TRINITY INFRAVENTURES LIMITED,HYDERABAD vs. ASSISTANT COMMISSIONER OF INCOME TAX ,CENTRAL CIRCLE-3(2), HYDERABAD

Ld. CIT(A), however, did not agree with the submissions made by the assessee and placing reliance on the decision of the ITAT in the case of New Modern Bazaar in held that the assessee was withholding somebody’s due tax credit by depositing the same late and causing undue hardship to such third party, TDS is mere a part of that business expenditure debited, which was already allowed as deduction and, therefore, interest on delayed deposit of TDS is not an allowable deduction. He accordingly, upheld the findings of the learned Assessing Officer and dismissed the appeal of assessee.

Assessee is, therefore, aggrieved of such an action of the Ld. CIT(A) and filed this appeal before us stating that the expenditure is incurred wholly and exclusively for the purpose of business and therefore, allowable as business expenditure under section 37 of the Act. Learned AR further submitted that the interest paid for delay in making payment of TDS is not in the nature of penalty and does not tantamount to breach of law or an illegal act or prohibited act, and since the interest on TDS is compensatory in nature, but not penal, the same cannot be disallowable. Reliance is also placed on the decisions reported in Crustum Products P. Ltd., in Mercury Projects in ITA No. 440/Hyd/2018, Resolve Salvage & Fire India (P.) Ltd., Vs. DCIT, 139 taxmann.com 196 and M/s. Taksheel Solutions Limited Vs. ACIT, ITA No. 1768/Hyd/2012.

Per contra, learned DR submitted that in this case, the assessee withheld the TDS to the tune of Rs. 29,35,217/- and this is a clear breach of law which requires the TDS to be deposited within stipulated time and, therefore, it is not allowable under section 37 of the Act. He placed reliance on the orders of the authorities below.

We have gone through the record in the light of the submissions made on either side. There is no dispute as to the facts that the assessee failed to deposit the TDS amount within time and, therefore, deposited the same with interest of Rs. 29,35,279/- which they claimed as deduction under section 37 of the Act stating that mere enlargement of the amount of TDS with the inclusion of interest, does not take away its character as being TDS to be allowed under section 37 of the Act. Only question therefore, that falls for our consideration is whether this interest partakes the character of a penalty or to be construed as payment for breach of law, so as to be disallowed under section 37 of the Act.

In Mahalakshmi Sugar Mills Co.(supra), while considering the nature of interest paid on the delayed payment of cess under the provisions of UP Sugarcane Cess Act, 1956, the Hon'ble Apex Court held that when there are provisions dealing with penalty specifically in the enactment, and the enlargement of any amount automatically, without the intervention of any order giving rise to the liability such enlargement, such additional amount will not be a penalty, but only compensatory in nature. In Oriental Insurance Company Ltd., (supra), the Hon'ble Karnataka High Court clearly held that section 201(1A) of the Act is a provision to levy interest for delayed remittance of TDS and it is the practice of the Revenue that for delayed payment of tax for any reasonable cause, the assessee is liable to pay interest at stipulated rate and also paying interest on the delayed payments to the assessees, and, therefore, interest paid for delayed deposit of TDS cannot be equated to penalty or breach of law.

In Crustum Products P. Ltd., (supra), a Co-ordinate Bench of this Tribunal held that the interest levied towards the late payment of TDS is only damages thrust on the assessee for late payments of dues to the Revenue. In Mercury Projects (supra), the Co-ordinate Bench held that the interest on TDS is not interest paid on per se and the same is in the nature of compensation and not penal. In Resolve Salvage & Fire India (P.) Ltd., (supra), the Tribunal after noticing the decisions in the case of Ferro Alloys Corporation Ltd., Vs. CIT (1992) 196 ITR 406 (Bom), Bharat Commerce Industries Ltd., Vs. CIT (1985) 20 Taxman 302 and Setup Consultants Pvt. Ltd., Vs. ACIT in by order dated 11/12/2018 observed that the interest paid on delayed payments of TDS under section 201(1A) of the Act is an allowable deduction. Lastly, in the case of M/s. Taksheel Solutions Limited (supra), it was held that the interest on TDS is not interest paid on income tax per se and the disallowance thereof, is unwarranted.

It is, therefore, clear that the sole issue for consideration in this appeal is no longer res integra and covered by the above decisions. Respectfully following the same, we hold the issue in favour of the assessee and direct the learned Assessing Officer to delete the disallowance made on account of interest on TDS.

In the result, appeal of the assessee is allowed.