Interest on Late deposit of VAT, Service Tax, TDS are allowable Business Expenditure: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Kolkata bench has held that the interest paid by the assessee on late deposit of VAT, Service Tax, TDS etc, is not penal in nature, allowable as business expenditure under section 37(1) of the Income Tax Act, 1961.

The assessee filed its return of income for the A.Y. 2014-15 on 26.09.2014 and the assessment was later completed. Later on, the learned Principal Commissioner of Income Tax, Kolkata exercised his jurisdiction under section 263 of the Income Tax Act, 1961 to revise the order passed by AO under section 143(3) of the Act on the ground that assessee company has debited expenditure under the head Interest on delay payment of VAT, Service Tax and TDS totalling to Rs. 3,45,633/- and since such expenses are penal in nature, is not deductible u/s 37(1) of the Income Tax Act, 1961.

The Tribunal noted that assessee has himself confessed and accepted that the (interest on VAT, service tax, TDS etc.) expenses are not allowable expenditure under section 37(1) of the Act, being penal in nature, does not mean that these expenses should be disallowed.

“If these expenses (interest on late deposit of VAT, service tax, TDS etc expense) are allowable under the Act then these can not be disallowed merely because the assessee has admitted. Right expenditure ought to be allowed and the right income ought to be taxed. Therefore, the assessing officer, while making the assessment U/s 143(3) took a possible view that these expenses are allowable under section 37(1) of the Act, hence he did not disallow them. Hence, Assessing Officer has adopted one of the courses permissible in law therefore, order made by AO under section 143(3) of the Act, is neither erroneous nor prejudicial to the interest of the Revenue,” the Tribunal said.

Quashing the order passed by the under section 263 of the Act, the Tribunal observed that “Therefore, it is abundantly clear that interest on late deposit of VAT, service tax, TDS etc are allowable expenditure under section 37(1) of the Act and the assessing officer has taken a possible view therefore order passed by the assessing officer U/s 143(3) dated 11.05.2016, is neither erroneous nor prejudicial to the interest of Revenue and cannot be held to be unsustainable in law,”