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2014 (11) TMI 1268 - AT - Income TaxAllowability of prior period expenses - recompute the loss for assessment year 2006-07, as these were not allowable - HELD THAT:- CIT(A) examined these facts and has held that prior period expenses are below the line adjustment and are carried to balance sheet but not claimed for income-tax purpose. He accordingly directed the Assessing Officer to verify the same and recompute the loss. Though the Revenue has challenged the order of the ld. CIT(A), but could not point out any infirmity therein, as the assessee has not included the prior period expenses in the computation of income. Therefore, there is no question of disallowance. He, however, referred the matter to the A.O. for re-computation of loss after verification. Therefore, we find no infirmity in the order of the ld. CIT(A) and we accordingly confirm the same. Netting of prior period expenses and prior period income - Disallowance be restricted to the net prior period expenses debited to the profit and loss account - HELD THAT:- Revenue has preferred an appeal before the Tribunal with the submission that netting between prior period expenses and prior period income may be permissible, but the net prior period expenses cannot be allowed against current income of the impugned financial year. Therefore, disallowance be restricted to the net prior period expenses debited to the profit and loss account. To this effect, the ld. counsel for the assessee has no objection. Assessee has further submitted that the entire prior period expenses cannot be disallowed, as it can be set off against the prior period income. If any disallowance is required to be made, it can only be restricted to net prior period expenses debited to the profit and loss account of the current year unless and until it is crystalised in the current year. In this regard, no direction was made by the ld. CIT(A) and the AO has also not looked into this aspect of the matter. We accordingly modify the order of the ld. CIT(A) and restore the matter to the AO with a direction to make necessary verification and if any disallowance is required to be made, it can only be made with respect to the net prior period expenses debited to the profit and loss account of the current year, if it is not crystalised during the impugned financial year.
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