INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Prior period expenses - Expenses crystallized during the year under consideration -

Assessee-company was a Government of Rajasthan Enterprises engaged in the business of mining, processing and trading of minerals. It claimed deduction for prior period expenses. AO required assessee to explain as to why the claim of deduction on prior period expenses should not be disallowed as assessee had been following the mercantile system of accounting. Assessee submitted that it was a State Government Undertaking, where the rules for passing the vouchers are very stringent. The process of clearing bills and vouchers took time because it was checked whether claim was as per rules or not. Therefore, approval of appropriate authority was granted after some time and some of the expenditures, approval of which was granted in the year concerned, were claimed as deductible. Held: Assessee explained the reasons for claiming impugned expenditures in the year under consideration because bills either received during the year under consideration or payments were approved during the year under consideration, therefore, liability for these expenditures crystallized during the year under consideration. Once these facts were not disputed by AO and assessee had been regularly and consistently following the same method of accounting and system of approval of payments, then claim of prior period expenses could not be disallowed, especially when assessee was paying tax at maximum marginal rate and there was no change in the rate of tax for the year under consideration in comparison to preceding year.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2007-08

INCOME TAX ACT, 1961

Section 37(1)

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