Expenses allowed in current year though accounted in subsequent year as prior period items and disallowed in computation
ABCAUS Case Law Citation
ABCAUS 3560 (2021) (11) ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming disallowance of expenses related to current assessment year, but debited in the books of accounts in the profit and loss account in subsequent year.
The appellant assessee filed its return of income declaring a loss. The return was revised with increased amount of loss.
In the revised return filed, the assessee claimed expenditure in current year for expenses which were debited in the profit and loss account in the subsequent year.
The assessee’s claim was that though those were the expenses of revenue nature pertaining to current year, but accounted for in subsequent year. In the subsequent year these expenditure were held to be prior period expenditure and disallowed in the computation of total income. Details of such expenses was furnished to the Assessing Officer (AO).
The Assessing Officer did not accept the argument of the assessee stating that there was no justification given by the assessee as to why these expenses were accounted for in the subsequent year, but not in this year.
Accordingly, the AO made assessment under Section 143(3) of the Income Tax Act, 1961 (the Act) making the impugned disallowance.
The Tribunal observed that the assessee had given the details of the expenditure and had shown that they were pertaining to current year. Therefore, the claim of the assessee was that expenditure should be allowed in the year in which they are incurred.
The Tribunal opined that those expenses might have been not accounted for in the current year, but in subsequent year. For this reason only the same were classified in subsequent year as prior period expenditure. In the subsequent year same were disallowed by the assessee.
The Tribunal stated that there was no need for any justification as to why these expenses have not been accounted for in this year. If the expenses are incurred and expended wholly and exclusively for the purposes of the business, they should be allowed as deduction in the year in which those are incurred or expended. Assessee did satisfy this condition.
The Tribunal said that there was no justification in upholding the disallowance. Accordingly, it directed the disallowance to be deleted and
the appeal was allowed in favour of the assessee.
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