Bibhu Prasad Mohapatra (CHARTERED ACCOUNTANTS) (122 Points)
24 September 2011Under which section of Income Tax Act the Prior Period Expenses is Disallowed.........if not then under which section its allowed?
35D
1. Pre-commencement expenses and expenses in connection with extension/setting up of industrial unit allowed as a deduction to the extent of one-FIfth of such expenditure for 5 years.
Its Long section u can refer act.
Pls correct me if i m wrong.
| Originally posted by : pooja | ||
 |
35D 1. Pre-commencement expenses and expenses in connection with extension/setting up of industrial unit allowed as a deduction to the extent of one-FIfth of such expenditure for 5 years. 2. Expenses incurred, by an Indian company or a resident non corpotare assessee, before the commencement of business in connection with preparation of feasibility report, project report, market survey, engineering services, legal charges, printing of memorandum and articles of association, fees for registering the company and issue of shares or debentures for public subscriptttion. Its Long section u can refer act. Pls correct me if i m wrong. |
 |
Pooja , the first person is not concerned about 35 D . Suppose an exp was incuured in P Y 2009-10. But , unfortunately missed to book the same . The exp now booked in P Y 20010-11. Can we allow this exp in P Y 2010.11 . I think not , becs this expenditure can not be matched with 2010-11 year income. Can anybody suggest the correct section NO ?
Thanks in advance
Prakash
(Chartered Accountant)
(560 Points)
Replied 24 September 2011
There are no specific Sections Dealing with Prior Period Items, either as Allowable (Sec 30 to 37) or as Disallowed (Sec 40, 40A)
Except Sec 37 in all the other sections Allowable expenses are clearly defined and same in Sec 40, 40A, 43B everything clearly defined of what to Disallow. Exhaustive we can say
If we wish to take Sec 37 shelter, there also in order to claim the expenses should be incurred during the year and it should be pertain to current previous year
Even Sec 41 Deemed profits chargeable to tax also does not talk about unrecorded incomes of erliar years
So, in my view if we go for strict interpretation of Law the only option available for us is to revise the return of erliar years. I have enough grounds to proove this
Say for example I forgot to show My Interest income in Last year return (FY 10-11) and my total income excluding Interest is 1, 55,000 and my Interest income 25,000, so accordingly I paid nothing towards tax as below exemption limit (1,60,000)
As I'm one of the true taxpayer in India, now I decided to show the Interest earned last year in this year return.
This year also I got 1,55,000 other income and Last year interest 25,000, so on total 1,80,000 I'm ready to pay tax. To my luck exemption limit increased to 1,80,000 for male buddies this year, so No tax
Do you agree with above ??
So, you have to Revise the return for errors and omissions though shown as prior period Items. As tax laws are changed every year which may benefit either Assessee or Dept
But you can consider the materiality Concept here, if the amounts are too small (depends on your transactions) you can consider the same in current year, no body is there to oppose you. I do the same for a few of my companies.
| Originally posted by : Prakash | ||
|
|
There are no specific Sections Dealing with Prior Period Items, either as Allowable (Sec 30 to 37) or as Disallowed (Sec 40, 40A) Except Sec 37 in all the other sections Allowable expenses are clearly defined and same in Sec 40, 40A, 43B everything clearly defined of what to Disallow. Exhaustive we can say If we wish to take Sec 37 shelter, there also in order to claim the expenses should be incurred during the year and it should be pertain to current previous year Even Sec 41 Deemed profits chargeable to tax also does not talk about unrecorded incomes of erliar years So, in my view if we go for strict interpretation of Law the only option available for us is to revise the return of erliar years. I have enough grounds to proove this Say for example I forgot to show My Interest income in Last year return (FY 10-11) and my total income excluding Interest is 1, 55,000 and my Interest income 25,000, so accordingly I paid nothing towards tax as below exemption limit (1,60,000) As I'm one of the true taxpayer in India, now I decided to show the Interest earned last year in this year return. This year also I got 1,55,000 other income and Last year interest 25,000, so on total 1,80,000 I'm ready to pay tax. To my luck exemption limit increased to 1,80,000 for male buddies this year, so No tax Do you agree with above ?? So, you have to Revise the return for errors and omissions though shown as prior period Items. As tax laws are changed every year which may benefit either Assessee or Dept But you can consider the materiality Concept here, if the amounts are too small (depends on your transactions) you can consider the same in current year, no body is there to oppose you. I do the same for a few of my companies. |
|
Dear Prakash
Have a great Day
To sum up , if we are not in a position to revise the return of earlier years, we will dis allow prior period expenditure ( refering sec 37 exp should be pertaining to current year ). But as far as the income is concerned, dept is not ready to lose its revenue , it will be subject to tax .
Any how explanations are very good and interesting . Keep updating
Deduction of business expenses can be claimed only if business is commenced. This is as per S 28(i). Therefore prior period expenses are disallowed u/s 28 itself.
However section 35D allows it as mentioned above.
Prakash
(Chartered Accountant)
(560 Points)
Replied 25 September 2011
Sir, I think the question raised is not related to Preliminary or Pre incorporation Exp, its about prior period items, I assumed as previous years
If it is what you and pooja posted is correct
sandeep sahu
(sm)
(93 Points)
Replied 24 August 2017
In continuing business prior period expenses are disallowed u/s 14A of the Income Tax Act.
BHUTESH KUMAR MALVIYA
(Sr. Account Officer(DSM Sugar-Rajpura))
(47 Points)
Replied 04 September 2019
Rule 14A related to exempt Income. Not deal with Prior period Expenses.
Sanjay Suryavanshi
(Service)
(0 Points)
Replied 26 October 2023
Section 14A of the Income Tax Act stipulates that expenses related to earning income not included in the total income should not be deducted when calculating the taxpayer's total income.
Rule 8D provides a method for determining these expenses. It applies when a taxpayer claims no expenses or when the assessing officer disagrees with the taxpayer's claim and finds issues in their accounts.
CAclubindia
