Interest on late payment of service tax is compensatory in nature and shall be treated as a permissible deduction

The Hon’ble ITAT, New Delhi in DCIT v. Planman HR Pvt. Ltd. (ITA No.5152/Del/2017, dated July 15, 2021) disposed of the appeal filed by the Revenue Department ('the Respondent') and upheld the order passed by the Commissioner of Income Tax (Appeals) ('CIT Appeals'), deleting the disallowance of INR 54,31,041/- being interest on late payment of service tax and held that, the same is compensatory in nature.

Planman HR Pvt. Ltd. ('the Appellant') is a company engaged in the business of human resources development, that filed its return of income declaring loss of Rs.75,71,378/-. During the course of assessment proceedings, the Assessing Officer ('AO') observed that the Appellant has claimed expenses on account of interest on late payment of service tax of Rs.54,31,041/- and subsequently rejected the claim of deduction towards the same and made the addition of the same to the total income of the Appellant. However, on filing an appeal, the CIT Appeals, relied upon the decision of coordinate Bench of the ITAT in the case of DCIT vs. Messee Dusseldorf India Pvt. Ltd. [(2010) 129 TTJ 81 T (Del]), and overruled the view of AO, allowing the benefit to the Appellant.

Relied on the decision of the coordinate Bench of the Hon’ble ITAT on identical issue in ACIT, New Delhi v. Deepali Design & Exhibits Pvt.Ltd., [I.T.A. No. 1710/DEL/2015, I.T.A. No. 1827/DEL/2015 And S.A No. 913/Del/2018, dated March 14, 2019] noted that, the coordinate Benches had consistently held that interest paid for late deposit of the service tax is a permissible deduction.

Observed that, CIT Appeals while deleting the addition has followed the order of the Hon’ble ITAT in the Appellant’s own case for A.Y. 2013-14 and the same has been upheld by the Hon’ble Delhi High Court in Principal Commissioner of Income Tax v. PlanmanHr Pvt. Ltd. [ITA No. 599/2017, dated September 11, 2017].

Held that, in absence of any contrary material against the decision of the Hon’ble Delhi High Court, there is no infirmity in the order of the CIT Appeals deleting the disallowance.