INCOME TAX ACT, 1961

Section 36(1)(iii)

Business deduction under section 36(1)(iii) - Interest on delayed payment not charged but written off as deduction - Allowability -

Assessee was engaged in the business of providing security and maintenance services to various groups of housing projects. AO examined the books of account and noted that assessee had entered into an agreement with a company, according to which, assessee shall charge interest @ 18% for the period of delay in payment after the due date. It was found that assessee had not charged any interest on delayed payment from that company and even, written off as deduction. AO charged interest and made addition, which was deleted by CIT(A). Held: Assessee was not able to recover the interest from the said company and on account of termination of the agreement, the amount was left with the company and on agreement, it was decided between the parties that assessee would raise a debit note and both parties have agreed that only part amount would be paid and balance amount shall not be paid to the assessee. Therefore, explanation of assessee was very specific and supported by documents on record that assessee was not able to recover the amount from the party and it was adjusted against the Bill and was rightly written-off from the accounts as deduction. Accordingly, no addition should have been made by AO.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2011-12

INCOME TAX ACT, 1961

Section 37(1)

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