Interest on TDS/VAT/Royalty Not allowable for Deduction as it is a Statutory Expenditure: ITAT [Read Order]
Interest on TDS/VAT/royalty is a statutory expenditure, and therefore cannot be allowed as a deduction.
![Interest on TDS/VAT/Royalty Not allowable for Deduction as it is a Statutory Expenditure: ITAT [Read Order]](https://images.taxscan.in/h-upload/2026/01/17/2120250-interest-tds-vat-royalty-not-allowable-deduction-statutory-expenditure-itat-taxscan.webp "Interest on TDS/VAT/Royalty Not allowable for Deduction as it is a Statutory Expenditure: ITAT [Read Order]")
The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) has held that interest paid on statutory dues such as TDS (Tax Deducted at Source), VAT (Value Added Tax) and royalty is not an allowable business deduction, as it is in the nature of statutory expenditure. In this matter, Pramukh Metal Quarry, a partnership firm engaged in quarry-related business, against the order...
The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) has held that interest paid on statutory dues such as TDS (Tax Deducted at Source), VAT (Value Added Tax) and royalty is not an allowable business deduction, as it is in the nature of statutory expenditure.
In this matter, Pramukh Metal Quarry, a partnership firm engaged in quarry-related business, against the order dated 31.01.2024 passed by the Addl./JCIT(A), Visakhapatnam.
The assessee challenged various disallowances made in reassessment proceedings, including a small disallowance of ₹4,799 towards interest paid on TDS (₹3,060), VAT (₹1,352) and royalty (₹387).
Further, the appellant contended that such interest was not penal in nature and therefore should be allowed as a business expenditure.
However, the bench of Dr. BRR Kumar (Vice President) and SuchitraKamble (Judicial member) rejected this argument and observed that interest on TDS/VAT/royalty is a statutory expenditure, and therefore cannot be allowed as a deduction.
The Bench held that the disallowance made by the lower authorities was proper and accordingly dismissed the assessee’s ground relating to the interest component.
Apart from this issue, the appellant challenged multiple disallowances too. In such disallowances, the tribunal granted relief on other issues. It deleted the disallowance of ₹42,879 made under Section 40A(3) for cash payment towards electricity charges to MGVCL, holding that the payment was made to a government body and was covered under Rule 6DD.
The ITAT also allowed the assessee’s claim of ₹1,76,102 disallowed under Section 40(a)(ia), holding that the amount was a reimbursement of interest paid by a partner on behalf of the firm, and hence disallowance was not required.Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
