Income Tax Appellate Tribunal (ITAT), Delhi bench has held that the amount of interest paid for the delayed payment of services tax shall be treated as a permissible deduction from the Business Income for the purpose of section 37 of the Income Tax Act, 1961.

The assessee is a company engaged in the business of human resources development, filed its return of income on 30.11.2014 declaring loss of Rs.75,71,378/-. During the course of assessment proceedings, the AO observed that the assessee company has claimed expenses on account of interest on late payment of service tax of Rs.54,31,041/- and he rejected the claim of deduction towards the same. However, the Commissioner of Income Tax (Appeals) overruled this view and allowed the benefit to the assessee.

While disposing of the appeal filed by the Revenue, the Tribunal bench comprising Judicial Member Suchitra Kamble and Accountant Member R.K. Panda held that the CIT(A) deleted the disallowance holding that the interest on late payment of service tax is compensatory in nature relying on the decision of the Coordinate Bench of the Tribunal in the case of Messee Dusseldorf India (P) Ltd.

“We do not find any infirmity in the order of the CIT(A) on this issue. We find, the coordinate Benches of the Tribunal are consistently holding that interest paid for late deposit of the service tax is a permissible deduction,” the bench said. “Similar view has been taken in various other decisions relied on by ld. Counsel for the assessee. Therefore, in view of the consistent decisions of the coordinate Benches of the Tribunal, we do not find any infirmity in the order of the CIT(A) deleting the disallowance of Rs.54,31,041/-being interest on late payment of service tax holding the same to be compensatory in nature. Accordingly, the order of the CIT(A) is upheld and the grounds raised by the Revenue is dismissed,” the Bench added.