Prior period expenses

Tax queries 2003 views 2 replies

CA Neha Jain

Practicing CA

218 Points Posted on 13 October 2011

i have the querry about payment of discretionary bonus. in last year, company paid bonus to employees but not provided for Q4 as it was approved and paid after balance sheet date but before approval of accounts by board.

in current year, company has paid the bonus fro Q4 of last year and also provided for it for Q4 in current year which also approved and paid after balance sheet date in line with AS-4 As - Contingencies and Events Occurring After the Balance Sheet Date

Will the bonus paid for last year will be prior period for accounts purpose.

Can company claim the bonus paid for last year in current year return (if shown as priod period item in financial statements) arguing that the actual liability for paying bonus was established in current year as it is descretionary.

Please advise and suggest case laws if any available.

Thanks in advance

Replies (2)

Dushyant Vithlani

Chartered Accountant

34 Points Posted on 13 October 2011

Prior Period Items are incomes or expenses which arise, in current financial year as a result of error or omission in the preparation of Finanancial statements of one or more year.

In Your case it seems that ' discretionary' bonus not provided for the 4th Quarter in preceding year does not qualify for Prior Period Item for the current financial year.

Allowability of Bonus Under Income Tax Act, 1961:

As per S.36(1)(ii) Bonus or commission paid to employees is allowable as deduction subject to S.43B

As per S.43B Certain expenses are payable on payment basis.