GST, Interest & Penalty paid during Search

[Bhavesh Patel]

A XYZ Pvt Ltd face a GST search in its premises on 22/07/2024. The GST department raised a demand for the previous year(FY 2020-21, 2021-22 & 2022-23). Is it allowable as an expense under the Income Tax Act in FY 2024-25, or is the principal payment of GST disallowed as Deferred revenue expenditure?

AI Summary

GST liability for past suppressed turnover is not generally deductible as current revenue expense; interest and penalties usually disallowed A company facing a GST demand for prior years cannot generally treat the principal tax on suppressed turnover as a deductible revenue expense in the current year; such tax is a statutory liability relating to earlier accounting periods and is not ordinarily allowable as a business deduction. Interest and penalties arising from the tax demand are typically disallowable as business deductions (penal in nature), although facts can affect treatment. Amounts representing legitimate, ordinary revenue costs (not taxes on suppressed turnover) may be deductible when incurred. Treatment should follow the year-to-which the underlying liability relates and be reviewed against specific statutory provisions and relevant case law.