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2020 (12) TMI 1181 - AT - Income TaxDisallowance on account of prior period expenses - HELD THAT:- In the present case all the expenses claimed by the assessee under the head prior period expenses do not represent the expenses. As such the 2 items namely interest income and rental income represent the income which was offered to tax in the earlier years and written off in the year under consideration as claimed by the assessee which in our considered view represent the bad debts - assessee cannot be allowed deduction for these items as prior period expenses. But the same can be claimed as bad debts under the provisions of section 36(1)(vii). On perusal of the documents filed by the assessee it is not decipherable whether the impugned amount of bad debts were offered to tax in the earlier years and the same were written off in the books of accounts in the current year as on 31-3-2006 as contended by the assessee. Similarly, it is also not clear that the assessee has not claimed such interest as bad debt along with the bad debts of the debtors as apprehended by the learned CIT(A) in his order dated 4th June 2015. On perusal of the financial statements prepared under the companies Act for 11 months, the assessee has shown prior period adjustments - where the assessee has adopted a different period under the companies Act than the previous year defined under the Income Tax Act, it is to file separate financial statements under the Income Tax Act. But we note that the assessee has not filed such financial statements prepared under the Income Tax Act. Thus in the absence of sufficient documentary evidence by the assessee even in the set-aside proceedings, we are not inclined to disturb the finding of the authorities below. Reversal of the rental income - Assessee has justified its claim based on the documentary evidence that it has reversed the entry in respect of accounts of the rental income which was offered to tax. Accordingly, we find that the conditions as specified under section 36(1)(vii) of the Act have been duly satisfied. Accordingly, we reverse the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Advance given to the sales representative - Though it is not a prior period expenses/adjustment, but represent the loss which has been incurred in the course of the business. Once the assessee has written of any loss in the books of accounts which was incurred in the course of the business, we are of the view that such loss is eligible for deduction. Accordingly, we reverse the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Thus the ground of appeal of the assessee is partly allowed.
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