Allowability of interest u/s 234 a b c

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jay prakash heerwal (Querist)
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16 August 2013 Dear Experts

I want to know whether interest payable under section 234 A, B, C under income tax act is an allowable expenditure or not ??

Please reply this is urgent.

CA Kumar Mukesh

CA Kumar Mukesh (Expert)
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16 August 2013 No Section 40(a)(ii)specially disallow interest paid under Income Tax

Ganeshbabu K

Ganeshbabu K (Expert)
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16 August 2013 IT is allowed ...

1)Nature of levy under section 234B of IT Act, 1961

2)The levy under section 234B is compensatory in nature and is not in the nature of penalty.

3)CITATION:-

HIGH COURT OF DELHI*** CIT v. Anand Prakash ITA No. 116/2007 February 27, 2009

4)Refer the case for more.....

Thanks & regards
Ganesh babu k

CA Kumar Mukesh

CA Kumar Mukesh (Expert)
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17 August 2013 Ganesh G

Payment of income-tax is not deductible as per section 40(a)(ii); hence, interest under sections 139, Section 215 and 217 which is to be regarded as accretion to tax, cannot also be allowed to be deducted - As decided in case of Assam Forest Products (P.) Ltd. v. CIT [1989] 180 ITR 478 (Gauhati).

Further Note : On the same principle, interest payable under sections 220(2), 234A, 234B or 234C is also not deductible.

jay prakash heerwal

jay prakash heerwal (Querist)
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17 August 2013 Ganesh G

Your comments awaited..

Ganeshbabu K

Ganeshbabu K (Expert)
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17 August 2013 Dear Jayaprakash,,

I stand on my opinion given as above

1)Citation provided by me was latest one than your references

2)In act it is not clear that interest under section 234A,234B,234C,,, is disallowed
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Payment of income tax is disallowed under section 40(a)(ii)---it is concluded that on the same principal it is disallowed
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Where as in above case provided (dated 2009) held interest on income tax is compensatory in nature not penalty
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In many places we rely on latest judicial decesions,and circulars/notifications when provision not clear in Act,

So i stand on my opinion that Interest is compensatory in nature and hence it is allowed

Thanks & regards
Ganesh babu k

jay prakash heerwal

jay prakash heerwal (Querist)
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17 August 2013 Ganesh Sir

Thanks for your prompt reply.

Do you have any case where IT Department have allowed interest under section 234.

I have only seen where CA's generally disallowed Interest under section 234 while preparing Computation of Tax. But i dont know why they are doing that ?? Is there any section in IT Act where it is specifically disallowed. or is there any Legal Decision where this interest is allowed.

Please answer

CA Kumar Mukesh

CA Kumar Mukesh (Expert)
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17 August 2013 OK Please tell us whether payment of Income Tax isn't personal Expenses
&
if someone paid interest on loan taken for the purpose of payment of Advance Tax of Income tax is still allowed

Hopes not

The same rule is apply here also where Defaulter of Advance Tax has to pay Interest to Central Govt. Instead of lender of Money

Ok what you would say about interest On late deposit of TDS,

Ganeshbabu K

Ganeshbabu K (Expert)
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17 August 2013 You can ask your tax auditor to refer above case study once and ask to allow..they will go with their opinion

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I came to know about this recently ..yes,even i have seen cases only where it is disallowed however i will ask my boss this time about this
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Ganeshbabu K

Ganeshbabu K (Expert)
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17 August 2013 In my opinion interest on TDS is also allowed..

1)Honble Karnataka High Court in the matter of CIT v. Oriental Insurance Co Ltd [2009] 183 TAXMAN 186 {KAR} has held that Section 201(1A) is a provision to levy interest for delayed remittance of the TDS.

2)It is the practice of the revenue that for belated payment of tax for any reasonable cause, the assessee is liable to pay interest at the rate of 12 per cent per annum.

3)Similarly, for refunds, the revenue pays interest to the assessee. Therefore, the levy of interest under section 201(1A) cannot, at any rate, be construed as penalty.Hence, it will be of immense use to rely on this case regarding the allowance of the Interest on late payment of TDS.

Hence Interest on late payment of tds is allowed

No provision in act says interest under 201(1A) is disallowed..

Ofcourse i do agree if interest is in the nature of offence or penalty definetely it is disallowed

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