Claiming Rent Expenses Invoiced Late Due to Vendor Dispute – Guidance Needed

[Ramanathan Seshan]

Dear experts,

Company A rented a premises starting January 2025. Due to disagreements with the (unregistered) vendor, rent invoices for February and March 2025 were not issued on time and were only raised in April 2025. No provision for these expenses was made in the books during FY 2024-25. As a result, the rent expense for Feb and Mar 2025 can't be claimed in the ITR for AY 2025-26, and if claimed in the next year, it may be disallowed as a prior period expense.

What options are available to legitimately claim these expenses? Is there a possible accounting or tax treatment that would allow for their deduction?

Regards,

S Ram

AI Summary

Crystallization of liability allows rent for earlier months to be deducted when the liability became ascertainable on invoice receipt.
Company A did not receive invoices for Feb-Mar 2025 due to a dispute; invoices were issued in April 2025 and no accrual was made in FY 2024-25. The recommended treatments are: (1) treat the liability as crystallizing on invoice receipt and recognize the expense in FY 2025-26 with supporting documentation and tax-audit disclosure; (2) if crystallization cannot be substantiated, disclose the amount as a prior period expense and report it in tax audit disclosures; or (3) where filings allow, record a back-dated provision and file revised accounts and returns, subject to auditor and filing constraints.