Int on late payment of tds and gst - is this allowable business expenditure ?

This query is : Resolved

CA Abhishek Singh (Querist)
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29 September 2023 Hello everyone,

a company has paid 20 lacs int on late payment of gst and 10 lacs on late payment of tds.

Auditor want to disallowance entire interest .

As per my knowledge interest is compensatory in nature and not in the nature of penalty so it should be allowed as business expenditure under section 37.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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30 September 2023 Yes, you are right it's an allowable expenditure.
The Hon’ble Supreme Court in the case of Lachmandas Mathuradas vs. CIT (2002) 254 ITR 799 (SC) held that interest on arrears or on outstanding balance of sales tax is compensatory in nature and would be allowable as deduction in computing profits of a business.
Referring to the same decision, ITAT in the case of Narayani Ispat (P) Ltd in ITA No.2127/Kol/2014 for AY 2010-11 vide order dated 20.08.2017 has held that interest expenses on account of delayed payment of service tax as well as TDS is an allowable expenditure.
On the same lines, it was held in the case of UNIVERSAL ENERGIES LTD Vs DCIT, CIRCLE 18 (1), NEW DELHI [2023-VIL-110-ITAT-DEL] that Interest on delayed payment of TDS is allowable as a deduction.