You paid interest on a delayed payment to an MSME supplier. Can you claim it?
No, and the Tribunal decided it by adoption rather than by reasoning. Counsel accepted that an identical issue had arisen in the assessee's own case for assessment year 2010-11, and the Bench reproduced its earlier order of 16 September 2020, which held that s.23 of the MSMED Act specifically provides that interest paid to micro, small and medium enterprises on account of delayed payment is not allowable as a deduction from income, that such interest is penal in nature and so is otherwise not allowable under s.37, and that s.24 of that Act has overriding effect to the extent of inconsistent provisions in any other law. The Bench's own holding is one sentence at para 73: following that order, it dismissed Ground No.11.
Decided by the ITAT (N.V. Vasudevan (Vice President) and Padmavathy S (Accountant Member)) on 2022-09-13, reported as ITA No. 1629/Bang/2018. It bears on section MSMED s.16, section MSMED s.23, section MSMED s.24, section 37(1), section 43B(h) of the Income Tax Act 1961, in Deductions & Disallowances matters.
Two disallowances follow one late payment, and practitioners routinely provide for only the first. The principal is caught by s.43B(h) until it is actually paid; the interest that accrues on it under s.16 is not deductible at all, in any year, by force of s.23 of the MSMED Act read with the overriding provision in s.24. This order is the convenient citation for the second limb, but it decides the point by following an earlier order in the same assessee's case, so the reasoning to put before a Bench is that earlier order's, not this one's.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee, Bosch Limited, appealed against the assessment for AY 2013-14. Ground No.11 concerned the disallowance of interest paid under the MSMED Act 2006 on delayed payments to micro, small and medium enterprise suppliers, which the assessee had claimed as a deduction (para 71, which sets out the ground as raised). Counsel for the assessee submitted that an identical issue had arisen in the assessee's own case for AY 2010-11 and that the Tribunal, by its order dated 16 September 2020 in IT(TP)A No.1556/Bang/2014, had upheld the addition at paras 7 and 8 of that order; an amount of Rs. 33,83,134 had been dealt with there (para 72).
Ground No.11 was dismissed. The Bench's own holding is the whole of para 73: following the aforesaid order of the Tribunal, it dismissed Ground No.11 raised by the assessee. It added no reasons of its own. Para 71 is the ground as the assessee raised it, and para 72 is counsel's submission followed by a reproduction of the Tribunal's earlier order of 16 September 2020 in the assessee's own case. The propositions that s.23 of the MSMED Act specifically provides that interest paid on account of delayed payment is not allowable as a deduction from income, that such interest is in the nature of penalty or penal interest and so is otherwise not allowable under s.37, and that s.24 of that Act has overriding effect to the extent of any inconsistent provisions in any other law, are all inside that reproduced order.
The Bench reproduced the earlier order of the Tribunal in the assessee's own case, dated 16 September 2020 in IT(TP)A No.1556/Bang/2014, which held that s.23 of the MSMED Act has specifically provided that the interest paid to micro, small and medium enterprises on account of delayed payment is not allowable as a deduction from income; that s.24 is having overriding effect to the extent of any inconsistent provisions contained in any other law for the time being; and that the payment of interest on delayed payment is in the nature of penalty or penal interest, so that once it is regarded as penal the expenditure is otherwise not allowable under s.37. That is the reasoning in the case, and it is the earlier Bench's. The present Bench's own step, at para 73, is to follow that order and dismiss the ground.
Following the aforesaid order of the Tribunal, we dismiss ground No.11 raised by the assessee.
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Handle my notice → Ask a CA on WhatsAppNo, and the Tribunal decided it by adoption rather than by reasoning. Counsel accepted that an identical issue had arisen in the assessee's own case for assessment year 2010-11, and the Bench reproduced its earlier order of 16 September 2020, which held that s.23 of the MSMED Act specifically provides that interest paid to micro, small and medium enterprises on account of delayed payment is not allowable as a deduction from income, that such interest is penal in nature and so is otherwise not allowable under s.37, and that s.24 of that Act has overriding effect to the extent of inconsistent provisions in any other law. The Bench's own holding is one sentence at para 73: following that order, it dismissed Ground No.11. This was decided by the ITAT (N.V. Vasudevan (Vice President) and Padmavathy S (Accountant Member)) and bears on section MSMED s.16, section MSMED s.23, section MSMED s.24, section 37(1), section 43B(h) of the Income Tax Act 1961. It is reported as ITA No. 1629/Bang/2018. Two disallowances follow one late payment, and practitioners routinely provide for only the first. The principal is caught by s.43B(h) until it is actually paid; the interest that accrues on it under s.16 is not deductible at all, in any year, by force of s.23 of the MSMED Act read with the overriding provision in s.24. This order is the convenient citation for the second limb, but it decides the point by following an earlier order in the same assessee's case, so the reasoning to put before a Bench is that earlier order's, not this one's. If it applies to you, the first step is this: Separate the principal from the s.16 interest in the ledger; they are disallowed on entirely different footings.
The assessee, Bosch Limited, appealed against the assessment for AY 2013-14. Ground No.11 concerned the disallowance of interest paid under the MSMED Act 2006 on delayed payments to micro, small and medium enterprise suppliers, which the assessee had claimed as a deduction (para 71, which sets out the ground as raised). Counsel for the assessee submitted that an identical issue had arisen in the assessee's own case for AY 2010-11 and that the Tribunal, by its order dated 16 September 2020 in IT(TP)A No.1556/Bang/2014, had upheld the addition at paras 7 and 8 of that order; an amount of Rs. 33,83,134 had been dealt with there (para 72). The matter was decided on 2022-09-13 by the ITAT (N.V. Vasudevan (Vice President) and Padmavathy S (Accountant Member)). On those facts the ITAT held as follows. Ground No.11 was dismissed. The Bench's own holding is the whole of para 73: following the aforesaid order of the Tribunal, it dismissed Ground No.11 raised by the assessee. It added no reasons of its own. Para 71 is the ground as the assessee raised it, and para 72 is counsel's submission followed by a reproduction of the Tribunal's earlier order of 16 September 2020 in the assessee's own case. The propositions that s.23 of the MSMED Act specifically provides that interest paid on account of delayed payment is not allowable as a deduction from income, that such interest is in the nature of penalty or penal interest and so is otherwise not allowable under s.37, and that s.24 of that Act has overriding effect to the extent of any inconsistent provisions in any other law, are all inside that reproduced order.
The Bench reproduced the earlier order of the Tribunal in the assessee's own case, dated 16 September 2020 in IT(TP)A No.1556/Bang/2014, which held that s.23 of the MSMED Act has specifically provided that the interest paid to micro, small and medium enterprises on account of delayed payment is not allowable as a deduction from income; that s.24 is having overriding effect to the extent of any inconsistent provisions contained in any other law for the time being; and that the payment of interest on delayed payment is in the nature of penalty or penal interest, so that once it is regarded as penal the expenditure is otherwise not allowable under s.37. That is the reasoning in the case, and it is the earlier Bench's. The present Bench's own step, at para 73, is to follow that order and dismiss the ground. In the words reproduced by the source cited on this page: "Following the aforesaid order of the Tribunal, we dismiss ground No.11 raised by the assessee." The decision followed or applied The Tribunal's own earlier order in the assessee's case, dated 16 September 2020 in IT(TP)A No.1556/Bang/2014 (AY 2010-11) - reproduced at para 72 and followed at para 73; the reasoning in this case is that order's.
It was decided by the ITAT on 2022-09-13 and is reported as ITA No. 1629/Bang/2018. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section MSMED s.16, section MSMED s.23, section MSMED s.24, section 37(1), section 43B(h), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. Ground No.11 was dismissed. The Bench's own holding is the whole of para 73: following the aforesaid order of the Tribunal, it dismissed Ground No.11 raised by the assessee. It added no reasons of its own. Para 71 is the ground as the assessee raised it, and para 72 is counsel's submission followed by a reproduction of the Tribunal's earlier order of 16 September 2020 in the assessee's own case. The propositions that s.23 of the MSMED Act specifically provides that interest paid on account of delayed payment is not allowable as a deduction from income, that such interest is in the nature of penalty or penal interest and so is otherwise not allowable under s.37, and that s.24 of that Act has overriding effect to the extent of any inconsistent provisions in any other law, are all inside that reproduced order. It arises in Deductions & Disallowances matters, on section MSMED s.16, section MSMED s.23, section MSMED s.24, section 37(1), section 43B(h) of the Income Tax Act 1961, and was decided by N.V. Vasudevan (Vice President) and Padmavathy S (Accountant Member). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Add back s.16 interest in the computation whether or not it has been paid - s.23 is not a timing provision and no later payment revives the deduction. Note that the overriding provision is s.24 of the MSMED Act, not s.23; s.23 prohibits the deduction and s.24 gives ss.15 to 23 effect notwithstanding anything inconsistent in any other law. Check the tax audit report; the interest figure often sits inside 'finance cost' and is not flagged. For book profit under s.115JB the position differs - see Landis+Gyr Ltd v DCIT.
Searched for later treatment; none was found. That is not the same as a source affirming it. The order the Bench followed is its own earlier order in the assessee's case dated 16 September 2020 in IT(TP)A No.1556/Bang/2014 for AY 2010-11, which upheld the same disallowance and which was not opened; it is recorded here as this order names it. No later order applying or doubting this order was located, and none overruling it. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This order decides the point by adoption and contains no reasoning of its own, which is what it is worth: paras 71 to 73 are, in order, the ground as raised, counsel's submission with the reproduced earlier order, and a one-line disposal. Cite the earlier order of 16 September 2020 for the reasoning. The amount of Rs. 33,83,134 appearing at para 72 relates to AY 2010-11, not to the year under appeal, and should not be read as the figure disallowed for AY 2013-14. The order runs to a large number of grounds and only Ground No.11 is dealt with here. This order predates s.43B(h) and does not mention it; the clause (h) tag records the practical connection, not the subject matter of the order. A check against the document corrected three things: the key quotation and the s.23 reasoning were attributed to this Bench at para 71, whereas para 71 is the ground as raised and the words are inside the block quotation at para 72; the entry stated that s.23 has overriding effect, where the reproduced order says s.24 is the provision with overriding effect and s.23 is the specific prohibition; and the entry's account of s.16 interest running at three times the bank rate with monthly rests and so failing the wholly-and-exclusively test was the drafter's elaboration, the reproduced order putting it as penal in nature and so not allowable under s.37. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Ground No.11 was dismissed. The Bench's own holding is the whole of para 73: following the aforesaid order of the Tribunal, it dismissed Ground No.11 raised by the assessee. It added no reasons of its own. Para 71 is the ground as the assessee raised it, and para 72 is counsel's submission followed by a reproduction of the Tribunal's earlier order of 16 September 2020 in the assessee's own case. The propositions that s.23 of the MSMED Act specifically provides that interest paid on account of delayed payment is not allowable as a deduction from income, that such interest is in the nature of penalty or penal interest and so is otherwise not allowable under s.37, and that s.24 of that Act has overriding effect to the extent of any inconsistent provisions in any other law, are all inside that reproduced order.
TaxSphere, “Bosch Ltd v ACIT”, https://taxnotice.vittsphere.com/caselaw/case/bosch-ltd-v-acit-msmed-s23-interest-on-delayed-payment-not-deductible/ (validity last checked 2026-09-17)
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MSMED interest is disallowed under the normal provisions. Does it also have to be added back to book profit?
The buyer says the 1 September 2021 Office Memorandum takes your trader-supplier outside the delayed-payment machinery. Is that right?
How does s.15 actually work - fifteen days, or forty-five, and what if the supplier registered after the invoices?
What exactly does the buyer owe once the payment window under s.15 closes?
