2021 (4) TMI 395 - AT - Income Tax

Appeal Dismissed for Late TDS Interest Deduction (1)

M/s. New Modern Bazaar Departmental Store Pvt. Ltd. Versus ITO, Ward : 31 (1) New Delhi.

M/s. New Modern Bazaar Departmental Store Pvt. Ltd. Versus ITO, Ward : 31 (1) New Delhi. - TMI Issues:1. Deduction of interest on late deposit of TDS under Section 37(1) of the Income Tax Act, 1961.Analysis:The appeal was filed against the order of the ld. Commissioner of Income Tax (Appeals) regarding the deduction of interest on late deposit of TDS under Section 37(1) of the Income Tax Act, 1961. The Assessing Officer disallowed the deduction, which was confirmed by the CIT (A). The assessee, a Pvt. Ltd. company engaged in trading groceries, claimed the interest as an allowable expenditure u/s 37(1) based on the tax audit report. However, the AO held that any expenditure incurred for an offense or prohibited by law cannot be deemed incurred for business purposes. The interest on delayed TDS payment was considered not allowable, leading to disallowance in the assessment order under Section 143(3) of the Act.The CIT (A) affirmed the disallowance, stating that interest on late TDS deposit is not compensatory and is not deductible. The assessee appealed before the ITAT, but despite notices, did not appear, leading to a decision based on available records. The Department representative supported the lower authorities, arguing that the interest is not wholly and exclusively for business purposes and is in the form of tax, hence not allowable as an expenditure. The contention was that the interest on late TDS payment was rightly disallowed under the proviso to section 37(1) of the Act.The ITAT considered the decision of the Hon’ble Madras High Court and various ITAT benches, concluding that interest paid under Section 201(1A) is not compensatory and does not assume the character of business expenditure. Citing the Madras High Court's ruling, the ITAT upheld the disallowance of interest on delayed TDS remittance. Despite the assessee citing decisions indicating that the interest is not penal in nature, the ITAT confirmed the disallowance, stating that such payment is not business expenditure and therefore not allowable under Section 37(1) of the Act. The conditions for the allowability of expenditure under Section 37(1) were not met as the late TDS payment was not considered wholly and exclusively for business purposes.In conclusion, the ITAT held that the payment of interest on late TDS deposit was not an allowable deduction under Section 37(1) of the Act as it was not incurred solely for the purpose of business. Thus, the appeal of the assessee was dismissed.