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Whether prior period expenses are allowable under IT act

CA Rachit Gupta (Chartered Accountant) (1315 Points)

27 August 2010

Dear Sir/Mam

I have some confusion regarding treatment of prior period expenses.

If some expenses of repair and maint. of plant & machinery (assumed not applicable for TDS) are related to the P.Y. 2008-09 and by mistake not booked in the same year but booked in the F.Y.2009-10.

Then whether these expenses are allowed as deduction as per Income Tax Act. and if not the under which section the same is disallowed. please refer relevant case law regarding the same, if any.

Thanks

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13 Replies

CA Gaurav Rastogi (Finance & Account Officer) (189 Points)
Replied 27 August 2010

HI Rachit,

Prior Period expenditure are not allowed under Income Tax.

1 Like

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Manmohan ACA, CS (Chartered Accountant ) (14243 Points)
Replied 27 August 2010

In recent ruling, the Delhi high court had an occasion to deal with the tax treatment of prior period expenditure. The court held that the question as to the year in which a deduction is allowable may be material when the rate of tax chargeable is different in different years. The court opined that where tax is levied at a uniform rate, it is immaterial whether the deduction is allowed in one assessment year or another. The tax department is not at loss in any event. The high court also observed that the tax department should restrain itself from raising points which do not affect the taxability of the assessee or the tax that the Department is likely to collect from the assessee in one year or other.

3 Like

Arvind Sharma (ACA) (1432 Points)
Replied 27 August 2010

Dear Rachit..,

It is clearly given that an assessee following mercantile system of account shall not be allowed any expense which pertain to any previous year other than concerned PY except those expenses which are specially allowed under the Act (viz disallowance u/s 40(3)(b) in previous FY is allowable in current FY if so paid)..,

So u cant claim deduction of such Plant & Machinery Exp.., however, u can capitalized it showing it as capital WIP (if u can so) and can claim dep...

1 Like

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 27 August 2010

THANKS A LOT FRIENDS. I ALSO HAVE THE SAME DOUBTS AS TO WHETHER PRIOR PERIOD EXPENSES ARE ALLOWED OR NOT.

THANKS FOR RESOLVING QUERY.

REGARDS,

MANOJ

ANAS. P J (ARTICLE) (56 Points)
Replied 27 August 2010

i think prior period expenses are not allwable.

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CA Prabhakar (Assistant Manager - Taxation) (21 Points)
Replied 28 August 2010

Hi Rachit

Priod period expenses is always disallowed. In your case you have to disallow the repairs expenditure in A.Y. 2010 -2011 (F.Y.2009-2010) and you can revise the return of Income for A.Y. 2009-2010 (F.Y. 2008-2009) for claming the repairs expenditure in the return of Income( if amount is material).

kalyan (Manager - Accounts) (99 Points)
Replied 28 August 2010

hi All...

In case of CIT vs. Vishnu Industrial Gases (Delhi High Court)Where the department had not disputed that the expenditure was deductible in principle but was only disputing the year in which the deduction could be allowed HELD, castigating the department, that as the tax rates were the same in both years, the department should not fritter away its energies in raising questions as to the year of deductibility/taxability.

So Prior period expenditure is allowed.