TaxTMI 
TaxTMI 
2019 (11) TMI 1395
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....re development and certain network management support services. Further, NSN India rendered certain marketing support services to its AEs. With this background of the appellant's business profile, let us now consider the grievances of the assessee. 4. Ground No. 1 is general in nature and needs no adjudication. 5. Ground No. 2 relates to the addition on account of unearned revenue amounting to Rs. 1,02,88,91,000/-. 6. During the course of assessment proceedings, on perusal of Schedule 11 of the balance sheet, the Assessing Officer noticed that the assessee has shown an amount of Rs. 1,02,88,91,000/- as unearned revenue. The assessee was asked to give details of the same and the treatment given to it in the computation of income. 7. In its reply, the assessee stated that since it is engaged in the business of installation and commissioning of telecom equipment, it has to maintain its accounts as per Accounting Standard-7 which mandates that for the purposes of recognition of revenue, the assessee has to follow percentage of completion method. The assessee further explained that even if the billing milestone has been reached as per the customer agreements but revenue cann....
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....nce on the decision of the Hon'ble Supreme Court in the case of Keshav Mills 23 ITR 230 and Sasson & Co. 26 ITR 27 and the decision of the Hon'ble Delhi High Court in the case of Dinesh Kumar Goyal 331 ITR 10. 13. Per contra, the ld. DR strongly supported the findings of the Assessing Officer and read the relevant portion of the assessment order and also that of the order of the DRP. 14. We have given thoughtful consideration to the orders of the authorities below and have carefully considered the rival contentions. It is true that under the head 'Current Liabilities", the assessee has shown unearned revenue of Rs. 10,28,891/-. It is also true that as on 31.03.2009, the immediately preceding F.Y., unearned revenue has been shown at Rs. 10,42,151/- . Customer wise details of unearned revenue which is exhibited at page 437 of the assessee's paper book and the same read as under: Customer Name Unearned Revenue recognized in Financial statements as on March 31, 2010 (Amount in INR), Details of Revenue deferment Bharti Airtel Limited 8,55,37,789 Tata 51,04,09,155 Refer Appendix I Vodafone 10,48,30,713 Refer Appendix II Idea ....
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....urate amount is booked in the current year and the balance is treated as unearned revenue at the year-end as these services are provided by indeterminate number of acts over a specified period of time. Revenue is, therefore, recognised on straight-line basis over a period for which services are to be rendered. 21. Needless to mention her that same accounting principle has been accepted in earlier A.Y. It is also pertinent to note that the assessee has offered tax in subsequent years amount as and when services are rendered and, therefore, by any stretch of imagination, it cannot be said that there is some revenue leakage. For this proposition, we derive support from the decision of the Hon'ble Supreme Court in the case of Excel Industries 358 ITR 295. 22. The Hon'ble Delhi High Court in the case of Dinesh Kumar Goyal [supra] was seized with the following question: "Whether the entire tuition fees of the course, which may be of two years' duration, collected by the assessee running a coaching institute from the students at the time of admission, can be taxed in the year of receipt?" 23. The Hon'ble High Court held as under: "It is important tha....
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....eipts become income which would be exigible to much tax.-E.D. Sassoon & Co. Ltd. & Ors. vs. CIT (1954) 26 ITR 27 (SC)," 24. The Hon'ble High Court further observed as under: "The term 'accrual' relates to revenues earned or cost incurred. Two things follow from this, viz., unless the revenue is earned, it is not accrued. Likewise, the expenses unless are incurred, cost in respect thereof cannot be treated as accrued. Secondly, it recognizes the matching concept, viz., receipts are to be matched expenditure to arrive at the net income, which would then be exigible to tax. Reading of the AS-9 issued by ICAI makes it clear that revenue is recognized only when the services are actually rendered. If the services are rendered partially, revenue is to be shown proportionate with the degree of completion of the services. This really clinches the issue in favour of the assessee. The receipts relate to the unexecuted packages, which are not shown in the instant year would be shown in the succeeding year. Rate of tax in respect of companies remains the same in all these years. Therefore, the Revenue does not lose anything, as it would receive the tax on this income in ....
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....rder of the coordinate bench in ITA No. 3202/Del/2014 for AY 2004-05. We find force in the contention of the Ld. Counsel. An identical issue was considered and decided by the coordinate bench. The relevant findings read as under: "4.4.1 Ground no. 5 of appeal is direct against disallowance of a sum of Rs. 17,61,99,671/- towards provision for liquidated damages. During the year, the assessee has claimed provision for liquidated damages to the tune of Rs. 17,61,99,671/-. The assessee stated that in terms of the purchase order received from customers, liquidated damages @ 0.5% per week subject to a maximum of 0.7% or such other rate as per the relevant contract would be imposed for the late delivery of equipment. The stipulation in the purchase order clearly shows that the liability for liquidated damages is certain, accrued and is not dependent upon the happening of any event other than delay in deliveries. As the company defaulted in the delivery terms, the liquidated damages have been rightly considered as business expenditure. The company is following the method on a consistent basis. When the payment was actually made the accounts were adjusted with reference to any remi....
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.... accounted for in the profit and loss account. In the instant case, the Ld. CIT(A) categorically stated that when the payments were actually made, the accounts were adjusted with reference to any remission or waiver that the company may get in respect of damages payable for the late delivery and the same was brought to tax u/s 41(1) of the Act by crediting the liquidated damages accounts. Therefore, the impugned amount was not only the provision but the actual amount of the liquidated damages pertaining to the period of delay falling within the previous year relating to the assessment year under consideration. The Ld. CIT(A) categorically stated that the assessee was following this method consistently. We, therefore, do not see any valid ground to interfere with the factual findings given by the Ld. CIT(A) and accordingly do not see any merit in the ground raised by the Department." 30. Respectfully following the findings of the coordinate bench, we direct for the deletion of the addition of Rs. 57,93,45,721/-. The Ground no. 3 is accordingly allowed. 31. Ground no. 4 relates to the disallowance of expenditure incurred in foreign currency. While scrutinizing the return of inc....
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.... Total 19,98,47,851 34. From the above table, the AO found that a sum of Rs. 18.94 crores was not paid to anyone. When the assessee was asked to justify the same, the assessee filed a certificate of a Chartered Accountant stating therein that the said amount has been wrongly included in the figures of foreign exchange outflow. The assessee also filed relevant ledger account to show that it is merely a contra entry and no such expenditure has been charged to the profit and loss account. 35. The reply of the assessee did not find any favour with the AO who was of the opinion that the certificate of the Chartered Accountant is not from the Chartered Accountant who has audited the accounts. The AO, accordingly, added the sum of Rs. 18,94,84,993/- which was upheld by the DRP. Before us, the Counsel for the assessee reiterated that the said entry was a contra entry and inadvertently the same has been shown under the details of expenditure in a foreign currency. It is the say of the Counsel that complete ledger accounts were filed before the AO and the DRP but none of them examined the ledger accounts. The DR strongly supported the findings of the AO/DRP. 36. We have careful....
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....ts have been made in respect of the international transaction under taken by the appellant namely provision of marketing support services and provision of warranty support services. We find that a similar transfer pricing adjustment was made in AY 2009-10 in respect of market support service segment and the matter travelled upto the Tribunal and the coordinate bench in ITA No. 2810/Del/2014 has decided this issue as under: "44. We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below. It is an undisputed fact that the assessee has recharged the total cost of marketing team along with mark up of 3% from the AE, which means that the AE not only compensated the cost of marketing, team attributable towards the provision of marketing support services to AE by the assessee but also compensated the cost of marketing team attributable to the support provided by the marketing team to the assessee itself. This is not warranted as per the inter company agreement. In our considered opinion, considering the attribution to the services provided to the AE, vis a vis actual Revenue realised from the AE, margin of the assessee fr....
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....rdingly. Ground no. 7 is allowed. 43. In the result, the appeal filed by the assessee is allowed in part for statistical purposes. The order is pronounced in the open court on 21.11.2019. ============= Document 1 Copy of Invoice FY 2013-14 FY 2014-15 Year in which revenue is recognized Invoice Number Invoice D Amount of Revenue Unearned Invoice without Recognized In FY taxes 2009-10 Revenue as on FY 2010-11 March 31 2010 FY 2011-12 FY 2012-13 82730439 01.04.2010 26,767,910 4,226,512 22,541,398 5,943,533 5,107,036 5,107,036 5,107,036 1,276,759 Refer Annexure 1A (25) 82730448 01.04.2010 25,564,493 4,036,499 21,527,994 5,676,327 4,877,436 4,877,436 4,877,436 1,219,359 Refer Annexure 1A (26) 82730459 01.04.2010 15,925,803 1,365,155 14,561,649 3,839,497 3,299,124 3,299,124 3,299,124 824,781 Refer Annexure 1A (27) Subtotal (A) 424,084,954 73,366,771 350,718,183 92,474,521 79,459,588 79,459,588 79,469,588 19,864,897 Start up Fees 82721079 05-10-2009 38,420,533 9,147,746 29,272,787 10,977,295 ....