Exise penalty paid

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Shruti Mishra (Querist)
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04 August 2011 Sir,

where excise penalty upon the directors of the company has been paid to the enforecement department frm the company.

what will be the accounting treatment for the same?

under what head will it be shown.

reply awaited.

thanks.

CA Vibhash Kumar Sah

CA Vibhash Kumar Sah (Expert)
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04 August 2011 hI dont think there would be any problem if you book the expenditure under Interst/Penalty Expense Head.

Shruti Mishra

Shruti Mishra (Querist)
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04 August 2011 sir, pls be sure.

should i book it as duties and taxes? or penalties?

why can i claim benefit of expenditure for such huge penalties to the enforecement dept.???

CA Vibhash Kumar Sah

CA Vibhash Kumar Sah (Expert)
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04 August 2011 Penalty paid is not compensatory in nature and cannot be claimed as allowable business expenditure. Explanation to Section 37 of IT Act read as follow "Explanation.—For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.]”

In your case penalty imposed by Enforcement department is not allowable business expenditure and A/Cting head of an expenditure doesnot change the status of allowability/disallowability.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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04 August 2011 Book the amount under the head "penalty" for accounting purpose and disallow under section 37 of the income tax Act,1961 for the purpose of income tax computation.

Shruti Mishra

Shruti Mishra (Querist)
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04 August 2011 Hence in that case, where should the figure stand in the company's books???

please advice the accounting treatment.

is it to be debited to directors?? i am not sure. no idea.

pls help.!

CA Vibhash Kumar Sah

CA Vibhash Kumar Sah (Expert)
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04 August 2011 Well Shruti, No director will reimburse to Compnay for any penalty paid for Company's busness purpose even though the same has been imposed on directors.
Further, there are many items of P & L which is not allowed as allowable expenditure under Income Tax Act. Simply take the example of "Income tax paid". It will be there in profit & Loss Account of the Company. But while calculating the Profit for Income tax purpose we just add the expenditures which are not allowed for IT purpose.

Shruti Mishra

Shruti Mishra (Querist)
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04 August 2011 Got the Point. thanks both of u.

thanks!!