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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ : NEW DELHI
PER SHAMIM YAHYA, ACCOUNTANT MEMBER :
This appeal by the assessee is directed against the order of the ld.
CIT (Appeals)-9, New Delhi dated 19.01.2018 for the assessment year
2014-15.
The ground of appeal taken by the assessee read as under :- “1. The Ld. CIT (A) has erred on facts and in law in confirming the addition of Rs.5,96,890/- on account of disallowance of interest on delayed payment of TDS.”
2 ITA No.5298/Del./2018 3. In this case, the Assessing Officer noted that on the perusal of
details filed by the assessee, it is seen that assessee has claimed expenses
of Rs.5,96,890/- on account of interest on TDS which is not an allowable
expense under the provisions of the Income-tax Act, 1961 (for short 'the
Act'). Therefore, he disallowed the same and added back to the income
of the assessee.
Against this order, assessee went in appeal before the ld. CIT (A).
Ld. CIT (A) noted the assessee’s submissions in this regard as under :-
“1. The assessee delayed in payment of TDS and deposited interest on late payment of TDS. 2. It is a matter of late depositing of creditors funds to the government and to compensate this, an interest is paid duly paid to the government. Now the assessee has utilized this funds in its business and earned more profits. 3. This way, the assessee has paid more income tax to the revenue department. 4. Paying an interest to government is also more revenue to income tax department and increase in revenue eventually. 5. The Income tax Act provided an interest paid as allowed expenditure if it is related to business operations and for generating the more revenue to the business/assessee. 6. In the Income Tax Act, interest on TDS is not expressly disallowed. And as it is a business expenditure for earning more revenue, it should not be considered as penalty.”
Ld. CIT (A) was not convinced. He held that in view of the
express legal provision as contained in section 201 r.w.s. 40 of the Act,
there is no reason to interfere with the decision of AO in treating the
3 ITA No.5298/Del./2018 amount of Rs.5,96,890/- being interest on late deposit of TDS as
disallowable expense. Hence, he confirmed the same.
Against this order, assessee is in appeal before us. None appeared
on behalf of the assessee. We have heard ld. DR for the Revenue and
perused the records.
We note that the assessee by way of paper book and synopsis has
submitted that the interest on TDS is an allowable expenditure. For this,
catena of case laws has been mentioned. We may gainfully refer in brief
the submissions of the assessee as under :-
“ The Assessing Officer has disallowed interest on TDS amounting to Rs. 5,96,890/ - in the case of the assessee. The Ld. CIT (A) has confirmed the addition citing Section 201 r.w.s 40 of the Income Tax Act, 1961 ('the Act"). The Ld. CIT (A) has not appreciated the true meaning and import of section 201 r.w.s. 40 of the Act. The disallowance of late deposit of interest is not governed by the provision of section 40 of the Income Tax Act. Section 40(a)(ii) of the Act disallows only the sums paid on account of any tax levied on the profits or gains of the business and profession or assessed on the basis of profits or gains. It may please be appreciated that the aforesaid disallowance in simple words is with regard to the non-allow ability of income tax paid/ payable by the assessee. In this regard we wish to humbly submit that Sec. 37(1) of the Income Tax Act, 1961 provides that any expenditure (not being expenditure of the nature described in Section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'. It shows that when an expenditure is laid out wholly and exclusively for the purpose of business it can be deducted in computing the income under the head of profits and gains business. The perusal of the Balance of the assessee placed in this compilation at page no. 06 to 14 for ready reference clearly indicates that the assessee has availed huge borrowings and the expenditure on account of Finance Cost during the year under consideration is Rs.7,40,21,525/-. The money retained by the assessee on account of delayed IDS payment" as part of the common pool of funds available with the assessee and the
4 ITA No.5298/Del./2018 delay which resulted into interest on one hand also helped in reducing interest liability otherwise. In other words, if the IDS was paid on time there would have been almost equivalent higher claim of allowable interest of the assessee. The appellant's submission in brief, therefore, is that just because the nature of interest payment is on account of delayed TDS payment the same should not have been held disallowable. We wish to rely upon the following judgments wherein it has been held that the interest paid on delayed payment of service tax/IDS is compensatory in nature and is, therefore an allowable expenditure under Income Tax Act, 1961:- • Lachmandas Mathuradas v. CIT [2002] 122 Taxman 828 (SC)[at page no. 10] • Narayani Inspat (P) Ltd. (ITA No. 2127/Delj2014][at page no. 13] • STUP Consultants (P) Ltd. (ITA No.5827 /Mum/2012) [at page no. 25] • Sai Food Products (P) Ltd. (ITA No. 1887/Kol/2016] [at page no. 33] • IDS Next Business Solutions (P) Ltd. (ITA No. 510/Bang/2018] [at page no. 38] • Remfry & Sagar Consultants (P) Ltd. (ITA no. 5887/Del/2011) • Zoom Communication Ltd. (ITA No. 414/Del/2014) • Mahalaxmi Sugar Mills Co. Ltd. [1980] 123 ITR 429 (SC) • Luxmi Devi Sugar Mills (P) Ltd. [1991] 188 ITR 41 (SC) • Kaypee Mechanical India (P) Ltd. [Tax Appeal No. 186/2014] • Prakash Cotton Mills (P) Ltd. [1993] 67 Taxman 546 (SC)”
Per contra, ld. DR for the Revenue did not dispute the proposition
that the issue is covered in favour of the assessee by various case laws
mentioned herein above.
Accordingly, we are of the considered opinion that the aforesaid
case laws support the case of the assessee. In brief, we may refer to the
decision of Hon’ble Supreme Court in the case of Lachmandas
Mathuradas vs. CIT (2002) 254 ITR 799 (SC) wherein it was held that
interest on arrears or on outstanding balance of sales tax is compensatory
5 ITA No.5298/Del./2018 in nature and would be allowable as deduction in computing profits of a business.
Referring to the same decision, ITAT in the case of Narayani Ispat (P) Ltd in ITA No.2127/Kol/2014 for AY 2010-11 vide order dated 20.08.2017 has held that interest expenses on account of delayed payment of service tax as well as TDS is an allowable expenditure. Similar proposition has been laid down in other case laws that such interest is compensatory in nature and is allowable expenditure.
In view of the above, respectfully following the precedents, we set aside the orders of the authorities below and decide the issue in favour of the assessee.
In the result, the appeal of the assessee stands allowed. Order pronounced in the open court on this 5th day of January, 2023.
Sd/- sd/- (CHANDRA MOHAN GARG) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated the 5th day of January, 2023 TS Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A)-9, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.