Facts of the case:
- The assessee filed its return of income for the A.Y. 2014-15 on 26.09.2014 and the assessment was completed under section 143(3).
- Later on, PCIT (Kolkata) has exercised his power to revise the AO’s order under section 263.
- The ground of revision is that assessee company has claimed Interest on delay payment of VAT, Service Tax and TDS as expenditure under section 37 of Income Tax Act, 1961.
Ld. PCIT (learned Principal Commissioner of Income Tax), Kolkata was in the opinion that Interest on delay payment of VAT, Service Tax and TDS having amount of Rs. 3,45,633. are penal in nature and is not deductible u/s 37(1) of the Income Tax Act, 1961.
Points to be considered:
- Tribunal said that “Right expenditure ought to be allowed and the right income ought to be taxed”.
- The view was taken that these expenses are allowable under section 37(1) of the Act, hence the same are not disallowed by AO while making assessment u/s 143(3).
- Hence, Assessing Officer has made assessment by applying the fact that is permissible in law.
- Assessing officer’s order is neither erroneous nor prejudicial to the interest of the Revenue.
The assessee has also himself accepted that such expenses are not allowable expenditure as per section 37(1) of the Act, being penal in nature but it does not mean that these expenses should be disallowed.
- The order passed by the assessing officer U/s 143(3) is neither erroneous nor prejudicial to the interest of Revenue and cannot be held to be unsustainable in law.
- The Tribunal has quashed the order passed by PCIT under section 263 and make a clear statement that that interest on late deposit of VAT, service tax, TDS etc. are allowable expenditure under section 37(1) of the Act