2022 (3) TMI 519 - AT - Income Tax

Disallowance of prior period expenses - Deduction of TDS in the current year - Application of first proviso to section 40(a)(ia) - scope of amendment to section 40(a)(ia) - whether assessee is entitled for claiming deduction in the assessment year under consideration? - contention of the ld. AR before us is that these two expenditure were actually incurred by the assessee in the assessment year under consideration as this expenditure crystallised in the year under consideration and the same has to be allowed in view of the proviso to section 40(a)(ia) - HELD THAT - The amendments to section 40(a)(ia) are made to alleviate the genuine hardships and unnecessary financial liabilities imposed on the taxpayers by refusing to give deductions of bona fide expenditure only for the reason of technical non-compliance of TDS provisions. Such an attempt was earlier also made by making the amendments to the provisions of section 40(a)(ia) by the Finance Act 2008 and the said amendments were consciously made with retrospective effect from 1-4-2005 keeping in view that the same were made with a view to mitigating the hardships caused to the assessee. The amendments made again to the provisions of section 40(a)(ia) by the Finance Act 2010 to tone down the rigour of law with the same intention however are made with effect from 1-4-2010. This proviso will come to the rescue of the assessee only when the expenditure was claimed by the assessee as a deduction in the earlier assessment year which was disallowed by the AO by invoking the provisions of section 40(a)(ia) of the Act on the reason of non-deduction of tax at source or remitting the same to the Government after deduction. But in this case the assessee has not claimed this expenditure as deduction in the earlier assessment year on account of nondeduction of tax by invoking the provisions of section 40(a)(ia) of the Act. Being so when it was not allowed disallowed by the AO in the earlier assessment year by invoking the provisions of section 40(a)(ia) the assessee in the subsequent assessment year cannot claim it as a deduction on payment basis by resorting to first proviso to section 40(a)(ia) of the Act. More so it is settled law that deduction can be permitted in respect of only those expenses which are incurred in the relevant accounting year for the purpose of computing yearly profits and gains. We find that the claim of the assessee on the above two heads of expenses pertaining to earlier period cannot be accepted as it has crystallised in the year and the bills were raised in the earlier assessment year. Being so the said expenditure cannot be allowed as deduction in this assessment year which is prior period expenses and first proviso to section 40(a)(ia) has no application in the present case.

Summary

Issues Involved:

1. Disallowance of ?14,84,965 paid to Suzlon Ltd. as prior period expenses.
2. Disallowance of ?1,34,832 paid to M/s. V J Shroff and Co. as professional consultancy expenses.
3. Admission of additional evidence under Rule 29 of the ITAT Rules.
4. Applicability of Section 40(a)(ia) of the Income-tax Act.

Detailed Analysis:

1. Disallowance of ?14,84,965 paid to Suzlon Ltd. as prior period expenses:

The Assessing Officer (AO) disallowed ?14,84,965, claiming it as prior period expenses. The assessee argued that the amount was for windmill maintenance by Suzlon Ltd., which was paid in April 2012 after negotiations. The CIT(Appeals) upheld the AO's decision, as the assessee failed to provide relevant correspondence for the relevant year to support the claim. The Tribunal agreed, noting that the expenditure was not incurred in the current year, thus disallowing the claim.

2. Disallowance of ?1,34,832 paid to M/s. V J Shroff and Co. as professional consultancy expenses:

The AO disallowed ?1,34,832, stating it pertained to prior years (FY 2007-09, 2008-09, 2009-10). The assessee contended that the expenses crystallized in FY 2012-13 based on an agreement with V J Shroff & Co. The CIT(Appeals) found the invoice dated 29.04.2009 and noted the absence of the alleged agreement. The Tribunal upheld this view, stating the expenses were not allowable in the current year as they pertained to earlier periods.

3. Admission of additional evidence under Rule 29 of the ITAT Rules:

The assessee sought to admit additional evidence regarding TDS made and remitted during AY 2013-14, which was not presented earlier. The Tribunal admitted the additional evidence, finding the reasons for non-production earlier to be valid and sufficient.

4. Applicability of Section 40(a)(ia) of the Income-tax Act:

The Tribunal discussed the legislative intent and amendments to Section 40(a)(ia), noting it aims to ensure compliance with TDS provisions. The Tribunal clarified that the proviso to Section 40(a)(ia) applies only if the expenditure was disallowed in an earlier year due to non-deduction or late payment of TDS. Since the assessee did not claim these expenses in earlier years due to non-deduction of TDS, the proviso did not apply. The Tribunal concluded that the expenses were prior period expenses and not allowable in the current year.

Conclusion:

The Tribunal dismissed the appeal, upholding the disallowance of both the prior period expenses and professional consultancy expenses. The additional evidence was admitted, but it did not change the outcome. The Tribunal emphasized that deductions are permissible only for expenses incurred in the relevant accounting year, and the proviso to Section 40(a)(ia) did not apply in this case.