ITAT Ruling: Delayed GST Payment Not Deemed as a Penalty, Eligible for Deduction u/s 37 of the Income Tax Act

A recent judgment from the Jaipur branch of the Income Tax Appellate Tribunal (ITAT) has provided clarification regarding late payments of Tax Collection at Source (TCS) and Goods and Services Tax (GST). 

According to the ruling, these late payments should not be categorized as penalties. Instead, they qualify for deductions under Section 37 of the Income Tax Act, of 1961.

In this specific case, a taxpayer involved in the manufacturing and export of various products initially declared a total income of Rs. 31,43,91,380. Nonetheless, the Principal Commissioner of Income Tax (PCIT) suggested disallowing Rs. 46,666/-, categorizing it as fines and penalties.

The taxpayer's Authorized Representative argued that during the assessment process, all necessary financial statements, tax audit reports, and income computations were provided. Notably, the taxpayer had already included Rs. 2,66,946/- under 'fine & penalty' in their profit and loss account.

The tax auditor reported a disallowance of Rs. 2,22,280/- using Form 3CD, which was accepted by the Assessing Officer. It was later clarified that the remaining amount of Rs. 46,666/- included late fees for TCS return, late fees for GST return, and interest on late provident fund deposits.

The Authorized Representative cited a precedent from the Karnataka High Court, which established that interest paid on delayed contributions under the Employees Provident Fund Act is not a penalty and is deductible.

In conclusion, the ITAT ruled that the amount of Rs. 46,666/- should not be treated as a penalty. The PCIT's assertion that it should be disallowed u/s 37 of the Income Tax Act, as it represents an expense for illegal purposes, was deemed incorrect. 

Late fees and interest on delayed deposits do not involve expenditures for unlawful purposes. As a result, the PCIT's suggested disallowance was deemed to be against the law.

The ITAT bench, consisting of Sandeep Gosain (Judicial member) and Rathod Kamlesh Jayantbhai (Accountant member), relied on the authorized representative's precedent and concluded that payments related to late fees for filing TCS/GST Returns should not be viewed as offenses prohibited by law. Consequently, the taxpayer's appeal was allowed.

Also Read: Form 13 Income Tax: What is Form 13, Eligibility & Documentation