##PAGE1##

आयकर अपीलीयअिधकरण च(cid:503)ीगढ़ (cid:586)ायपीठ “ए” च(cid:503)ीगढ़

, ,

IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH

HEARING THROUGH: PHYSICAL MODE

(cid:373)ी लिलत कु मार, (cid:586)ाियक सद(cid:735) एवं (cid:373)ी कृ णव(cid:566) सहाय, लेखा सद(cid:735)

BEFORE: SHRI. LALIET KUMAR, JM &SHRI. KRINWANT SAHAY, AM

आयकर अपील सं ITA No.668/Chd/ 2025

./

िनधा१रण वष१ Assessment Year : 2021-22

/

Haryana Urban Development बनाम The Pr. CIT

Authority Panchkula

C-3, Huda Complex, Sector-6,

Panchkula-134109,Haryana

(cid:725)ायी लेखासं PAN NO: AAAAH0087M

./

अपीलाथ५ Appellant ঋ(cid:529)थ५ Respondent

/ /

िनधा१ौरती की ओर से Assessee by : Ms. Rattan Kaur & Shri A.K. Jindal, C.A’s

/

राज(cid:738)की ओर से Revenue by : Shri Manav Bansal, CIT, DR

/

सुनवाई की तारीख Date of Hearing : 17/12/2025

/

उदघोषणा की तारीख Date of Pronouncement : 29/12/2025

/

आदेश Order

/

PER LALIET KUMAR, J.M:

This appeal filed by the Assessee is directed against the order of the Principal

Commissioner of Income Tax (PCIT), Panchkula, dated 31/03/2025, passed under

section 263 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for the

Assessment Year (AY) 2021-22.

2. In the present appeal Assessee has raised the following grounds:

1. That the PCIT has erred in law & facts of the case in passing order u/s 263 of the

Income Tax Act holding that the assessment order dated 26.12.2022 is erroneous and

prejudicial to the interest of revenue which is highly unjustified, uncalled for and needs to

be set aside.

2. That the PCIT has erred in law & facts of the case in invoking the powers u/s 263

and passing the order directing the Assessing Officer to pass the assessment order afresh

which is bad in law and uncalled for.

3. That the appellant craves the leave to add, amend or modify any ground of

appeal on or before the disposal of the same.

2

3. The assessee claimed a deduction of Rs. 4,23,71,541/- towards Sales Tax/VAT

liability, which included a significant component of interest on delayed payment. The

Ld. PCIT invoked jurisdiction u/s 263 on the ground that the AO failed to verify the nature

of these payments, specifically whether they were capital in nature (being on materials

for capital projects) or penal in nature.

4. The Ld. Counsel for the assessee argued that the interest paid on VAT is purely

compensatory in nature and thus allowable as business expenditure u/s 37(1) and u/s

43B in the year of payment. The Counsel relied on the decision of the Hon'ble Supreme

Court in Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429 (SC), wherein it was held

that interest on arrears of cess is compensatory and allowable.

4.1 Further Ld. AR submitted that the assessee follows a cash basis of accounting

and that the amount of Rs. 4,23,71,541/- was paid during the year to discharge the VAT

liability for AY 2014-15. The assessee claimed that this deduction is allowable u/s 43B of

the Act in the year of actual payment. The assessee relied on the ITAT's order in its own

case for AYs 2012-13 to 2014-15, where similar additions were deleted. The assessee

argued that since the AO followed a view permissible in law and supported by the ITAT's

order, the assessment order could not be termed erroneous.

4.2 The ld. AR has drawn our attention to page 2 of the Paper Book, whereby the ld.

PCIT had issued the Show Cause Notice on 10.03.2025, and it was alleged as under :

4. From perusal of assessment record for AY 2021-22, it is observed that Sales Tax/VAT

liability amounting to Rs.4,23,71,541/- was claimed by you which is not an allowable

deduction under the provisions of Income Tax Act, 1961 as you have imposed sales

tax/service tax on cost of supply of material against cost to contractors which must be

relating to both the completed and the uncompleted sectors. Therefore, the same was

required to be disallowed u/s 37 of the Act being a capital expenditure. The AO has failed

to disallow the same vide assessment order dated 26.12.2022. This omission has resulted in

under assessment of income of Rs.4,23,71,541/-. /

4.3