21 November 2012
MOST OF THE PEOPLE HAVE GIVEN THEIR VIEWS FOR PRIOR PERIOD EXPENSES THAT IT SHALL NOT BE ALLOWED AS DEDUCTION..
WHICH SECTION WHICH PROVISION ... I HAVE NOT READ ANY SUCH PROVISION IN INCOME TAX.
CAN ANY PROVIDE A SOURCE OR SECTION REFERENCE IF ANY WHICH PROVIDE FOR DISALLOWANCE OF PRIOR PERIOD EXP..
NOTE : FORM 3CD & ACCOUNTING STANDARDS ONLY REQUIRE FOR DISCLOSURE OF SUCH ITEMS NOT FOR DISALLOWANCE.
MY UNDERSTANDING
EXPENSE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS , NOW MERELY BECAUSE AN ASSESSE FAILED TO CLAIM THE SAME IN THE RELAVANT PREVIOUS YEAR IT WILL BE DISALLOWED.
WHERE AS IF WE TAKE THE REVERSE CASE ANY INCOME WHICH THE ASSESSEE FAILS TO OFFER FOR TAX AND IN SUBSEQUENT YEAR IF IT IS OFFERRED FOR TAX .. THE DEPARTMENT IS CERTAINLY GOING TO RECOVER TAX ON SAME.
SO AS EXPENSE HAS BEEN INCURRED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND TO EARN REVENUE WHICH HAS BEEN OFFERRED FOR TAX AND AS SUCH AN EXPENSE DO NOT ATTRACT DISALLOWANCE UNDER ANY PROVISION FOR FAILURE TO CLAIM DEDUCTION AS WELL AS FOR ANY OTHER REASON .. THEREFORE IT SHOULD BE ALLOWED..
PLS POST YOUR VIEW..
TRY AND PROVIDE REFERENCE TO SECTION PROVISION OR CASES IN ORDER TO ESTABLISH THE SAME..
21 November 2012
Priror period expenses allowed as deduction and can claim expenditure at the year of founded the mistake etc.... it is allowable. In case at the time of scrutiny assessment if the AO doesn't satisfied the facts and reasons of mistake and it seems make with intention to divert or decrease income tax payable then he may disallow it as un-explained expenditure or may do assessment after considering such expenses for the year for which they actually related.
You are correct at any place or section or provision of income tax act doesn't provided regarding the dissallowance of prior period expenditure. The act clearly specifies if an expenditure or income claimed for the tax purpose either accrual or cash basis in any year it doesn't allow to claim at another year. I.e doesn't allow for two or more times. For my words any clarification required please write.
It is not allowed as deduction. The expenses which should have been claimed in the previous year was not claimed by the assessee. Now, it is not possible to claim it in the current year. The expenses which was pertaining to the previous year's assessment can not be claimed now.. i tell you in detail in next reply.
21 November 2012
Yes, if you not claimed such expenditure in the previous year then you can claim as deduction in the year noticed by you. But as a tax auditor or company auditor the auditor should disclose these priror period items in his report as well as in form 3CD(if applicable of tax audit)
I absolutely agree with your opinion but pls can you tell me which section or provision or which source or can you provide any justification or basis for your opinion ... merely replying based on your understanding will not do..
21 November 2012
pls read the following case laws for better understanding- 1.http://taxguru.in/income-tax-case-laws/claim-bad-debts-allowable-debts-year-itat-mumbai.html
21 November 2012
It is settled that the deductions can be permitted in respect of only those expenses which are incurred in the relevant accounting year for the purpose of computing yearly profits and gains.The claim of the assessee of expenses pertaining to prior period cannot be accepted.
21 November 2012
For the purpose of computing yearly profits and gains for assessment to income-tax each year is a separate and self-contained period of time, and losses and expenses incurred before its commencement or after its expiry cannot be the subject of any allowance in assessing the income of that particular year. In making the assessment for any particular year, deductions can therefore be permitted only in respect of expenses, which are found to have been incurred in the relevant accounting period. In adjudging the admissibility of a claim for deduction, the determination of the question whether the assessee had incurred the expenditure during the relevant accounting period is an indispensable preliminary step - Seshasayee Bros. (Travancore) (P.) Ltd. v. CIT [1971] 82 ITR 442 (Ker.).
21 November 2012
The expense is genuine , has been incurred for the purpose of business and the income generated has also been offered for tax.
merely because assessee failed to claim the same.. disallowing the same sounds bad.
again in the reverse case where the income is not offerred ... it is charged to tax in subsequent year..
another aspect is that when an assessee identifies the failure it has the option to file revise return to claim the same within the time allowed for revision of return
21 November 2012
one more aspects is that if such a disallowance was intended by revenue then the same would surely have enacted in the provisions of income tax act.
21 November 2012
Us 145 of the Income Tax Act, 1961 only two system of accounting are permitted for the income from business and profession and the other Sources. Under the mercantile system of accounts the income and the expenditure are required to be accounted for in the relevant year. The expenditure is allowable in the year to which it relates. Except certain expenses e.g. described us 43B.
(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".
Explanation : For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.
no where under section 37 it is specified that only expenses incurred in the relavant pevious year shall be allowed ...
another aspects - expense can be claimed by revised return. is it permitted.?
again if an assesse fails to record an income on accrual basis then it will go untaxed ... is it possible ?
21 November 2012
In order to constitute an expenditure falling under section 37(1) of the Act the six conditions, viz., (i) the expenditure should not be of the nature described in sections 30 to 36, (ii) it should have been incurred in the accounting year, (iii) it should be in respect of a business which was carried on by the assessee and the profits of which are to be computed and assessed, (iv) it should not be in the nature of personal expenses of the assessee, (v) it should have been laid out or expended wholly and exclusively for the purpose of such business and (vi) it should not be in the nature of capital expenditure should concur.
These are the broad principles for deduction u/s 37.
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