on a plain reading of the Bare act no where it is specified that interest on late payment of TDS is not deductible ... hence on a plain reading interest on TDS should be allowed ... but there are some case laws which have given a contrary view
plese refer
CIT VS ASHOKA MILLS LTD (1996) (GUJ), CIT VS RAIPUR MANUFACTURING CO LTD (1996)(GUJ), BHARAT COMMERECE & INDUSTRIES LTD V CIT (1998) (SC)
“Interest paid under any provisions of income tax act, wealth tax act, fringe benefit tax, for late payment or short payment of regular tax, advance tax, selt assessement tax, TDS etc. is not deductible..”
So, Interest on late payment of TDS is not deductible as a business expenditure
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