ITAT Bangalore: Deduction Not Allowed for Interest on Delayed Payment of TDS

The Income Tax Appellate Tribunal (ITAT), Bangalore bench, ruled against permitting the deduction of interest on delayed Tax Deduction at Source (TDS) payments. Expat Engineering India Ltd, the assessee, faced scrutiny after filing its income return, where the Assessing Officer (AO) disallowed the deduction claimed for interest on delayed TDS payment.

The assessee appealed to the CIT (Appeals), who supported the AO’s decision. A subsequent appeal to the tribunal saw Ravi Shankar, Counsel for the assessee, arguing that the interest paid was compensatory, urging the view that Section 40(a)(ii) should be assessed from the payer’s standpoint.

Shankar referenced the CIT vs Eli Lilly & Co. (India) (P.) Ltd case, emphasizing that it focused on the period for calculating interest u/s.201(1A) as a compensatory measure for withholding tax. However, Parithivel, Counsel for Revenue, upheld the Assessing Officer’s (AO) stance.

The tribunal observed that interest u/s.201(1A) resembles interest u/s.234, deeming it a charge for delayed income tax payment. TDS represents income tax paid on behalf of the payee, making interest u/s.201(1A) akin to interest levied on income tax. Consequently, interest on delayed TDS payments cannot be claimed as a deduction.

Following a review of the case details, the bench comprising Chandra Poojari (Accountant member) and Beena Pillai (Judicial Member) concluded that interest on delayed TDS payments cannot be deducted. Thus, the tribunal dismissed the assessee’s appeal.