2022 (7) TMI 1376 - AT - Income Tax

Disallowance of interest on TDS payments - allowable as deduction u/s 37(1) - HELD THAT - Co-ordinate Bench of ITAT Bangalore in the case of Jindal Aluminimum Limited 2021 (8) TMI 1181 - ITAT BANGALORE having similar facts where interest on TDS is held as ineligible business expenditure. Hence we have no hesitation to hold that interest payment on late payment of TDS is not eligible business expenditure for deduction and it is not compensatory in nature. Payment of interest on late deposit of TDS levied u/s 201(1A) is neither an expenditure only and exclusively incurred for the purpose of the business and therefore the same is not allowable as deduction u/s 37(1) of the Act. Disallowance made by the AO is hereby confirmed. The ground of appeal is dismissed. Travelling Conveyance expenses and depreciation on vehicles insurance expenses - The expenses claimed consist of small/petty cash amounts and self made vouchers are not fully verifiable and the personal element of expenses by use of vehicles by directors and staff members cannot be ruled out - HELD THAT - AO has made adhoc disallowance of Rs.1, 00, 000/- by stating that vouchers of expenses are not fully verifiable and the personal elements of expenses by use of vehicles by Directors and staff members cannot be ruled out. In the appellate proceedings the assessee has not produced any evidences to rebut the finding of the AO. The expenses are incurred in cash which are not fully verifiable and probability of personal nature in these expenses cannot be ruled out. A.O. has made a reasonable disallowance by the appellant. Disallowance made by the AO is hereby confirmed. Hence the ground of appeal is dismissed.

Summary

Issues:
1. Disallowance of interest on TDS payments.
2. Addition of traveling and conveyance expenses.

Issue 1: Disallowance of interest on TDS payments:
The appeal was filed against the disallowance of an addition of Rs.9,70,248 on account of interest on TDS payments. The AO disallowed the expenses as the assessee agreed that interest on TDS was not allowable under the Income Tax Act, 1961. The ITAT examined the provisions of the Act and judicial pronouncements. Section 201(1A) mandates payment of simple interest for delay in TDS remittance. The question was whether interest on late TDS payment could be claimed as expenditure. The Act allows deductions for interest paid on capital borrowed under Section 36(1)(iii). The ITAT analyzed the definition of interest, emphasizing the necessity of a loan for claiming deduction under Section 36(1)(iii). It concluded that interest on late TDS payment did not qualify as a business expenditure under Section 37(1) and was not compensatory in nature. Various court decisions were cited to support this conclusion, including the case of M/s. New Modern Bazaar Departmental Store Pvt. Ltd. The ITAT upheld the disallowance of interest on delayed TDS payment, confirming the AO's decision.

Issue 2: Addition of traveling and conveyance expenses:
The AO made an adhoc disallowance of Rs.1,00,000 for traveling and conveyance expenses, citing unverifiable vouchers and potential personal elements in the expenses. The appellant did not provide evidence to counter the AO's findings during the appellate proceedings. The AO's disallowance was considered reasonable, given the circumstances. The ITAT confirmed the disallowance of Rs.1,00,000, as the expenses were incurred in cash, not fully verifiable, and likely to have a personal nature. Therefore, the ground of appeal regarding this addition was dismissed.

In conclusion, the ITAT upheld both the disallowance of interest on TDS payments and the addition of traveling and conveyance expenses. The appeal of the assessee was dismissed, and the order was pronounced on 26/07/2022.