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Allowable Expenditure??????

satish r (student) (91 Points)

04 April 2011

Q1. Does Interest paid on late payment of TDS, is a allowable expenditure.???

Q2. Does Levy of Interest & penalty by sales tax department, for non-filing of returns & payment of tax is a allowable expenditure under the Income Tax Act...?????

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12 Replies

Devendra (Chartered Accountant) (4775 Points)
Replied 04 April 2011

DEAR SATISH,

INTEREST PAID ON LATE PAYMENT OF TDS CANNOT BE CLAIMED AS AN EXPENSE.

THE INTEREST PAID ON LATE PAYMENT OF SALES TAX / VAT IS AN ALLOWABLE EXPENDITURE.

BUT THE PENALTY PAID FOR NON- FILING OF SALES TAX / VAT RETURN CANNOT BE CLAIMED AS EXPENSE.

(ANY KIND OF PENALTY, FINE PAID BY THEASSESSEE IS DISALLOWED.)

REGARDS,

DEVENDRA K

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SIVASIVA (FCA, Future CA) (4935 Points)
Replied 05 April 2011

Sathish,

Always,

1. Interest/Charges for Delay in remitting Direct Tax items will be DISALLOWED.

2. Interest/Charges for Delay in remitting INDIRECT Tax items will be ALLOWED.

3. Irrespective of Direct/Indirect Tax items, Penalties are DISALLOWED.

3 Like

srikanth (student) (79 Points)
Replied 05 April 2011

1.TDS - amount dedocted from other so we should pay in time other wise liable to pay interest (we have no right to use these funds) so interest is NOT ALLOWABLE Expenditure

2. Is Sales tax ( Credit and Cash sales ) both we should considered for Sales tax liability purpose TAX also income to the Seller So allowable expenditure

3. Any penality paid under any law NOT Allowable Expenditure (Government intention is reducing violation of LAWs

1 Like

Vikash Kharvar (Dy. Manager -F&A) (469 Points)
Replied 05 April 2011

Originally posted by : SIVASIVA
	Sathish, Always, 1. Interest/Charges for Delay in remitting Direct Tax items will be DISALLOWED. 2. Interest/Charges for Delay in remitting INDIRECT Tax items will be ALLOWED. 3. Irrespective of Direct/Indirect Tax items, Penalties are DISALLOWED.

I am agree with Sivasiva.

M. N. JHA (CA) (8316 Points)
Replied 05 April 2011

Originally posted by : SIVASIVA
	Sathish, Always, 1. Interest/Charges for Delay in remitting Direct Tax items will be DISALLOWED. 2. Interest/Charges for Delay in remitting INDIRECT Tax items will be ALLOWED. 3. Irrespective of Direct/Indirect Tax items, Penalties are DISALLOWED.

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CA.Naveen Kailkhuri (CA) (38 Points)
Replied 05 April 2011

Dear Friends,

I am a bit confused by the replies above.

If the Interest on delayed payment of IT is not allowed then why and how the same should be allowed for IDT.

However, let have an examination of the provisions of IT as per IT Act. -

Please refer to Sec. 40(a)(ii) of IT Act, wherein it is specified that any Interest / Penalty / Fine etc for non payment or late payment of Income Tax is not deductible.

Further, refer to Section 37 of the ITAct, specifies any expense as allowable only if "Not incurred for any purpose which is any offence or Prohibition by ANY Law".

Here, the term ANY is of great significance and hence applies to "CST / VAT" as well so it can be said that this principle equally applies on the late payment of CST / VAT. Hence, the INTEREST ON DELAYED PAYMENTOF VAT/CST is not allowed under IT Act.

Hence, the said interest will not be allowed as deduction for calculating Business Income.

please suggest if i m wrong.

Thanks & Regards

1 Like

SIVASIVA (FCA, Future CA) (4935 Points)
Replied 05 April 2011

Hi naveen,

in the TDs provision which you are discussing, it is mentioned as "any" But also, there is a word mentioned as "OF INCOME TAX".

So, only income tax related items disallowed.

Correct me if i am wrong.

sai krishna.c (CA articles) (36 Points)
Replied 06 April 2011

Hi friends,

Just one small logic why Interest paid on TDS is not allowed and Interset paid on VAT/CST is allowed.Its because the allowance or disallowance we are talking is with respect to income tax act.So,there is no point in deducting Interest paid on late payment of TDS(which is a form/part of income tax) from your net profit.But VAT/CST are taxes paid on purchases/sales(for business purposes) so they have to be allowed.Interest paid has to be allowed bcoz interest is levied bcoz of short/late payment of amounts due to the govt. in order to compensate for loss of interest to govt.owing to such short/delayed payment.But penalties are levied bcoz u have comitted a thing which is forbidden by law.The main intention behind imposing a penalty is to prohibit committing of such offence.If u get a deduction for penalty paid under any law then there is no point in having such penalty coz every one wil commit such offence and get a deduction for that penalty .This is the reason for not aalowing deduction for penalties paid under any law.This is what i think is the funda behind such provision in Income Tax Act. Plz coorect if iam wrong.

sai

Kapil Ramesh Khivansara (Chartered Accountant) (166 Points)
Replied 22 July 2015

Here I have to state that one pays late filing fees and not penalty for late filing of return as per section 20(6) of MVAT act, the expense is in nature of late fees and not penalty. there id no breach of law, hence it can be allowed

C.A Varsha Premachandran (Practice) (85 Points)
Replied 01 December 2016

Hai everyone,

Is sales tax renewal fees and presumptive tax allowable expenses?

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RAM KUMAR GOEL (PROPRIETOR) (87 Points)
Replied 18 September 2017

All above, if I am not wrong as per the Hon'ble apex court decisions the interest paid for delay of any sum partakes the character of that sum. Now since interest paid on late payment of income tax/TDS partakes the character of Income tax/TDS deduction of which is specifically prohibited u/s 40(a)(ii) being tax on profits or gains the interest on delayed payment of TDS is also not deductible. But payment of indirect taxes e.g. SALES TAX, ED,S.T. VAT etc. is deductible u/s 30 interest on delayed payment thereof is also deductible in view the above finding of law.

Thanks and all