Relief for Asianet: ITAT allows Deduction of Interest on Delayed Statutory Payments as Business Expenditure [Read Order]
The tribunal noted that the interest was paid under statutory provisions and was compensatory, not a penalty, relying on the Supreme Court in Mahalakshmi Sugar Mills and Kerala High Court in PTL Enterprises Ltd.
Asianet - ITAT - Taxscan
Asianet - ITAT - Taxscan
The Cochin Bench of Income Tax Appellate Tribunal ( ITAT ) granted relief to Asianet Satellite Communications Ltd., allowing deduction of interest on delayed statutory payments, including Tax Deducted at Source (TDS), service tax, and entertainment tax, as a business expenditure.
Asianet Satellite Communications Ltd.,appellant-assessee, was a company providing digital cable TV and broadband services. It filed its Assessment Year (AY) 2016-17 return on 13/10/2016, declaring nil income after adjusting brought-forward depreciation.
The Assessing Officer (AO) completed the assessment on 24/12/2018 at nil income. Later, the Principal Commissioner of Income Tax (PCIT), found the assessment erroneous as the AO had not examined the allowability of interest on delayed payment of service tax, VAT, and TDS, and set aside the assessment for reassessment.
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The assessee challenged the revisionary order before this tribunal, but the appellate tribunal confirmed the order. Following this, the AO passed a consequential assessment on 18/12/2023 under Sections 143(3) read with Section 263 of the Income Tax Act, determining total income at Rs. 21,85,99,699/- before setting off brought-forward unabsorbed depreciation.
The AO disallowed Rs. 1,07,06,000/- as interest on delayed payment of TDS (Rs. 79,69,894/-), service tax (Rs. 8,49,279/-), and entertainment tax (Rs. 3,186/-). The AO rejected the assessee’s contention that these payments were business expenses, citing the Calcutta High Court decision in Martin & Harris (P.) Ltd. (1993) and the Madras High Court decision in CIT vs. Chennai Properties & Investment Ltd. (1999).
Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)[CIT(A)], who confirmed the AO’s order. Dissatisfied with this, the assessee filed the present appeal before this tribunal.
The assessee counsel argued that the interest paid under statutory provisions was compensatory, not a penalty, and therefore deductible, relying on the Supreme Court decision in Mahalakshmi Sugar Mills Co. (1980) 123 ITR 429 and the Gujarat High Court decision in CIT vs. Kaypee Mechanical India (P.) Ltd. [2014].
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The Department Counsel, however, submitted that the lower authorities’ orders were correct according to the Calcutta and Madras High Court rulings, and no interference was needed.
The two member bench comprising Soundararajan K (Judicial Member) and Inturi Rama Rao (Accountant Member) considered whether interest paid on belated payment of entertainment tax, service tax, and TDS was a business expense. It noted that the Supreme Court in Mahalakshmi Sugar Mills held that interest or statutory charges paid in a compensatory nature were allowable under Section 37(1).
The assessee’s claim that the interest was for belated statutory payments was unchallenged. Relying on this and the Kerala High Court decision in PTL Enterprises Ltd. vs. DCIT (2022), the tribunal held the interest was compensatory, not a penalty, and allowed it as a deduction.
The AO was directed to delete the addition of Rs. 1,07,06,000/-, and the assessee’s appeal was allowed.
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