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Income Tax Appellate Tribunal, [ DELHI BENCH “E”: NEW DELHI ]
Before: SHRI AMIT SHUKLASHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
This appeal is filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)–22, New Delhi, dated 26.10.2017, for assessment year 2014-15.
The only issue in this appeal is that assessee has claimed deduction of interest on late deposit of TDS under Section 37(1) of the Income Tax Act, 1961 (the Act). Ld AO disallowed it and Ld CIT (A) confirmed disallowance. 3. The brief facts show that assessee is a Pvt. Ltd. company engaged in the business of trading of groceries. It filed its return of income declaring income of Rs. 84,68,150/-. The ld. Assessing Officer on scrutiny found that assessee has debited to profit and loss account a sum of Rs. 32,793/- being interest under Section 201(1A) of the Act for late deposit of tax deduction at source. The above information was found from the tax audit report furnished by the assessee. IT was claimed by assessee as allowable expenditure u/s 37 (1) of the act. The ld. AO on examination noted that any Page | 1 expenditure incurred by an assessee for any purpose, which is an offence or prohibited by law, shall not be deemed to have been incurred for the purposes of business or profession and no deduction shall be made in respect of above expenditure. Therefore, Assessing Officer was of the view that interest on delayed payment of TDS is not an allowable expense. Before the Assessing Officer, the assessee merely submitted the ledger account of such interest expenditure. Therefore, it was disallowed. Assessment order under Section 143(3) of the Act was passed on 28.11.2016 determining total income of the assessee at Rs. 84, 68,153/-. Other disallowances are not matter of dispute before us.
On this ground assessee filed an appeal before the ld. CIT (Appeals) who vide para 5.1 of his order dealt with the above issue. He dealt with the argument of the assessee that interest on late deposit of TDS is compensatory and not penal in nature. He held that interest paid under the provisions of the Act is not a deductible expenditure, not compensatory in nature. Thus, he confirmed the action of the Assessing Officer.
Assessee is in appeal before us. It furnished its arguments in statements of facts filed with appeal. Despite notice, assessee did not appear on 31st December, 2020 as well as on 5.04.2021 and, therefore, the issue is decided on the information available on record.
The ld. DR vehemently supported the order of the lower authorities. He submitted that interest on late deposit of TDS is neither an expenditure wholly and exclusively incurred for the purposes of business and further it is a payment, which is in form of tax it is not an allowable expenditure. He further submitted that even otherwise there is no evidence that it is merely compensatory in nature. He submitted that it is hit by proviso to section 37 (1) of the act. He, therefore, submitted that the above interest on late payment of TDS has rightly been disallowed.
We have carefully considered the rival contentions. The above issue has already been considered by Hon’ble Madras High Court in CIT Vs. Chennai Properties & Investment Ltd. (1999) 239 ITR 435 (Mad.) wherein it has been held that interest under Section 201(1A) of the Act paid by the assessee does not assume the character of business expenditure and also cannot be regarded as compensatory payment. The above decision of the Hon’ble Madras High Court has also been dealt with exclusively by the various Page | 2 benches of the ITAT , specifically in Velankani Information Systems Ltd. V DCIT [2018] 97 taxmann.com 599 (Bangalore - Trib.)/[2018] 173 ITD 19 (Bangalore - Trib.) wherein considering various decisions of the Tribunal had followed the decision of the Hon’ble Madras High Court in CIT Vs. Chennai Properties & Investment Ltd. (supra) as under :-
“21. As far as delay in remittance of tax deducted at source u/s. 201(1A) of the Act is concerned, we find that the Hon'ble Madras High Court has taken a view that interest paid u/s. 201(1A) is also in the nature of tax and notwithstanding the fact that it is not the tax liability of the assessee, the same cannot be allowed as a deduction. The following were the relevant observations of the Hon'ble Madras High Court:— "14. As already noticed the payment of interest takes colour from the nature of the levy with reference to which such interest is paid and the tax required to be but not paid in time, which rendered the assessee liable for payment of interest was in the nature of a direct tax and similar to the income-tax payable under the Income-tax Act. The interest paid under Section 201(1A) of the Act, therefore, would not assume the character of business expenditure and cannot be regarded as a compensatory payment as contended by learned counsel for the assessee.
Counsel for the assessee in support of his submission that the interest paid by the assessee was merely compensatory in character besides relying on the case of Makalakshmi Sugar Mills Co. also relied on the decision of the apex court in the cases of Prakash Cotton Mills Pvt Ltd. v. CIT [1993] 201 ITR 684; Malwa Vanaspati and Chemical Co. v. CIT [1997] 225 ITR 383 and CIT v. Ahmedabad Cotton Manufacturing Co. Ltd. [1994] 205 ITR 163. In all these cases, the court was concerned with an indirect tax payable by the assessee in the course of its business and admissible as business expenditure. Further liability for interest which had been incurred by the assessee therein was regarded as compensatory in nature and allowable as business expenditure.
The ratio of those cases is not applicable here. Income-tax is not allowable as business expenditure. The amount deducted as tax is not an item of expenditure. The amount not deducted and remitted has the character of tax and has to be remitted to the State and cannot be utilised by the assessee for its own business. The Supreme Court in the case of Bharat Commerce and Industries [1998] 230 ITR 733, rejected the argument advanced by the assessee that retention of money payable to the State as tax or income- tax would augment the capital of the assessee and the expenditure incurred, namely, interest paid for the period of such retention would assume character of business expenditure. The court held that an assessee could not possibly claim that it was borrowing from the State, the amounts payable by it as income-tax, and utilising the same as capital in its business, to contend that the interest paid for the period of delay in payment of tax amounted to a business expenditure". (emphasis supplied) 22. The decision cited by the ld. counsel for the assessee of Kolkata Bench of the Tribunal on the issue is contrary to the decision of the Hon'ble Madras High Court. Though the decision of the Tribunal is later in point of time, judicial discipline demands that the decision of the Hon'ble Madras High Court is to be followed. It is also worthwhile to mention that the Kolkata Bench of Tribunal in the case of Narayani Ispat (P.) Ltd. (supra), which was cited by the ld. counsel for the assessee, did not consider or did not have an occasion to consider the decision of the Hon'ble Madras High Court Page | 3
in the case of Chennai Properties and Investment Ltd. (supra). In these circumstances, we follow the decision of the Hon'ble Madras High Court & uphold the order of the CIT(A) insofar as it relates to disallowance of interest on delayed remittance of tax deducted at source u/s. 201(1A) of the Act.”
In view of this, we do not find any merit in the appeal of the assessee and hold that interest payment on late payment of tax at source is not eligible business expenditure for deduction and it is not compensatory in nature.
Now we come to the various decisions cited by the assessee in the statement of facts laid down before us. The first decision that has been cited by the assessee is CIT versus ITC Ltd 3 38 ITR 598 wherein it has been held that the payment of interest u/s 201 (1A) is not a penalty. Further, the assessee has also stated the decision of CIT versus Oriental insurance Co Ltd 315 ITR 102 (Karnataka) wherein also it has been stated that it is not a penalty. Another decision stated is Bennett Coleman & Co Ltd versus ITO 157 ITR 812 which also speaks that the interest chargeable u/s 201 (1A) is not penal in nature. All other decision also cited in the statement of facts are also on the same line. However, here after considering all the above decision disallowance is confirmed for the reason that such payment is not business expenditure. Therefore it is not allowable as deduction u/s 37 (1) of the act as it is not wholly and exclusively incurred for the purposes of the business. The lower authorities have merely stated that it is not an allowable expenditure. Further other decisions cited by the assessee stating that above interest is compensatory in nature have already been dealt with by the honourable whether a High Court in the above decision. In view of this none of the decision cited by the assessee in statement of facts supports the view of the assessee that above expenditure is allowable u/s 37 (1) of the act. Even assuming meanwhile denying, that above interest expenditure is compensatory in nature, it should be allowed as allowable expenditure. The conditions of the allowability of expenditure is laid down u/s 37 (1) of the income tax act which speaks that any expenditure which is not a capital expenditure or personal expenses of the assessee which is laid out or expended wholly and exclusively for the purpose of the business shall be allowed in computing the income chargeable Under the head profits and gains of business or profession. Payment of interest on late payment of TDS cannot be considered as an expenditure led out or expended wholly and Page | 4 exclusively for the purpose of the business because late payment of TDS cannot be considered as part of the business of the assessee. 10. In view of the above facts we hold that payment of interest on late deposit of tax deduction at source by the assessee leviable u/s 201 (1A) of the act is neither an expenditure only and exclusively incurred for the purpose of the business and therefore same is not allowable as deduction u/s 37 (1) of the act. In view of this, various grounds raised
by the assessee on this in the issue are dismissed. 11. In the result, appeal of the assessee is dismissed. Order pronounced in the open court on : 08 /04/2021.