Payment of Late Fee under the Income Tax Act – 1961: Allowable deduction or not? Whether the Tax Auditor should report it in an audit report?

Payment of Late Fee under the Income Tax Act – 1961: Allowable deduction or not? Whether the Tax Auditor should report it in an audit report?

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Payment of Late Fee under the Income Tax Act – 1961: Allowable deduction or not? Whether the Tax Auditor should report it in an audit report?

 

At various places, Income-tax Act, 1961 provides for payment of ‘fee’ and not penalty. With this, the question arises as to its admissibility as deduction against income.
One may refer to Chapter XVII-G which is titled as ‘Levy of fee in certain cases’ which provides for payment of fees at various places. More particularly, section 234E, 234F, 234G, 234H provides for payment of fees for delay in making the required compliances.
Section 234E provides for a fee to cover delay in furnishing TDS/TCS statements which are to be furnished (every quarter of the financial year) within the time prescribed under section 200(3)/206C(3) respectively. For every delay the deductor/collector has to pay a fee @ Rs. 200 for every day during which the failure (delay) continues. The maximum amount of fee however shall not exceed the amount of TDS/TCS, as the case may be.
Similarly, ssection 234F is meant for delayed filing of ITRs. Where the ITR is filed beyond the ‘due date’ specified in section 139(1), it is applicable. Where the total income of the assessee exceeds Rs. 5 lakhs, the amount of fee payable is Rs. 5,000. In other cases, it is Rs. 1,000. It would be interesting to note that the maximum time for filing the ITR even under section 139(4) i.e. belated return is 3 months before the end of the assessment year. Thus, the timelines seem to be rigid thereby seeking prompt compliance from the taxpayers.
Likewise, section 234G is meant for levy of fee for default in furnishing (i) statement or certificate in respect of scientific research expenditure incurred and issue of certificate to the donor for claiming deduction as enumerated in section 35(1A); and (ii) statement or certificate in respect of donations received during the year and issue of certificate to the donors to claim deduction which are enumerated in section 80G(5)(viii)/80G(5)(ix) respectively. This was inserted by the Finance Act, 2020. The fee payable is Rs.200 per day during which the failure continues.
On the same line, New Section 234H is inserted by the Finance Act, 2021 w.e.f. 1st April, 2021. Where the assessee who is required to intimate Aadhaar number under section 139AA (2) does not do so, he is liable to pay ‘fee’ of Rs. 1,000 which is curiously payable only when he makes intimation of his Aadhaar number subsequently.
The income tax department often denies the deduction on the ground that the term “fee” is used consciously just to sound soft in spite of collecting some money to the exchequer for breach of timelines by them.
It may be noted that there are various courts which have consistently upheld the claim of taxpayers by holding that it is a deductible expenditure. Obviously, it is deductible on actual payment basis since the term used is ‘fee’ and is specifically covered by section 43B.
It is obvious that Section 43B covers within its ambit the term “fee”. The meaning of “Fee” will be the same for the purpose of section 43B as well as Section 37. It is section 37 which prohibits expenses of penal nature.
With the above combined reading of all, one can reasonably conclude that “fee” is not covered by section 37 and would be eligible as deduction u/s 43B. For this reason, the tax auditor while doing audit u/s 44AB may not disclose this amount as “Amount disallowable u/s 40”.

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