Interest paid u/s 201(1A) on late payment of TDS is penal in nature

Living Liquidz SM Trades LLP Vs Assessing Officer (ITAT Mumbai)

ITAT Mumbai held that disallowance of interest expenditure paid u/s. 201(1A) of the Income Tax Act on late payment of TDS is penal in nature and not compensatory.

Facts- The assessee has challenged the assessment order passed u/s. 143(3) of the Act as invalid and bad in law and has also challenged the disallowance of operative expenses of Rs.15,29,595/- and interest paid on late payment of TDS amounting to Rs.12,980/-debited to profit and loss account.

Conclusion- The lower authorities have not disputed the fact that there was no change in the business subsequent to the name change. Accordingly, we are of the considered view that the impugned expenses claimed by the assessee pertains to the ‘business expenses’ and not the ‘preoperative expenses’ alleged by the lower authorities.

Hon’ble Madras High Court in the case of CIT vs. Chennai Properties & Investments Ltd. has held that the disallowance of interest expenditure paid u/s. 201(1A) of the Act on late payment of TDS is penal in nature and not compensatory. CIT(A) further held that the same is not ‘business expenditure’ and cannot be termed as ‘compensatory in nature’ as alleged by the assessee. We do not find any infirmity in the order of the ld. CIT(A) and, hence, we dismiss this ground of appeal raised by the assessee.

Please become a Premium member. If you are already a Premium member, login here to access the full content.