AI Drafter 
TaxTMI 
TaxTMI 
2020 (5) TMI 375
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.... the ' contract value' ( including the consideration for operation and maintenance services and all the applicable taxes of Rs. 4, 15, 26000 ) instead of the construction contract value of Rs. 21,94,78,821. 2.1 1 That, the learned CIT( A) has erred in misapplication of AS 7 to an item of Income/ revenue amounting to Rs. 4, 15, 26, 000 not related to construction activity carried out during the post construction period viz. Revenue from Operation and Maintenance (O& M) services during the regular O& M phase which is required to be considered only during the period when O& M activity actually takes place. 2.2 2 That, the learned CIT( A) has erred in considering amounts aggregating to Rs. 26,839, 975 towards Value Added Tax and Service Tax included in the customer' s work order as constituting part of construction contract value for the purposes of recognizing revenue under AS 7. 3. That the appellant may be allowed to add, supplement, revise or amend grounds raised hereinabove in the interests of justice." 3. The assessee company is engaged in activities relating to water distribution, supply, maintenance, treatment / management and / or sewage treat....
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....the consumer in pilot area of Dharampeeth Zone at Nagpur, Maharashtra, India." Vide work order No. W/ EE/01 /2007/JN115 dated June 7, 2007. The contract commenced on July 5, 2007 and is currently on going. Performance of VW India has been satisfactory under this Contract. A. Under this Contract following key issues have been implemented successfully: 1. Providing customers with un-interrupted water supply at stipulated pressure. 2. Reduction of Un-account for Water (UFW) by reducing leakages and unmeasured supply. 3. 100% metering with good quality meters having long life spans. 4. Improved and efficient billing and collection mechanism including meter reading, bills generation, distribution & collection. 5. Better services to urban poor (customers in slums) by implementation of slum policy; individual connections have been provided by replacing public stand posts. 6. Attending customer complaints within the stipulated time. 7. Implement good engineering practices to upgrade existing network. 8. Bring accountability on design, implementation, and O& M with single agency through performance based contra....
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....r complaints within stipulated time frame * Submit a quarterly performance report on KPIs prescribed in the Contract * New connections & disconnections. * Detection of illegal connections." 9. As per the terms mentioned in the letter dated 31.01.2012, the phase- I pertaining to the study phase of 9 months stands completed and phase-II pertaining to rehabilitation for a period of 18 months also stands completed. As per the letter of the NMC, Phase-III consisting of O&M is for a period of 60 months and is ongoing. The letter also mentions that the O& M works involve volumetric building of the consumers, collection of payments, monitoring of new connections, disconnections and illegal connections. This maintenance work is for a period of 5 years which is post the execution of work. The same can be deciphered from para 3, phase-III of the letter of the Executive Engineer, NMC. 10. In this background whether O&M phase falls under the part of the composite contract liable to be apportioned in the percentage of completion method is examined. The relevant excerpts of AS 7 are as under: " 1. Types of Contracts A Construction Contract is any....
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....llocated to the contract activities iii. i. Other costs which are specifically chargeable to the customer under the terms of the contract 5. Recognition of Revenue and Cost from a Contract Where the result or outcome of any contract for construction can be projected, the related contract revenue and contract costs shall be recognized by taking into account the stage of completion of such contract. Expected losses shall be recognized immediately as expenses. I. In case of a fixed price contract, the outcome can be estimated in a reliable manner when all the following conditions are satisfied: i. The entire revenue from a contract can be reliably measured ii. It is apparent that the economic benefits of such contract will flow to the organization iii. i. Both contract costs and stage of completion can be measured iv. Contract costs can be clearly identified for a comparison between actual costs and prior estimates II. In case of a cost-plus contract, the outcome can be estimated in a reliable manner when all the following conditions are satisfied: i. It is probable that economic benefits of the contract ....
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..... The turnover here does not include other income and is applicable for holding as well as subsidiary companies. Explanation Revenue recognition emphasizes on the timing of recognition of revenue in the statement of profit and loss of an enterprise. The amount of revenue arising from a transaction is usually determined by an agreement between the parties involved in the transaction. When uncertainties arise regarding the determination of the amount or its associated costs, these uncertainties may influence the timing of the revenue. A. Sale of Goods One key element for determining the recognition of revenue of a transaction involving the sale of goods is that the seller has transferred the property in the goods to the buyer for a consideration. In most cases, the transfer of property in the goods results in the transfer of the significant risks and rewards in ownership of the goods. However, there are situations where the transfer of significant risks doesn' t coincide with the transfer of goods to the buyer, in such cases revenue has to be recognized at the time of transfer of significant risks and rewards to the buyer....