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Prior Period Exp disallowance

CMA KHUSHAL (Deputy Manager - F&A) (85 Points)

23 June 2008

We have received a exp bill from one of the suppliers which pertains to 2004-05. Bill Value is Approx Rs 150000/-.

What is the implication of the above in TDS as these expenses pertains to prior period?

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19 Replies

Shekar (CA & LCS ) (1109 Points)
Replied 23 June 2008

Hi...

If that prior period expense attracts TDS provision..then TDS has to deducted while making payment...otherwise u cant claim that prior period exps in the current yaer..

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CA. Arul Mozhi Varman (Consultant) (291 Points)
Replied 23 June 2008

I think irrespective of the fact that whether TDS provision attracts or not, PRIOR PERIOD EXPENSES ARE NOT ALLOWED in the current year.

Friends, whatz ur opinin

CMA KHUSHAL (Deputy Manager - F&A) (85 Points)
Replied 23 June 2008

Dear Shekhar,

Thanks for the prompt resonce. Further few queries in this regard:-

1). yes, those exp will attact TDS. Should we deduct the tax at usual TDS rates or we need to deduct 33% (+cess ) as these pertains to prior period?

2). This is also applicable in case of service tax where bills pertains to prior period however getting paid in currenty FY.

Shekar (CA & LCS ) (1109 Points)
Replied 23 June 2008

Hi Khushal...

Sorry boss ,i got confused...

As u are talking abt Prior period item..Anyways it is not allowed in the current year..

Tht means u can't claim it as expense....When u can't claim it as an expense..then there is no question of Disallowance even if u have not deducted TDS u/s 40a(ia)

Expenditure can be Disallowed only when it is claimed as expense by assessee...In ur case u cant claim....so no impact even if u dont deduct TDS..

THIS IS MY OPINION MY FRIEND...

CMA KHUSHAL (Deputy Manager - F&A) (85 Points)
Replied 24 June 2008

Thanks for your valuable responce.

Yes, it is a bit of confusing matter. Actually we have received a bill of FY 06-07 for Rs 150000/-. Now confusion is

a) whether to pay the same after deducting TDS applicable @ current date.

b). whether to pay the same after deducting TDS @ 30%+ (as these are prior period exp and these were not included in financial books that time. Thus in that period, my profit was in excess by this amount. So a straight rate of 30% + will be charged)

Thats the question.. :).

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kalpana hegde (chartered accountant) (32 Points)
Replied 24 June 2008

sir, I think you should clarify whether that expense is liable for t.d.s and disallowance of same is correct during current year,

TDS should be paid during that year if not during this year it has to be paid Ok then diallowance of same is correct

CA. Arul Mozhi Varman (Consultant) (291 Points)
Replied 24 June 2008

Eventhough prior period items are disallowed, TDS provisions DO ATTRACT here. Therefore, if u dont deduct TDS, u will be penalised.

kalpana hegde (chartered accountant) (32 Points)
Replied 24 June 2008

But what about TDS returns for that particular expenditure?TDS returns should have been filed during previou s years. but not filed then the consequences?

CA. Arul Mozhi Varman (Consultant) (291 Points)
Replied 24 June 2008

TDS should be deducted at the time of credit or payment whichever is earlier.

If he had made payment (in advance), TDS should be deducted at the time of payment itself.

Here the bill is posted in the books (date of credit ) in this current year. So the TDS liability occurs only in the current year.

kalpana hegde (chartered accountant) (32 Points)
Replied 24 June 2008

I heard somewhere that due date for filing returns for all categories is 31st july this year , I s this true?

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S.Balakrishnan (Articled staff) (24 Points)
Replied 25 June 2008

Since Prior period Expenses are Disallowed once again it will not be disallowed for the non deduction of TDS(TDS is immaterial). TDS disallowance will apply only to the expenditure charged against revenue.

(Guest)

ssss

CMA KHUSHAL (Deputy Manager - F&A) (85 Points)
Replied 25 June 2008

Yes, it will be against revenue only. Cause

- These exp pertains to prior period where we already have shown my financial results.

- If these exp have been booked that time, may be our revenue would hv been down by such amount. As these exp were not booked that time, our revenue for that period was high.

-As revenues were high that time while exp are getting booked in a different financial year, we hv to pay a penaly kind of thing to the govt (for paying those priod period exp in current year)

So considering above points, i think we hve to deduct TDS @ 30+% instead of normal rate of TDS. (2+%). This I need to confirm if above thing is correct.