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2022 (4) TMI 906 - AT - Income TaxBusiness expenditure - Interest on late payment of TDS - Bonafide claim of allowing deduction of interest on late payment of TDS from Total Income - HELD THAT - We observe that Ld.CIT(A) has relied upon the decision of Ferro Alloys Corporation 1991 (12) TMI 39 - BOMBAY HIGH COURT in which the Hon ble High Court has not discussed anything on merit considering the fact that the case Bharat Commerce Industries Ltd. 1998 (3) TMI 2 - SUPREME COURT was pending before Hon ble Supreme Court and we observe that even in the case of Bharat Commerce Industries Ltd, the issue involved is relating to interest paid on late payment of advance-tax. Therefore, the issue involved in the present case is not relating to late remittance of advance-tax but late remittance of TDS. The issue involved is whether the interest paid by the assessee to the government can be termed as compensatory or penal in nature. In our considered view, the assessee has deducted the tax on behalf of the third party and failed to remit the same within the due date and the interest charged on such amount is only compensatory in nature. Here we notice that the co-ordinate bench of this Tribunal has already held the same view in the case of STUP Consultants Pvt Ltd 2019 (1) TMI 1259 - ITAT MUMBAI interest expense on the delayed payment of service tax is allowable deduction.The above principles can be applied to the interest expenses levied on account of delayed payment of TDS as it relates to the expenses claimed by the assessee which are subject to the TDS provisions. Thus we hold that the interest paid on delayed payment of TDS u/s 201(1A) is an allowable deduction. We direct accordingly. Assessee succeeds in its appeal.
Issues Involved:
Allowability of deduction of interest on late payment of TDS from Total Income. Analysis: The appeal was filed against the order rejecting the claim of allowing deduction of interest on late payment of TDS from Total Income for the assessment year 2015-16. The Assessing Officer disallowed the interest as penal in nature, citing the decision in Goetze India Limited vs CIT. The CIT(A) allowed the fresh claim but disallowed it on merits, referring to Ferro Alloys Corporation Ltd vs CIT and CIT vs Chennai Properties and Investment Ltd. The main issue was whether interest paid on late TDS payment is compensatory or penal in nature. The Assessee argued that TDS represents the tax of third parties, not the Assessee, and relied on decisions like CIT vs Jet Airways (India) Ltd and Arthur Anderson & Co. vs ACIT to support the claim for deduction. The Department contended that the interest paid was penal, referring to ITAT Delhi Bench decision in M/s New Modern Bazaar Departmental Store Pvt Ltd vs ITO. The Tribunal observed that the interest paid on late TDS payment is compensatory, not penal, as the Assessee deducted tax on behalf of third parties and failed to remit it on time. Referring to the decision in STUP Consultants Pvt Ltd vs Addl.CIT, the Tribunal held that the interest on delayed TDS payment is an allowable deduction, distinguishing it from cases related to advance tax payments. Therefore, the Assessee's appeal was allowed, directing the deduction of interest on delayed TDS payment under section 201(1A). In conclusion, the Tribunal found in favor of the Assessee, allowing the appeal and holding that the interest paid on delayed TDS payment is compensatory in nature and hence an allowable deduction. The decision was based on the principle that TDS represents the tax of third parties and any delay in its payment by the Assessee does not affect the Assessee's income tax liability. Order pronounced on 18th April, 2022.
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