Interest paid on delayed payment of TDS not penal in nature: ITAT Allows Deduction u/s 37 [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has allowed the deduction under Section 37 of the Income Tax Act 1961 holding that the interest paid on delayed payment of Tax Deducted at Source (TDS) was not penal in nature.

An appeal was filed by the assessee, Harcharan Dass Gupta, against the order dated 28.03.2022 relating to Assessment Year 2017-18. Mansi Jain, on behalf of the assessee submitted that the AO had erred in making addition on account of interest paid on late TDS under Section 37 of the Income Tax Act 1961.

According to Section 37, any expenditure that is planned or spent entirely and solely for the purposes of the company or profession (as opposed to capital expenditures or the assessee's personal expenses) should be allowed in determining the income that must be paid under the "profits and gains of business or profession."

Pankaj Khanna, on behalf of the revenue submitted that interest paid under Section 201(1A) r.w.s. 206C(7) of the Act for delayed payment of tax deducted at source/tax collected at source (TDS/TCS) had to be allowed and added back to the total income of the assessee as the interest paid had taken the colour from the nature of principal amount required to be paid, but, not paid within time. Therefore, the AO was right in making the addition.

The Division Bench of Shamim Yahya, (Accountant Member) and C.M. Garg, (Judicial Member) allowed the appeal and deleted the addition observing that, “We are of the considered view that the interest paid by the assessee u/s 201(1A) r.w.s. 206C (7) of the Act cannot be held as penal in nature and, thus, incurred out of commercial expediency and, therefore, is allowable u/s 37 of the Act.” 

To Read the full text of the Order CLICK HERE

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