ITAT Mumbai: MSMED Interest Reversal Cannot Be Added If No Deduction Was Claimed

The assessee, Siemens Limited, filed its return of income for AY 2020-21. While processing the return under Section 143(1), the CPC made an upward adjustment of Rs. 6,62,28,591, representing the reversal of interest provided under Section 23 of the Micro, Small and Medium Enterprises Development Act, 2006. The assessee contended that although a provision for such interest was created in the books in view of statutory requirements, the same was never claimed as a deduction while computing taxable income and was later reversed when suppliers did not claim interest.

The first appellate authority, however, upheld the adjustment, holding that MSMED interest is not allowable as a deduction.

Issue Raised: Whether the reversal of interest provided under Section 23 of the MSMED Act can be added to income where such interest was never claimed as a deduction by the assessee.

Tribunal Held: The ITAT Mumbai held that if the assessee had merely created a provision for MSMED interest but had not claimed it as a deduction while computing income, there could be no occasion to make an addition on reversal of such provision.

The Tribunal directed the Assessing Officer to factually verify the assessee’s claim and delete the addition if it is found that no deduction was claimed and the amount was subsequently reversed. The issue was remanded with a direction to grant a reasonable opportunity of hearing to the assessee. The appeal was allowed for statistical purposes.

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