Are late fees of GST return allowed as an expense in Income Tax?

Introduction

While computing the profit and gains from business or profession, there are certain expenditures which are not allowed / disallowed. This implies that the income tax department doesn't permit the advantage of such expenditures and the assesses are needed to pay taxes on such expenditures by adding it back to the net profits.

Expenses permitted as deductions against Profits and Gains of Business or Profession are covered from Section 30 to 37 of the Income Tax Act. Section 37(1) says that any use (with the exception of use depicted in sections 30 to 36, capital consumption or personal expenses of the assessee), used completely and only for the reasons related to the business or profession will be permitted in computing the income chargeable under the head, "Profits and Gains of Business or Profession".

Any expense made by an assessee for any reason which is an offense or which is precluded by any law will not be considered to have been incurred with the end goal of the business or profession and no allowance or derivation will be made in regard of such use.

Essentially, unlawful use isn't passable as allowance. These provisions apply just to 'business expense' and not to 'business loss' and, consequently, loss arising because of seizure and seizure of illegal stock-in-trade is passable as a business loss against income from illegal business.

(Also Read: GST refund procedure)

What is late fee under GST?

According to GST laws, Late Fee is an amount charged for delay in filing GST returns. It very well may be alluded to as a late fine. The late fee is likewise material for the deferral in filing Nil returns.

In a significant alleviation to GST taxpayers, the government chose to cover the most extreme late fee for Form GSTR-3B at Rs 500 for each return for the tax time frame July 2017 to July 2020. The diminished fee will be imposed just if returns are recorded before September 30, 2020.

What is disallowance under Section 40(a)(ii)?

According to Section 40(a)(ii), any aggregate paid by virtue of any rate or tax imposed on the profits or gains of any business or profession or evaluated at an extent of, or in any case based on, any such profits or gains will not be deducted in computing the income chargeable under the head "Profits and gains of business or profession"

Section 40(a)(ii) just arrangements with the amount corresponding to the rate of tax exacted on profits and gains from business or profession. In this manner, GST late fee won't be disallowed under sec 40(a)(ii).

Expenses which are in the idea of 'rate' or 'tax' are explicitly disallowed under section 40(a)(ii) while computing the business income. In the event that the GST Act itself is wording it as "Fee", hence it can't treated as "Penalty" or "offense".

On the off chance that the late filing of the return is permitted under the applicable Act, at that point how might it be treated as infringement of law?

Will late fees be permitted as an allowance under Section 37?

The condition to be happy as for the allowance of deductions u/s 37 is that it ought to be with the end goal of business or profession and it ought not be paid for infraction of laws. Presently the inquiry is whether GST late fee will gone under infraction of law?

Offense by and large methods a break of Law or Act or any illegal act and penalty is defined as the discipline for committing an offense.

For the situation of Millennia Developers (P) Limited v DCIT (2010), High court of Karnataka concluded that any regulation fees paid to municipal authority for compounding of offense isn't accessible for derivation under section 37 as the equivalent was in the idea of penalty.

In CIT v Neelavathi and Others (2010) the Karnataka High Court held that any payment to police or rowdies for getting protection from them is illegal and ought not be permitted.

Late fee isn't paid for a reason which is an offense or denied. In fact, late fees are paid with the end goal of the consistence with the Act. Subsequently, it will be permitted under Section 37 as it is isn't an offense or restricted under any law.

Subsequently, late fees paid for delay in filing GST returns will be permitted as a derivation under income tax.

(Also Read: Partnership Tax Return)