ASSISTANT COMMISSIONER OF INCOME TAX 21(2), MUMBAI vs. PHE CONSULTANTS, MUMBAI

Brief facts are, the assessee a partnership firm is carrying on business of providing consultancy service in environment sector. For the assessment year under dispute, the assessee filed its ori on 29th September 2012, declaring total income of ` 10,66,930. During the assessment proceedings, the Assessing Officer noticed that the assessee had debited an amount of ` 1,98,75,000, to the Profit & Loss account towards fees receivable, called upon the assessee to furnish the necessary details and explain why the deduction claimed should not be disallowed, as it is not in the nature of expenditure. Though, the assessee filed its explanation objecting to the proposed disallowance and justified its claim, however, the Assessing Officer did not find merit in the submissions of the assessee. He observed, the amount receivable cannot be debited as expenditure since it is not expenditure but a revenue receipt which should have been shown on the credit side of the Profit & Loss Account. Accordingly, disallowing assessee’s claim he treated the amount of ` 1,98,75,000, as income of the assessee. The assessee challenged the aforesaid addition before the first appellate authority.

After considering the submissions of the assessee, learned Commissioner (Appeals) found that the assessee is following a method

The learned Departmental Representative relying upon the observations of the Assessing Officer submitted, the amount receivable cannot be claimed as expenditure. Therefore, he justified the disallowance made by the Assessing Officer.

Shri K. Gopal, learned Counsel for the assessee submitted, the assessee is rendering services to the Brihanmumbai Municipal corporation (BMC). He submitted, as per the system of accounting followed by the assessee, at the end of each accounting year it estimates the extent of work done and makes a provision for fees receivable in the books of account which is offered to tax. He submitted, the provision is reversed in the succeeding year and claimed as expenditure. He submitted, the aforesaid method of accounting is followed by the assessee from the very inception of its business. He submitted, following the same method of accounting the 4 PHE Consultants assessee offered the fees receivable as income in the assessment year 2011–12 and in the assessment year 2012–13 the opening balance of fees receivable was claimed as expenditure. He submitted, by again bringing to tax the amount of ` 1,98,75,000, in the impugned assessment year, the Assessing Officer is actually taxing the same income twice. Thus, he submitted, learned Commissioner (Appeals) was justified in deleting the addition. In support of his submissions, learned Authorised Representative relied upon the decision of the Hon'ble Jurisdictional High Court in PCIT v/s C.U. Inspections India Pvt. Ltd., [2018] 91 taxmann.com 344 (Bom.).

We have considered rival submissions and perused the material on record. From the facts and material on record, it is evident that as per the method of accounting followed by the assessee, income is recognized on the basis of consulting fees actually received and consultancy fee receivable to the extent of work done during the year. Thus, as per the method of accounting, the assessee had offered the amount of ` 1,98,75,000, as income in the assessment year 2011–12 on the basis of work done, though, the amount was shown as receivable in the books of account. Since, the income was already offered in the assessment year 2011–12, the opening balance of the amount receivable was reversed in the impugned assessment year and the assessee claimed it as expenditure in the Profit & Loss Account. There is no dispute that the assessee is following the aforesaid method

In the result, appeal is dismissed. Order pronounced in the open Court on 24.05.2019