2018 (6) TMI 1730 - AT - Income Tax

Interest Expense on Delayed TDS Payments Allowed as Compensatory Under IT Act, Tribunal Dismisses Revenue's Appeal.

M/s. IDS Next Business Solutions Pvt. Ltd. Versus The Assistant Commissioner of Income Tax, Circle – 3 (1) (1), Bangalore.

The ITAT upheld the decision of the CIT(A), ruling in favor of the assessee by allowing interest expenses on delayed TDS payments under section 37(1) of ... Disallowance of interest payment on belated TDS payment - case of the appellant inter-alia that interest on late payment of TDS is compensatoryand not penal in nature; that TDS is not a liability in the hands of the deductor; that interest paid on account belated TDS payment is only to compensate the loss, if any; etc, and therefore, the same is allowable - HELD THAT:- As decided in Narayani Ispat Pvt. Ltd. [2017 (10) TMI 67 - ITAT KOLKATA] AO has wrongly applied the principle laid down by the Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd [1998 (3) TMI 2 - SUPREME COURT] We also find that the Hon'ble Supreme Court in the case of Lachmandas Mathura [1997 (12) TMI 16 - SUPREME COURT] has allowed the deduction on account of interest on late deposit of sales tax u/s 37(1) of the Act. In view of the above, we conclude that the interest expenses claimed by the assessee on account of delayed deposit of service tax as well as TDS liability are allowable expenses u/s 37(1). We find that in that case also, the issue involved was regarding allowability of interest on belated payment of service tax and TDS whereas in the present case, the issue in dispute is regarding interest payment on belated payment of TDS. Hence it is seen that the facts and dispute are similar and therefore, by respectfully following this Tribunal order, we decide the issue in favour of the assessee. Issues:Disallowance of interest payment on belated TDS payment without appreciating law and facts properly, disallowance of interest payment to unsecured creditor without provisions of S.194A, failure to consider decisions relied on by appellant, levy of interest under sections 234B and 234D being bad in law, and allowability of interest expenses on belated TDS payment.Analysis:The appeal was filed against the order of ld. CIT(A)-3, Bangalore for Assessment Year 2014-15. The grounds raised by the assessee included contentions regarding the disallowance of interest payment on belated TDS payment. The ld. AR of assessee relied on a Tribunal order in a similar case to support the argument that interest expenses on late TDS payment are compensatory in nature and allowable under section 37(1) of the IT Act. The Tribunal order cited judgments of the Hon'ble Apex Court to establish the compensatory nature of interest on delayed payments. The Tribunal held that interest expenses on delayed TDS payment are allowable u/s 37(1) of the Act, distinguishing the case from instances of delayed income tax payments.The Tribunal referred to a previous case involving the allowability of interest on belated payment of service tax and TDS, where a similar issue was decided in favor of the assessee. By following the precedent set in that case, the Tribunal decided the issue in favor of the assessee in the present case as well. The Tribunal concluded that interest expenses on delayed TDS payment are allowable under section 37(1) of the Act, upholding the decision of the ld. CIT(A) and dismissing the Revenue's ground of appeal.In summary, the Tribunal's decision was based on the compensatory nature of interest on delayed TDS payment, as established by previous judgments and legal principles. The Tribunal found that the interest expenses claimed by the assessee were allowable under section 37(1) of the IT Act, leading to the allowance of the appeal filed by the assessee.