X purchased a guds on credit from Y for Rs. 1,20,000 in P/Y 2007-08 .. But due to dispute payment is not made to Y . X debited his p/l A/c by such amount and expense was allowed to him .
During P/Y 2008-09 , Y made settlement with X and agreed to receive Rs 90,000 as full n final settlement .
The remission of Rs 30,000 is treated as Income of X for the P/Y 2008-09 ...
will x get any deduction in P/Y 2007-08 .. ??
Dear Nishie,
Look, the first question in this case would be whether the expense in FY 2007-08 of Rs. 1.20 Lacs was recognised based on accepted principles or not,Keeping in mind what AS-4 says Event occuring After Balance Sheet Date
If yes the expense was rightly recognised during FY 07-08, THEN -
As u have mentioned, X was alowed deduction of Rs. 1.20 Lacs in FY 07-08
Therefore same will be allowed & in FY 2008-09, Rs. 30,000 will be treated as Income of X..
If expenses was wrongfully/errorneously recognized or it was just a provision based on AS -29, in FY 07-08, then the expenditure of Rs. 1.20 Lacs will not be allowed in FY 07-08 itself
IN FY 2008-09, When Liability becomes concrete then Rs. 90,000 will be allowed as deduction.
the first entry in respect of ur transaction will be in X books is
purchases a/c..............Dr 120000
to Y a/c...................... 120000
u can make a corresponding debit to Y account only if payment is made or goods are returned to Y.
in the subsequent year when payment is settled is for 90000 there will be a balance of 30000 in Y a/c and that 30000 will be considered as deemed income u/s 41 of Income Tax Act. Remission or cessation of liability read section 41 u ll have a better understanding.........
CAclubindia
