2021 (8) TMI 558 - AT - Income Tax

Disallowances of the interest of late deposit of tax deducted at source - HELD THAT - Assessee has deposited the tax deducted at source from various payees but has not deposited the same in time provided by the law. As it is deposited late the Assessee was liable to pay interest thereon. Firstly, the payment of the interest cannot be said to be an expenditure wholly and exclusively incurred for the purpose of the business. It is expenditure on which tax is deductible might be an expenditure incurred for the purpose of the business. But the interest on late deposit of tax deducted at source cannot be said to be an expenditure incurred wholly and exclusively for the purpose of the business. Such deduction cannot be allowed u/s 37(1) of the Act. Even otherwise late payment of TDS is infraction of law and therefore, any payment made for infraction of law cannot be considered as expenditure incurred by the Assessee wholly and exclusively for the purpose of the business. Here in this case the Assessee has been saddled with the statutory liability to deduct tax at source and deposit to the credit of the Govt of India in time. The Assessee has failed to pay his statutory dues in time and therefore, there is an interest liability. Therefore, such expenditure is not at all allowable to the Assessee as deduction u/s 37(1) Even otherwise this deduction is not allowable in any of the section u/s 30 to 36 of the Act. AO has correctly applied decision of the Hon ble Madras High Court in CIT Vs. Chennai Properties 1998 (4) TMI 89 - MADRAS HIGH COURT in making the disallowance. CIT(A) also correctly confirmed the same. Accordingly, ground No. 2 of the appeal is dismissed. Disallowance of consultancy charges - HELD THAT - Liability to pay commission to this party arises on account of the assessee only at the time of receipt of the payment for equipment from the customers. Assessee received orders from Usha Martin Ltd for supply of the goods in the month of August and November 2010. Supplies were made from month of November 2010 to September 2012. Payments were received from 19 October 2010 till 20th of August 2014. Thus payments were also last received on 20 August 2014. Therefore on the date of the payment received by the assessee the liability to pay consultancy charges arises. In the present case the invoices were raised by the consultant on 31st of March 2014 for commission of ? 6,042,000. However as claimed by the assessed the liability to pay consultancy charges arises on receipt of the payment by the assessee which has happened from 19 October 2010 till 20th of August 2014. The assessee has claimed the complete amount of commission/consultancy charges of ₹ 6,042,000 during the year despite receipt of payment from the customers till 20th of August 201 - assessee is entitled to deduction of all the payments received till 31st of March 2014 from the customers and commission thereon is allowable to the assessee in assessment year 2014-15. Thus we find that out of the total commission of ₹ 6,042,000 claimed by the assessee during the year only the commission which relates to the payment received by the assessee from its customers till 31st of March 2014 assessee is entitled for deduction of commission/consultancy charges to that extent only. In view of this we set-aside the whole issue back to the file of the learned assessing officer with a direction to the assessee to submit the details of payment received till 31st of March 2014 and due commission thereon. The learned assessing officer may examine the same and granted deduction of consultancy charges to that extent. In the result ground number 3-4 are allowed with above directions.

Summary

Issues Involved:
1. Confirmation of disallowance of interest payment of ?1,06,660/-.
2. Confirmation of disallowance of ?45,42,000/-.
3. Confirmation of disallowance of claim of ?15 lakhs.
4. Timeliness of the appeal filing.

Issue-wise Detailed Analysis:

1. Confirmation of Disallowance of Interest Payment of ?1,06,660/-:

The Assessee incurred an interest expense of ?1,06,660/- due to the late deposit of TDS, which was claimed as a deductible expense. The Assessee argued that this expense was compensatory and not a tax liability. However, the AO and CIT(A) disallowed the deduction, referencing the Hon'ble Madras High Court decision (239 ITR 435) and the Hon'ble Supreme Court decision (230 ITR 733). The Tribunal upheld this disallowance, stating that the interest on late deposit of TDS is not an expense incurred wholly and exclusively for business purposes under Section 37(1) of the Act. It was also considered an infraction of law, and such payments are not deductible.

2. Confirmation of Disallowance of ?45,42,000/-:

The Assessee claimed ?45,42,000/- as marketing consultancy charges paid to M/s Predominant Engineers & Contractors Pvt. Ltd. under an agreement dated 28th June 2010. The AO disallowed this as prior period expenses, stating that the Assessee follows a mercantile system of accounting, and such expenses are not allowable. The CIT(A) upheld this disallowance, noting that the Assessee did not create a provision for this liability in its books of accounts for the relevant period. The Tribunal found that the Assessee's liability to pay consultancy charges arose on receipt of payments from customers, which continued until 20th August 2014. Thus, the Tribunal directed the AO to allow the deduction for consultancy charges related to payments received up to 31st March 2014, while disallowing the rest.

3. Confirmation of Disallowance of Claim of ?15 Lakhs:

The Assessee claimed an additional ?15 lakhs as consultancy charges, initially disallowed in AY 2012-13 due to non-deduction of TDS. The AO rejected this claim for AY 2014-15, as it was not included in the Income Tax Return or computation of income for that year. The CIT(A) upheld this decision, noting that the Assessee cannot claim the same expense in two different assessment years. The Tribunal agreed with the lower authorities, affirming the disallowance of the ?15 lakhs.

4. Timeliness of the Appeal Filing:

The Assessee contended that the appeal was filed within the limitation period as the last date for filing was a holiday. This procedural aspect was acknowledged without further dispute.

Conclusion:

The Tribunal dismissed the appeal concerning the disallowance of interest payment of ?1,06,660/-. It partially allowed the appeal regarding the ?45,42,000/- consultancy charges, directing the AO to allow deductions for payments received up to 31st March 2014. The disallowance of the ?15 lakhs claim was upheld. The appeal was deemed timely filed. The final order was pronounced in the open court on 14/07/2021.