TaxTMI 
TaxTMI 
2011 (6) TMI 840
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....g cellular mobile telecommunication services in the State of MP and Chhatisgarh. It has filed its return of income on 28th October 2002 declaring loss of Rs. 66,44,56,611. The case of the assessee was selected for scrutiny assessment and notices under sec. 143(2) and 142 of the Income-tax Act, 1961 were issued and served. Learned CIT(Appeals) has observed that when initial opportunities were given by the Assessing Officer to the assessee, it had furnished some replies but apart from submitting some details as called for, it also challenged the validity of the notices issued under sec. 143(2)/142(1) of the Act. Assessing Officer, however, did not accept the contention of the assessee regarding validity of notices issued under sec. 143(2)/147(1) of the Act. He finally issued a showcause notice on 24.3.2005 and directed the assessee to file details which according to the Assessing Officer were not filed by the assessee and he passed the assessment order under sec. 143(3) read with section 144 of the Act. He made the following additions/disallowances and in this way reduced the loss declared by the assessee. 1. Unsecured loan Rs. 1825.26 lacs 2. Current Liabilities Rs....
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.... on the date of sale itself. As the appellant in no case has to repay the amount to the customer, it cannot be termed as liability. I therefore, agree with the Assessing Officer that these amounts are not liability but actually revenue receipts. But this finding is true not only for these two items namely advance against pre-paid calling services and sim processing charges, but for advance against re-charge fees also as this is also of similar nature and is not a liability. Thus the amount of Rs. 3,24,90,772 being advance against pre-paid calling services, Rs. 2,74,727 being advance against sim processing fees and Rs. 24,66,666 being advance against recharge fees are liable to be added as income as to that extent revenue has not been recognized by the appellant and has been reduced from the revenue and transferred to the current liability. 7.3.3 I do not agree with appellant's alternate claim also that if the treatment as mentioned by the Assessing Officer is to be accepted, the income appearing in the current account in the year arising out in the previous year will accordingly have to be deleted. The income which has been offered in this year should have been offered in ....
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....o 22 in particular. From paragraph 17 up to 21, the committee has explained as to how revenue in a pre-paid plan of cellular services is to be recognized. The discussion made by the committee and the examples considered reads as under: "17. Revenues earned from end customers can typically be classified as monthly rentals, airtime usage charges, domestic/international roaming services and other value added services. Cellular subscribers can choose from postpaid plans or prepaid plans. Each of these arrangements is discussed herein below. Prepaid plans 18. Since there is no on-going customer commitment under prepaid plans, these are significantly more popular India where a majority of mobile customers opt for prepaid products. Customers usually pay for on-going services by purchasing scratch cards or vouchers that entitle them to a set amount of minutes. Online refills and direct refills through mobile phones using debit and credit cards are also gaining popularity. 19. Since under these plans the customer pays in advance for services to be provided by the operator in future, the timing of revenue recognition becomes critical. For prepaid plans, re....
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.... (i) A tariff offers 1000 minutes for a fee of Rs. 500 per month with the option of rolling over any unused minutes. At the end of the first month, the customers uses 900 minutes and uses the remaining 100 minutes in the second month. Revenue to the extent of Rs. 450(90%) should be recognized in the first month and Rs. 50 (10% x Rs. 500) is deferred until the second month when it should be recognized. (ii) A tariff offers 1000 minutes for a fee of Rs. 500 per month with the option of rolling over any unused minutes into the following month. The minutes expire after 3 months. At the end of the first month, the customer has used 800 minutes and therefore the services provider recognizes revenue of Rs. 400 (80% x Rs. 500) and revenue of Rs. 100 is deferred. The customer uses 100 of the rollover minutes in the second month and none in the third month. Revenue of Rs. 50 would be recognized in month two. Even though the customer has used none of the rollover minutes in the third month, the customer's right to use them, i.e. liability of the Company to serve the customer has expired. Hence, the remaining Rs. 50 of revenue is recognized in....
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....J. Securities reported in 264 ITR 276 and CIT Vs. Neopoly Pack (P) Ltd. reported in 245 ITR 492. 9. On the other hand, Learned DR relied upon the order of the Learned CIT(Appeals). She submitted that in all the cases, relied upon by the assessee, there were chances of refunding the amount received by the assessee. In the present case, assessee is not under any obligation to refund the amount received on sale of prepaid sim card. She referred the agreement entered by the assessee with its distributors. Taking us through clause 7 of the agreement, she pointed out that no refund would be given to the distributors. 10. We have duly considered the rival contentions and gone through the record carefully. In brief, the case of the assessee is that amounts received by it under prepaid calling services, sim process fees and recharge fee are concerned, they were received in the shape of advance. The services against the said advance were yet to be provided which could be rendered by the assessee in subsequent period and, therefore, income qua those receipts would accrue only in the later period. The obligation to provide service is upon the assessee and there would be out flow of amoun....
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....r fare. The dispute arose between the assessee and revenue, whether entire amount of the time share membership fees receivable by the assessee up front at the time of enrollment of a member is the income chargeable to tax in the initial year when there is a contractual obligation fastened to the receipt to provide the service in future over the treatment of the contract. The Special Bench had made a detailed analysis and arrived at a conclusion that entire amount of time share membership fees receivable by the assessee upfront at the time of enrollment of a member is not the income chargeable to tax in the initial year. Assessee has rightly spread over it in the future year. The assessee has treated 60% of the sums as an income and 40% was offered for taxation. Similarly, the assessee has relied upon the order of the ITAT in the case of M/s. Career Launcher Vs. ACIT. Apart from these decisions, learned counsel for the assessee also placed on record the initial report in respect of other operators i.e. Reliance Communication and Airtel. He pointed out that these concerns are also in the similar lines of business and they are also following similar accounting principles. 11. Thus,....