2024 (1) TMI 1027 - AT - Income Tax

Interest on delayed deposit of TDS - addition u/s. 37(1) - claim of the assessee that as interest paid on late payment of TDS was charged due to delay in deposit/payment of the same, thus, the same being compensatory in nature was allowable as an expenditure u/s. 37(1) - HELD THAT - Though the assessee had brought the aforesaid factual position to the notice of both the lower authorities but they had failed to take cognizance of the same and had primarily focused more on the issue as to whether or not the interest on delayed deposit of TDS u/s. 201(1A) was allowable as an expenditure u/s. 36(1)(iii) or u/s. 37(1) of the Act. Both the lower authorities had failed to address the claim of the assessee that the aforementioned was never claimed as an expenditure but was in the nature of a back-to-back reimbursement from its member, viz. M/s. Barbarik Project Ltd. As view that as stated by the AR, and rightly so, now when the assessee JV had not claimed the amount as an expenditure in its profit and loss account, the A.O, thus, was not justified in disallowing the same on the premise that it was not allowable as a deduction per the mandate of law. Thus, in terms of aforesaid observation, not being able to concur with the view taken by the lower authorities, set-aside the order of the CIT(A) and vacate the addition/disallowance made by the A.O. Thus, the Ground of appeal No. 2 is allowed in terms of my aforesaid observations.

Summary

Issues involved:
The appeal challenges the order passed by the Commissioner of Income-Tax (Appeals) arising from the assessment order under Sec.143(3) r.w.s. 143(3A) & 143(3B) for the assessment year 2018-19. The appellant contests the disallowance of expenditure and lack of opportunity for submission during faceless assessment.

Issue 1: Disallowance of expenditure
The appellant, a Joint venture entity, e-filed its return declaring nil income and was selected for scrutiny under the e-assessment scheme. The Assessing Officer (A.O) disallowed the interest paid on TDS as penal in nature, citing it as not allowable under Sec. 37(1) of the Income-tax Act. The A.O concluded that the interest paid for delayed TDS deposit does not relate to the business of the assessee and hence cannot be claimed as a deduction. Consequently, the A.O determined the income at the disallowed amount.

Issue 2: Lack of opportunity during assessment
The appellant challenged the disallowance of the interest paid on delayed TDS deposit, arguing that it was not claimed as an expenditure in its profit and loss account but was reimbursed back to the member. The appellant contended that the A.O erred in disallowing the amount without proper justification. The Departmental Representative failed to rebut the claim that the interest payment was a back-to-back basis transaction not claimed as an expenditure.

Judgment:
The Judicial Member observed that the appellant had not claimed the interest amount as an expenditure in its profit and loss account, and it was reimbursed back to the member. The lower authorities failed to address this crucial fact and focused solely on the deductibility of the interest payment. As the appellant did not claim the amount as an expenditure, the disallowance by the A.O was unjustified. The Judicial Member set aside the order of the CIT(Appeals) and vacated the disallowance. The appeal was allowed based on these observations, and the general grounds were dismissed.