Fee Paid for Late Filing of Professional Tax Return is Penal in Nature: ITAT Upholds Disallowance [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has upheld the disallowance as the fee paid for late filing of professional tax return was penal in nature.

The assessee, Shriram Chits Maharashtra Ltd. company was into the business of chit fund. During the year under consideration, the assessee filed return of income declaring total income after claiming deduction under Section 80G of the Income Tax Act and computed the book profit under Section 115JB of the Income Tax Act, 1961 which was subjected to scrutiny. 

The assessee by running this chit fund business has been earning 5% of the chit fund as its commission claimed as income under the head “Foreman Commission”. 

The Assessing Officer (AO) by following A.Y. 2010-11 to 2013-14 proceeded to hold that the assessee had given understatement of income from foreman commission and computed the same against which the assessee had shown corresponding income thus understatement of income of which the assessee was required to credit to the profit & loss account. 

The AO thereby made addition to the total income of the assessee being the foreman commission received during the year under consideration. The AO also noticed from the profit & loss account that the amount had been debited on account of penalty on account of late filing of professional tax return and made addition.

Prakash Jotwani, appeared on behalf of the assessee and Sonia Kumar, appeared on behalf of the revenue.

The two-member Bench of Prashant Maharishi, (Accountant Member) and Kuldip Singh, (Judicial Member) upheld the disallowance made by the Commissioner of Income Tax Appeals (CIT(A)) and set aside the impugned order. 

The Bench observed that it was an accepted notion that the penalty or fine levied on the assessee was allowed as expenditure under provisions of Section 37(1) of the Income Tax Act only on the basis of their nature, whether such fine or penalty was of compensatory nature or penal nature, here the fee was penal in nature and liable to be disallowed.

To Read the full text of the Order CLICK HERE

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