TaxTMI 
TaxTMI 
2014 (1) TMI 982
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.... the issue of treatment meted out to amount of Rs. 17.551.561/- collected from customers in respect of work yet to be completed. The Commissioner of Income Tax under section 263 has concluded as under:- "Therefore, the order of the AO is set aside to the file of the AO for reconsideration of the matter on the above issue of taxability of the advances received and the assessee shall be given reasonable opportunity of being heard. Any grievance of the assessee with regard to the correctness of the figures, proper application of accounting standard AS-9 on the advances received etc. may be looked into by the AO at the stage of reassessment as per law." 3.1 Pursuant to the above set aside by the Commissioner of Income Tax the assessment was taken up by the AO. The AO noted that he has gone through the records and it is found that the assessee during the year under consideration, has collected from customers an amount of Rs. 17,551,561/- for the work which were yet to be completed. The above income were treated as pre-billing and not recognized as income or business receipt during the year. The AO opined that as the company is following mercantile system of accounting, the income ....
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.... to the income of the assessee. 4. Against the above order the assessee appealed before the Ld. CIT(A). 5. Ld. CIT(A) noted that the assessee' counsel has drawn attention towards AS-9 as under:- ".....Advertising and insurance agency commissions Revenue should be recognized when the service is completed. For advertising agencies, media commissions will normally be recognised when the related advertisement or commercial appears before the public and the necessary intimation is received by the agency, as opposed to production commission, which will be recognized when the project is completed. Insurance agency commissions should be recognized on the effective commencement or renewal dates of the related policies-------. " The Ld. Counsel argued that the issue under consideration is, as to when the income is "earned" by the assessee as contrasted with "accrued" when it receives advance amount or partial amount or a promise to pay from its customers towards advertisement, which the assessee is to print and publish in the yellow pages of the forth coming directories, which are yet to be completed and circulated to the public. The assessee treats these advertisement receipts, ....
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....consistently. Consistency has been sought to be a sound principle by several courts and particularly the decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang Vs CIT (1992) 193 ITR 321 - 329 (SC) is directly relevant in the matter. The practice of the appellant is to follow Accounting Standard (AS) 9 which provides that "in respect of advertisement commissions revenue should be recognized by the services completed." In the case of the appellant, the advertisement is published in the Directory published by the appellant. There is no dispute as to whether any income was concealed by the appellant in any manner. For every Financial Year income is being booked when crystalised at the time of publishing he advertisement in the directory published by the appellant. The issue needs to be seen from the point of view of applicability of Accounting Standard AS-9 on the issue of revenue recognition. In the case of the assessee, as per Notes on Accounts which form a part of annual accounts, the assessee company collected from customers an amount of RS.1,75,51,561 for the work in respect of which 'e yet to be completed. As the company is following the said accounting standa....
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....ed that order of the Ld. CIT(A) may be sustained. 7.2 We have carefully considered the submissions and perused the records. We find that in this case the assessee is in the business of publication of advertisements in yellow pages directory. Assessee receives the advance amount from customers towards advertisement. Assessee treats this advance as advance for advertisement receipts and recognises the revenue as income when the directories are complete, published and put to public circulation. The above method of accounting adopted by the assessee is in accordance with AS-9 of the Institute of Chartered Accountant of India. The said AS-9 inter-alia mandates that for advt. agency, media commission will normally be recognised when the related advertisements or commercial appears before the public and the necessary intimation is received by the assessee. Thus, we find that the method of accounting adopted by the assessee is in consonance with the AS-9 and the same is also mentioned in Schedule 21 to the needs of the assessee. Thus, we find that the AO has erred in not examining the issue as to whether the assessee system of accounting is in accordance with the AS-9 above. Ld. CIT(....