Prior period expenditure allowed when tax was deducted and remitted in the relevant year under section 40(a)(ia).

Prior period expenditure was treated as allowable in the year in which the corresponding tax was actually deducted and remitted, where the payment itself was made during that year. Applying section 40(a)(ia) and its provisos, the Tribunal stated that once tax is deducted and paid within the statutory framework, the deduction cannot be denied merely because the expense relates to an earlier year, subject to verification of actual tax payment. The disallowance was therefore not sustained, and the claim was allowed in the year of deduction and remittance.

---

---

Issues: Whether prior period expenditure was allowable in the assessment year in which tax was deducted and remitted, having regard to section 40(a)(ia) of the Income-tax Act, 1961.

Analysis: The expenditure, though relatable to earlier years, was actually paid in the relevant year and the corresponding tax was deducted and remitted during that year. The second limb of section 40(a)(ia) permits deduction where tax is deducted and paid within the statutory framework, and the provision was applied in the light of the provisos that govern allowability on actual payment of tax. The Tribunal followed its earlier view that the claim has to be allowed in the year in which tax is actually paid, subject to verification of such payment.

Conclusion: The disallowance was not sustained and the claim was allowable in the year of tax deduction and remittance; the Revenue's appeal failed.

---