The Income Tax Appellate Tribunal (ITAT), Delhi Bench while disallowing the deduction held that the interest on Late Payment of TDS does not constitute Business Expenditure.
The assessee, M/s. New Modern Bazaar Departmental Store Pvt. Ltd. is a Pvt. Ltd. company engaged in the business of trading of groceries. It filed its return of income declaring income of Rs. 84,68,150/-.
The Assessing Officer on scrutiny found that assessee has debited to profit and loss account a sum of Rs. 32,793/- being interest under Section 201(1A) of the Act for late deposit of tax deduction at source. The information was found from the tax audit report furnished by the assessee. The AO on examination noted that any expenditure incurred by an assessee for any purpose, which is an offence or prohibited by law, shall not be deemed to have been incurred for the purposes of business or profession and no deduction shall be made in respect of above expenditure.
Therefore, the Assessing Officer was of the view that interest on delayed payment of TDS is not an allowable expense. Before the Assessing Officer, the assessee merely submitted the ledger account of such interest expenditure. Therefore, it was disallowed. Assessment order under Section 143(3) of the Act determining total income of the assessee at Rs. 84, 68,153/-.
The assessee argued before the CIT(A) that interest on late deposit of TDS is compensatory and not penal in nature.
The CIT(A) held that interest paid under the provisions of the Act is not a deductible expenditure, not compensatory in nature. Thus, he confirmed the action of the Assessing Officer.
The department vehemently supported the order of the lower authorities. He submitted that interest on late deposit of TDS is neither an expenditure wholly and exclusively incurred for the purposes of business and further it is a payment, which is in the form of tax; it is not an allowable expenditure. He further submitted that even otherwise there is no evidence that it is merely compensatory in nature. He submitted that it is hit by proviso to section 37 (1) of the act. He, therefore, submitted that the above interest on late payment of TDS has rightly been disallowed.
The coram of Amit Shukla and Prashant Maharishi held that payment of interest on late deposit of tax deduction at source by the assessee leviable under section 201 (1A) of the act is neither an expenditure only and exclusively incurred for the purpose of the business and therefore same is not allowable as deduction under section 37 (1) of the act.
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