Tribunal Partially Allows Appeal: Cash Addition Removed, Interest Disallowance Upheld

The Tribunal allowed the appeal in part. The addition of Rs. 3,51,470/- for unaccounted cash was deleted, as the cash found was reconciled with the books of accounts and did not belong to the assessee. However, the addition of Rs. 18,315/- for disallowance of interest on late TDS deposit was upheld, following precedent that such interest is not a deductible business expenditure. The order was pronounced on 01/09/2020.

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Issues Involved:

1. Addition of Rs. 3,51,470/- on account of alleged unaccounted cash found during the search.
2. Addition of Rs. 18,315/- on account of disallowance of interest paid on late deposit of TDS.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 3,51,470/- on account of alleged unaccounted cash found during the search:

The assessee contested the addition of Rs. 3,51,470/- made by the Assessing Officer (AO) for unaccounted cash found during the search. The assessee argued that the total cash found, amounting to Rs. 6,29,400/-, was duly accounted for in the books of accounts, which showed a cash balance of Rs. 12,05,828/-. The assessee provided a detailed reconciliation, subtracting amounts paid to individuals and claimed stolen cash, resulting in a revised cash balance of Rs. 6,29,861/-, which matched the cash found.

The AO merged the cash found at the premises of another entity, M/s The Cargo, with the assessee's cash, leading to the disputed addition. The assessee clarified that only Rs. 1,50,000/- of the cash found at M/s The Cargo's premises belonged to them, and the rest was explained as belonging to other entities or individuals, including a temple.

The CIT(A) upheld the AO's addition, rejecting the assessee's explanations. However, the Tribunal found that the assessee had adequately reconciled the cash found with the books of accounts and that the premises where the excess cash was found did not belong to the assessee. The Tribunal also referenced a similar case, M/s. Jai Amarnath Associates vs DCIT, where the addition was deleted under similar circumstances. Consequently, the Tribunal allowed the assessee's appeal on this ground, deleting the addition of Rs. 3,51,470/-.

2. Addition of Rs. 18,315/- on account of disallowance of interest paid on late deposit of TDS:

The assessee challenged the addition of Rs. 18,315/- for disallowance of interest on late deposit of TDS, arguing that such interest is compensatory and not penal, and hence allowable under Section 37(1) of the Income Tax Act. The assessee cited the Supreme Court's decision in Lachmandas Mathura Vs. CIT, which held that interest on arrears of tax is compensatory.

The Tribunal examined the judgments cited by both parties and noted that the facts in the present case differed from those in the cited judgments. The Tribunal relied on the ITAT Mumbai Bench's decision in DNV GL AS vs ADIT, which held that interest on delayed payment of TDS is not allowable as a business expenditure under Section 37(1) since it pertains to a statutory liability. Consequently, the Tribunal upheld the CIT(A)'s order disallowing the interest expense and dismissed the assessee's appeal on this ground.

Conclusion:

The appeal was partly allowed. The addition of Rs. 3,51,470/- on account of unaccounted cash was deleted, while the addition of Rs. 18,315/- for disallowance of interest on late deposit of TDS was upheld. The order was pronounced in the open court on 01/09/2020.

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