In a recent ruling, Chennai Bench of the Income Tax Appellate Tribunal (ITAT) presided over by a Judicial Member V. Durga Rao and an Accountant Member G. Manjunatha decided that the interest paid on the belated payments of service tax is allowable for deduction under Section 37(1) of the Income Tax Act, 1961. Also directed the Assessing Officer (AO) to delete additions made towards disallowance of interest on service tax.
The assessee Prince Holdings Madras Pvt. Ltd., an investment company filed an appeal before the Appellate Tribunal against the order of Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi.
The assessee admitted Nil total income in their return of income for the A.Y. 2017–18, which is the main fact. The assessment has indeed been completed in compliance with the Section 143(3) of the Income Tax Act of 1961, and an addition of Rs. 4,03,000 has been made in accordance with the Section 37 of the Act as interest on service tax.
The amount of Rs. 4,03,000—interest on service tax for prior years—was disallowed by the AO on the premise that it is in the nature of a penalty.
The decision of the appeal by the assessee before the CIT(A) NFAC was not in their favour, and the authority denied their claims and confirmed the addition made in favour of the disallowance of interest on service tax by AO. The assessee opted for the appeal before the appellate tribunal without any representative to contend.
However, as a representative for the Department, P. Sajit Kumar, Joint Commissioner of Income Tax (JCIT) made submissions with the pertinent information available on records.
The Appellate Tribunal observed that “interest paid on belated payments of service tax is not a penalty, which can be disallowed u/s. 37(1) of the Act. Therefore, we are of the considered view that the Ld. CIT(A) has erred in sustaining addition made by the AO towards interest paid on service tax.”
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