ITAT Upholds Disallowance made by AO on Payment of Interest Expenditure u/s. 201(1A) of Income Tax Act due to late payment of TDS [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) upheld the disallowance made by the assessing officer on payment of interest expenditure under section 201(1A) of the Income Tax Act,1961 due to late payment of Tax Deducted at Source (TDS). 

Living Liquidz SM Trades LLP, the appellant assessee was a limited liability partnership (LLP) firm engaged in the business of wholesale distributors and Indian-made foreign liquor. The assessee filed the return of income( ROI) and on that the assessing officer made an addition and disallowed the expense on grounds of late payment of TDS. 

Thus, the assessee appealed against the order passed by the Commissioner of Income Tax (Appeals) for confirming the disallowance made by the assessing officer under section 201(1A) of the Income Tax Act. 

M. Subramanian, the counsel for the assessee contended that lower authorities have disallowed the impugned expenditure on wrong nomenclature stated to be as ‘pre-operative expenses and further stated that the partnership deed was initially formed and the same was converted into LLP. 

It was also submitted that there was only a name change and the assessing officer had admitted new partners referred to as the ‘incoming partners’ along with the ‘continuing partners’ and the assessee stated that the same was ‘revenue expenses’ and not ‘preoperative expenses’. 

Manoj Kumar Sinha, the counsel for the revenue contended that impugned expenses were like ‘preoperative expenses’ and not ‘business expenses’ considering the date of incorporation of the LLP firm. 

The bench observed that the impugned expenses claimed by the assessee pertain to the ‘business expenses and not the ‘preoperative expenses and the expenses incurred when the entity was ready to do business and was conducted cannot be capitalized. 

The two-member bench comprising Prashant Maharishi (Accountant) And Kavitha Rajagopal (Judicial) held that disallowance of interest expenses paid under section 201(1A) of the Income Tax Act on late payment of TDS was penal and not compensatory and upheld the disallowance made by the assessing officer while dismissing the appeal filed by the assessee

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