Taxation Prior Period Item

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 October 2010 Please guide on how the taxation of Prior period item as per AS 5 is done while calculating tax liability of Co.

Please explain on both expenses and income.

Sanjay Dugar

Sanjay Dugar (Expert)
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24 October 2010 The prior period expense cannot be claimed in the relevant AY. If the assessee wants to claim the prior period expense than it should revise the earlier year ROI. However, if the time to revise ROI has expired but the case of the assessee is in scrutiny proceedings than the assessee can file a request before the AO to allow the claim of such expenses, else such expense is a dead loss and cannot be claimed in any ROI.
In case of prior period income the assessee should revise its ROI. If the same cannot be revised than it should offer for tax in sebsequent assessment years to avoid penalty.
However there has been a recent Delhi HC judgment which says if the AO is taxing the prior period income in a revelant AY than he should also allow the assessee's claim of prior period expense.
You can also refer to the 2008 Delhi HC judgment in case of Vishnu Industrial Gases wherein the HC is of the opinion that if the tax rate is same for both the AY and there is no loss of Revenue than the dept should not some up with such disallowances.
The law on prior period income / expense is not completed settled yet and may follow with further judgments by courts.