Expenses on Interest & Late Fees for GST, Professional Tax, License Fee Deemed Deductible Under Sec. 37(1.

The ITAT ruled in favor of the assessee, allowing the appeal and determining that expenses related to interest and late fees on delayed GST returns, Professional Tax, and License Fee, deemed compensatory rather than penal, are deductible as business expenses under sec. 37(1) of the Act. The appeal against the addition of Rs. 14,13,154 was allowed, overturning the decisions of the AO and CIT(A).

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Issues:
1. Addition of expenses under Explanation 1 to sec. 37(1) of the Act.

Analysis:

The appeal was filed by the assessee against the order passed by the Addl.JCIT (A)-12, Mumbai, challenging the addition of Rs. 14,13,154 under Explanation 1 to sec. 37(1) of the Act for the assessment year 2023-24. The AO disallowed certain expenses incurred by the assessee, which were found to be prohibited under the law. The expenses included interest on delay in filing GST return, delay in payment of Professional Tax, late fees, and interest on License Fee. The AO added these amounts to the total income of the assessee, a decision upheld by the ld. CIT(A).

The main contention raised by the assessee was that the expenses were not prohibited under the law but were levied due to non-compliance with different statutory provisions, making them compensatory in nature. The assessee argued that these expenses should be allowed as deductions. On the other hand, the Revenue supported the decisions of the lower authorities.

The ITAT observed that the expenses disallowed by the CIT(A) were incurred in violation of the law, leading to their disallowance under Explanation 1 to sec. 37(1) of the Act. However, regarding the interest and late fees on delayed GST returns, the ITAT held that they were compensatory in nature, not penal, and therefore allowable as deductions under sec. 37(1) of the Act. The ITAT referred to a Delhi Tribunal case where it was held that payments made for delay in submitting statutory returns were compensatory and allowable as business expenditure under sec. 37 of the Act.

Further, the ITAT also considered the interest on delayed payment of Professional Tax and License Fee, stating that these charges were compensatory in nature due to delayed compliance with statutory obligations. Therefore, such interest on delayed payments was deemed eligible for deduction as business expenses under sec. 37(1) of the Act. Consequently, the ITAT allowed the grounds of appeal raised by the assessee, resulting in the appeal being allowed in favor of the assessee.

In conclusion, the ITAT ruled in favor of the assessee, allowing the appeal and holding that the expenses in question, which were compensatory in nature, should be deductible as business expenses under sec. 37(1) of the Act.

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