nishie (student) (88 Points)
10 February 2010X 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 .. ??
Amir
(Learner)
(4016 Points)
Replied 10 February 2010
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.
CA ravi kisore
(Assistant Manager Finance)
(54 Points)
Replied 18 September 2010
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.........
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