Interest on delayed TDS deposit allowed as back-to-back reimbursement not claimed as expenditure under section 37(1)

ITAT Raipur allowed the appeal regarding interest on delayed TDS deposit. The assessee argued the interest was compensatory and allowable under section 37(1), but both lower authorities failed to address the key claim that the amount was never claimed as expenditure but was a back-to-back reimbursement from member company. Since the joint venture did not claim the amount as expenditure in profit and loss account, the AO was not justified in disallowing it. The ITAT set aside the CIT(A) order and vacated the addition made by AO.

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Issues involved:
The appeal challenges the order passed by the Commissioner of Income-Tax (Appeals) arising from the assessment order under Sec.143(3) r.w.s. 143(3A) & 143(3B) for the assessment year 2018-19. The appellant contests the disallowance of expenditure and lack of opportunity for submission during faceless assessment.

Issue 1: Disallowance of expenditure
The appellant, a Joint venture entity, e-filed its return declaring nil income and was selected for scrutiny under the e-assessment scheme. The Assessing Officer (A.O) disallowed the interest paid on TDS as penal in nature, citing it as not allowable under Sec. 37(1) of the Income-tax Act. The A.O concluded that the interest paid for delayed TDS deposit does not relate to the business of the assessee and hence cannot be claimed as a deduction. Consequently, the A.O determined the income at the disallowed amount.

Issue 2: Lack of opportunity during assessment
The appellant challenged the disallowance of the interest paid on delayed TDS deposit, arguing that it was not claimed as an expenditure in its profit and loss account but was reimbursed back to the member. The appellant contended that the A.O erred in disallowing the amount without proper justification. The Departmental Representative failed to rebut the claim that the interest payment was a back-to-back basis transaction not claimed as an expenditure.

Judgment:
The Judicial Member observed that the appellant had not claimed the interest amount as an expenditure in its profit and loss account, and it was reimbursed back to the member. The lower authorities failed to address this crucial fact and focused solely on the deductibility of the interest payment. As the appellant did not claim the amount as an expenditure, the disallowance by the A.O was unjustified. The Judicial Member set aside the order of the CIT(Appeals) and vacated the disallowance. The appeal was allowed based on these observations, and the general grounds were dismissed.

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