Upkar Infra Projects Private Limited Vs ACIT (ITAT Hyderabad)
Interest paid on late payment of TDS was not allowable as business deduction and no addition in search proceedings in absence of incriminating material – ITAT
Conclusion: Interest paid on late payment of TDS was not an expenditure wholly and exclusively incurred for the purpose of business and further it was a payment, which was in the form of tax, so it was not an allowable expenditure. However, in case of unabated year, in search proceedings, no addition could be made in the hands of the assessee in absence of any incriminating material.
Held: Assessee- company was deriving income from execution of civil contract works, filed its Return of Income (“ROI”) u/s.139 for all the years under consideration on different dates. Search and Seizure operation u/s.132 was carried out in the case of M/s. R.K. Infra Corp Pvt. Ltd. and others. As part of search operation, the business premises of assessee was also covered. During the search operation, certain documents were found and seized from the business premises of assessee. As the seized documents belonged to assessee, notices u/s.153C were issued to assessee by AO for all the years under consideration. AO made addition of Rs.64,849/- on account of interest paid on late deposit of TDS u/s.201(1A) The question before us was to decide whether the interest paid u/s.201(1A) was compensatory in nature and eligible for deduction u/s.36(1)(iii) of the Act or not. It was held that similar issue had been dealt with by Hon’ble Madras High Court in the case of CIT Vs. Chennai Properties & Investment Ltd. (1999) 239 ITR 435 (Mad.), wherein it was held that interest did not assume the character of business expenditure and also could not be regarded as compensatory in nature. Respectfully following the same, it was concluded that the interest paid on late payment of TDS was not an expenditure wholly and exclusively incurred for the purpose of business and further it was a payment, which was in the form of tax, so it was not an allowable expenditure. The alternate argument of assessee was that, the assessment year under consideration was an unabated year and there was no incriminating material before AO for the year under consideration. Therefore, no addition could be made in the hands of the assessee in absence of any incriminating material. The similar issue had been dealt with by the Hon’ble Supreme Court in the case of CIT Vs. Abhisar Buildwell (P) Ltd., 149 Taxmann 399, wherein the ITA Nos.377 to 380/Hyd/2023, 8 383/Hyd/2023 & 384/Hyd/2023 Hon’ble Supreme Court had held that, in case of unabated year, in search proceedings, no addition could be made in the hands of the assessee in absence of any incriminating material. Therefore, relying on the same, it was held that as there was no incriminating material with AO for the year under consideration, no addition could be made in the hands of the assessee by AO. Accordingly, the addition made by AO was deleted.
