Interest on late TDS deposit not deductible under Income Tax Act

The Appellate Tribunal upheld the disallowance of interest on late deposit of TDS under section 40(a)(ia) of the Income Tax Act, 1961 for the assessment year 2013-14. The Tribunal dismissed the appeal, citing precedents from various High Courts, including Calcutta, Bombay, and Madras, which held that such interest is not deductible as a business expenditure. The decision was in line with the rulings of the cited cases, concluding that the interest on late TDS deposit is not allowable under the Income Tax Act, 1961.

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Issues:
1. Disallowance of interest on late deposit of TDS under section 40(a)(ia) of the Income Tax Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai involved the disallowance of interest on late deposit of TDS under section 40(a)(ia) of the Income Tax Act, 1961 for the assessment year 2013-14. The assessee contested the disallowance made by the AO, which was confirmed by the CIT(A). The primary contention was that interest on late deposit of TDS should not be treated akin to interest on tax levied on profits and gains of business or profession. The AO noted that the assessee had claimed an additional sum as interest on late deduction and deposit of TDS, leading to the disallowance in question.

During the proceedings, the Ld. counsel of the assessee referred to judgments by various High Courts, including the Calcutta High Court, Bombay High Court, and Madras High Court, to support the argument against the disallowance. The Calcutta High Court held that interest charged under the Act for non-compliance with tax provisions cannot be allowed as a deduction in computing total income. Similarly, the Bombay High Court rejected a claim for deduction of interest levied under specific sections of the Act as not allowable under section 37. The Madras High Court emphasized that income tax is not a business expenditure and the interest paid for delay in payment of tax cannot be considered a business deduction.

Ultimately, the Appellate Tribunal upheld the order of the CIT(A) and dismissed the appeal, citing that the facts were identical to the cases referenced during the proceedings. The judgment was pronounced on 12/09/2018, with the conclusion that the interest on late deposit of TDS was not deductible under the provisions of the Income Tax Act, 1961.

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