The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that interest payment on late payment of TDS is not an eligible business expenditure for deduction and it is not compensatory in nature.
The two-member bench of A. D. Jain (Vice President) and Dr. B. R. R. Kumar (Accountant Member) has observed that the 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 nor a deduction under section 37(1) of the Income Tax Act.
The assessee/appellant submitted a copy of the ledger account of interest on TDS. The assessee itself agreed that interest on TDS amounting to Rs. 9,70,248 had not been added back in the computation of income. Interest on TDS is not allowable as per the provisions of the Income Tax Act, 1961. Accordingly, expenses of Rs. 9,70,248 were disallowed and added back to the income of the assessee.
Section 201(1A) of the Income Tax Act requires assessees to pay 1.5% simple interest per month or part of a month in the event of a delay in remitting the TDS amount deducted to the Central Government's treasury.
The question was whether the interest paid on late TDS payments after deduction could be claimed as an expenditure when calculating taxable income.
The appellant has challenged the disallowance of an addition of Rs. 9,70,248 on account of the disallowance of interest on TDS payments.
Section 36(1)(iii) of the Act allows a deduction for interest paid on capital borrowed while computing the business income of the taxpayer. It allows a deduction for interest paid on capital borrowed for the purpose of a business or profession.
The ITAT noted that there must be a loan on which interest is paid to claim an allowance under section 36(1)(iii) of the Income Tax Act. The existence of a lender and a borrower is a must in the case of a loan transaction. The non-payment of taxes does not amount to the borrowing of capital from the government, and hence interest paid for delayed deposit of taxes is not covered under section 36(1)(iii) of the Act. Section 37 is a residuary section which allows business expenditure in computing the taxable business income of an assessee. Sections 30 to 36 cover the expenses that can be deducted from business or professional profits and gains.
The ITAT confirmed the disallowance made by the AO.
Case Title: Universal Energies Ltd. Versus DCIT
Citation: ITA No. 2761/Del/2018
Counsel For Appellant: Advocate Sudesh Garg & CA Sahil Aggarwal
Counsel For Respondent: Sr. DR K. A. Manu