Prior period expenditure may be deductible when liability crystallises, not merely when the underlying event first arose.

Prior period expenditure was claimed as deductible in the year the liability crystallised, because the recipient had not completed the required formalities earlier. The Revenue contended that the expenditure related to earlier years and was not allowable under section 37(1) of the Income-tax Act, 1961. The Tribunal accepted the crystallisation basis and applied the principle that such expenditure may be allowed in the year in which the liability becomes ascertained, with the assessee succeeding on the ground pressed.

---

---

Issues: Whether prior period expenditure was allowable in the year in which the liability crystallized.

Analysis: The assessee pressed only the ground relating to prior period expenditure. The expenditure was claimed to have crystallized in the relevant previous year because the recipient could not complete the required formalities earlier. The Revenue's objection was that the expenditure related to earlier years and was not deductible in the year under consideration under section 37(1) of the Income-tax Act, 1961. The Tribunal accepted the claim of crystallization in the relevant year and applied the principle that such expenditure can be allowed in the year in which the liability becomes ascertained.

Conclusion: The prior period expenditure was held allowable in the year of crystallization, and the assessee succeeded on the pressed ground.

---