2021 (8) TMI 509

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....es made by the A.O. 2. The facts relating to the issue are stated in brief. The assessee is engaged in the business of design, development and testing of software. During the course of assessment proceedings, the A.O. noticed that the assessee has declared a sum of Rs. 16,86,334/- as other non-operating income (net of expenses). It was submitted that the same represents "net prior period item" as detailed below: Sale of Services - Rs. 1,29,28,560/- Less: Salaries and wages - Rs. 1,12,42,226/-     Rs. 16,86,334/- 3. The A.O. expressed the view that the prior period expenses are not allowable as expenditure. However, prior period income can be brought to tax. Accordingly, the AO computed disallowance....

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....his appeal before us. 5. The only that arises for our consideration is whether the tax authorities are justified in disallowing the prior period expenses alone, while assessing the prior period income? 6. The Ld. A.R. submitted that the assessee has deducted the prior period expenses from prior period income. The AO has assessed prior period income and disallowed prior period expenses. He submitted that the income relating to a particular year is only assessed in that year. Hence the AO has to either ignore both prior period income and prior period expenditure or assess net income only. Inviting our attention to the decision rendered by Hon'ble Gujarat High Court in the case of Principal CIT Vs. Dishman Pharmaceuticals & Chemicals ....