Interest on late TDS payment not deductible under section 37(1) as not wholly for business purposes

ITAT Bangalore ruled that interest paid on late payment of TDS is not an allowable deduction under section 37(1) as it cannot be regarded as an expense incurred wholly or exclusively for business purposes. The Tribunal held that interest under section 201(1A) is equivalent to interest under section 234 on delayed income tax payment, thus not deductible. Regarding TDS credit, the matter was remanded to AO for fresh consideration after proper reconciliation. The Tribunal upheld addition of income admitted during survey proceedings where capital expenditure was wrongly treated as revenue expenditure, rejecting the assessee's challenge to their own acknowledged mistake.

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Issues Involved:
1. Delay in filing the appeal.
2. Admission of additional grounds.
3. Disallowance of interest on late payment of TDS.
4. Restriction of TDS credit.
5. Addition of income based on survey admission.
6. Denial of TDS credit.
7. Charging of interest under sections 234A, 234B, and 234D.

Summary:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of 351 days. The delay between 2.12.2021 to 29.5.2022 (178 days) was covered by the Supreme Court's order in Miscellaneous Application No.665 of 2021, which extended the limitation period due to the COVID-19 pandemic. The remaining delay of 173 days was attributed to the death of the assessee's Chartered Accountant and subsequent mishandling of the case. The Tribunal found the reasons for the delay to be bona fide and admitted the appeal for adjudication.

2. Admission of Additional Grounds:
The Tribunal admitted the additional grounds raised by the assessee, noting that all relevant facts were already on record and no fresh investigation was required. This decision was based on the judgment of the Supreme Court in NTPC Vs. CIT 229 ITR 383 (SC).

3. Disallowance of Interest on Late Payment of TDS:
The Tribunal upheld the disallowance of interest on late payment of TDS, following its own earlier decision in the assessee's case and the Madras High Court's ruling in Velankani Information Systems Ltd. The interest paid under section 201(1A) was deemed not allowable as a deduction, as it is considered in the nature of tax.

4. Restriction of TDS Credit:
The Tribunal remitted the issue of restricted TDS credit to the Assessing Officer (AO) for fresh consideration. The assessee claimed that TDS was deducted on mobilization advances and running bills, which were not subject to tax in the current assessment year but in subsequent years. The AO was directed to verify and reconcile the TDS credit with the income offered in different assessment years.

5. Addition of Income Based on Survey Admission:
The Tribunal rejected the assessee's challenge to the addition of Rs. 1.42 crores based on the survey admission. It was noted that the assessee had overstated expenses by treating capital expenditure as revenue expenditure. The Tribunal found that the assessee had accepted this during the survey and had not retracted the admission. Consequently, the addition was sustained.

6. Denial of TDS Credit:
This issue was rendered infructuous due to the Tribunal's findings on the main grounds related to TDS credit.

7. Charging of Interest under Sections 234A, 234B, and 234D:
The Tribunal held that charging of interest under sections 234A, 234B, and 234D is consequential and mandatory, and must be calculated correctly.

Conclusion:
The appeal was partly allowed for statistical purposes, with directions for fresh consideration of TDS credit by the AO and sustaining the addition of income based on the survey admission. The disallowance of interest on late payment of TDS was upheld.

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