Disallowance of expenses as business expenditure
This query is : Resolved
16 February 2019
Penalty on Late filing of GST return is allowed as Business Expenditure or not ?
16 February 2019
Short Answer - Yes, it should be allowed as business expenditure.
Long Answer - General rule regarding allowability of any payment made towards delay in filing returns and paying taxes to government is that, it should be allowed as business expense if the payment for delay is compensatory in nature and disallowed if the payment is penal in nature. Based on this principle government also used to collect interest on late payment which was compensatory in nature for late payments and sometimes levy additional penalty which was penal in nature so as to ensure future timely compliance.
But the catch with levying penalty was that it cannot be levied automatically in case of default. Department needed to issue show cause type notice and give proper opportunity of being heard to the person so as to confirm reason for delay and not levy penalty in case of genuine reasons. It cannot be levied automatically in case of default.
So since last few years government came up with the concept of Late Fees and used it as a tool for timely compliance and also generate additional source of revenue in case of defaults, since all the persons cannot be 100% compliant all the time. Late fees not being penalty can automatically be levied even for a single day of delay without giving any opportunity of being heard to taxpayer. Late fee is now levied on almost all the taxes (GST, TDS, Income Tax, MCA Compliances etc.). Even the most honest taxpayer gets delayed sometimes in filing taxes due to genuine reasons and ends up paying Late Fees.
So clearly Late Fees is not penal in nature and the least we can do is to claim it as business expenditure unless and until it is specifically disallowed by the department.
Long Answer - General rule regarding allowability of any payment made towards delay in filing returns and paying taxes to government is that, it should be allowed as business expense if the payment for delay is compensatory in nature and disallowed if the payment is penal in nature. Based on this principle government also used to collect interest on late payment which was compensatory in nature for late payments and sometimes levy additional penalty which was penal in nature so as to ensure future timely compliance.
But the catch with levying penalty was that it cannot be levied automatically in case of default. Department needed to issue show cause type notice and give proper opportunity of being heard to the person so as to confirm reason for delay and not levy penalty in case of genuine reasons. It cannot be levied automatically in case of default.
So since last few years government came up with the concept of Late Fees and used it as a tool for timely compliance and also generate additional source of revenue in case of defaults, since all the persons cannot be 100% compliant all the time. Late fees not being penalty can automatically be levied even for a single day of delay without giving any opportunity of being heard to taxpayer. Late fee is now levied on almost all the taxes (GST, TDS, Income Tax, MCA Compliances etc.). Even the most honest taxpayer gets delayed sometimes in filing taxes due to genuine reasons and ends up paying Late Fees.
So clearly Late Fees is not penal in nature and the least we can do is to claim it as business expenditure unless and until it is specifically disallowed by the department.
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