TaxTMI 
TaxTMI 
2023 (1) TMI 397
X X X X Extracts X X X X
X X X X Extracts X X X X
....sed the following grounds:- "1. That that the order of the Commissioner of Income Tax (Appeals) [`CIT(A)] is contrary to law, facts and circumstances of the case to the extent prejudicial to the interest of the appellant. 2. That the CIT(A) failed to appreciate that the order of the Assessing Officer is without jurisdiction. 3. That the CIT(A) erred in confirming the disallowance on provision in respect of miscellaneous, distribution and marketing expenses amounting to INR 2,88,870 in aggregate on the ground that the same represents `unascertained liability'. ' 4. The CIT(A) has failed to appreciate the fact that expenses were accrued during the year and incurred for the purpose of business. Hence it satisfy the condition laid down in section 37(1) of the Act. 5. That the CIT(A) erred in confirming the disallowance for claim of deduction of INR 3,35,10,157 under the provisions of section 4o(a)(ia) of the Act. 6. That the CIT(A) erred in confirming the disallowance and thereby enhancing the income of the Appellant by an amount of INR 1,33,53,000 representing unearned revenues." 4. Ground Nos.1 & 2 are general in nature....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ever in support of the accounting treatment of the impugned sum of Rs. 1,33,53,000/-. A perusal of the assessee's submissions during the appeal proceedings reveals that, apart from certain general observations, on accounting methodology, no specific party-wise detail or valid justification has been provided for the non-assessability of the aforesaid sum during the current year. The assessee, in its submissions has merely discussed the process of accounting entries to be pursued alongwith some sample invoice copies. However, no specific party-wise breakup / invoice details of the impugned receipts or the reason for its classification under the head 'current-liabilities' in the present case has been adequately explained or justified. It is patently clear that, what is characterized as income cannot be simultaneously treated as unearned, as the concept as such is self-contradictory, in itself. It is obvious that the sum of Rs. 1,33,53,000/- has been billed / received and therefore crystallized as income. Assessee has however failed to substantiate, as to how and why the same is unearned, even if part of the services are to be rendered in future. The assessee has c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....details of invoices along with copies of all invoices raised on the customers. He prayed for admission of additional evidence stating that the lower authorities did not insist upon the same. 10. The ld. DR vehemently opposed admission of additional evidence filed before the Tribunal stating that the assessee was given ample opportunity before the AO and the assessee failed to produce the required details before the AO as well as the CIT(A). The ld. DR drew our attention to page 158 of the PB where the details TDS credit claimed is given and submitted that the assessee has claimed credit for TDS in the entire invoice amount, but had offered only a portion as income which is not correct. The ld DR submitted that the assessee has deferred a portion of income by claiming it to be unearned, whereas the expenses incurred have not been deferred but fully claimed which is not in accordance with the matching concept of the accounting practice. In this regard the ld DR relied on the decision of the Mumbai Tribunal in the case of Religare Technova Global Solutions Ltd. v. ACIT in ITA No.245/Mum/2012 by drawing our attention to the relevant portion of the decision which is extracted as unde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....income or whether to be deferred based on the period to which the invoice is raised. Therefore, in the interest of justice, the additional evidence is admitted for the purpose of adjudication. 12. We have considered the rival submissions and perused the material on record. The assessee is in the business of providing cable television distribution services. It raises invoices on local cable operators towards 'allotment of frequencies and placement charges' which is for a period of one year. The assessee considers the period to which the invoice pertains and recognizes the income proportionately to the particular financial year. The recognition of the remaining amount of the invoice is deferred and moved to the balance sheet as 'unearned revenue'. This method of recognition of revenue is claimed by the assessee to be consistently followed by the assessee. 13. It is the contention of the ld AR that the assessee is recognizing the revenue as per AS-9 and submitted that below is the scheme of entries in the books accounts of the assessee with regard to the 'unearned revenue' which the assessee had submitted before the CIT(Appeals):- S.No. Financial Year Particulars Amo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (i) Proportionate completion method-Performance consists of the execution of more than one act. Revenue is recognised proportionately by reference to the performance of each act. The revenue recognised under this method would be determined on the basis of contract value, associated costs, number of acts or other suitable basis. For practical purposes, when services are provided by an indeterminate number of acts over a specific period of time, revenue is recognised on a straight line basis over the specific period unless there is evidence that some other method better represents the pattern of performance. (ii) Completed service contract method-Performance consists of the execution of a single act. Alternatively, services are performed in more than a single act, and the services yet to be performed are so significant in relation to the transaction taken as a whole that performance cannot be deemed to have been completed until the execution of those acts. The completed service contract method is relevant to these patterns of performance and accordingly revenue is recognised when the sole or final act takes place and the service becomes chargeable. 9. Effect of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee usually associated with ownership; and (ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods. 12. In a transaction involving the rendering of services, performance should be measured either under the completed service contract method or under the proportionate completion method, whichever relates the revenue to the work accomplished. Such performance should be regarded as being achieved when no significant uncertainty exists regarding the amount of the consideration that will be derived from rendering the service." 15. Under mercantile system of accounting, revenue is recognized on accrual basis when the agreement to render services is entered into with the parties for the whole value of services. In the event of cancellation/modification due to which income already recognized undergoes a change, then only the reversal can happen. The scheme of entries by the assessee, reproduced above, may be in accordance with AS-9 which is more concerned with true and fair view of state of business affairs of the assessee; but it is not in tune with the mercantile system of accounting, unless there is an un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e treatment of 'unearned income' in the hands of the assessee. (i) The financials of the assessee is to be verified to substantiate that the accounting practice is consistently followed. (ii) Revenue neutrality in terms of income deferred is offered to tax subsequently needs to be examined (iii) Whether the revenue earned is contingent upon the assessee performing its obligations and rendering services to the pre-paid customers. 20. Further the additional evidence in the form of invoices and the party wise breakup of the 'unearned income' that is produced before us requires verification by the lower authorities to decide the case on merits. In view of the above, we remit the issue back to the AO for de novo consideration of the issue afresh in accordance with law, after giving reasonable opportunity of being heard to the assessee. The assessee is directed to produce all the required documents in support of its claim and cooperate in the remand proceedings. This ground of the assessee is allowed for statistical purposes. 21. The next issue for consideration vide ground No.5 is with respect to disallowance u/s. 40(a)(ia) of the Act. The assessee in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he tune of Rs.3,35,10,157 is reversed on 1st April 2012 and that the same is reflected correctly in the provision for expenses ledger of the assessee. This needs to be verified to justify the claim of deduction of the said amount in the computation of assessment 2013-14 basis the disallowance done in the year 2012-13. The assessee has erroneously submitted before the CIT(A) / AO that the deduction is claimed u/s.40(a)(i) and hence the authorities disallowed the claim as the assessee did not produce the details of tax deducted. However the deduction as per the ld AR is done based on the fact that the provisions which are already disallowed in the previous assessment year is reversed and to avoid double disallowance the same is claimed as deduction in the computation. This fact has not been properly presented before the lower authorities. The lower authorities have to examine whether the year-end provision made on 31st March 2012 is fully reversed on 1st April 2012 and the expenses against which the provision was created is debited to the profit and loss account on payment after deducting TDS. This verification need to be carried out based on the journal entries and ledger copies pro....