Which cases are most cited on compensatory interest?

Prakash Cotton Mills Pvt. Ltd. v. CIT (201 ITR 684) — 133 citing judgments; Lachmandas Mathura v. CIT (254 ITR 799) — 119 citing judgments; MavaliyaBhikhubhaiBalabhai v. ITO (TDS)\n (70 Taxmann.com 45) — 93 citing judgments; CIT v. Chennai Properties & Investment Ltd. (239 ITR 435) — 77 citing judgments; CIT v. Oriental Insurance Co. Ltd. (125 Taxmann 1094) — 77 citing judgments.

How many judgments discuss compensatory interest?

BharatTax indexes 64 ITAT, High Court and Supreme Court judgments that discuss compensatory interest (Section 234B).

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“compensatory interest”

Q: What is the leading case on compensatory interest?

Prakash Cotton Mills Pvt. Ltd. v. CIT (201 ITR 684) is the decision most relied on for compensatory interest, cited in 133 judgments on BharatTax. Compensatory interest or damages paid for a breach of contract, arising in the normal course of business, are allowable as a deduction under section 37(1) as wholly and exclusively incurred for business purposes. This principle extends to indirect taxes paid in the course of business, which are admissible as business expenditure.

InterestSection 234BSection 234B64 judgments

The decision most relied on for compensatory interest is Prakash Cotton Mills Pvt. Ltd. v. CIT (201 ITR 684), cited in 133 judgments on BharatTax.

Leading authorities on compensatory interest

Prakash Cotton Mills Pvt. Ltd. v. CIT

201 ITR 684 · 1993 · Supreme Court

133

citing judgments

Compensatory interest or damages paid for a breach of contract, arising in the normal course of business, are allowable as a deduction under section 37(1) as wholly and exclusively incurred for business purposes. This principle extends to indirect taxes paid in the course of business, which are admissible as business expenditure.

Lachmandas Mathura v. CIT

254 ITR 799 · 2002 · Supreme Court

119

citing judgments

Interest paid on delayed payment of statutory dues, such as sales tax, service tax, TDS, and GST, is compensatory in nature rather than penal. Consequently, such interest is an allowable deduction in computing business profits.

MavaliyaBhikhubhaiBalabhai v. ITO (TDS)\n

70 Taxmann.com 45 · 2016 · High Court

citing judgments

Interest received under Section 28 of the Land Acquisition Act, 1894, forms an integral part of enhanced compensation and is not taxable as "Income from Other Sources" under Section 56(2)(viii) of the Income-tax Act, 1961. The Finance Act, 2009 amendments do not alter the compensatory nature of such interest.

CIT v. Chennai Properties & Investment Ltd.

239 ITR 435 · 1999 · High Court

citing judgments

Interest paid under section 201(1A) for delay in remitting tax deducted at source is not an allowable business expenditure and cannot be regarded as a compensatory payment. This interest takes its character from the nature of the tax levy, being a direct tax itself.

CIT v. Oriental Insurance Co. Ltd.

125 Taxmann 1094 · 2002 · High Court

citing judgments

Interest levied under Section 201(1A) for delayed remittance of Tax Deducted at Source (TDS) is compensatory in nature, not penal. It is a distinct provision for delayed remittance, similar to interest paid by Revenue on refunds.

Mahalakshmi Sugar Mills Co. v. CIT

123 ITR 429 · 1980 · Supreme Court

citing judgments

Payments that are compensatory in nature, such as interest paid for the delayed payment of statutory dues like cess, are an allowable business deduction under section 37(1) of the Income-tax Act. Such payments are not considered a penalty for an infringement of law.

Triveni Engg. Works Ltd. v. CIT

144 ITR 732 · 1983 · High Court

citing judgments

Interest on arrears of tax is compensatory in nature, not penal, and is therefore an allowable deduction under the Income-tax Act. This decision reversed a previous Full Bench ruling.

Dr. Prannoy Roy v. Commissioner of Income-tax

254 ITR 755 · 2002 · High Court

citing judgments

Interest under Section 234A cannot be charged when tax has been paid, even if the return of income is filed belatedly, as such interest is compensatory and not penal in nature and only applies if there is a loss caused to the revenue.

Judgments citing compensatory interest

Haryana Urban Development Authority, Panchkula, Haryana vs. Principal Commissioner of Income Tax, Panchkula, Haryana

In the result, the appeal filed by the assessee is dismissed

ITA 668/CHANDI/2025[2021-22]Status: DisposedITAT Chandigarh29 Dec 2025AY 2021-22

For Respondent: Ms. Rattan Kaur & Shri A.K. Jindal, C.A's

Section 263Section 37Section 37(1)Section 43B

simple 'interest' on debt incurred, but is a statutory penalty. The Ld. DR argued that the ratio of Mahalakshmi Sugar Mills applies to simple compensatory interest. It does not cover situations where the statute itself imposes a higher, punitive rate for continued default. The AO failed to examine this bifurcation

Bharti Telemedia Limited, New Delhi vs. DCIT, Circle-4(2), New Delhi

In the result, the appeals of the Assessee are allowed and appeals of the Revenue are dismissed

ITA 624/DEL/2024[2021-22]Status: DisposedITAT Delhi12 Dec 2025AY 2021-22

Bench: Shri C.N. Prasad & Shri M. Balaganesh

Section 35ASection 4

interest is for delay in payment of annual licence fee as per the terms of the agreement entered into with MIB. The compensatory interest does not result in any capital asset or right coming into existence; the said interest is thus required to be expensed off in any case ... Delhi bench of the Tribunal in the case of Bharti Airtel Ltd vs. PCIT vide ITA No. 1160/Del/2024 dated 21.02.2025. wherein levy of compensatory interest and penalty in terms of the licence agreement was considered to be revenue in nature dehors the fact that licence fee in context of telecom

DCIT, Circle 4(2), New Delhi vs. M/S Bharti Telemedia Ltd, New Delhi

In the result, the appeals of the Assessee are allowed and appeals of the Revenue are dismissed

ITA 4966/DEL/2024[2020-21]Status: DisposedITAT Delhi12 Dec 2025AY 2020-21

Bench: Shri C.N. Prasad & Shri M. Balaganesh

Section 35ASection 4

Bharti Telemedia Limited, New Delhi vs. DCIT, Circle-4(2), New Delhi

In the result, the appeals of the Assessee are allowed and appeals of the Revenue are dismissed

ITA 4960/DEL/2024[2020-21]Status: DisposedITAT Delhi12 Dec 2025AY 2020-21

Bench: Shri C.N. Prasad & Shri M. Balaganesh

Section 35ASection 4

DCIT, Circle 4(2), New Delhi vs. Ms Bharti Telemedia Ltd, New Delhi

In the result, the appeals of the Assessee are allowed and appeals of the Revenue are dismissed

ITA 4868/DEL/2024[2016-17]Status: DisposedITAT Delhi12 Dec 2025AY 2016-17

Bench: Shri C.N. Prasad & Shri M. Balaganesh

Section 35ASection 4

Gvr Ashoka Chennai Corr Limited, Chennai vs. ADIT, Bengaluru

In the result, the appeal of the assessee is allowed

ITA 2621/CHNY/2025[2021-22]Status: DisposedITAT Chennai10 Dec 2025AY 2021-22

Bench: Shri Manu Kumar Giri & Shri S.R.Raghunatha

For Appellant: Mr. Dharan V. Gandhi, ARFor Respondent: 20.11.2025

Section 140A(1)Section 143(1)Section 234A

liability on 26.02.2022. Therefore, on 01.03.2022, the period for which the impugned levy has been made, there was no outstanding tax. Section 234A imposes compensatory interest only where tax is unpaid. It is well settled that once the tax has been fully paid before the due date or before

Naik Naik and Co, Mumbai vs. ACIT -16(3), Mumbai

In the result we hold that the assessee is entitled to credit of TDS to the extent deduction from its receipts is established on the basis of the contemporaneous material placed on record

ITA 2915/MUM/2025[2022-23]Status: DisposedITAT Mumbai30 Sept 2025AY 2022-23

Bench: SHRI AMIT SHUKLA (Judicial Member), SHRI GIRISH AGRAWAL (Accountant Member)

Section 143(1)Section 205Section 234BSection 234C

Even otherwise, when the tax liability stands met through deduction at source and the difference is occasioned solely by the deductor’s lapse, fastening compensatory interest upon the deductee would be unjust and contrary to the scheme of the Act. The Assessing Officer shall therefore delete the interest charged under

Godrej Projects North Star LLP, Mumbai vs. Deputy Commissioner of Income Tax Circle41(2)(1), Mumbai

Appeal of the assessee is allowed

ITA 4258/MUM/2025[2024-25]Status: DisposedITAT Mumbai10 Sept 2025AY 2024-25

Bench: Ms Padmavathy S, Am & Shri Raj Kumar Chauhan, Jm

Section 140Section 140ASection 143Section 143(1)Section 234ASection 234BSection 234B(2)Section 250Section 39Section 94

application of the aforesaid rule of appropriation of payments would constitute a shortfall in payment of regular tax which can be subjected to compensatory interest. 15. For the purpose of Section 140A(1) of the Act, the interest under Section 234B of the Act is to be computed

Punjab Small Industries and Export Corporation Ltd., Chandigarh vs. Assistant Commissioner of Income Tax, Circle 2(1), Chandigarh

In the result, appeal of the Assessee is partly allowed

ITA 627/CHANDI/2024[2016-17]Status: DisposedITAT Chandigarh23 May 2025AY 2016-17

Bench: SHRI. LALIET KUMAR (Judicial Member), SHRI. MANOJ KUMAR AGGARWAL (Accountant Member)

For Appellant: Shri Vineet Krishan, AdvocateFor Respondent: Dr. Ranjit Kaur, Addl. CIT, Sr. DR

Section 143(3)Section 250Section 40Section 40aSection 43B

Singh & Ors. 6.4 The appellant submitted that the payments were made as per Courts order and the payment was in nature of salary and compensatory interest thereon was for delayed payment and that as such it was submitted by the appellant that the payment was in nature of salary only ... submitted that the payments were made pursuant to the directions of the Hon’ble High Court and were in the nature of salary and compensatory interest for delayed payment. However, it is evident that no supporting documents, such as copies of the High Court order or decree, were furnished before

Income Tax Officer, TDS, Udaipur vs. Deputy Conservator of Forest (South), Udaipur

In the result, both the above appeals filed by the Revenue are dismissed

ITA 114/JODH/2024[2014-15]Status: DisposedITAT Jodhpur24 Mar 2025AY 2014-15

Bench: the Ld. CIT(A) who has deleted the said demand by stating that the VFPMCs are not contractors under Section 194C, as they are formed under the Rajasthan Forest Act, 1953, and function as self-help groups for forest conservation and development. The payments made to VFPMCs are not contract payments but are reimbursements for work done under the joint forest management policy of the State Government.

For Appellant: Shri Amit Kothari, C.AFor Respondent: Shri Ajay Malik, CIT DR

Section 10Section 10(20)Section 10(46)Section 11Section 194CSection 201(1)Section 80P

have carefully considered the rival submissions. In the instant case we are not dealing with collection of tax u/s 201(1) or compensatory interest u/s 201(1A). 5 The case of the assessee is that these amounts have already been paid so as to end dispute with Revenue

Income Tax Officer, TDS, Udaipur vs. Deputy Conservator of Forest South, Udaipur

In the result, both the above appeals filed by the Revenue are dismissed

ITA 113/JODH/2024[2013-14]Status: DisposedITAT Jodhpur24 Mar 2025AY 2013-14

Bench: SHRI. LALIET KUMAR (Judicial Member), DR. MITHA LAL MEENA (Accountant Member)

For Appellant: Shri Amit Kothari, C.AFor Respondent: Shri Ajay Malik, CIT DR

Section 10Section 10(20)Section 10(46)Section 11Section 194CSection 201(1)Section 80P

Deputy Commissioner of Income -Tax, Central Circle-1(1), Ahmedabad vs. Prakash Misrimal Sanghvi, Ahmedabad

In the result, the appeal of the Revenue in ITA No

ITA 1184/AHD/2024[2021-22]Status: DisposedITAT Ahmedabad18 Feb 2025AY 2021-22

For Appellant: Shri S. N. Soparkar, Sr. Advocate &For Respondent: Shri A. P. Singh, CIT-DR

Section 132Section 132(4)Section 143(3)Section 147Section 148

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA

Deputy Commissioner of Income -Tax, Central Circle-1(1), Ahmedabad vs. Prakash Misrimal Sanghvi, Ahmedabad

In the result, the appeal of the Revenue in ITA No

ITA 1155/AHD/2024[2020-21]Status: DisposedITAT Ahmedabad18 Feb 2025AY 2020-21

For Appellant: Shri S. N. Soparkar, Sr. Advocate &For Respondent: Shri A. P. Singh, CIT-DR

Section 132Section 132(4)Section 143(3)Section 147Section 148

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA

Deputy Commissioner of Income -Tax, Central Circle-1(1), Ahmedabad vs. Prakash Misrimal Sanghvi, Ahmedabad

In the result, the appeal of the Revenue in ITA No

ITA 1154/AHD/2024[2019-20]Status: DisposedITAT Ahmedabad18 Feb 2025AY 2019-20

Bench: Shri T.R. Senthil Kumar & Shri Narendra Prasad Sinhaआयकर अपील सं./I.T.A. Nos. 1138 To 1146/Ahd/2024 ("नधा"रण वष" / Assessment Years : 2013-14 To 2021-22) बनाम/ Prakash Misrimal Deputy Commissioner Of Sanghvi Income-Tax Vs. 17, Rajmugat Soc. Central Circle-1(1), Naranpura Char Rasta, Ahmedabad Naranpura, Ahmedabad 380013 "थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Aaeps7266A (Appellant) .. (Respondent)

For Appellant: Shri S. N. Soparkar, Sr. Advocate &For Respondent: Shri A. P. Singh, CIT-DR

Section 132Section 132(4)Section 143(3)Section 147Section 148

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA

Deputy Commissioner of Income -Tax, Ahmedabad vs. Prakash Misrimal Sanghvi, Ahmedabad

In the result, the appeal of the Revenue in ITA No

ITA 1153/AHD/2024[2018-19]Status: DisposedITAT Ahmedabad18 Feb 2025AY 2018-19

For Appellant: Shri S. N. Soparkar, Sr. Advocate &For Respondent: Shri A. P. Singh, CIT-DR

Section 132Section 132(4)Section 143(3)Section 147Section 148

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA

Deputy Commissioner of Income -Tax, Central Circle-1(1), Ahmedabad vs. Prakash Misrimal Sanghvi, Ahmedabad

In the result, the appeal of the Revenue in ITA No

ITA 1152/AHD/2024[2017-18]Status: DisposedITAT Ahmedabad18 Feb 2025AY 2017-18

For Appellant: Shri S. N. Soparkar, Sr. Advocate &For Respondent: Shri A. P. Singh, CIT-DR

Section 132Section 132(4)Section 143(3)Section 147Section 148

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA

Deputy Commissioner of Income -Tax, Central Circle-1(1), Ahmedabad vs. Prakash Misrimal Sanghvi, Ahmedabad

In the result, the appeal of the Revenue in ITA No

ITA 1151/AHD/2024[2016-17]Status: DisposedITAT Ahmedabad18 Feb 2025AY 2016-17

For Appellant: Shri S. N. Soparkar, Sr. Advocate &For Respondent: Shri A. P. Singh, CIT-DR

Section 132Section 132(4)Section 143(3)Section 147Section 148

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA

Deputy Commissioner of Income -Tax, Central Circle-1(1), Ahmedabad vs. Prakash Misrimal Sanghvi, Ahmedabad

In the result, the appeal of the Revenue in ITA No

ITA 1150/AHD/2024[2015-16]Status: DisposedITAT Ahmedabad18 Feb 2025AY 2015-16

For Appellant: Shri S. N. Soparkar, Sr. Advocate &For Respondent: Shri A. P. Singh, CIT-DR

Section 132Section 132(4)Section 143(3)Section 147Section 148

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA

Deputy Commissioner of Income -Tax, Central Circle-1(1), Ahmedabad vs. Prakash Misrimal Sanghvi, Ahmedabad

In the result, the appeal of the Revenue in ITA No

ITA 1149/AHD/2024[2014-15]Status: DisposedITAT Ahmedabad18 Feb 2025AY 2014-15

For Appellant: Shri S. N. Soparkar, Sr. Advocate &For Respondent: Shri A. P. Singh, CIT-DR

Section 132Section 132(4)Section 143(3)Section 147Section 148

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA

Deputy Commissioner of Income -Tax, Central Circle-1(1), Ahmedabad vs. Prakash Misrimal Sanghvi, Ahmedabad

In the result, the appeal of the Revenue in ITA No

ITA 1148/AHD/2024[2013-14]Status: DisposedITAT Ahmedabad18 Feb 2025AY 2013-14

For Appellant: Shri S. N. Soparkar, Sr. Advocate &For Respondent: Shri A. P. Singh, CIT-DR

Section 132Section 132(4)Section 143(3)Section 147Section 148

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA