Interest paid on Delayed TDS Payment is Compensatory in Nature: ITAT allows deduction u/s 37(1) [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has allowed deduction under Section 37(1) of the Income Tax Act 1961 holding that the interest paid on delayed Tax Deducted at Source (TDS) payment was compensatory in nature,

The assessee,Delhi Cargo Service Centrewas a company engaged in cargo handling services at Cargo Terminal – 2 at Indira Gandhi International Airport. For AY 2015-16, it e-filed its return on 28.09.2015 declaring loss. The case was selected for scrutiny under CASS.

With regard to disallowance of on account of interest payment on TDS deposited to the Income Tax Department. Before the DRP it was submitted by the assessee that the said payment of interest was evidenced by Bank Challan and the DRP directed the AO to allow the assessee’s claim provided evidence of payment is produced before the AO.

 AO required the assessee to furnish the evidence in support. The assessee submitted a reply which was found to be not satisfactory by the AO. According to him, the entire amount pertained to different AY(s) other than AY 2015-16 and thus could not be allowed. Liability for interest being in the nature of penalty, the AO made the impugned disallowance under section 37(1) of the Act. 

According to Section 37, any expenditure that was 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."

Sarabjeet Singh, submitted that the liability for interest incurred by the assessee was compensatory in nature and thus was admissible as business expenditure.

T. James Singson,on behalf of the relied upon the order of the lower authority

The Division Bench of Shamim Yahya, (Accountant Member) and Astha Chandra, (Judicial Member) deleted the impugned order referring to the decision of Mumbai Bench of the Tribunal in M L Reality vs. ACIT which held that interest paid on late payment of TDS was compensatory in nature and was an allowable deduction under section 37(1) of the Act.

To Read the full text of the Order CLICK HERE

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