Payment of excess sales tax along with interest on failure to furnish Form C is deductible expenses: ITAT

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Payment of excess sales tax along with interest on failure to furnish Form C is deductible expenses: ITAT

Gem Electro Mechanicals (P.) Ltd. v. ACIT – [2021] 124 taxmann.com 574 (Jaipur – Trib.)
Short Overview:
Assessee made certain interstate sales at a concessional rate.
 It was required to collect the requisite forms from the buyers of goods and deposit the same with the sale tax authorities.
The concessional rate was only applicable when assessee could deposit the requisite forms.
However, in respect of certain transactions, buyers did not provide desired forms. Resultantly those forms could not be deposited by assessee with the Authorities.
 Consequently, assessee was required to deposit the differential amount of Sales Tax on the transactions for which the requisite forms could not be submitted.
Since there was a delay in the deposition of the differential amount of sales tax, assessee along with the tax deposited interest due to the delay in the deposition of tax.
Accordingly, assessee claimed a deduction for the total amount inclusive of interest under Section 37(1).
During assessment proceedings, Assessing Officer (AO) disallowed the assessee’s claim for deduction on the ground that the same having been incurred on account of violation of the law for the time being in force.
The CIT(A) upheld the order passed by AO.
On further appeal, ITAT held that the amount of tax deposited by assessee was certainly not in the nature of a penalty for contravention of any law.
It was only a tax that was paid by the assessee as a route of concessional rate of tax was blocked as assessee was not able to deposit the requisite forms with Department.
 The High Court in the case of CIT v. Udaipur Distillery [1986] 24 Taxman 282 held that the liability of interest on delayed payment of sales tax is a statutory obligation of the dealer and is automatic as no specific order is required.
Thus, it is a part of sales tax and as the sales tax is paid by a dealer for the purpose of carrying on business, the amount of interest will for all purposes be considered to be an amount spent wholly and exclusively for the purpose of business.
Therefore, assessee was entitled to deduction under Section 37(1).

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