Interest on Delayed Payment of TDS cannot be allowed as deduction: ITAT [Read Order]

 The Income Tax Appellate Tribunal (ITAT), Bangalore bench, held that interest on delayed payment of Tax Deduction at Source (TDS) could not be allowed as a deduction. The assessee, Expat Engineering India Ltd, after filing the return of income, had its case selected for scrutiny. During the scrutiny proceedings, the Assessing Officer (AO) determined that interest on the deleted payment of TDS could not be claimed as a deduction.

Aggrieved, the assessee filed a further appeal before the CIT(A), who upheld the disallowance made by the assessing officer. Subsequently, the assessee filed a second appeal before the tribunal. During the proceedings, Ravi Shankar, Counsel for the assessee, argued that the interest paid was merely compensatory. He contended that Section 40(a)(ii) should be viewed from the perspective of the assessee, the payer, and not from the payee’s perspective.

Counsel further relied upon the decision of CIT vs Eli Lilly & Co. (India) (P.) Ltd, asserting that it was rendered in the context of the period up to which interest u/s.201(1A) is to be calculated. In that regard, it held that interest under section 201(1A) is a compensatory measure for withholding tax that should have gone to the exchequer. Parithivel, Counsel for Revenue, supported the Assessing Officer’s order.

The tribunal observed that interest u/s.201(1A) can be equated to the levy of interest u/s.234, considering it a charge on the delay in the payment of income tax. TDS is viewed as the income tax paid on behalf of the payee, making the interest on it u/s.201(1A) also in the nature of interest levied on income tax. Therefore, interest on delayed payment of TDS cannot be claimed as a deduction.

After reviewing the facts and records, the two-member bench of Chandra Poojari (Accountant member) and Beena Pillai (Judicial Member) held that interest on delayed payment of TDS is not an allowable deduction. Consequently, the bench dismissed the appeal of the assessee.

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