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Itr-6: prior period expenses

yashsr (CA) (2285 Points)

31 March 2012

Prior Period Expenses are disallowed under the Income Tax Act, correct?

Now, for a Pvt Ltd. Company, when I enter details of prior period expenses in the sheet 'Other Information' in point no.15 for Assessment Year 2011-12 in ITR-6, the profit figure remains unadjusted. Shouldn't the profit reduce by the same? Whats the deal?

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9 Replies

Sonam Bidasaria (CA) (770 Points)
Replied 02 April 2012

Any detail given in "Other Information" is just additional information required to be given. It has no nexus with any calculation and that is why profit did not get reduced automatically.

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Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 02 April 2012

Prior Period Expenditure is allowed under the I-T Act. However a seprate disclosure is requried to be given in Form 3CD.

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Sonam Bidasaria (CA) (770 Points)
Replied 02 April 2012

Prior period expense is not allowable under Sec 37(1) of Income tax Act, 1961.

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yashsr (CA) (2285 Points)
Replied 02 April 2012

Hmm,

Thanks for the replies! I'm a little confused on the fact whether the Prior Period Expenses are allowed. In one particular case, the auditor had forgotten to account for Professional Fees in a particular year. In the next year, a new auditor was appointed. So the new auditor, along with the Professional Fees for that particular year, he also added the Professional Fees of the preivous year in the Profit & Loss A/c and added a note in the 'Notes to Accounts' stating that this is a prior period expense.

Now, whether the entire Professional Fees figure will be allowed under Income Tax, 1961(which I believe that logically it should since it wasn't claimed last year) or only the Fees of the current year will be allowed and not the earlier year's fees??

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 02 April 2012

Section 37(1) states as below:

37. ⁹⁵ (1) ⁹⁶ Any expenditure⁹⁷ (not being expenditure of the nature described in sections 30 to 36 ⁹⁸ [***] and not being in the nature of capital expenditure⁹⁹ or personal expenses of the assessee), laid out or expended wholly and exclusively⁹⁹ for the purposes of the business⁹⁹ or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”.

The expendituer as per section 37 are all residuary expenses whihc are not mentioned u/s sections 30-36 provided they are incurred wholly for the purpose of business. so any expendituer whether it is prior perido or pertaining to the F.Y. will be allowed as an expenses.

Hnece the Prof fees for teh prior period as well as the current period could be claimed in teh current year.

Only the expenditure mentiond below are disallowed u/s 37

2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party.]

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Rupesh Soni (Taxation Consultant & CA final student) (493 Points)
Replied 02 April 2012

yes,prior period items alwaz relating to earlier year items so its disallowable as per income tax act 1961 but if assessee covers in tax audit then tax auditor must describe about that items

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 02 April 2012

Can anyone provide me the section reference of the I-T Act or any case law which says that prior period expense is disallowed.

yashsr (CA) (2285 Points)
Replied 02 April 2012

Originally posted by : Giridhar S Karandikar
	Can anyone provide me the section reference of the I-T Act or any case law which says that prior period expense is disallowed.