TaxTMI 
TaxTMI 
2020 (5) TMI 375
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....eration 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 treatment/ sanitation/ related civil construction activities. It earns revenue from the....
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....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 contract. 9. Improved water quality 10. All the Key Performance Indicators ( KPIs) required in the Contract are achieved B. Contract Cost: Rs. 302.6 million i. Technical Services: *....
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....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 contract which is entered into specifically for construction of an asset or a combination of assets that are closely inter-linked or inter-dependent w.r. t. their technology/design/function or the nature of their ultimate purpose or use. A. Fixed Price Contract A contract in which the contractor agrees to a fixed contract price. In some cases, there may be an element of cost escalation clause in the contract w....
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.... 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 will flow to the organization ii. Contract costs attributable to the contract can be identified and measured clearly III. Percentage of completion method - This method defines the recognition of revenue and cost taking into account the stage of completion of a contract. Under this method, revenue and cost are recognized in the statement of profit and loss in the accounting periods in which the work is performed. IV. Contract work-in-progress - A contractor may incur costs that relate to future activity in a contract. Such costs are recognized as an asset if it is probable that they will ....
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....s 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. Example: Goods sent to the consignee on approval basis. There are certain cases in the specific industry where the performance may be substantially complete prior to the execution of the transaction generating revenue. In such cases, when the sale is assured under government guarantee or a forward contract or where the market exists and there is a negligible risk of failure to sell, the goods involved are often valued at the net realizable value (NRV). Such amounts are not defined in the definition of the revenue but are still sometimes recognized in the statement of profit and loss. Example: Harvesting of Agricultural Crops or extraction of mineral ores. B. Rendering of Services Revenue recognition of services depends a....