Interest on late deposit of TDS - allowable?

Yes....
Interest and penalty is disallowed under Tax Audit....

yes you can take Interest amt as disallowance expenses under tax audits

but in the case of DCIT v. M/s Narayani Ispat Pvt. Ltd, the Kolkata ITAT regarding interest on late payment of TDS were allowed by the ITAT.

Interest and penalties on violation of any law and regulations are disallowed. Since late payment of TDS is violation of Income tax rules, Interest there on are disallowed.

Relevant wording of the order :

"The amount of TDS represents the amount of income tax of the party on whose behalf the payment was deducted & paid to the Government Exchequer. Thus the TDS amount does not represent the tax of the assessee but it is the tax of the party which has been paid by the assessee. Thus any delay in the payment of TDS by the assessee cannot be linked to the income tax of the assessee and consequently the principles laid down by the Hon'ble Apex Court in the case of Bharat Commerce Industries Ltd. Vs. CIT (1998) reported in 230 ITR 733 cannot be applied to the case on hand"


Since the interest paid is not considered as penalty rather it has been considered complementary for non payment of TDS, like if you would pay you 20 days after the due date ,then i would charge 2% Interest. Word "Interest" itself say it is complementary for the opportunity cost.... so the analysis of Judgement is that Interest Paid on Late payment should not be disallowed but Any Levy u/s 234 is not deductable as it is Penalty in nature and not complementary.

*me......

on the basis of above judgement as shared, can we claim deduction?

yes you can claim deduction for interest.

but the auditor is denying, as per him he can't allow interest deduction coz it's not high court decision.

There is no Decision of any High court or apex court on this matter, in the earlier decisions the Apex court has dissallowed the Interest on TDS expenditure. So auditor may may report such expenditure as dissallowed....

or he may also consider the Judgement of Appellate Tribunal..