Payment of interest on late deposit of TDS not allowable as deduction u/s 37(1), so was held by Income Tax Appellate Tribunal (ITAT), New Delhi.
The assessee, Universal Energies Ltd vide its letter dated 12.03.2015 submitted copy of ledger account of interest on TDS. The assessee itself agreed that interest on TDS amounting to Rs. 9,70,248/- has not been added back in the computation of Income. Interest on TDS is not allowable as per provision of Income Tax Act, 1961. Accordingly, expenses of Rs. 9,70,248/- were disallowed and added back to the income of the assessee.
In the present case the assessee agreed for the assessment before the AO and this fact is not disputed in the appellate proceeding. It is undisputed law that income tax inputs interest, penalty also and the same is not allowable as per provisions of Section 40(a)(ii) of the Act.
Sec201(1A) of the Income-tax Act mandates Assessee to pay simple interest at 1.5% per month or part of the month in case of delay in remittance of TDS amount deducted, to the treasury of the Central Government. The pertinent question arises in the instant appeal is whether the interest paid on late payment of TDS after deduction can be claimed as expenditure for determining the taxable income.
For claiming an expenditure and arriving at the taxable income, the IT Act, 1961 fundamentally stipulates twin conditions viz. allowance of expenditure as per Sec.30 to 37 of the Act and non-allowable expenditure as per section 40, 43B. The same are applicable for claiming the interest paid on late remittance of TDS.
The Tribunal in a bench consisting of AD Jain, Vice President and BRR Kumar, Accountant Member held that “Hence, we have no hesitation to hold that interest payment on late payment of TDS is not eligible business expenditure for deduction and it is not compensatory in nature. Payment of interest on late deposit of TDS levied u/s 201(1A) is neither an expenditure only and exclusively incurred for the purpose of the business and therefore the same is not allowable as deduction u/s 37(1) of the Act.”
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