ITAT Ahmedabad Rules: Interest on GST and GST Late Filing Fee Are Deductible Expenses
- NLF TAX & LEGAL
- Apr 16
- 8 min read
The Hon'ble Income Tax Appellate Tribunal (ITAT) Ahmedabad Bench 'B' in the case of Deputy Commissioner of Income-tax v. Mahalaxmi Infracontract Ltd. [IT Appeal Nos. 1702, 1577 & 1578 (Ahd) of 2024] dated March 12, 2025, held that interest on GST and GST late filing fee are compensatory in nature and not towards violation of any law, thus allowable as deduction under section 37(1) of the Income-tax Act, 1961. Additionally, the Tribunal allowed depreciation at 30% on motor dumpers and tippers used for mining contracts based on prior decisions and confirmed that assessees who opted for section 115BAA cannot claim depreciation exceeding 40%. The Tribunal also deleted additions made under section 69C based solely on unsigned Excel sheets recovered from a third party premises without any corroborative evidence.
Facts of the Case:
The Assessing Officer made disallowance of interest on GST and GST late filing fee on the ground that these expenses were penal in nature and therefore not allowable under section 37 of the Income Tax Act. The Commissioner (Appeals) allowed the assessee's appeal, holding that these expenditures were not for violation of any law and were only compensatory in nature, hence allowable as a deduction under section 37.
The assessee was engaged in the business of providing earthmoving equipment on hire and undertaking mining contracts, cargo handling, and transportation contracts. For this purpose, tippers/dumpers were used by the assessee for fulfilling the transportation part related to mining contracts. The assessee claimed depreciation at the rate of 30% on plant and machinery, being motor dumper, tipper, etc. The Assessing Officer restricted the claim of depreciation to 15% by holding that depreciation at 30% is permissible only when motor buses, motor lorries, and motor taxis are used in the business of running them on hire. The Commissioner (Appeals) allowed the appeal of the assessee by observing that the use of dumpers and tippers was an integral part of the contract without which the contracts would not have been completed.
The assessee also claimed depreciation on specific class of assets at the rate of 45% based on Notification No. GSR 679(E), dated September 20, 2019. The Commissioner (Appeals), having noticed that the assessee had opted for being taxed under section 115BAA (wherein the highest rate of depreciation that could be claimed by the assessee was 40% only), restricted the depreciation claim to 40%.
During a search conducted under section 132 upon a group, various documents were seized wherein it was found that the group was providing accommodation entries, unaccounted transactions in unsecured loans, and the assessee was one of such beneficiaries. The Assessing Officer made additions under section 69A on account of cash loan received by the assessee from the group and under section 69C for cash payment of interest. The Commissioner (Appeals) deleted the addition towards cash loan but upheld the addition made on account of interest paid.
Issues:
Whether interest on GST and GST late filing fee are allowable as deduction under section 37(1) of the Income-tax Act, 1961?
Whether the assessee is entitled to depreciation at the rate of 30% on motor dumper, tipper, etc.?
Whether the highest rate of depreciation that could be claimed by an assessee who has opted to be taxed under section 115BAA is 40%?
Whether additions under section 69C can be sustained solely on the basis of unsigned Excel sheets recovered from third party premises without any corroborative evidence?
Held by the Tribunal:
The Hon'ble ITAT Ahmedabad Bench 'B' held that:
Interest on GST and GST Late Filing Fee:
The Tribunal referred to various judicial decisions including the Supreme Court's judgment in Mahalakshmi Sugar Mills Co. v. CIT where it was held that interest paid to Government for delay in payment of cess cannot be described as a penalty paid for an infringement of law.
Following this decision, the Rajasthan High Court in Rajasthan Central Stores (P.) Ltd. v. CIT, the Calcutta High Court in Balrampur Sugar Co. Ltd. v. CIT, and the Allahabad High Court in Triveni Engineering Works Ltd. v. CIT held that interest paid on account of delay in remitting to the Government sales tax is a permissible deduction.
The Tribunal concluded that interest on GST and GST late filing fee was not towards violation of any law and hence is allowable as a deduction under section 37.
Depreciation Rate on Motor Dumper, Tipper, etc.:
The Tribunal noted that on identical set of facts and issues, the Ahmedabad Tribunal in the assessee's own case for assessment years 2015-16, 2017-18, and 2018-19 had allowed depreciation at 30% on motor dumpers and tippers.
The Tribunal dismissed the Department's appeal on this issue following the earlier decisions.
Depreciation Rate for Assessees under Section 115BAA:
The assessee placed reliance on Notification No. GSR 679(E), dated September 20, 2019, which allows for higher rate of depreciation at 45% on block of assets consisting of motor buses, motor lorries, and taxis used in the business of running them on hire.
However, since the assessee had opted for being taxed under section 115BAA, the Commissioner (Appeals) correctly restricted the depreciation rate to 40%.
The Tribunal found no infirmity in the order of the Commissioner (Appeals) so as to call for any interference.
Additions Under Section 69C Based on Unsigned Excel Sheets:
The Tribunal observed that the only basis for making addition was an unsigned Excel sheet recovered from the premises of a third party.
The Tribunal cited the decision in DCIT v. Shri Jayprakash A. Keshwani [IT(SS)A No. 99/Ahd/2021], which held that additions cannot be made solely on the basis of notings/jottings in relation to a transaction, without any corroborative evidence.
It was further noted that the assessee was not provided an opportunity to cross-examine the third party on whose statement the addition was made.
The Tribunal held that apart from the unsigned Excel sheet recovered from third party premises, there was no corroborative evidence to sustain the addition in the hands of the assessee.
Accordingly, the Tribunal allowed the assessee's appeal on this issue.
Relevant Sections and Notifications:
Section 37(1) of the Income-tax Act, 1961 - General provision for deduction of revenue expenditure
Section 32 of the Income-tax Act, 1961 - Depreciation
Section 115BAA of the Income-tax Act, 1961 - Tax on income of certain domestic companies
Section 69C of the Income-tax Act, 1961 - Unexplained expenditure
Notification No. GSR 679(E), dated September 20, 2019 - Regarding depreciation rates
Cases Referred:
Mahalakshmi Sugar Mills Co. v. CIT - Supreme Court held that interest paid to Government for delay in payment of cess cannot be described as a penalty paid for an infringement of law.
Rajasthan Central Stores (P.) Ltd. v. CIT - Rajasthan High Court held that interest paid on account of delay in remitting to the Government sales tax is a permissible deduction.
Balrampur Sugar Co. Ltd. v. CIT - Calcutta High Court held similar view as above.
Triveni Engineering Works Ltd. v. CIT - Allahabad High Court held similar view as above.
DCIT v. Shri Jayprakash A. Keshwani [IT(SS)A No. 99/Ahd/2021] - ITAT held that additions cannot be made solely on the basis of notings/jottings without any corroborative evidence.
Analysis and Implications
Deductibility of Interest on GST and GST Late Filing Fee
The Tribunal's ruling that interest on GST and GST late filing fee is deductible under section 37(1) of the Income-tax Act, 1961, is significant for businesses. It clarifies that such expenses are compensatory in nature rather than penal, drawing a distinction between penalties for violations of law (which are not deductible) and compensatory payments for delayed compliance (which are deductible).
This follows the consistent judicial position established by the Supreme Court in Mahalakshmi Sugar Mills Co. v. CIT and upheld by various High Courts. The principle is that while penalties imposed for infringement of law are not deductible business expenses, interest payable for delayed payment of taxes or statutory dues is compensatory and thus allowable as a deduction.
This ruling provides clarity to businesses which may inadvertently delay GST payments or filings. The knowledge that interest and late filing fees can be claimed as deductions would reduce the effective cost of such delays, although businesses should still prioritize timely compliance to avoid unnecessary financial burden.
Depreciation on Motor Vehicles Used in Business Operations
The Tribunal's confirmation of 30% depreciation for motor dumpers and tippers used in mining and transportation contracts is particularly significant for businesses in the infrastructure, mining, and construction sectors. This ruling recognizes that these vehicles form an integral part of the business operations, even if they are not exclusively used for hiring purposes.
The decision acknowledges the practical reality that vehicles used in composite contracts (involving excavation, transportation, etc.) should qualify for higher depreciation rates applicable to commercial vehicles. This interpretation is more business-friendly and reflects the actual usage of these assets in revenue generation.
Companies in similar businesses should review their depreciation claims to ensure they are claiming the appropriate rates based on the actual use of their vehicle fleet in business operations, rather than merely on technical classifications.
Depreciation Rate Cap for Companies Opting for Section 115BAA
The clarification that companies opting for the lower tax regime under section 115BAA cannot claim depreciation exceeding 40% is an important reminder of the trade-offs involved in choosing this tax option. While section 115BAA offers a lower tax rate of 22% (effective rate approximately 25.17% including surcharge and cess), it comes with certain restrictions, including caps on depreciation rates.
Companies should factor this limitation into their tax planning and asset acquisition strategies. The potential tax savings from higher depreciation rates need to be weighed against the overall benefit of the lower tax rate under section 115BAA. This is particularly relevant for asset-heavy businesses with significant investments in plant and machinery.
Evidentiary Requirements for Additions Under Section 69C
Perhaps the most broadly applicable aspect of this ruling is the Tribunal's stance on the quality of evidence required to sustain additions under section 69C of the Income-tax Act. The deletion of additions based solely on unsigned Excel sheets recovered from third-party premises reinforces the principle that tax authorities must have substantial corroborative evidence before making additions for unexplained expenditure.
This ruling highlights several important procedural safeguards:
The need for corroborative evidence beyond mere notings or jottings
The requirement to provide the assessee an opportunity to cross-examine witnesses whose statements form the basis of additions
The principle that suspicion, however strong, cannot replace evidence
This aspect of the ruling provides significant protection to taxpayers against arbitrary additions based on incomplete or unverified evidence. It underscores that the burden of proof lies with the tax authorities to substantiate alleged concealed income or expenditure with concrete evidence that can withstand judicial scrutiny.
Conclusion
The ITAT Ahmedabad's decision in Deputy Commissioner of Income-tax v. Mahalaxmi Infracontract Ltd. offers valuable guidance on several important aspects of income tax law. It clarifies the deductibility of interest and late fees related to GST, provides clarity on depreciation rates for specific business contexts, reminds companies of the limitations associated with opting for the section 115BAA tax regime, and reinforces the evidentiary standards required for additions under section 69C.
These rulings collectively promote a more predictable tax environment that balances the legitimate interests of revenue collection with taxpayers' rights to fair assessment based on sound legal principles and adequate evidence. Businesses should review their tax positions in light of these clarifications to ensure compliance while optimizing their legitimate tax planning strategies.
For tax practitioners, this decision serves as a useful reference point for advising clients on these specific issues, particularly regarding the deductibility of interest and late fees on GST payments and the evidentiary requirements for additions under section 69C. The ruling's emphasis on procedural fairness and the need for substantive evidence before making additions will be valuable in representing clients facing similar situations.
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