interest expenses levied on account of delayed payment of TDS as it relates to the expenses claimed by the assessee which are subject to the TDS provisions. The ass essee claims the specified expenses of certain amount in its profit & loss account and thereafter the assessee from the payment to the party deducts certain percentage as specified under the Act as TDS and pays to the Government Exchequer. The amount of TDS represents the amount of income tax of the party on whose behalf the payment was deducted & paid to the Government Exchequer. Thus the TDS amount does not represent the tax of the assessee but it is the tax of the party which has been paid by the ass essee. Thus any delay in the payment of TDS by the assessee cannot be linked to the income tax of the assessee and consequently the principles laid down by the Hon’ble Apex Court in the case of Bharat Commerce Industries Ltd. Vs. C1T (1998) reported in 230 1TR 733 cannot be applied to the case on hand.

Thus, in our considered view, the principle laid down by the Hon’ble Supreme Court in the case of Bharat Commerce Industries Ltd. (supra) is not applicable in the instant facts of the case. Thus, we hold that the Assessing Officer in the instant case has wrongly applied the principle laid down by the Hon ‘ble Supreme Court in the case of Bharat Commerce Industries Ltd. (supra). We also find that the Hon’ble Supreme Court in the case of Lachmandas Mathura (Supra) has allowed the deduction on account of interest on late deposit of sales tax u/s 37(1) of the Act. In view of the above, we conclude that the interest expenses claimed by the assessee on account of delayed deposit of service tax as well as TDS liability are allowable expenses u/s 37(1) of the Act. In this view of the matter, we find no reason to interfere in the order of Ld. C1 T(A) and we uphold the same. Hence, this ground of Revenue is dismissed. ” Respectfully following the aforesaid decision, we confirm the order of Ld. CIT(A) and dismiss the ground no. 5 of revenue’s appeal for AY 2012-13 and thus the appeal of Revenue for AY 2012-13 also stands dismissed.”

5.4 In light of above it is submitted that the Ld lower authorities was not at all justified in making disallowance of Interest on delayed payment of entry tax as it is a settled law that payment of interest represents expenditure laid out wholly or exclusively for the purpose of the business.

6. In Ground No. (2) the objection raised is in respect to Charges on delayed supply of books to M.P. Text Book Corporation Ltd.

6.1 It is also submitted that the charges paid for delayed supply of books to M.P. Text Book Corporation Ltd. In the profit & loss account the assessee has claimed deduction of Rs. 50,256 for the charges for delay supply of text books. This amount was paid as per the tender agreement Clause Nos. 29 & 33. The ledger account is also shows on different dates the debits were made. The copy of the payment released bills of M.P. Text Book Corporation clearly shows that deductions made from the supply bills of the assessee. This payment is on account of contractual obligation of the assessee for supply of books as per the tender terms and conditions. The payment is not in the nature of penalty. It is also not paid for any infraction of law. The deductions of Rs. 50,256 made from the supply of bills are fully deductible u/s 37(1) of the Act. Reliance is placed on Chaudhary Hammer Works Ltd., Vs. Department of Income Tax ITA No: 4332/Del/2011 ITAT Delhi.

True Copy of Profit and loss & account and ledger account is marked as Annexure (W/1)

True copy of tender agreement Clause Nos. 29 & 33 is marked as Annexure (W/2)

It is submitted that the expenditure has been disallowed on wrong premise quoting the judgment of Hon’ble Supreme Court in the case of Bharat Commerce and Industries Ltd. vs. Commissioner of Income Tax (1998) 98 Taxman 151 (SC) which does not relate to the issue under consideration i.e. charges on delay in supply. In that case, the issue was whether the interest paid for delayed payment for advance income tax is deductible or not. Thus, the action of the LD subordinate authorities in disallowing the expenditure is without cogent reasons and basis and deserves to be quashed.”

5. Ld. Senior Departmental Representative (DR), Shri Ashish Porwal opposed the submissions and supported the orders of the authorities below.

6. I have heard the rival submissions, perused the materials available on records. It is contention of the assessee that the disallowances made by the authorities below are not justified. It is submitted that the expenditure related to debit made by the M.P. Text Book Corporation Ltd. on account of delay in supply of books is allowable expenditure u/s 37(1) of the Act. The reliance was placed on the decision of Coordinate Bench of this Tribunal rendered in the case of Chaudhary Hammer Works Ltd. vs. ACIT (ITANo.4332/Del/2011). It is further contended that disallowance was made on wrong premise by relying on the judgment of Hon'ble Supreme Court rendered in the case of Bharat Commerce and Industries Ltd. vs. CIT (1998) 98 Taxman 151 (SC) which is not related to the issue in question. I have given my thoughtful consideration to the contention of the assessee. Ld. counsel for the assessee has relied upon decision of the Coordinate Bench in the case of Chaudhary Hammer Works Ltd. vs. ACIT (ITANo.4332/Del/2011). The Coordinate Bench in para 5 of this order decided this issue by observing as under:

5.We have heard the rival submissions and perused the material available on record. On a careful consideration of the same considering the judgements relied upon by the assessee and taken into consideration by CIT(A), and referred to before us, we are of the view that the claim of assessee has rightly been allowed by the CIT(A).There is a distinction between the penalty imposed for breach of law and the liquidated damages/compensation paid on account of late delivery. The clause pertaining to cost reduction in the eventuality of late delivery is an accepted fact and such conditions are inherent risks and incidental to the running of business. The factum of the occurrence of the event for which cost reduction has occurred has not been doubted by the A.O. The challenge posed by the department is only on the legal principle that a breach of contract of this nature is not an allowable expense. On consideration of facts and judicial principles, we are of the view that the department's ground deserves to be dismissed.

7. I find that the Assessing Officer has disallowed expenditure by relying on the judgment of Hon'ble Supreme Court in the case of Bharat Commerce and Industries Ltd. vs. CIT (Supra). The issue before Hon'ble Supreme Court was regarding interest paid for delayed payment for advance tax. However, the issue in present case is related to payment made by the assessee on account of delay in supply of books. Therefore, disallowing the entire amount by the Assessing Officer was not justified. Hence, the Assessing Officer is directed to delete the addition made on account of disallowance of expenditure related to delay in supply of the books. Regarding interest on entry tax and TDS division bench of this Tribunal in the case of M/s Naarayani Sons Pvt. Ltd. in ITAN0.1796-1798/Kol/2017, after considering the judgment of Hon'ble Supreme Court in the case of Bharat Commerce and Industries Ltd. vs. CIT (Supra) decided the issue in favour of the assessee. The relevant contents of the said decision are reproduced as under:

In view of the above judgment, there remains no doubt that the interest expense on the delayed payment of service tax is allowable deduction.

The above principles can be applied to the interest expenses levied on account of delayed payment of TDS as it relates to the expenses claimed by the assessee which are subject to the TDS provisions. The assessee claims the specified expenses of certain amount in its profit & loss account and thereafter the assessee from the payment to the party deducts certain percentage as specified under the Act as TDS and pays to the Government Exchequer. The amount of TDS represents the amount of income tax of the party on whose behalf the payment was deducted & paid to the Government Exchequer. Thus the TDS amount does not represent the tax of the assessee but it is the tax of the party which has been paid by the assessee. Thus any delay in the payment of TDS by the assessee cannot be linked to the income tax of the assessee and consequently the principles laid down by the Hon'ble Apex Court in the case of Bharat Commerce Industries Ltd. Vs. CIT (1998) reported in 230 ITR 733 cannot be applied to the case on hand.

Thus, in our considered view, the principle laid down by the Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd. (supra) is not applicable in the instant facts of the case. Thus, we hold that the Assessing Officer in the instant case has wrongly applied the principle laid down by the Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd.(supra). We also find that the Hon'ble Supreme Court in the case of Lachmandas Mathura (Supra) has allowed the deduction on account of interest on late deposit of sales tax u/s 37(1) of the Act. In view of the above, we conclude that the interest expenses claimed by the assessee on account of delayed deposit of service tax as well as TDS liability are allowable expenses u/s 37(1) of the Act. In this view of the matter, we find no reason to interfere in the order of Ld. CIT(A) and we uphold the same. Hence, this ground of Revenue is dismissed."

8. Respectfully, following the above decision of the division bench of this Tribunal, I allow the grounds of appeal and direct AO to delete the impugned addition.

9. In the result, the appeal of the assessee is allowed.

Order was pronounced in the open court on 26 .08.2020.

Sd/-

(KUL BHARAT)

JUDICIAL MEMBER

Indore; दनांक Dated : 26/08/2020