GST Interest Allowed but Delayed TDS Interest Disallowed; Travel Addition Deleted: ITAT Indore

DCIT Vs L.N. Malviya Infra Projects Pvt. Ltd. (ITAT Indore)

Summary: ITAT Indore partly allowed Revenue’s appeal for AY 2011-12, deciding three issues concerning interest on delayed GST/service tax, interest on delayed TDS and an ad hoc disallowance of travelling expenses. On the first issue, the Tribunal held that interest on outstanding GST is compensatory and not a penalty for infraction of law and therefore cannot be disallowed by invoking Explanation 1 to Section 37(1) of the Income Tax Act. It accordingly upheld the CIT(A)’s deletion of Rs.1,44,54,016/-. On delayed TDS, however, the Tribunal held that interest arising from belated or non-deposit of TDS becomes part and parcel of the tax liability and cannot be regarded as expenditure incurred wholly and exclusively for business.

Following its earlier decision in M/s. Bhopal Dugdh Sangh Sahakari Maryadit, which preferred the High Court authorities over the contrary Tribunal view in DCIT Vs M/s. Rungta Mines Ltd., it restored the AO’s disallowance of Rs.8,15,177/-. As regards travelling expenses of Rs.2,53,81,491/-, the AO had disallowed 5%, amounting to Rs.12,69,075/-, merely on the observation that a personal element could not be ruled out. The Tribunal held that the assessee was a company and, without identifying any particular personal trip, defect in vouchers or other supporting evidence, an ad hoc disallowance based on general suspicion was impermissible. The CIT(A)’s deletion of the travelling-expense disallowance was therefore upheld. Revenue’s appeal was partly allowed.