Case Details:

DCIT vs. Planman HR (P) Ltd.

Appeal No.:

ITA No. 5152/Del/2017

Order pronounced by:

ITAT Delhi

Date of order:

15-07-2021

In favour of:

Assessee

Assessment Year:

2014-15

During the course of assessment proceedings, the A.O. observed that the assessee has claimed expenses on account of interest on late payment of service tax and the same was not allowed as deduction by the A.O.

In appeal, the Ld. CIT(A) deleted the disallowance holding that the interest on late payment of service tax is compensatory in nature in view of the decision of Delhi Bench of the Tribunal in case of DCIT vs. Messee Dusseldorf India (P) Ltd. (2010) 129 TTJ 81 T (Del.).

Aggrieved with the order of CIT(A), the Revenue preferred an appeal before the Tribunal.

Ld. Counsel for the assessee, referring to the following decisions, submitted that interest paid on late deposit of service tax is a permissible deduction under the Income Tax Act:

• Remfry & Sagar Consultants Pvt. Ltd., ITA No. 5887/Del/2011, order dated 20^th July, 2012
• ACIT vs. Deepali Design & Exhibits (P) Ltd., 2019 (4) TMI 1017- ITAT Delhi, order dated 14-03-2019

We find that the coordinate Benches of the Tribunal are consistently holding that interest paid for late deposit of the service tax is a permissible deduction.

Interest charged for delayed payment to sales tax does not have the character of penalty for an offence and hence allowable as deduction as it is merely compensation for money withheld. Therefore, in the instant case, the payment of interest on late deposit of service tax was compensatory in nature and has the same character as that of service tax.

Since the service tax is permissible deduction, the interest paid for late deposit of the same is also a permissible deduction and should be allowed in the same manner. Reliance in this respect is placed on the decision of the Hon’ble Supreme Court in the case of Mahalaxmi Sugar Mills Co. v. CIT (1980) 123 ITR 429.