05 August 2022
Last year late payment of PF and ESIC were disallowed in Tax Audit While filing next years Return, the set off of the same remained unclaimed Now can I file rectified Return claiming set off of previous period disallowed expenses under which section the set off can be claimed in rectified return
11 July 2024
If expenses such as late payment of PF (Provident Fund) and ESIC (Employees' State Insurance Corporation) were disallowed in the tax audit of the previous year, and you wish to claim their set off in the rectified return of the subsequent year, here’s how you can approach it:
### Procedure to Claim Set Off in Rectified Return:
1. **Review the Disallowance Reason**: Understand why the expenses were disallowed in the tax audit of the previous year. Typically, late payment penalties or interest on PF and ESIC may be disallowed if not considered allowable under the income tax rules.
2. **Rectification of Previous Year’s Return**: - File a rectified return for the previous year in which the expenses were disallowed (if not already done). - Adjust the disallowed expenses in the rectified return based on the correct provisions and supporting documentation.
3. **Claim Set Off in Subsequent Year**: - In the subsequent year's return, you can claim set off of the disallowed expenses as per the provisions of the Income Tax Act. - Identify the appropriate section under which you can claim set off of these expenses against taxable income. Typically, this would fall under the computation of business income or income from other sources, depending on the nature of the expenses.
4. **Section for Set Off**: The set off of disallowed expenses can generally be claimed under Section 37(1) of the Income Tax Act, 1961. This section allows deduction of any revenue expenditure (not being expenditure of the nature described in Sections 30 to 36) laid out or expended wholly and exclusively for the purposes of business or profession.
5. **Documentation and Evidence**: - Ensure you have proper documentation to substantiate the claim, such as copies of tax audit report, rectified return filed for the previous year, details of disallowed expenses, and any other relevant documents. - Provide explanations and justifications in the rectified return and subsequent year’s return to support the claim for set off.
### Conclusion:
To sum up, you should first rectify the previous year's return to correct the disallowance of PF and ESIC expenses. Once rectified, you can then claim the set off of these expenses in the subsequent year’s return under Section 37(1) of the Income Tax Act. Ensure all filings are done within the timelines prescribed to avoid any further complications.
If you need assistance with the rectification process or further clarification on the tax implications, it’s advisable to consult with a tax professional or Chartered Accountant who can provide personalized guidance based on your specific circumstances.
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