Compensatory interest on delayed indirect tax payments treated as deductible under Section 37(1) as business expenditure.

Interest paid on delayed payment of indirect taxes (GST, service tax, KK cess, SG cess) is compensatory in nature and therefore deductible as business expenditure under Section 37(1) of the Income-tax Act; the Tribunal applied the compensatory v. penal distinction and followed coordinate precedent treating statutory interest on delayed indirect-tax remittance as compensatory, resulting in allowance of the deduction. Authorities addressing interest on delayed TDS under the Income-tax Act were held inapposite to the pressed grounds, and the addition relating to interest on late TDS payment was dismissed as not pressed.

---

---

Issues: Whether interest paid on delayed/late payment of indirect taxes (GST, service tax, KK cess, SG cess) is compensatory in nature and therefore allowable as business expenditure under Section 37(1) of the Income-tax Act, 1961; and whether interest on delayed payment of TDS (u/s. 201(1A)) is pressed before the Tribunal.

Analysis: The Tribunal examined the nature of interest payable under the indirect tax provisions, including Section 50 of the Central GST Act, and followed precedent of a co-ordinate bench which treated interest on delayed GST payment as compensatory. The Tribunal distinguished authorities relied upon by the Revenue as relating to interest on delayed payment of TDS under Section 201(1A) of the Income-tax Act, 1961, which are not germane to the pressed grounds. Applying the compensatory v. penal distinction, and noting that the interest arose from statutory obligations to remit indirect taxes, the Tribunal held such interest to be compensatory and therefore allowable under Section 37(1) as business expenditure. The assessee did not press the ground relating to interest on late payment of TDS.

Conclusion: The payment of interest on delayed payment of GST, service tax, KK cess and SG cess is compensatory in nature and is allowable as deduction under Section 37(1) of the Income-tax Act, 1961 (decision in favour of the assessee). The addition relating to interest on late payment of TDS is dismissed as not pressed.

---