ROWEENA M. BHATIA,MUMBAI vs. ACIT 19(3), MUMBAI

Solitary issue urged in this appeal relates to addition of ` 7,77,430/- on account of professional/technical receipts. The assessee is providing web designing services. During the course of assessment proceedings, the Assessing Officer noticed that the professional receipts declared by the assessee was ` 48,21,947/-. However, from the TDS certificates furnished by the assessee, the Assessing Officer noticed that the gross amount of professional receipts worked out to ` 55,99,375/-. Hence, the Assessing Officer asked the assessee to clarify the difference of ` 7,77,428/-.

The assessee submitted that she had raised bill of ` 13.84 lakhs against Middle East Hotel Pvt. Ltd., but she could recover only a sum of ` 4.50 lakhs

Learned CIT(A) also confirmed the same by further holding that the assessee has failed to show that the amount so written off as bad debt has not been offered as income in the earlier years. Aggrieved, the assessee has filed this appeal before us.

We have heard the parties and perused the record. Learned AR invited our attention to copy of ledger account of professional fee receipts placed at page No. 44-45 of the paper book and also copy of Middle East Hotel Pvt. Ltd. placed at page No. 43 of the paper book. Learned AR submitted that the assessee has credited account of Middle East Hotel Pvt. Ltd. with a sum of ` 8,17,721/- and debited account of professional fee with a sum of ` 7,77,428/- with narration that the amount has been written off due to dispute and not realised. Learned AR submitted that the difference between two represents service tax payable and same has been debited to service tax account. Accordingly, learned AR submitted that that the assessee has reversed a part of bill raised on Middle East Hotel Pvt. Ltd. by debiting professional fee receipts account instead of debiting the same to bad debts account. He also submitted that provisions of section 36(2)(i) states that the amount so written off should have been taken into account in computing income of the assessee of the previous year in which the amount of such debt is written off or an earlier year. Accordingly the Ld AR submitted that the declaration of income during the current year also would satisfy the conditions prescribed in sec. 36(2)(i) of the Act. Learned AR further submitted that the assessee has credited

On the contrary, learned Departmental Representative submitted that the assessee has not offered amount so written off by him in the computation of income and hence learned CIT(A) has confirmed the disallowance.

Having heard the rival submissions, we are of the view that there is merit in the contention of the assessee. The amount receivable from Middle East Hotel P. Ltd. has been credited to the professional fee amount at the first instance. Subsequently, when the assessee found that a part of the bill amount is not realisable, the assessee has debited professional fee account by the amount not so realisable and credited the concerned party’s account. The accounting entry so passed by the assessee may also be interpreted as a case of offering discount to the client. Even if it is considered as bad debt, the fact that the assessee has credited entire bill amount to the professional fee account, in our view, would satisfy the requirements of section 36(2)(i) of the Act. Accordingly, we are of the view that the impugned claim is allowable as deduction and hence we do not find merit in the additions made by the Assessing Officer. Accordingly, we set aside the order of learned CIT(A) and direct the Assessing Officer to delete the addition of ` 7,77,428/-.

In the result, appeal filed by the assessee is allowed. Order has been pronounced in the Court on 20.7.2016