The Income Tax Appellate Tribunal (ITAT), Delhi bench comprising Shri Anil Chaturvedi, Accountant Member and Sh. Kul Bharat, Judicial Member has held that the interest expenses on fringe benefit tax (FBT) is penal in nature and therefore, the same cannot be treated as business expenses under the provisions of the Income Tax Act, 1961.
The assessee, VCI Hospitality Ltd, is a company engaged in the business of hotel operations and marketing activities. Assessee filed its return of income for A.Y. 2011-12 on 30.09.2011 declaring income of Rs.80,67,320/-. While rejecting the return, the Assessing Officer made various additions. Assessing Officer was of the view that the amount paid was of penal nature and therefore not allowable. He accordingly disallowed the expenses.
On first appeal filed before the Commissioner of Income Tax (Appeals), partial relief was allowed to the assessee.
Before the Tribunal, the assessee challenged the addition of Rs.1,83,853/-. Assessing Officer has noted that assessee had paid Rs.1,83,853/- on account of “Income Tax Provisions-FBT”.
Upholding the assessment order, the division bench dismissed the plea of the assessee and observed that the payments made are “penal” in nature.
“We have heard the ld. DR and perused the material on record. The Assessing Officer had disallowed interest expenses on FBT holding it to be penal in nature and the same was upheld by CIT(A). Before us, no material has been placed by Assessee to point any fallacy in the findings of CIT(A). We therefore find no reason to interfere with the order of the CIT(A) and thus the ground of Assessee is dismissed,” the Tribunal said.
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