Prior period income cannot be considered as income of the current year

When prior period expenses are not admissible as deduction, following the same principle the prior period income also cannot be considered as income

In a recent judgment, ITAT Ahmedabad accepted the contention that if the prior period expenses are not admissible as deduction, following the same principle the prior period income also cannot be considered as income

ABCAUS Case Law Citation:
4972 (2026) (01) abcaus.in ITAT

In the instant case, the appellant assessee had challenged the order passed by the CIT(A) in confirming the addition under the head of prior period income.

In the course of assessment, the AO had made an addition for the reason that the prior period income of the assessee was reduced twice. 

Before the Tribunal the assessee submitted that there was no mistake in the computation and the addition was made due to wrong understanding.  It was explained that both the prior period income and prior period expenses were taken out of computation for the current year.

It was submitted that since income of prior period was in excess of the prior period expenses, the same was rightly reduced in the computation of income for the current year.

The Tribunal observed that under Note 19 of the Financial Statement, the details of prior period items were appearing.  It was found therefrom that the assessee had prior period income of Rs. 3,44,604/- and prior period expense of Rs.2,33,494/-, resulting in net prior period income of Rs.1,11,110/-. 

This net prior period income of Rs.1,11,110/- was appearing as part of other income in the P&L account.  In the computation of income, the net prior period income of Rs.1,11,110/- was reduced from income for the current year.

The Tribunal further noted that the contention of the assessee was that if the prior period expenses are not admissible as deduction in the current year, following the same principle the prior period income also cannot be considered as income for the current year.

The Tribunal opined that the assessee had righty reduced the net prior period income in the computation of income for the current year and there was no mistake or arithmetical error in the computation of assessee. There was no double reduction of net prior period income as contended by the AO.

Accordingly, the addition made by the AO was deleted.

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