Income tax section 40 disallowance of expenditures

Mukesh Khandelwal (Querist) 09 June 2014 This query is : Resolved
One of my Assessee’s income tax cases for assessment year 2012-2013 is under consideration. There was two expenditure debited by him in income and expenditure account in accounting year 2011-2012, Service tax demand for financial year 2009-10 for Rs. 132520/- Interest on service tax for financial year 2010-11 for Rs. 55642/-AO raised oral information to us that as the accounting system of Assessee was mercantile system. So why payment for previous year from the period under consideration, should be disallow under section 40 of income tax act. Please guide me what is the provision of section 40 or this type of govt. statutory tax liabilities due to service tax or other revenue department audit or scrutiny proceeding.
Thanks
Mukesh Khandelwal
mukesh_khandel@yahoo.com
9828242065

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B.Chakrapani Warrier (Expert) 07 August 2014
1) Can't be disallowed under section 40.

2) However, disallowable under section 37 since it is not an expenditure pertaining to the assessment year.

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