MSMED interest is disallowed under the normal provisions. Does it also have to be added back to book profit?
No - and the Tribunal decided it by adoption. It noted that the issue raised in Ground No. 10 had been decided by the Tribunal in the assessee's own case by its consolidated order dated 13 September 2017 for assessment years 2010-11 and 2011-12, reproduced that order, and allowed the ground on the strength of it. The reasoning reproduced is that s.23 of the MSMED Act operates on the computation of income under the normal provisions and not on the computation of book profit under s.115JB, and that a provision for interest payable to MSMED suppliers, being an ascertained liability, does not have to be added back.
Decided by the ITAT (J. Sudhakar Reddy (Accountant Member) and S.S. Viswanethra Ravi (Judicial Member)) on 2018-10-17, reported as ITA No. 524/Kol/2017. It bears on section MSMED s.16, section MSMED s.23, section 115JB, section 43B(h) of the Income Tax Act 1961, in Deductions & Disallowances and How Tax Law Is Read matters.
It is the one point on which MSMED interest is treated differently in the two computations, and it is easy to get wrong in both directions - either by claiming the deduction under the normal provisions or by adding the same figure back to book profit when it does not belong there. This order draws the line, but it draws it by following the earlier order in the same assessee's case; the reasoning to put before a Bench is that order's, of 13 September 2017 for assessment years 2010-11 and 2011-12.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee appealed for AY 2012-13. Ground 10 concerned a provision of Rs. 29,21,911 for interest payable to suppliers under the MSMED Act 2006, which had been added back in computing book profit under s.115JB. Section 23 of the MSMED Act provides that interest paid or payable under that Act shall not be allowed as a deduction in computing income under the Income-tax Act.
Ground No. 10 was allowed. The Bench's own step is short: it noted that the issue raised in Ground No. 10 had been decided by this Tribunal in the assessee's own case by its consolidated order dated 13 September 2017 for assessment years 2010-11 and 2011-12, reproduced the relevant portion of that order, and allowed the ground on the strength of it - the disposal reading 'In view of the above, we direct TPO/AO accordingly. Ground No. 10 raised by the assessee is allowed.' The analysis - that the restriction in s.23 of the MSMED Act operates on the computation of income under the normal provisions, the Tribunal referring to the computation under ss.29 and 57, and not on the computation of book profit under s.115JB, and that the provision for interest payable to MSMED suppliers was an ascertained liability not required to be added back - is in the reproduced order, at its paragraphs 34 to 34.2.6, and is not this Bench's own.
The Bench reproduced the earlier consolidated order of the Tribunal in the assessee's own case dated 13 September 2017 for assessment years 2010-11 and 2011-12, which held that s.23 of the MSMED Act is directed at the heads-of-income computation, so that it is 'while computing the income under normal provisions under various heads alone' that s.23 assumes relevance and significance (para 34.2.6 of the reproduced order). Section 115JB is a self-contained deeming fiction proceeding on the profit shown in the accounts as adjusted by the items listed in its Explanation, and, following Apollo Tyres, there cannot be a deeming fiction upon an existing deeming fiction by importing s.23 of the MSMED Act into the expression 'book profits'. The remaining question was the ordinary one under the Explanation - whether the amount was a provision for an unascertained liability - and the earlier Bench held it ascertained (para 34.2.4), both because the rate and period of MSMED interest are fixed by statute and because the assessee had already paid Rs 10,71,467 of the Rs 29,21,911 before the year end, and unless the liability had crystallised no assessee would come forward to make that payment. That the reproduced paragraphs are the earlier order's is clear on their face: 34.2.6 closes by allowing Ground No. 15 for assessment year 2011-12, and 34.2.4 reasons to an ascertained liability as on 31 March 2011, neither of which can be this Bench disposing of Ground No. 10 in an appeal for assessment year 2012-13.
Ground No. 10 raised by the assessee is allowed
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Handle my notice → Ask a CA on WhatsAppNo - and the Tribunal decided it by adoption. It noted that the issue raised in Ground No. 10 had been decided by the Tribunal in the assessee's own case by its consolidated order dated 13 September 2017 for assessment years 2010-11 and 2011-12, reproduced that order, and allowed the ground on the strength of it. The reasoning reproduced is that s.23 of the MSMED Act operates on the computation of income under the normal provisions and not on the computation of book profit under s.115JB, and that a provision for interest payable to MSMED suppliers, being an ascertained liability, does not have to be added back. This was decided by the ITAT (J. Sudhakar Reddy (Accountant Member) and S.S. Viswanethra Ravi (Judicial Member)) and bears on section MSMED s.16, section MSMED s.23, section 115JB, section 43B(h) of the Income Tax Act 1961. It is reported as ITA No. 524/Kol/2017. It is the one point on which MSMED interest is treated differently in the two computations, and it is easy to get wrong in both directions - either by claiming the deduction under the normal provisions or by adding the same figure back to book profit when it does not belong there. This order draws the line, but it draws it by following the earlier order in the same assessee's case; the reasoning to put before a Bench is that order's, of 13 September 2017 for assessment years 2010-11 and 2011-12. If it applies to you, the first step is this: Add s.16 interest back under the normal provisions and leave it alone in the s.115JB computation, provided the liability is ascertained.
The assessee appealed for AY 2012-13. Ground 10 concerned a provision of Rs. 29,21,911 for interest payable to suppliers under the MSMED Act 2006, which had been added back in computing book profit under s.115JB. Section 23 of the MSMED Act provides that interest paid or payable under that Act shall not be allowed as a deduction in computing income under the Income-tax Act. The matter was decided on 2018-10-17 by the ITAT (J. Sudhakar Reddy (Accountant Member) and S.S. Viswanethra Ravi (Judicial Member)). On those facts the ITAT held as follows. Ground No. 10 was allowed. The Bench's own step is short: it noted that the issue raised in Ground No. 10 had been decided by this Tribunal in the assessee's own case by its consolidated order dated 13 September 2017 for assessment years 2010-11 and 2011-12, reproduced the relevant portion of that order, and allowed the ground on the strength of it - the disposal reading 'In view of the above, we direct TPO/AO accordingly. Ground No. 10 raised by the assessee is allowed.' The analysis - that the restriction in s.23 of the MSMED Act operates on the computation of income under the normal provisions, the Tribunal referring to the computation under ss.29 and 57, and not on the computation of book profit under s.115JB, and that the provision for interest payable to MSMED suppliers was an ascertained liability not required to be added back - is in the reproduced order, at its paragraphs 34 to 34.2.6, and is not this Bench's own.
The Bench reproduced the earlier consolidated order of the Tribunal in the assessee's own case dated 13 September 2017 for assessment years 2010-11 and 2011-12, which held that s.23 of the MSMED Act is directed at the heads-of-income computation, so that it is 'while computing the income under normal provisions under various heads alone' that s.23 assumes relevance and significance (para 34.2.6 of the reproduced order). Section 115JB is a self-contained deeming fiction proceeding on the profit shown in the accounts as adjusted by the items listed in its Explanation, and, following Apollo Tyres, there cannot be a deeming fiction upon an existing deeming fiction by importing s.23 of the MSMED Act into the expression 'book profits'. The remaining question was the ordinary one under the Explanation - whether the amount was a provision for an unascertained liability - and the earlier Bench held it ascertained (para 34.2.4), both because the rate and period of MSMED interest are fixed by statute and because the assessee had already paid Rs 10,71,467 of the Rs 29,21,911 before the year end, and unless the liability had crystallised no assessee would come forward to make that payment. That the reproduced paragraphs are the earlier order's is clear on their face: 34.2.6 closes by allowing Ground No. 15 for assessment year 2011-12, and 34.2.4 reasons to an ascertained liability as on 31 March 2011, neither of which can be this Bench disposing of Ground No. 10 in an appeal for assessment year 2012-13. In the words reproduced by the source cited on this page: "Ground No. 10 raised by the assessee is allowed" The decision followed or applied The Tribunal's own earlier consolidated order in the assessee's case, dated 13 September 2017 for assessment years 2010-11 and 2011-12 - reproduced at paras 34 to 34.2.6 and followed; the reasoning in this case is that order's.
It was decided by the ITAT on 2018-10-17 and is reported as ITA No. 524/Kol/2017. 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 115JB, 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 taxpayer. Ground No. 10 was allowed. The Bench's own step is short: it noted that the issue raised in Ground No. 10 had been decided by this Tribunal in the assessee's own case by its consolidated order dated 13 September 2017 for assessment years 2010-11 and 2011-12, reproduced the relevant portion of that order, and allowed the ground on the strength of it - the disposal reading 'In view of the above, we direct TPO/AO accordingly. Ground No. 10 raised by the assessee is allowed.' The analysis - that the restriction in s.23 of the MSMED Act operates on the computation of income under the normal provisions, the Tribunal referring to the computation under ss.29 and 57, and not on the computation of book profit under s.115JB, and that the provision for interest payable to MSMED suppliers was an ascertained liability not required to be added back - is in the reproduced order, at its paragraphs 34 to 34.2.6, and is not this Bench's own. It arises in Deductions & Disallowances and How Tax Law Is Read matters, on section MSMED s.16, section MSMED s.23, section 115JB, section 43B(h) of the Income Tax Act 1961, and was decided by J. Sudhakar Reddy (Accountant Member) and S.S. Viswanethra Ravi (Judicial 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. Be able to show the liability is ascertained: the rate under s.16 and the period of delay are fixed by statute, and here part of the amount had already been paid before the year end, which the Tribunal treated as showing the liability had crystallised. Cite the Tribunal's order of 13 September 2017 in the assessee's own case for the reasoning, and this order as the Bench following it. Do not extend the reasoning to items disallowed under the Income-tax Act's own provisions; it turns on s.23 being a provision of a different statute directed at a different computation. Read with Bosch Ltd v ACIT for the normal-provisions side of the same payment.
Searched for later treatment; none was found. That is not the same as a source affirming it. No later order applying, doubting or overruling this order on the s.115JB point was located. The point does not appear to have reached a High Court. 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 Ground No. 10 by adoption. Paragraphs 34, 34.1 and 34.2.1 to 34.2.6 are a block quotation of the Tribunal's earlier consolidated order of 13 September 2017 for assessment years 2010-11 and 2011-12, carrying that order's own numbering, which is why those numbers run ahead of the surrounding order's; the introduction reads 'It is noted that the issue raised in Ground No. 10 was decided by this Tribunal in assessee's own case by its consolidated order dated 13.09.2017 for A.Y.'s 2010-11 and 2011-12. The relevant portion of which is reproduced herein below:'. The sentence quoted at 34.2.6 begins 'Thus while computing the income...' and the opening word has been dropped so that it reads as an extract. The paragraph numbers of the surrounding order are unstable across retrievals - the introduction came back as para 17 and the disposal as para 19 - so those numbers should be checked before they are cited; the block numbers 34.2.x are stable because they are the earlier order's. The earlier Bench's reference to ss.29 and 57 as marking the reach of s.23 is unusual and is recorded as that order puts it. This order predates s.43B(h) and does not mention it; the clause (h) tag records the practical connection only. A check against the document corrected the attribution - paras 34.2.1 to 34.2.6 had been cited as this Tribunal's holding and the key quotation taken from them, when 34.2.6 closes by allowing Ground No. 15 for assessment year 2011-12 - and corrected the ascertained-liability finding, which is at 34.2.4 and rests not only on the statutory rate and period but on the Rs 10,71,467 already paid before the year end. 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. 10 was allowed. The Bench's own step is short: it noted that the issue raised in Ground No. 10 had been decided by this Tribunal in the assessee's own case by its consolidated order dated 13 September 2017 for assessment years 2010-11 and 2011-12, reproduced the relevant portion of that order, and allowed the ground on the strength of it - the disposal reading 'In view of the above, we direct TPO/AO accordingly. Ground No. 10 raised by the assessee is allowed.' The analysis - that the restriction in s.23 of the MSMED Act operates on the computation of income under the normal provisions, the Tribunal referring to the computation under ss.29 and 57, and not on the computation of book profit under s.115JB, and that the provision for interest payable to MSMED suppliers was an ascertained liability not required to be added back - is in the reproduced order, at its paragraphs 34 to 34.2.6, and is not this Bench's own.
TaxSphere, “Landis+Gyr Ltd v DCIT”, https://taxnotice.vittsphere.com/caselaw/case/landis-gyr-v-dcit-msmed-interest-ascertained-liability-book-profit-115jb/ (validity last checked 2026-09-17)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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