TDS and prior period expenses

Priti,

I am touched by the innocence of your question! No, Sister, you neednot disallow the same amount twice in the Computation of Income.In the year of payment, the amount stood in the Balance Sheet sincehe forgot to transfer it to the appropriate expense account. TDSshould've been deducted, but wasn't.He'd be charging it to the P & L a/c this year. It can't be allowedsince it is a prior-period item. Since you have declared it to be aprior-period expense and aren't going to claim it, where is thequestion of disallowance u/s 40a(ia) for non-deduction of TDS? Theidea behind Section 40a(ia) is to create a disincentive for theassessees who shy away from their TDS responsibilities. But for adisincentive to take effect, there has to be an incentive first.Since you are foregoing claiming the amount on account of it being aprior-period expense, you never had an incentive to begin with!It does not seem you can claim this expense by revising the returneither, because he hadn't deducted TDS on it last year. If hededucts it now, that won't alter the nature of the expense beingprior-period.You have used the pronoun "He" to refer to your client. Soobviously, he is a proprietor. Which year did his sales cross Rs 40lacs? Please note that auditable individuals are liable to deductTDS only in the year succeeding the year in which their sales breachthe 40 lac mark. So if your client's turnover in the year of paymentbreached Rs 40 lac mark for the first time, he wasn't liable for TDSdeduction at all. You haven't mentioned the nature of the expense.If the payment was covered u/s 194C(1), then also note thatindividuals and HUFs became liable to make TDS only w.e.f 01.06.2007.Many people were in confusion about the issues I have discussed inthe last para above. So just in case, I thought, your case was alsocovered by any of these situations.

Thanks,

CA Sanjeev Bedi

--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=m9jBV6GUDqTi8v8M7Q3YrnnntiljQtsIoxLcpMRZWX1jMYfyK-JBhv7nRizZMxIL2wAYqkoC5TPH5AmdDPcLrL919RFYhECe5KuJs2Q, "preetiaca" wrote:>> One of my clients have incurred an expenditure in the previousyear> but had not provided for it in the books. He is considering that> expenses in the current year and had not deducted TDS while makingthe> payment.>> For income tax purpose do I need to disallow the expenditure twicein> my computation - once as prior period and the other u/s 40 (ia) as> being TDS not deducted

>> Priti CA>