ITAT deletes Disallowance as prior period Expenses as Assessee paid and accounted for Expenses in Books of Accounts [Read Order]

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The Chandigarh Bench of Income Tax Appellate Tribunal (ITAT) has deleted the Disallowance as prior period expenses as assessee paid and accounted for the expenses in the books of accounts.

The assessee, M/s. Kamla Retail Ltd. has challenged the sustenance of disallowance of Rs.30,45,000/- as prior period expenses. In this regard, briefly, the facts of the case are that the AO observed that the assessee has debited a sum of Rs.30,45,000/- under the head “prior period expenses” and the assessee was asked to show cause as to why this expense should not be disallowed being related to prior period. In its response, the assessee submitted that this expense pertains to rent payment for the stores at JW Marriot Hotel, Mumbai and pending negotiation with the landlord and the brand owners for a possible remission in rent due to poor performance of the store, the lease rent was not paid earlier and the final settlement was reached in August, 2009 and lease rent was thereafter paid as per the modified terms. The submissions so filed were considered but not found acceptable to the AO and the amount of Rs.30,45,000/- was held not allowable and disallowed and added to the income in the hands of the assessee.

The assessee carried the matter in appeal before the CIT(A) and the submissions made before the AO were reiterated and it was also submitted that though the rent pertains to earlier year, the settlement was made during the financial year relevant to the impugned assessment year and, therefore, the liability has crystallized during the year and, therefore, the same should be allowed in the hands of the assessee. In support, copies of the communications with the landlord with regard to the remission of rent were submitted during the course of appellate proceedings which were sent to the AO and Remand Report was called for. In his rejoinder, the assessee submitted that the AO in his Remand Report has acknowledged that as per letter dated 17.8.2009 issued by the landlord, there is a reduction of licence fee from Rs.7 lacs to Rs.3 lacs which indicates that there were negotiations going on for settlement of rent.

The coram of Judicial Member, Diva Singh and Accountant Member, Vikram Singh Yadav has held that the expenses have been incurred for the purposes of assessee’s business and the only question which has been raised is the year of allowability which leads us to another facet of the matter which is that the aforesaid expenses in nature of rental payments are subject to TDS u/s 194I and the provisions of section 40(a)(ia) are equally attracted which provides for the allowability of expenses in the year in which the TDS has been deducted and paid. In the instant case, it is a matter of record that the assessee has paid and accounted for these expenses in the books of accounts in the financial year relevant to the impugned assessment year and has deducted and deposited TDS in the financial year relevant to the impugned assessment year and not in the earlier assessment year. Therefore, even from the perspective of harmonious construction of all relevant provisions, the assessee deserves an allowance towards these expenses in the year under consideration.

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