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Discussion > Income Tax > Tax queries >

Prior period expenses disallowed under section

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CHARTERED ACCOUNTANTS

[ Scorecard : 81]
Posted On 24 September 2011 at 12:49 Report Abuse

Under which section of Income Tax Act the Prior Period Expenses is Disallowed.........if not then under which section its allowed?


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Member (Account Deleted)
CA Final

[ Scorecard : 467]
Posted On 24 September 2011 at 13:27

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 subscripttion.  

Its Long section u can refer act.

Pls correct me if i m wrong.





Sudheesh
CA Final

[ Scorecard : 71]
Posted On 24 September 2011 at 13:33

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

[ Scorecard : 520]
Posted On 24 September 2011 at 16:05

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.



Total thanks : 1 times



Sudheesh
CA Final

[ Scorecard : 71]
Posted On 24 September 2011 at 16:30

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

 




Member (Account Deleted)
Tax faculty & Tax consultant

[ Scorecard : 1118]
Posted On 24 September 2011 at 22:38

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.

http://taxbykk.blogspot.com/




Prakash
Chartered Accountant

[ Scorecard : 520]
Posted On 25 September 2011 at 00:32

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



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