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17. In the result, the appeal of the Revenue in ITA No.1781/Hyd/2025 for Assessment Year 2017-18 is partly allowed for statistical purposes. ITA NO. 1782/HYD/2025 FOR A.Y. 2018-19 :

18. At the outset, the Ld. DR submitted that the solitary issue arising out of the grounds of appeal of the Revenue relates to the deletion of Rs.2,09,08,248/- by the Ld. CIT(A) on account of disallowance made by the Ld. AO towards reversal of interest under sections 234B and 234C of the Act. The Ld. DR submitted that from the computation of income filed by the assessee, it was noticed that the assessee had claimed deduction of Rs.2,09,08,248/- on account of reversal of interest relating to sections 234B and 234C of the Act. According to the Ld. DR, interest payable under sections 234B and 234C is directly linked with the income tax liability of the assessee and therefore such interest is in the nature of income tax. It was further submitted that as per the provisions of section 40(a)(ii) of the Act, any sum paid on account of tax levied on the profits and gains of business cannot be allowed as deduction while computing the income of the assessee. Therefore, according to the Ld. DR, the ITA No.1781 & 1782/HYd/2025 ACIT vs. Ushodaya Enterprises Private Limited Ld. CIT(A) erred in deleting the addition made by the Ld. AO. The Ld. DR therefore prayed that the order of the Ld. CIT(A) be set aside and that of the Ld. AO be restored.

19. Per contra, the Ld. AR submitted that the assessee had made provisions in its books of account towards interest payable under sections 234B and 234C of the Act relating to Assessment Years 2009-10, 2014-15, 2015-16 and 2016- 17, amounting to Rs.3,59,40,202/-, by debiting the same to the Profit and Loss Account. However, while filing the returns of income for the respective assessment years, the assessee had already disallowed the said provision in the computation of income and therefore no deduction was claimed by the assessee in those years. The Ld. AR further submitted that subsequently the actual interest liability payable to the Revenue was determined at Rs.1,50,31,954/-. Consequently, the earlier provision created in the books stood reduced by Rs.2,09,08,248/-. The assessee accordingly credited the said amount of Rs.2,09,08,248/- in the Profit and Loss Account during the year under consideration. The Ld. AR submitted that since the entire provision had already been disallowed by the assessee in the earlier assessment years while computing its taxable income, the credit of Rs.2,09,08,248/- arising on account of reversal of excess provision was reduced in the computation of income for the year under consideration to avoid double taxation. Accordingly, the Ld. AR submitted that there was no claim of deduction by the assessee in respect of interest under sections 234B and 234C of the Act, and therefore the Ld. CIT(A) was justified in deleting the addition made by the Ld. AO.

ITA No.1781 & 1782/HYd/2025 ACIT vs. Ushodaya Enterprises Private Limited

21. On careful perusal of the above, we find that the assessee had earlier created provisions in its books of account towards interest payable under sections 234B and 234C of the Act for various assessment years amounting to Rs.3,59,40,202/-, which were debited to the Profit and Loss Account. It is also not in dispute that while filing the returns of income for those respective years, the assessee had already disallowed the said amount in the computation of income and therefore no deduction was claimed by the assessee in those years. Subsequently, the actual interest liability payable to the Revenue was ITA No.1781 & 1782/HYd/2025 ACIT vs. Ushodaya Enterprises Private Limited determined at Rs.1,50,31,954/-, resulting in reduction of the earlier provision by Rs.2,09,08,248/-. Consequently, the assessee credited the said amount to the Profit and Loss Account during the year under consideration. We find that since the provision towards interest had already been disallowed by the assessee in the respective earlier assessment years, the credit arising on account of reversal of excess provision cannot be treated as income of the assessee for the year under consideration. The reduction made by the assessee in its computation of income is therefore only a consequential adjustment to avoid double taxation of the same amount. Therefore, in our considered view, the assessee has not claimed any deduction in respect of interest payable under sections 234B and 234C of the Act during the year under consideration. In this regard we have gone through the para no. 4.3 of the order of the Ld. CIT(A) , which is to the following effect :

"4.3 Ground 3: Disallowance of Deduction for Reversal of Interest de trace of Deduction for Reversal of interest u/s 234B & 234C The appellant contends that interest charged under Sections 234B and 234C in original assessment orders was previously debited to the Profit & Loss Account and subsequently added back while computing taxable income in various assessment years. For instance, interest on short payment of advance income tax of Rs.3,30,81,253/- was added back in AY 2015-16, Rs. 27,15,577/- in AY 2016-17, and Rs. 1,82,40,587/- in AY 2017-18. This interest was later reduced due to appellate orders (e.g.. CIT(A) orders, revised returns) and was credited to the Profit & Loss Account under the head "Excess Provisions written back" in Assessment Year 2018-19. The appellant specifically detailed that Rs.2,09,08,248/-was the amount reduced from a total of Rs.3,59,40,202/- previously disallowed in various assessment years. The appellant claimed this amount of Rs.2,09,08,248/- as a deduction in AY 2018-19, asserting it represents a reversal of an earlier disallowance and not a double deduction. The Assessing Officer disallowed this deduction, arguing that interest on income tax (under Sections 234B and 234C) forms part of "tax" as per Section 2(43) of the Act. Therefore, it cannot be allowed as a deduction under Section 40(a)(ii) of the Act, which prohibits the deduction of "any rate or tax levied on the profits or gains of any business or profession". The AO further contended that the appellant was attempting to claim a "double deduction" and that the matter had achieved finality in the respective financial years. Additionally, the ITA No.1781 & 1782/HYd/2025 ACIT vs. Ushodaya Enterprises Private Limited AO stated that the payment of interest on income tax is not for revenue generation and, therefore, cannot be allowed as a deduction under Section 37 of the Act.