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Msme interest

20 November 2014

Hi All,

I want to know about the treatement of MSME interest in Tax Audit - 3 CD. If the company has not debited any interest in the P/L & but for the purpose of disclosure in notes to account, they have calculated the same as per MSME Act. now there is also disclosure in 3CD - tax audit (Point No. 17A). My question is that - Tax audit says about inadmissability of the MSME int. when i m not debiting any thing to my PL, then still we need to disclose the same & get this inadmissable while calculating the profit in PGBP. If i have not debited to PL then is this correct to get that inadmissable. is there any case law or any other guidance for the same, then pls let me know.

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4 Replies

Swami Ayyappa Nuli (TAX ADVISOR & CONSULTANT AT G.S.T SUVIDHA CENTER) (1372 Points)
Replied 20 November 2014

Sir, First of all you mentioned old 3CD format point number in the post and it is point number 28 in new 3CD format. Generally if MSME sued for Interest then only you are liable to pay Interest @ 3times interest rate notified by RBI which will be disallowed for Income tax computation. If really MSME sued for it and you paid then only you need to mention it in form 3CD.

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Deepesh Varshney (CA Firm) (44 Points)
Replied 21 November 2014

Hi Nuli, Thanks for the reply, I want to know whether there is any guidance or any other reference, case law etc. from where this interpretation can be derived. I know practically this should be the case but is there any written refrence for the same to be interpreted like that.

Swami Ayyappa Nuli (TAX ADVISOR & CONSULTANT AT G.S.T SUVIDHA CENTER) (1372 Points)
Replied 21 November 2014

Under section 23 of MSMED Act, it stated that any Interest Payable or paid by any buyer under or in accordance with the provisions of the act shall not be allowed as deduction for the purpose of computation of Income tax under Income tax act,1961. In the above definition it clearly stated that any Interest payable or paid. If it is payable or paid by you, you need to make provision for it where it will be debited to profit and loss account. Therefore from the Interpretation of such definition we can clearly derived that unless you make provision for it in P&L a/c you will not to come under provision of sec.23 of MSMED act,2006. and it clearly stated that you will not be allowed deduction, that means it is actually deduction but you will not be allowed to claim. when you actually payable or paid then only concern about deduction arises. Me too prepare form 3CD where we don't take such matter in to consideration.