The Income Tax Appellate Tribunal ( ITAT ), Hyderabad bench has held that the amount of interest paid to a Private bank is out of the purview of Section 43B of the Income Tax Act, 1961 and therefore, the same cannot be disallowed.
Assessee paid an amount of Rs. 1,76,564 towards Hire Purchase interest to HDFC Bank Ltd, Interest on service tax, excise duty, Interest on ESI delay payments etc. the Assessing Officer has disallowed the amount by invoking section 43B.
The bench noted that the Supreme Court in various decisions held that levy of interest on breach of the respective Act is compensatory in nature.
“The interest which is in the nature of breach of Act alone can be disallowed and in compensatory nature cannot be disallowed. Ld. CIT(A) has relied on case laws on sales tax. In those cases, it was held that sales tax is a statutory obligation. But, in the present case, the interest is levied on service tax, excise duty and ESI. In our view, these are compensatory in nature unlike sales tax Act. Therefore, the provisions of section 43B are not attracted,” the bench said.
With regard to interest paid to HDFC Bank, the bench clarified that HDFC Bank is not public financial institution.
“It is only private sector Bank. Interest paid to HDFC is outside the purview of section 43B. Therefore, the amounts paid towards interest under the aforementioned heads, do not come under the provisions of section 43B, hence, the disallowance is hereby deleted,” the bench added.
Subscribe Taxscan Premium to view the Judgment
