Penality can be Capitalised ?

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DNV SATISH (Querist)
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27 May 2009 Whether penality paid for getting the asset in to existence can be capitalised ?

Whether the penality paid can be allowed to add as an expense to the Fixed Asset as Per Income Tax Act ?

CA Nitin Wadhwani

CA Nitin Wadhwani (Expert)
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28 May 2009 How can be a penalty paid considered as paid for asset coming into existence?
Can you further elaborate your question?

DNV SATISH

DNV SATISH (Querist)
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28 May 2009 Company in requirement of a building to be build in a SEZ; it had given a contract to a builder to build it.
Agreement specifies clearly that all the taxes that are to be paid to the SEZ sould be paid by the company.
The company hadnot paid the taxes and later on by getting a notice they had paid a penality to the tune of Rs 2crores?

Now the company argues that it can be capitalised

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CA Nitin Wadhwani

CA Nitin Wadhwani (Expert)
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28 May 2009 In my opinion of above taxes have no connection with the building.
So, they will not be capitalized and will be charged to revenue.
Regarding the second question i.e regarding its allowability in income tax, it is paid to whom and for what is important.