The Income Tax Appellate Tribunal (ITAT), New Delhi Bench ruled that Expenditure on interest for delayed payment of service tax is eligible for allowance as revenue expenditure.
The assessee, Central Warehousing Corporation is a Government of India undertaking, established under section 3 of the Warehousing Corporation Act, 1962 and for the purpose of the Income- tax Act,1962, it is deemed to be a company within the meaning of the Act. It is an authority constituted under the law for the purpose of warehousing and marketing of commodities / agricultural products.
The assessee derived its income from letting out of godowns or warehouses for storage, processing or facilitating/marketing of commodities. In financial year 1984, the assessee diversified its operation and started a new line of business of running Container Freight Stations (CFS) and Inland Container Depots (ICD). For the year under consideration, the assessee filed a return of income, declaring total income. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Act were issued and complied with.
In the scrutiny assessment completed, under section 143(3) of the Act, certain additions/disallowances were made and income was computed for the year under consideration under regular provisions of the Act, which after adjustment of brought forward losses, was assessed at nil income. The book profit under section 115JB of the Act was computed. The CIT(A) partly allowed the appeal of the assessee vide impugned order.
The assessee for assessment year 2009-10 relates to interest on service tax amounting to Rs.15,57,766/-disallowed by the Assessing Officer. No justification was submitted by the assessee before the Assessing Officer for allowing this expenditure. The assessing officer held the same to be in the nature of the penalty by the service tax department for default on the part of the assessee and accordingly, he disallowed the expense in terms of Explanation-11 to section 37(1) of the Act, which was upheld by the The CIT(A).
Mr. S. Krishnan, the counsel for the assessee contended that interest on delayed deposit of service tax is compensatory in nature and not penal. He submitted that issues stands settled in favour of the assessee by the judgment of the Supreme Court in the case of Lachmandas Mathura Vs CIT (2002) 254 ITR 799 (SC) and CIT vs Luxmi Devi Sugar Mills Ltd (1991) 188 ITR 041 (SC).
The coram of the Judicial Member K.N.Chary and Accountant Member O.P.Kant ruled that the payment of sales-tax and service tax both are indirect taxes, which being pari materia, said expenditure on interest for delayed payment of service tax is eligible for allowance as revenue expenditure following the finding of the Supreme Court. Accordingly, the ITAT restored to the file of the Assessing Officer for verification, whether the assessee has followed inclusive/exclusive method of accounting for service tax and then decide in accordance with law.
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