The Jaipur bench of the Income Tax Appellate Tribunal (ITAT) held that delayed payment of Tax collection at source (TCS) and Goods and Services Tax (GST) is not a penalty and shall be allowable as a deduction under Section 37 of the Income Tax Act, 1961.
The assessee is engaged in the business of manufacturing and export of wooden handicrafts, durries, rugs, textile items, etc. It filed the return declaring a total income of Rs.31,43,91,380/-. The Principal Commissioner of Income Tax (PCIT) proposed disallowance on account of a fine and penalty of Rs.46,666/-.
The Authorized Representative argued that the assessee had submitted audited financial statements, tax audit reports, and computation of income during the course of the assessment proceedings. On the face of the profit and loss account, the assessee has shown an amount of Rs.2,66,946/- under the head ‘fine & penalty’.
The tax auditor in Form 3CD has reported a disallowance of Rs.2,22,280/- which was added while computing the taxable income of the assessee. Thus, all required information and documents were placed on record before the Assessing Officer during the assessment proceedings and the Assessing Officer accepted the disallowance made by the assessee.
It was further submitted that during the course of 263 proceedings, the Assessee submitted that for the remaining difference of Rs.46,666/-, the said amount comprises Rs.3,167/- towards late fees of TCS return, Rs.4,690/- for late fees of GST return and Rs.38,809/- for interest on late deposit of provident fund/contribution.
The Authorized Representative of the assessee relied upon the decision of Karnataka High Court in the case of Mysore Electrical Industries Ltd. 196 ITR 884 wherein it was held that interest paid on delayed payment of contribution under the Employees Provident Fund Act is not a penalty and therefore is allowable as a deduction.
Thus, the amount of Rs.46,666/- is not on account of penalty. However, the PCIT however wrongly observed that it is disallowable under Section 37 of the Income Tax Act, being expenditure incurred for a purpose that is an offence or which is prohibited by law in spite of the fact that late fees paid or interest paid on late deposit is not an expenditure incurred which is an offence or which is prohibited by law. Hence the disallowance proposed by PCIT is against the law.
The Two-member bench comprising of Sandeep Gosain (Judicial member) and Rathod Kamlesh Jayantbhai (Accountant member) relied on the judgment referred by the authorized representative and held that payments towards late fees for filing TCS/ GST Return is not an offence prohibited by law. Thus, the appeal of the assessee was allowed.
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