Treatment of tax paid on demand

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akansha hudda (Querist)
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04 November 2014 A private limited Company was Assessed in Financial Year 2012-13 for the financial year 2010-11 against a certain amount of Profit. After assessment, the company received a demand letter from the authorities with Rs. 1900 Interest Demand and Rs. 300 as Income Tax demand. Now, this payment was made in the year 2012-13. The Entry passed at the time of payment was: Income Tax Demand (FY 2010-11) A/c Dr. 300.00 Interest Account (Exception Item) A/c Dr. 1900 To Bank Account Rs. 2200.00 The related queries are: 1. What is the treatment of Income Tax Demand (FY 2010-11) A/c in the Financial Statements of the Current Year i.e. under which head of Profit and Loss account. 2. For computing the current tax of the company, is the interest paid, an allowable expense? 3. If not, where and how to reflect the entry of interest paid? 4. Is the same to be taken as a prior period item? Please help.

Amol S Joglekar

Amol S Joglekar (Expert)
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04 November 2014 01. Entry passed is correct.
02. Interest paid is not allowed.
03. Both the items are prior period items.
04. Report the items in NOTES to accounts.

(Ultimately they will be paid out of RESERVEs of earlier years.)

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