2021 (9) TMI 877 - AT - Income Tax

Disallowance of interest on late payment of TDS - Claim of deduction u/s 37(1) on the plea that the delay in remittance of TDS had suffered interest which is compensatory in nature - whether the said payment of interest on late payment of TDS could be construed as compensatory in nature or penal in nature? - HELD THAT - We find that the payment of interest is provided separately in the statute which is a permissible payment and accordingly compensatory in nature. Apart from this, the statute also provides for payment of penalty which is penal in nature. Hence the legislature in its wisdom had enacted separate provisions for payment of interest and penalty separately. Hence payment of interest on delayed remittance of TDS could not be construed as penal in nature. We find that the reliance in this regard has been rightly placed on case of DCIT vs Rungta Mines Ltd 2018 (10) TMI 672 - ITAT KOLKATA which dealt with the similar issue of punitive charges paid to Railways for overloading of wagons as an allowable expenditure being compensatory in nature - we direct the ld AO to grant deduction for interest on delayed payment of TDS - Decided in favour of assessee. Disallowance of project expenditure at 10% on an adhoc basis - HELD THAT - We find that the lower authorities had not given any finding with regard to the aforesaid details filed by the assessee and had simply resorted to make adhoc disallowance of project expenditure at 10% of value thereon without any basis and by passing a cryptic order. Hence we have no hesitation in directing the ld AO to delete the adhoc disallowance made in the instant case. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of interest on late payment of TDS.
2. Disallowance of project expenditure at 10% on an adhoc basis.

Analysis:

Issue 1: Disallowance of interest on late payment of TDS
The appeal concerned the disallowance of interest on late payment of TDS by the Assessing Officer (AO) under section 37(1) of the Income Tax Act, 1961. The assessee, a partnership firm engaged in the business of builders and contractors, claimed the interest paid on late TDS remittance as a deduction. The AO, considering it penal in nature, disallowed the amount. The Tribunal, after examining the facts, noted that the genuineness of the expenditure was not in dispute, and the delay in TDS remittance had led to interest payment. The Tribunal held that the interest payment was compensatory in nature, not penal, as the statute separately provided for interest and penalty. Citing a similar case precedent, the Tribunal directed the AO to allow the deduction for interest on delayed TDS payment.

Issue 2: Disallowance of project expenditure at 10% on an adhoc basis
The second issue revolved around the adhoc disallowance of project expenditure at 10% by the AO. The assessee had detailed the project expenses, most of which were paid through cheques. However, the AO sought to disallow 10% of the total expenditure based on incorrect assumptions. The Tribunal observed that the AO's disallowance lacked factual basis as most expenses were made through cheques, except for a minimal amount in cash. The Tribunal further noted that the assessee had provided detailed project cost breakdowns with supporting documents. Since the lower authorities failed to address these details and resorted to adhoc disallowance, the Tribunal directed the AO to delete the adhoc disallowance. Consequently, the Tribunal allowed the appeal of the assessee.

In conclusion, the Tribunal allowed the appeal, directing the AO to grant the deduction for interest on delayed TDS payment and delete the adhoc disallowance of project expenditure.