Mithi Software Technologies Pvt. Ltd., Pune V. Income-tax Officer,

ITA 1905/PUN/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9613 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 21-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Assessee Lawyers: P D KUDWA
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , ! ' # , $% &' #' , ' # '( BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWAS THY, JM '%. / ITA NO. 1905/PUN/2014 * +* / ASSESSMENT YEAR : 2007-08 MITHI SOFTWARE TECHNOLOGIES PVT. LTD., 103, MAYFAIR COURT, DR. PAI MARG, BANER ROAD, PUNE 411045 PAN : AABCM9352P ....... / APPELLANT /VS. INCOME TAX OFFICER, WARD 11(1), PUNE / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK AND SHRI P.D. KUDWA REVENUE BY : SHRI HITENDRA NINAWE / DATE OF HEARING : 03-04-2017 / DATE OF PRONOUNCEMENT : 06-04-2017 , / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDE R OF COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE DATED 28-03- 2014 FOR THE ASSESSMENT YEAR 2007-08. 2. IN APPEAL, THE ASSESSEE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE ADDITION S ON ACCOUNT OF : 2 ITA NO. 1905/PUN/2014, A.Y. 2007-08 I. ANNUAL MAINTENANCE CHARGES BILLED FOR UNEXPIRED PERIOD ` 7,84,204/-; AND II. DISALLOWANCE OF BAD DEBTS ` 36,912/-. 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD A RE: THE ASSESSEE COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE P RODUCTS AND PROVIDING EMAILING SOLUTIONS. THE ASSESSEE IS ALSO PROVIDES M ESSAGING SERVICES, SUPPORT/MAINTENANCE SERVICES ETC. THE ASSESSE E ENTERED INTO ANNUAL MAINTENANCE CONTRACT (AMC) WITH ITS CLIENTS FOR PROVID ING MAINTENANCE SERVICES FOR ITS SOFTWARE PRODUCTS. THE ASSE SSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 13 -10-2007 DECLARING TOTAL INCOME AS NIL AFTER CLAIMING SET OFF OF BROUGHT FORWARD LOSSES OF EARLIER YEARS. THE CASE OF THE ASSESSEE WAS SE LECTED FOR SCRUTINY UNDER CASS AND ACCORDINGLY STATUTORY NOTICE U /S. 143(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT) WAS ISSUED TO THE ASSESSEE ON 17-09-2008. DURING SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE CERTAIN ADDITIONS / DISALLOWANCES WHICH INTER ALIA INCLUDES RECEIPTS FROM AMC NOT OFFERED TO TAX ` 7,84,204/- AND BAD DEBTS WRITTEN OFF ` 79,734/-. AGGRIEVED BY THE ASSESSMENT ORDER DATED 24-12-2009, T HE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) UPHELD TH E ADDITIONS OF ` 7,84,204/- IN RESPECT OF AMC RECEIPTS FOR UNEXPIRED PERIOD AND PARTLY ALLOWED WRITING OFF OF BAD DEBTS. THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED DISALLOWANCE OF BAD DEBTS WRIT TEN OFF IN RESPECT OF : I. INTERNATIONAL ARC ` 3,240/- II. ICICI ONESOURCE LTD. ` 33,672/- TOTAL ` 36,912/- 3 ITA NO. 1905/PUN/2014, A.Y. 2007-08 AGGRIEVED BY THE ADDITIONS CONFIRMED BY THE COMMISSIONER O F INCOME TAX (APPEALS), THE ASSESSEE IS IN SECOND APPEAL BEFO RE THE TRIBUNAL. 4. SHRI NIKHIL PATHAK APPEARING ON BEHALF OF THE ASSESSEE SU BMITTED THAT ALTHOUGH THE ASSESSEE RECEIVES ENTIRE AMC CHARGES FROM ITS CUSTOMERS AT THE TIME OF EXECUTING AMC AGREEMENTS, BUT THE AMC CHARGES ARE TREATED AS INCOME ONLY AFTER THE ELAPSE OF PERIOD MENTIONED IN THE AGREEMENT. WHERE ANNUAL MAINTENANCE SERVICES ACC RUE IN MORE THAN ONE ACCOUNTING YEAR, THE AMC CHARGES FOR UNEXPIRED PERIOD ARE CREDITED TO UNEXPIRED SERVICES ACCOUNT AND ARE SHOWN A S CURRENT LIABILITIES IN THE BALANCE SHEET. THE AMOUNT CREDITED TO UN EXPIRED SERVICES IN CURRENT YEAR ARE TRANSFERRED TO REVENUE AC COUNT IN THE NEXT YEAR. REFERRING TO THE AMC AGREEMENT AT PAGES 51 TO 7 6 OF THE PAPER BOOK, THE LD. AR SUBMITTED THAT THE ASSESSEE IS UNDER OB LIGATION TO REFUND THE AMC CHARGES FOR UNEXPIRED PERIOD IF THE CUSTOM ER CANCEL THE AGREEMENT MIDWAY AND SEEK REFUND OF THE AMC CHARGES PA ID. BY PAYING AMC CHARGES THE CUSTOMERS ARE ENTITLED FOR SUPPO RT AND UPGRADE OF SOFTWARE DURING THE CURRENCY OF AMC. THE LD. A R CONTENDED THAT THE ASSESSEE RECOGNIZES INCOME FROM AMC ONLY FOR T HE PERIOD WHICH HAS ELAPSED. THE AMC CHARGES FOR UNEXPIRED PERIO D ARE NOT CONSIDERED AS INCOME OF THE ASSESSEE. THE LD. AR IN SUP PORT OF HIS SUBMISSIONS PLACED RELIANCE ON THE FOLLOWING DECISIONS : I. DEPUTY COMMISSIONER OF INCOME TAX VS. TVS ELECTRONICS LIMITED; 52 SOT 287 (CHENNAI-TRIB.), AND II. M/S. CAREER LAUNCHER (INDIA) LTD. VS. ASSISTANT COMMISSION ER OF INCOME TAX IN ITA NOS. 4924 & 4925/DEL/2009 FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 DECIDED ON 27-12-2010 . 4 ITA NO. 1905/PUN/2014, A.Y. 2007-08 4.1 THE LD. AR SUBMITTED THAT THE CASE OF ASSESSEE IS SQU ARELY COVERED BY THE DECISION OF CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF DEPUTY COMMISSIONER OF INCOME TAX VS. TVS ELECTRONICS LIM ITED (SUPRA). THE LD. AR FURTHER SUBMITTED THAT THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. CAREER LAUNCHER (INDIA) LTD. V S. ASSISTANT COMMISSIONER OF INCOME TAX (SUPRA) HAS HELD THAT WHERE TH E TUITION FEE IS RECEIVED FOR THE PERIOD OF TWO YEARS, THE SAME SHALL BE SPREAD OVER TOTAL PERIOD OF COURSE I.E. TWO YEARS. THE LD. AR POINTED T HAT IN THE CASE OF M/S. CAREER LAUNCHER (INDIA) LTD. VS. ASSISTANT COMMISSION ER OF INCOME TAX (SUPRA) THE FEES WAS NON-REFUNDABLE, STILL THE TR IBUNAL HAS ALLOWED TO SPREAD TUITION FEE OVER TOTAL PERIOD OF COURSE. THE CASE OF ASSESSEE IS ON A BETTER FOOTING AS UNDER REFUND POLICY OF THE AGREEMENT, THE ASSESSEE IS UNDER OBLIGATION TO REFUND PRO -RATA AMC CHARGES FOR UNEXPIRED PERIOD, IF CUSTOMER TERMINATES THE C ONTRACT IN BETWEEN. 4.2 IN RESPECT OF SECOND ISSUE RAISED IN APPEAL RELATING T O BAD DEBTS WRITTEN OFF, THE LD. AR SUBMITTED THAT THE ASSESSEE HAS WRITTEN OFF RECEIVABLES FROM INTERNATIONAL ARC AND ICICI ONESOURCE L TD. AS BAD DEBTS AS THE SAME HAD BECOME IRRECOVERABLE. THE ASSES SEE IN ORDER TO MAINTAIN HEALTHY BUSINESS RELATIONS WITH ITS CUSTOMERS DID NOT WANT TO ENTER INTO ANY LEGAL BATTLE WITH ITS CUSTOMERS. THE HON BLE SUPREME COURT OF INDIA IN THE CASE OF T.R.F. LTD. VS. COMMISSIONER OF INCOME TAX REPORTED AS 323 ITR 397 HAS HELD THAT THE ASSESS EE IS UNDER NO OBLIGATION TO ESTABLISH THAT THE DEBT HAD IN FACT BECOME B AD. THE ASSESSEE IS ONLY REQUIRED TO STATE THAT THE DEBT HAS BECOME IRRECOVERABLE AND HAS WRITTEN OFF THE SAME IN THE BOOKS. THE CLAIM OF 5 ITA NO. 1905/PUN/2014, A.Y. 2007-08 THE ASSESSEE IS IN LINE WITH PRINCIPLE LAID DOWN BY THE HON BLE APEX COURT. THE AUTHORITIES BELOW HAVE ERRED IN REJECTING THE CLAIM OF ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS CONTINU ED TO HAVE BUSINESS TRANSACTION WITH THE AFORESAID ENTITIES EVEN AFTER THE ASSESSEE HAS FAILED TO RECOVER THE OUTSTANDING AMOUNTS FROM THEM AND HAD DECLARED THE RECEIVABLES FROM THE SAID ENTITIES AS BAD DEBTS. 5. ON THE OTHER HAND SHRI HITENDRA NINAWE REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE FINDINGS OF COMMISSIONE R OF INCOME TAX (APPEALS) IN CONFIRMING THE ADDITIONS ON ACCOUNT OF ANNUAL MAINTENANCE CHARGES BILLED FOR UNEXPIRED PERIOD AND DISALLOWA NCE OF BAD DEBTS WRITTEN OFF. THE LD. DR REFERRING TO THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN PARA 4.3 OF THE IMPUG NED ORDER SUBMITTED THAT THE ASSESSEE HAS ADOPTED STRAIGH T LINE METHOD OF ACCOUNTING FOR RECOGNIZING INCOME FROM AMC CHARGES ONLY W ITH THE INTENTION OF POSTPONING TAX LIABILITY. THERE HAS BEEN NO SING LE INSTANCE WHERE THE ASSESSEE HAS REFUNDED ANY PART OF ANNUAL MAIN TENANCE CHARGES FOR CANCELLATION OF AGREEMENT. THE LD. AR FURTHER S UBMITTED THAT THE METHOD ADOPTED BY THE ASSESSEE IN TREATING T HE ANNUAL MAINTENANCE CHARGES BY SPREADING IT OVER THE TOTAL PERIO D OF ANNUAL MAINTENANCE CONTRACT IS AGAINST THE CONCEPT OF MATCHING COST AND REVENUE AND ACCOUNTING STANDARD-9 (AS-9). THE LD. DR POIN TED THAT THE MATCHING PRINCIPLE OF COST AND REVENUE IS NOT SATISFIE D AS THE RECEIPTS ARE POSTPONED ON THE BASIS OF NUMBER OF MONTHS REMAINING IN THE UNEXPIRED PERIOD OF AMC BUT THE SOFTWARE EXPENSES W HICH ARE PART OF AMC ARE NOT POSTPONED OR SPREAD OVER THE PERIOD OF AMC. THE ENTIRE 6 ITA NO. 1905/PUN/2014, A.Y. 2007-08 EXPENDITURE AND OTHER EXPENSES REQUIRED FOR SOFTWARE U PGRADATION ARE CLAIMED IN THE YEAR IN WHICH THEY ARE INCURRED. 5.1 IN RESPECT OF GROUND NO. 2 RELATING TO WRITING OFF OF BA D DEBTS, THE LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT BEEN ABLE TO SHOW FROM RECORDS THAT THE DEBTORS WERE NOT IN A FINANCIAL POSITION TO PAY THE DEBTS OR HAS REFUSED TO PAY OR HAS DISPUTED THE LIABILITY. ON THE CONTRARY, THE ASSESSEE IS STILL CARRYING ON BUSINESS WITH T HE SAID DEBTORS. THE ASSESSEE UNILATERALLY IN AN ARBITRARY MANNE R HAS WRITTEN OFF THE AMOUNT AS BAD DEBTS ON THE GROUND THAT THE AM C CHARGES WERE NOT PAID BY THE DEBTORS DUE TO DISSATISFACTION FOR THE S ERVICES, UNRESOLVED COMPLAINTS ETC. NO MATERIAL HAS BEEN PLACED ON RECORD BY THE ASSESSEE TO SUBSTANTIATE SUCH CONTENTIONS. BEFORE THE ASSESSING OFFICER THE ASSESSEE HAS MADE STATEMENT THAT AMOUNT HA S BEEN WRITTEN OFF AS BAD DEBTS TO MAINTAIN BUSINESS RELATIONS AND GENERA TE BUSINESS REVENUE. SUCH VAGUE EXPLANATION CANNOT BE ACCEPTED TO ALLOW WRITING OFF OF BAD DEBTS. 6. CONTROVERTING THE SUBMISSION FORWARDED ON BEHALF OF THE DEPARTMENT, THE LD. AR CONTENDED THAT THE CUSTOMERS H AVE SO FAR NOT CANCELLED ANY OF THE AMC AGREEMENTS, AS THE ASSESSEE IS PROMPTLY AND EFFICIENTLY RESOLVING THE PROBLEMS FACED BY ITS CUSTOMERS. T HE ASSESSEE SHOULD NOT BE PENALIZED FOR ITS EFFICIENT SERVICES. HOWEVER, IF THE EVENTUALITY ARISES THE ASSESSEE HAS TO REFUND THE PRO-R ATA AMOUNT FOR UNEXPIRED PERIOD OF AMC. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENT ATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS AND AMC AGREEMENT RE FERRED TO BY 7 ITA NO. 1905/PUN/2014, A.Y. 2007-08 THE LD. AR DURING THE COURSE OF MAKING SUBMISSIONS. THE AS SESSEE IN APPEAL HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME T AX (APPEALS) ON TWO GROUNDS : I. DISALLOWANCE OF ANNUAL MAINTENANCE CHARGES BILLED FOR UNEXPIRED PERIOD ` 7,48,204/-, AND II. DISALLOWANCE OF BAD DEBTS WRITTEN OFF ` 36,912/-. 8. THE ASSESSEE IS ENGAGED IN SOFTWARE DEVELOPMENT AND IS ALSO UNDERTAKING ANNUAL MAINTENANCE CONTRACTS IN RESPECT OF S OFTWARE PRODUCTS DEVELOPED BY IT. THE ASSESSEE RECEIVES ANNUAL MAINTENANCE CHARGES AT THE TIME OF EXECUTION OF AMC AND SPREAD THE AMOUNT OVER THE CONTRACT PERIOD FOR RECOGNITION OF PROFIT. IF THE CONTR ACT IS TAKEN IN THE MIDDLE OF THE YEAR, THE ASSESSEE RECOGNIZES THE INCOM E FROM THE CONTRACT ONLY TO THE EXTENT OF PERIOD EXPIRED UP TO EN D OF THE FINANCIAL YEAR. THE REMAINING AMOUNT FOR THE UNEXPIRED PERIOD OF A MC IS REFLECTED IN THE SUBSEQUENT FINANCIAL YEAR. THE REASONS FOR GIVING SUCH ACCOUNTING TREATMENT TO THE AMC RECEIPTS IS THAT THE A SSESSEE IS UNDER OBLIGATION TO REFUND AMC CHARGES FOR THE UNEXPIRED PERIOD ON PRO-RATA BASIS IF THE CUSTOMER TERMINATES THE CONTRACT FOR DEFICIENC Y IN SERVICE. THE LD. AR OF THE ASSESSEE HAS POINTED THAT IN THE EARLIE R ASSESSMENT YEARS THE ASSESSEE HAS BEEN GIVING SIMILAR TREATMENT TO THE AMC CHARGES. NO OBJECTION WAS RAISED BY THE REVENUE. IT W OULD BE RELEVANT TO MENTION HERE THAT IN THE EARLIER ASSESSMENT YEARS NO SCRUTINY ASSESSMENT WAS MADE IN THE CASE OF ASSESSEE. 9. WE FIND THAT THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF DEPUTY COMMISSIONER OF INCOME TAX VS. TVS ELECTRONICS LIM ITED (SUPRA) UNDER SIMILAR CIRCUMSTANCES HAD ALLOWED THE CLAIM OF ASSESSEE. 8 ITA NO. 1905/PUN/2014, A.Y. 2007-08 IN THE SAID CASE, THE ASSESSEE WAS ENGAGED IN MANUFACTU RING AND SALE OF COMPUTER PERIPHERALS AND HAD ENTERED INTO ANNUAL MAINT ENANCE CONTRACTS WITH VARIOUS CUSTOMERS. THE ASSESSEE HAD SH OWN INCOME ONLY WITH RESPECT TO THAT PART OF REVENUE FROM AMCS W HICH FALL WITHIN THE RELEVANT PREVIOUS YEAR I.E. THE PRO-RATA REVENUE FOR THE PERIOD FALLING OUTSIDE THE PREVIOUS YEAR WAS NOT OFFERED AS INCOME. THE ASSESSING OFFICER REJECTED THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE AND MADE ADDITION OF THE ENTIRE AMOUNT RECEIVED ON ANNUAL MAIN TENANCE CHARGES. IN FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (A PPEALS) UPHELD THE FINDINGS OF ASSESSING OFFICER. IN SECOND APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL, THE TRIBUNAL HELD : 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT INCOME NOT OFFERED BY THE ASSESS EE PERTAINED TO UNEXPIRED PERIOD OF AMC FALLING OUTSIDE THE END OF THE RELEVANT PREVIOUS YEAR. THERE IS ALSO NO DISPUTE THAT A PART OF UNEXP IRED PERIOD ALWAYS FELL OUTSIDE THE RELEVANT PREVIOUS YEAR, GOING INTO THE SUBSEQUENT YEAR. THERE IS ALSO NO DISPUTE THAT ASSESSEE HAD RECOGNIZED ITS INCOME ON PRO RATA BASIS FOR THE DURATION OF THE AMC CONTRACTS IN THE RELEVANT PREVIOUS YEAR. THE CLIENTS OF THE ASSESSEE COULD AT ANY POINT CANC EL THE CONTRACT AND GET A REFUND FOR THE UNEXPIRED PERIOD. THIS ITSELF MEAN T THAT THE AMOUNT RECEIVED BY THE ASSESSEE AT THE POINT OF TIME IT EN TERED INTO AN AMC WAS NOTHING BUT AN ADVANCE, WHICH ON THE PROGRESS OF EA CH DAY GOT CONVERTED INTO REVENUE. THE INCOME WAS ACCRUING ON A DAY-TO-D AY BASIS BASED ON THE PROGRESS OF TIME AND IT DID NOT ACCRUE ON THE D AY OF ENTERING INTO THE CONTRACT. AN OBLIGATION WAS THERE ON THE ASSESSEE T O REFUND THE UNEXPIRED VALUE OF AMC, IF THE AMC WAS CANCELLED BY ITS CUSTOMERS. SO, WE CANNOT SAY THAT WHOLE OF THE INCOME HAD ACCRUED TO THE ASSESSEE AT THE POINT OF TIME IT ENTERED INTO THE AMC. THE OBLI GATION ARISING OUT OF THE CONTRACT AS WELL AS EARNING OF THE INCOME RAN SIDE BY SIDE AND PROGRESSED SIMULTANEOUSLY. THEREFORE, CONTENTION OF THE ASSESSEE THAT IT COULD NOT RECOGNIZE REVENUE FOR THE UNEXPIRED PERIO D OF AMC IS ON STRONG FOOTING. PRINCIPLE OF MATCHING CONCEPT OF INCOME AN D EXPENSES, COMES TO THE AID OF THE ASSESSEE IN SUCH A SITUATION. ASSESS EE, IN OUR OPINION, WAS JUSTIFIED IN ITS CLAIM THAT INCOME RELATABLE TO THE UNEXPIRED PERIOD OF AMC COULD BE CONSIDERED ONLY IN THE SUBSEQUENT YEAR AND NOT IN THE RELEVANT PREVIOUS YEAR. CIT(APPEALS), IN OUR OPINION, HAD TA KEN A CORRECT DECISION WHICH DOES NOT REQUIRE ANY INTERFERENCE. 9 ITA NO. 1905/PUN/2014, A.Y. 2007-08 WE FIND THAT FACTS IN THE PRESENT CASE ARE SIMILAR. FOLLOWING THE RATIO LAID DOWN IN THE CASE OF DEPUTY COMMISSIONER OF INCOM E TAX VS. TVS ELECTRONICS LIMITED (SUPRA) WE ACCEPT THE CONTENTION OF THE ASSESSEE. 10. THE LD. AR ALSO PLACED RELIANCE ON THE DECISION OF DELHI BE NCH OF THE TRIBUNAL IN THE CASE OF M/S. CAREER LAUNCHER (INDIA) L TD. VS. ASSISTANT COMMISSIONER OF INCOME TAX (SUPRA). IN THE SAID CASE THE DISPUTE WAS WITH REGARD TO ASSESSMENT YEAR IN WHICH INCO ME GENERATED FROM RECEIPTS OF TUITION FEE FOR THAT THE ENTIRE COURSE OF TWO YEARS HAS TO BE RECOGNIZED. THE RELEVANT EXTRACT OF THE FINDINGS OF TR IBUNAL ARE AS UNDER : 13.3 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE RECEIVED NON-REFUNDABLE FEES IN THIS YEAR. THE COACHING WAS TO BE GIVEN IN THIS YEAR AS WELL AS IN THE SUBSEQUENT YEAR. THIS MEANS THAT THE ATTENDANT OBLI GATION WAS TO BE DISCHARGED IN TWO ACCOUNTING YEARS. THE ASSESSEE BO OKED A PART OF THE FEES IN THIS YEAR AND A PART THEREOF IN THE SUBSEQU ENT YEAR. AS HELD IN THE CASE OF K.K. KHULLAR (SUPRA), A DISTINCTION HAS TO BE MADE BETWEEN THE TERMS RECEIPT AND INCOME. WHAT IS LIABLE TO BE TAXED IS INCOME AND NOT THE RECEIPT. THEREFORE, ONLY THAT AMOUNT WHICH IS RECEIVED AS INCOME CAN BE BROUGHT TO TAX. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE AFORESAID DE CISIONS, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION IN R ESPECT OF ANNUAL MAINTENANCE CHARGES BILLED FOR UNEXPIRED PERIOD. 11. THE SECOND ISSUE IN APPEAL IS WITH REGARD TO DISALLOWAN CE OF BAD DEBTS WRITTEN OFF. THE ASSESSEE HAD DECLARED RECEIVABLES FROM TWO PARTIES TO WHOM IT HAD SUPPLIED SOFTWARE AS BAD DEBTS. U NDISPUTEDLY, WITH BOTH THE SAID PARTIES, THE ASSESSEE HAD BUSINESS TR ANSACTIONS 10 ITA NO. 1905/PUN/2014, A.Y. 2007-08 SUBSEQUENT TO ASSESSEES FAILURE TO RECOVER THE AMOUNT FOR SUPPLY OF SOFTWARE. CONTINUING BUSINESS WITH SUCH PARTIES WOULD NOT BE IMPEDIMENT FOR WRITING OFF OF BAD DEBTS WHICH ARE IN RELATION T O SOME EARLIER BUSINESS TRANSACTION. THE ASSESSEE DECLARED THE AMOUNT AS BAD DEBTS AND HAS WRITTEN OFF THE SAME IN THE BOOKS OF ACCOU NT IS SUFFICIENT TO CLAIM WRITING OFF OF BAD DEBTS. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF T.R.F. LT D. VS. COMMISSIONER OF INCOME TAX (SUPRA) HAS HELD THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF A S IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. IN THE PRESENT CASE , IT IS NOT DISPUTED BY THE REVENUE THAT THE ASSESSEE HAS NOT WRITTEN OFF T HE AMOUNT AS BAD DEBTS IN ITS BOOKS. ONCE, THE ASSESSEE HAS WRITTEN OFF TH E AMOUNT AS BAD DEBTS IN ITS BOOKS OF ACCOUNT, NO FURTHER REASONING IS REQUIRED TO B E GIVEN BY THE ASSESSEE FOR DECLARING SUCH AMOUNT AS IRREC OVERABLE BAD DEBTS. THE CLAIM OF THE ASSESSEE IS IN ACCORDANCE WITH TH E WELL SETTLED PRINCIPLE OF LAW EXPOUNDED BY THE HONBLE APEX COURT. THE REFORE, THE CLAIM OF THE ASSESSEE RELATING TO WRITING OFF OF BAD DEBTS DE SERVES TO BE ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THURSDAY, THE 06 TH DAY OF APRIL, 2017. SD/- SD/- ( / ANIL CHATURVEDI) ( ! / VIKAS AWASTHY) ' ! / ACCOUNTANT MEMBER # ! / JUDICIAL MEMBER ' / PUNE; $% / DATED : 06 TH APRIL, 2017 RK 11 ITA NO. 1905/PUN/2014, A.Y. 2007-08 , - ./& 0&+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. & & ' () / THE CIT(A)-I, PUNE 4. & & ' / THE CIT-I, PUNE 5. *+ ,- , & ,- , . ./ , ' / DR, ITAT, B BENCH, PUNE. 6. +01 23 / GUARD FILE // // TRUE COPY// &'4 / BY ORDER, 5 %6 / ASSISTANT REGISTRAR, & ,- , ' / ITAT, PUNE