2024 (1) TMI 107 - AT - Income Tax

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 ... Interest paid on late payment of TDS - allowable deduction u/s 37(1) or not? - whether is not being in the nature of penalty and hence disallowance of same is unwarranted and uncalled for ? - HELD THAT:- We are of the opinion that similar issue came for consideration before this Tribunal in assessee’s own case in [2022 (8) TMI 349 - ITAT BANGALORE] held that interest on delayed payment of TDS cannot be allowed as deduction. As it is clear that the basis why tax or interest is not allowed as deduction u/s.37(1) of the Act is on the reasoning that it cannot be regarded as an expense incurred wholly or exclusively for the purpose of Assessee’s business. Therefore the allowability of interest on taxes paid should not be looked out from the definition of tax as given in Sec.2(43) of the Act. The submissions made by the learned counsel for the Assessee are based on a misconception that the definition of interest u/s.2(43) of the Act is relevant and that the disallowance in question has to be judged in the parameters of Sec.40(a)(iib) In our considered view this contention of the ld AR is completely out of context as we have already held that Sec.40(a)(ii) is not relevant to the present issue before us at all. Interest on late payment of TDS paid u/ s 201/ 201(1A) - whether an allowable expenses? - Levy of interest on delayed payment of TDS u/s.201(1A) though held to compensatory in nature, the allowability of the same cannot be decided simply based on that. The levy of 201(1A) is a levy for delay in the remittance of tax that is deducted and not paid into the government account and is levied towards the use of funds belonging to the exchequer. The interest u/s.201(1A) can be equated to the levy of interest u/s.234. Interest u/s.234 is a levy on delay in the payment of income tax and the TDS is nothing but the income tax paid on behalf of the payee and therefore the interest on the same u/s.201(1A) is also in the nature of interest levied on the income tax. On that count also interest on delayed payment of TDS cannot be claimed as a deduction. Non-giving of full TDS credit u/s 199 of the Act read with Rule 37 of the I.T. Rules - grievance of assessee herein is that the ld. AO has not given full TDS credit which is displayed in Form 26AS. He has given TDS credit proportionately on pro rata basis to the extent of income declared by the assessee - HELD THAT:- As contention of the assessee is that the TDS has been made not only on the sales receipts made in these assessment years but it also includes mobilization advances and running bills raised by the assessee which is not subject matter of the taxation in the assessment year under consideration that income was offered for taxation in subsequent assessment years. In our opinion, these facts are to be examined by the ld. AO after assessee furnishing and reconciling the offering of these receipts to taxation in different assessment years and the assessee shall not claim the TDS credit in more than one assessment year in respect of the TDS deducted and reflect in form No.26AS. Accordingly, this issue is remitted to the file of ld. AO for fresh consideration to carry out necessary enquiry on this regard. Addition of income admitted during the course of survey proceedings - As it is admitted fact that assessee has overstated the expenditure in the P&L account by showing the capital expenditure as revenue expenditure with regard to legal and professional charges by charging the same to the P&L account. By this action assessee overstated the expenditure and understated the income. This fact has been detected in the course of survey u/s 133A of the Act and Chairman and Managing Director of the assessee company has accepted to offer it for taxation. As such, once the Managing Director of assessee company has acknowledged that capital expenditure has been treated as a revenue expenditure and charged to P&L account and stopped further enquiry at the end of department and agreed to offer the same for taxation in these assessment years and never being retracted the same at any assessment stage or first appellate stage, now by way of additional ground before us assessee challenges the same. In our opinion, the expenditure has been wrongly accounted in the books of accounts and the same has been accepted by the assessee as wrong and offered it for taxation, which was not open to the assessee to take a reverse stand so as to take benefit of its own mistake. In our opinion, the argument looks contradictive on the face of it. On a careful scrutiny of the facts of the case, the ld. AO in this case has given cogent reasons that it has been taxed by disallowing that expenditure in the assessment year under consideration. It is an admitted fact that the assessee has wrongly claimed the expenditure on legal and professional charges and later when it was detected, the same was offered for taxation. When the evidence and records disclose that the assessee has wrongly claimed the expenditure in its profit & loss account and accepted the same and when the department has detected it during the course of survey, now assessee is precluded from denying the tax liability on this count. Accordingly, we do not find any merit on this issue, this ground of appeal is rejected. A.R. alternatively made a plea before us that if it is considered as income in this assessment year under consideration, the same amount is to be considered as a work in progress in subsequent assessment years and corresponding deduction to be given - Tribunal after giving opportunity of hearing to both the parties to the appeal or pass such order thereon as it thinks fit, the power confines to pass orders on the subject matter of appeal before us and the Tribunal cannot go beyond the scope of appeal and pass an order or give direction, which does not fall within the subject matter of appeal and also the powers restricted to the assessment year under appeal, wherein the appeal relates to assessment year 2014-15, the finding and direction must necessarily be limited to this particular assessment year and we have no jurisdiction to give direction with regard to the proceedings of the earlier assessment year or subsequent assessment year. Being so, we are not in a position to give direction on this issue in subsequent assessment year, which is uncalled for at this stage. Accordingly, all the additional grounds in ground Nos.1, 1(i), 1(ii), 1(iii) & 1(iv) are dismissed. 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.