M/s Optum Health & Technology (India) Private Limited, Bangalore V. ITO, Bangalore

ITA 1068/BANG/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4197 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 26-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SHASHISHEKAR CHAUGULE
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER I TA NO. 1068/BANG/2016 ASSESSMENT YEAR : 2012 - 13 M/S. OPTUM HEALTH & TECHNOLOGY (INDIA) PVT. LTD., # 570 & 571, EAPENS TIMBER, 2 ND FLOOR, SARJAPURA ROAD, 3 RD BLOCK, KORAMANGALA, BANGALORE 560 034. PAN: AADCP 6027A VS. THE INCOME TAX OFFICER, WARD 5(1)(2), BANGALORE. APP EL L ANT RESPONDENT APP ELL ANT BY : SHRI SHASHISHEKAR CHAUGULE, CA RE SPONDE NT BY : SHRI R.N. SIDDAPPAJI, ADDL.CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 10 .01.2019 DATE OF PRONOUNCEMENT : 08 . 0 2 . 201 9 O R D E R PER N V VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER DATED 08.03.2016 OF THE CIT(APPEALS)-V, BENGALURU RELATIN G TO ASSESSMENT YEAR 2012-13. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL BY THE ASSESSEE IS AS TO WHETHER THE REVENUE AUTHORITIES W ERE JUSTIFIED IN MAKING AN ADDITION OF RS.1,50,84,240 TO THE TOTAL INCOME O F THE ASSESSEE. THE MATERIAL FACTS WHICH ARE RELEVANT FOR ADJUDICATION IN THIS APPEAL ARE THAT THE ITA NO. 1068/BANG/2016 PAGE 2 OF 11 ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINES S OF RENDERING COUNSELLING AND CONSULTATION SERVICES. THE ASSESSE E AT THE REQUEST OF VARIOUS BUSINESS OR OTHER ORGANISATIONS, RENDERS SE RVICES IN THE FORM COUNSELLING TO EMPLOYEES OF THE CLIENTS ORGANIZATI ON LIKE PSYCHOLOGICAL ASPECTS OF THE EMPLOYEE, STRESS MANAGEMENT ETC. IT IS NOT IN DISPUTE THAT AS PER THE SALES LEDGER MAINTAINED BY THE ASSESSEE, THE TOTAL VALUE OF SALES FOR THE RELEVANT PREVIOUS YEAR I.E., THE VALUE OF S ERVICES FOR WHICH THE ASSESSEE HAD CONTRACTS WITH THE CLIENTS WAS A SUM O F RS.3,15,97,038. THE AO, HOWEVER, FOUND THAT FROM AND OUT OF THE TOTAL S ALES, THE ASSESSEE HAD REDUCED A SUM OF RS.1,50,84,240. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE AFORESAID SUM WAS REDUCED FROM THE SALES FIGURE, THE ASSESSEE EXPLAINED THAT THE COUNSELLING DONE ON THE CLIENTS EMPLOYEE BY THE ASSESSEE IS FOR THE PURPOSE OF MAXIMIZING THE P ERFORMANCE OF EMPLOYEE OF THE ASSESSEES CLIENT. SINCE IT WAS IN TANGIBLE IN NATURE, THE ASSESSEE RECOGNIZES ACCRUAL OF INCOME ONLY WHEN THE BILLS ARE RAISED ON THE CLIENTS FOR SERVICES RENDERED. THIS POSITION W AS NOT ACCEPTED BY THE AO, AS ACCORDING TO THE AO, SUCH REDUCTION FROM THE SALE VALUE WAS NOT PERMISSIBLE IN LAW. 3. BEFORE THE CIT(APPEALS), THE ASSESSEE MADE DETA ILED SUBMISSIONS WITH REGARD TO THE NATURE OF THE AMOUNT DEBITED IN THE PROFIT & LOSS ACCOUNT BY ACCEPTING THAT THE TOTAL SALES CREDIT IS A SUM O F RS. 31,597,038 AND REVERSAL IN THE SALES LEDGER ACCOUNT WAS A SUM OF R S. 15,084,240. THE ASSESSEE SUBMITTED THAT IN DOING AS ABOVE IT FOLLOW ED THE ACCOUNTING STANDARD 9 ('AS-9') ISSUED BY THE INSTITUTE OF CHAR TERED ACCOUNTANTS OF INDIA (ICAI). AS-9 OF ICAI REQUIRES THE ASSESSEE IN SERVICE SECTOR TO RECOGNISE THEIR REVENUE AS AND WHEN THE SERVICE IS PERFORMED, EITHER BY PROPORTIONATE COMPLETION METHOD OR BY COMPLETED SER VICE CONTRACT METHOD. THE ASSESSEE EXPLAINED THAT IN ORDER TO RECORD REVE NUE IN AN ACCOUNTING PERIOD, IT CREATES A JOURNAL ENTRY TO RECORD THEM A S ACCRUED REVENUE. ITA NO. 1068/BANG/2016 PAGE 3 OF 11 ACCRUED REVENUE IS A SALE THAT HAS BEEN RECOGNIZED BY THE SELLER, BUT WHICH HAS NOT YET BEEN BILLED TO THE CUSTOMER. THIS CONCEPT IS USED IN BUSINESSES WHERE REVENUE RECOGNITION WOULD OTHERWIS E BE UNREASONABLY DELAYED. THE CONCEPT OF ACCRUED REVENUE IS REQUIRED IN ORDER TO PROPERLY MATCH REVENUES WITH EXPENSES. THE ABSENCE OF ACCRUE D REVENUE WOULD TEND TO SHOW EXCESSIVELY LOW INITIAL REVENUE LEVELS AND LOW PROFITS FOR A BUSINESS, WHICH DOES NOT PROPERLY INDICATE THE TRUE VALUE OF THE ORGANIZATION. ALSO, RECOGNIZING ACCRUED REVENUE TEN DS TO RESULT IN MUCH LUMPIER REVENUE AND PROFIT RECOGNITION, SINCE REVEN UES WOULD ONLY BE RECORDED AT THE LONGER INTERVALS WHEN THE INVOICES ARE ISSUED. THE ASSESSEE SUBMITTED THAT ACCRUED REVENUE CONCEPT IS QUITE COMMON IN THE SERVICES INDUSTRIES, SINCE BILLINGS MAY BE DELAYED FOR SEVERAL MONTHS, UNTIL THE END OF A PROJECT OR ON DESIGNATED MILESTONE BIL LING DATES. 4. SINCE SUBMISSION MADE BEFORE CIT(A) WAS A FRESH SUBMISSION SUPPORTED BY REASONS NEVER PRESENTED BEFORE THE LEA RNED AO, A REMAND REPORT WAS CALLED FOR FROM THE AO. THE LEARNED AO IN HIS REMAND HOWEVER, OUTRIGHTLY REJECTED THE ASSESSEE'S FRESH SUBMISSION STATING IT TO BE THE SAME SUBMISSION MADE BEFORE THE LEARNED AO AT THE T IME OF SCRUTINY ASSESSMENT WHICH WAS NEVER SUBMITTED BEFORE THE LEA RNED AO. 5. THE CIT(APPEALS), HOWEVER, WAS NOT CONVINCED WIT H THE AFORESAID CONTENTIONS PUT FORTH BY THE ASSESSEE. HE HELD THA T THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND WAS THEREFORE B OUND TO RECOGNIZE REVENUE ON THE BASIS OF ACCRUAL. ONCE INCOME HAS A CCRUED TO THE ASSESSEE, THE ASSESSEE CANNOT SUO MOTU REFUSE TO RECOGNIZE REVENUE ON THE PRETEXT THAT THE ASSESSEE FOLLOWS PROPORTIONATE COMPLETION METHOD AS PER AS 9 OF ICAI AND THEREFORE THE REVENUE CAN BE R ECOGNIZED ONLY WHEN SERVICES ARE SUBSTANTIALLY RENDERED BY THE ASSESSEE AND WHEN THE BILLS ARE RAISED. THIS, IN SUBSTANCE, IS THE CONCLUSION OF T HE CIT(APPEALS). ITA NO. 1068/BANG/2016 PAGE 4 OF 11 6. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE, WHO REITERATED THE SUBMISSIONS AS WERE MA DE BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL ALSO FILED BEFORE US A STATEMENT SHOWING THE RECONCILIATION OF REVERSAL OF PROVISIONAL ENTRY AGA INST THE ACTUAL INVOICE BOOKING. THE LD. DR RELIED ON THE ORDER OF CIT(APP EALS). AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE, WITHOUT PREJUDICE TO HIS SUBMISSIONS MADE BEFORE THE CIT(APPEALS) WHICH WERE REITERATED BEFORE THE TRIBUNAL, SUBMITTED THAT IN THE EVENT OF TRIBUN AL NOT ACCEPTING THE STAND TAKEN BY THE ASSESSEE, THEN THE INCOME WHICH WAS NO T RECOGNIZED BY THE ASSESSEE IN THE PRESENT ASSESSMENT YEAR AND WHICH W AS POSTPONED AND RECOGNIZED IN THE SUBSEQUENT ASSESSMENT YEAR, WILL SUFFER DOUBLE TAXATION. HIS SUBMISSION WAS THAT IN SUCH AN EVENT, WHERE THE SAME INCOME IS TAXED IN THIS YEAR AND OFFERED TO TAX IN THE SUBSEQUENT A SSESSMENT YEAR, SHOULD NOT BE TAXED AND TO THIS EFFECT, APPROPRIATE DIRECT IONS SHOULD BE GIVEN. 8. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. BEFORE US, AN AFFIDAVIT WAS ALSO FILED BY ONE MR.AM BER ALAM, DIRECTOR OF THE ASSESSEE EXPLAINING THE WAY IN WHICH ACCOUNTING ENT RIES WERE PASSED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. IT HAS BEEN EXPLAINED IN THE AFFIDAVIT THAT IN THE BOOKS OF ACCOUNTS THE ASSESSE E RECORDS REVENUES FOR A PARTICULAR AGREEMENT ON ACCRUAL BASIS BUT SUCH ENTR Y IS ONLY PROVISIONAL. WHEN ACTUAL INVOICE IS RAISED AS PER THE AGREEMENT WITH THE CUSTOMER (WHICH MAY BE MONTHLY, QUARTERLY OR HALF-YEARLY) A SECOND ENTRY REVERSING THE RECOGNITION OF REVENUE ON ACCRUAL BASIS IS PASS ED. THEREAFTER, A THIRD ENTRY IS PASSED RECOGNIZING REVENUE BASED ON ACTUAL INVOICE RAISED ON THE CUSTOMERS AND THIS IS THE ACTUAL REVENUE RECOGNISED IN THE BOOKS OF ACCOUNTS. THE FIRST ENTRY AND THE SECOND ENTRY OF REVERSAL OF THE FIRST ENTRY ITA NO. 1068/BANG/2016 PAGE 5 OF 11 ARE PURELY FOR MANAGEMENT REPORTING PURPOSES. IT H AS ALSO BEEN EXPLAINED THAT THE INCOME REPORTED FOR INCOME TAX PURPOSES IS ALSO THE VALUE OF SERVICES DECLARED AS PER THE RETURN FILED FOR LEVY OF SERVICE TAX. 9. IT IS CLEAR FROM THE SUBMISSIONS MADE BEFORE CI T(A) AND ALSO THE AFFIDAVIT OF THE DIRECTOR THAT THERE WAS ACCRUAL OF INCOME AS PER THE MERCANTILE SYSTEM OF ACCOUNTING WHEN THE FIRST ENTR Y IS PASSED. THE SECOND AND THIRD ENTRY ARE EXPLAINED AS ENTRIES WHI CH ARE PASSED IN TUNE WITH ACCOUNTING STANDARD-9 (AS-9) ISSUED BY INSTITU TE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). AS-9 DEALS WITH ACCO UNTING STANDARDS FOR RECOGNITION OF INCOME. THE FOLLOWING PARAGRAPHS, V IZ., PARAGRAPHS-4, 5, 7, AND 9 TO 12 OF AS-9 WOULD BE RELEVANT FOR THE PURP OSE OF THE PRESENT APPEAL:- DEFINITIONS 4. THE FOLLOWING TERMS ARE USED IN THIS STATEMENT WITH THE MEANINGS SPECIFIED: 4.1 REVENUE IS THE GROSS INFLOW OF CASH, RECEIVABL ES OR OTHER CONSIDERATION ARISING IN THE COURSE OF THE ORDINARY ACTIVITIES OF AN ENTERPRISE FROM THE SALE OF GOODS, FROM THE RENDERI NG OF SERVICES, AND FROM THE USE BY OTHERS OF ENTERPRISE RESOURCES YIELDING INTEREST, ROYALTIES AND DIVIDENDS. REVENUE IS MEASU RED BY THE CHARGES MADE TO CUSTOMERS OR CLIENTS FOR GOODS SUPP LIED AND SERVICES RENDERED TO THEM AND BY THE CHARGES AND RE WARDS ARISING FROM THE USE OF RESOURCES BY THEM. IN AN AGENCY REL ATIONSHIP, THE REVENUE IS THE AMOUNT OF COMMISSION AND NOT THE GRO SS INFLOW OF CASH, RECEIVABLES OR OTHER CONSIDERATION. 4.2 COMPLETED SERVICE CONTRACT METHOD IS A METHOD OF ACCOUNTING WHICH RECOGNISES REVENUE IN THE STATEMEN T OF PROFIT AND LOSS ONLY WHEN THE RENDERING OF SERVICES UNDER A CONTRACT IS COMPLETED OR SUBSTANTIALLY COMPLETED. 4.3 PROPORTIONATE COMPLETION METHOD IS A METHOD OF ACCOUNTING WHICH RECOGNISES REVENUE IN THE STATEMEN T OF PROFIT ITA NO. 1068/BANG/2016 PAGE 6 OF 11 AND LOSS PROPORTIONATELY WITH THE DEGREE OF COMPLET ION OF SERVICES UNDER A CONTRACT. EXPLANATION 5. REVENUE RECOGNITION IS MAINLY CONCERNED WITH TH E TIMING OF RECOGNITION OF REVENUE IN THE STATEMENT OF PROFI T AND LOSS OF AN ENTERPRISE. THE AMOUNT OF REVENUE ARISING ON A TRAN SACTION IS USUALLY DETERMINED BY AGREEMENT BETWEEN THE PARTIES INVOLVED IN THE TRANSACTION. WHEN UNCERTAINTIES EXIST REGARDING THE DETERMINATION OF THE AMOUNT, OR ITS ASSOCIATED COST S, THESE UNCERTAINTIES MAY INFLUENCE THE TIMING OF REVENUE R ECOGNITION 7. RENDERING OF SERVICES 7.1 REVENUE FROM SERVICE TRANSACTIONS IS USUALLY R ECOGNISED AS THE SERVICE IS PERFORMED, EITHER BY THE PROPORTIONA TE COMPLETION METHOD OR BY THE COMPLETED SERVICE CONTRACT METHOD. (I) PROPORTIONATE COMPLETION METHODPERFORMANCE CO NSISTS OF THE EXECUTION OF MORE THAN ONE ACT. REVENUE IS RECO GNISED PROPORTIONATELY BY REFERENCE TO THE PERFORMANCE OF EACH ACT. THE REVENUE RECOGNISED UNDER THIS METHOD WOULD BE DETERMINED ON THE BASIS OF CONTRACT VALUE, ASSOCIAT ED COSTS, NUMBER OF ACTS OR OTHER SUITABLE BASIS. FOR PRACTIC AL PURPOSES, WHEN SERVICES ARE PROVIDED BY AN INDETERM INATE NUMBER OF ACTS OVER A SPECIFIC PERIOD OF TIME, REVE NUE IS RECOGNISED ON A STRAIGHT LINE BASIS OVER THE SPECIF IC PERIOD UNLESS THERE IS EVIDENCE THAT SOME OTHER METHOD BET TER REPRESENTS THE PATTERN OF PERFORMANCE. (II) COMPLETED SERVICE CONTRACT METHODPERFORMANCE CONSISTS OF THE EXECUTION OF A SINGLE ACT. ALTERNATIVELY, SE RVICES ARE PERFORMED IN MORE THAN A SINGLE ACT, AND THE SERVIC ES 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 AC TS. THE COMPLETED SERVICE CONTRACT METHOD IS RELEVANT TO TH ESE PATTERNS OF PERFORMANCE AND ACCORDINGLY REVENUE IS RECOGNISED WHEN THE SOLE OR FINAL ACT TAKES PLACE A ND THE SERVICE BECOMES CHARGEABLE. 9. EFFECT OF UNCERTAINTIES ON REVENUE RECOGNITION ITA NO. 1068/BANG/2016 PAGE 7 OF 11 9.1 RECOGNITION OF REVENUE REQUIRES THAT REVENUE I S MEASURABLE AND THAT AT THE TIME OF SALE OR THE REND ERING OF THE SERVICE IT WOULD NOT BE UNREASONABLE TO EXPECT ULTI MATE COLLECTION. 9.2 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLE CTION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAIS ING ANY CLAIM, E.G., FOR ESCALATION OF PRICE, EXPORT INCENTIVES, I NTEREST ETC., REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF U NCERTAINTY INVOLVED. IN SUCH CASES, IT MAY BE APPROPRIATE TO R ECOGNISE REVENUE ONLY WHEN IT IS REASONABLY CERTAIN THAT THE ULTIMATE COLLECTION WILL BE MADE. WHERE THERE IS NO UNCERTAI NTY AS TO ULTIMATE COLLECTION, REVENUE IS RECOGNISED AT THE T IME OF SALE OR RENDERING OF SERVICE EVEN THOUGH PAYMENTS ARE MADE BY INSTALMENTS. 9.3 WHEN THE UNCERTAINTY RELATING TO COLLECTABILITY ARISES SUBSEQUENT TO THE TIME OF SALE OR THE RENDERING OF THE SERVICE, IT IS MORE APPROPRIATE TO MAKE A SEPARATE PROVISION TO RE FLECT THE UNCERTAINTY RATHER THAN TO ADJUST THE AMOUNT OF REV ENUE ORIGINALLY RECORDED. 9.4 AN ESSENTIAL CRITERION FOR THE RECOGNITION OF REVENUE IS THAT THE CONSIDERATION RECEIVABLE FOR THE SALE OF GOODS, THE RENDERING OF SERVICES OR FROM THE USE BY OTHERS OF ENTERPRISE RESOURCES IS REASONABLY DETERMINABLE. WHEN SUCH CONSIDERATION IS NOT DETERMINABLE WITHIN REASONABLE LIMITS, THE RECOGNIT ION OF REVENUE IS POSTPONED. 9.5 WHEN RECOGNITION OF REVENUE IS POSTPONED DUE T O THE EFFECT OF UNCERTAINTIES, IT IS CONSIDERED AS REVENU E OF THE PERIOD IN WHICH IT IS PROPERLY RECOGNISED. 10. REVENUE FROM SALES OR SERVICE TRANSACTIONS SHO ULD BE RECOGNISED WHEN THE REQUIREMENTS AS TO PERFORMANCE SET OUT IN PARAGRAPHS 11 AND 12 ARE SATISFIED, PROVIDED THAT A T THE TIME OF PERFORMANCE IT IS NOT UNREASONABLE TO EXPECT ULTIMA TE COLLECTION. IF AT THE TIME OF RAISING OF ANY CLAIM IT IS UNREAS ONABLE TO EXPECT ULTIMATE COLLECTION, REVENUE RECOGNITION SHOULD BE POSTPONED. 11. IN A TRANSACTION INVOLVING THE SALE OF GOODS, PERFORMANCE SHOULD BE REGARDED AS BEING ACHIEVED WHEN THE FOLLO WING ITA NO. 1068/BANG/2016 PAGE 8 OF 11 CONDITIONS HAVE BEEN 135 FULFILLED: (I) THE SELLER OF GOODS HAS TRANSFERRED TO THE BUYER THE PROPERTY IN THE GOODS FOR A PRICE OR ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP HAVE BEE N TRANSFERRED TO THE BUYER AND THE SELLER RETAINS NO EFFECTIVE CO NTROL OF THE GOODS TRANSFERRED TO A DEGREE USUALLY ASSOCIATED WI TH OWNERSHIP; AND (II) NO SIGNIFICANT UNCERTAINTY EXISTS REGARDIN G THE AMOUNT OF THE CONSIDERATION THAT WILL BE DERIVED FROM THE SAL E OF THE GOODS. 12. IN A TRANSACTION INVOLVING THE RENDERING OF SE RVICES, PERFORMANCE SHOULD BE MEASURED EITHER UNDER THE COM PLETED SERVICE CONTRACT METHOD OR UNDER THE PROPORTIONATE COMPLETION METHOD, WHICHEVER RELATES THE REVENUE TO THE WORK A CCOMPLISHED. SUCH PERFORMANCE SHOULD BE REGARDED AS BEING ACHIEV ED WHEN NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING THE AMOUNT OF THE CONSIDERATION THAT WILL BE DERIVED FROM RENDERING T HE SERVICE. 10. THE MAIN PLEA OF THE ASSESSEE IS THAT IN TUNE WITH PARAGRAPH-12 OF AS-9, IN A TRANSACTION INVOLVING THE RENDERING OF S ERVICES, PERFORMANCE SHOULD BE MEASURED EITHER UNDER THE COMPLETED SERVI CE CONTRACT METHOD OR UNDER THE PROPORTIONATE COMPLETION METHOD, WHICHEVE R RELATES THE REVENUE TO THE WORK ACCOMPLISHED. IN A MERCANTILE SYSTEM OF ACCOUNTING REVENUE IS RECOGNISED ON ACCRUAL BASIS WHEN THE AGREEMENT TO R ENDER SERVICE IS ENTERED INTO WITH THE PARTY FOR THE WHOLE VALUE OF SERVICES. ACCOMPLISHMENT OF WORK IS IRRELEVANT UNDER THE MERCANTILE SYSTEM O F ACCOUNTING. WHEN DUE TO CANCELLATION OR MODIFICATION OF AGREEMENT TO REN DER TAKES PLACE THEN AND ONLY THEN A REVERSAL OF ENTRIES UNDER THE MERCANTIL E SYSTEM OF ACCOUNTING IS POSSIBLE. IN THE CASE OF THE ASSESSEE NO SUCH MODI FICATION OF THE AGREEMENT TO RENDER SERVICE WITH THE CLIENTS EXISTS . THE ASSESSEE ON HIS OWN RECOGNISES REVENUE ONLY WHEN BILLS ARE RAISED O N THE CUSTOMER. DOING SO MIGHT BE WELL IN TUNE WITH AS-9 WHICH IS MORE CO NCERNED WITH THE TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS OF THE BUSINE SS OF THE ASSESSEE, BUT THAT WOULD NOT BE IN TUNE WITH THE MERCANTILE SYSTEM OF ACCOUNTING AS UNDERSTOOD U/S.145 OF THE ACT. ITA NO. 1068/BANG/2016 PAGE 9 OF 11 11. THE RELEVANT STATUTORY PROVISIONS REGARDING MET HOD OF ACCOUNTING UNDER THE ACT, HAVE TO BE FIRST SEEN. SEC.145 OF T HE ACT (PRIOR TO ITS AMENDMENT BY THE FINANCE ACT, 2014 W.E.F. 1.4.2015 APPLICABLE IN THE PRESENT CASE) DEALS WITH METHOD OF ACCOUNTING AND IT READS THUS : SEC.145: METHOD OF ACCOUNTING: (1) INCOME CHARGEA BLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON OR INCOME FROM OTHER SOURCES SHALL, SUBJECT TO THE PROVISION S OF SUB-SECTION (2), BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSE SSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF IN COME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECT ION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2) HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE ASSESS ING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SE CTION 144. 12. VIDE NOTIFICATION NO. 9949, DATED 25-1-1996 [( 1996) 130 CTR (ST) 33], ACCOUNTING STANDARD I RELATING TO DISCLOSURE O F ACCOUNTING POLICIES AND ACCOUNTING STANDARD II RELATING TO DISCLOSURE OF PR IOR PERIOD AND EXTRAORDINARY ITEMS AND CHANGES IN ACCOUNTING POLIC IES HAD ALONE BEEN NOTIFIED AS ACCOUNTING STANDARDS TO BE FOLLOWED BY AN ASSESSEE AND NO OTHER ACCOUNTING STANDARD HAS BEEN NOTIFIED. 13. AS-9 HAS NOT BEEN NOTIFIED U/S.145 OF THE ACT AND HENCE DOES NOT HAVE STATUTORY FORCE. THE ASSESSEE FOLLOWS MERCAN TILE SYSTEM OF ACCOUNTING. AS-9 CANNOT BE SAID TO BE EITHER CASH SYSTEM OR MERCANTILE SYSTEM OF ACCOUNTING. AS-9 HAS TRAPPINGS OF BOTH C ASH SYSTEM OR MERCANTILE SYSTEM BUT CANNOT BE SAID TO FALL STRICT LY WITHIN THE PARAMETERS OF EITHER CASH SYSTEM OF MERCANTILE SYSTEM OF ACCOUNTI NG. THE ASSESSEE ITA NO. 1068/BANG/2016 PAGE 10 OF 11 FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND THEREFO RE UNDER THE ACT, THE AO IS EMPOWERED AND BOUND TO COMPUTE INCOME IN ACCO RDANCE WITH THE MERCANTILE SYSTEM OF ACCOUNTING. THERE IS NO DISPU TE THAT UNDER MERCANTILE SYSTEM OF ACCOUNTING DEBIT OF VALUE OF SERVICES TO THE TUNE OF RS.1,50,84,240 WAS NOT BECAUSE OF NON-ACCRUAL OF IN COME BUT ONLY BECAUSE BILLS WERE NOT RAISED ON THE CUSTOMERS FOR VALUE OF SERVICES WHICH HAD ALREADY ACCRUED. THE FACT THAT BILLS WERE NOT RAISED DOES NOT STOP ACCRUAL OF INCOME UNDER THE MERCANTILE SYSTEM OF AC COUNTING. THEREFORE THE CLAIM OF THE ASSESSEE WHICH IS PURELY BASED ON AS-9 IS NOT SUSTAINABLE AND THE ACTION OF THE REVENUE AUTHORITIES IN MAKING THE IMPUGNED ADDITION WAS JUSTIFIED. WE HOWEVER WISH TO MAKE IT CLEAR TH AT THE AFORESAID OBSERVATIONS WILL HOLD GOOD ONLY FOR AY UPTO AY 201 2-13 BECAUSE SEC.145 OF THE ACT HAS UNDERGONE SOME STATUTORY AMENDMENTS AND THE POSITION AFTER SUCH AMENDMENT IS NOT AND CANNOT BE SUBJECT O F DECISION IN THIS APPEAL. THE FACT THAT VALUE OF SERVICES RECOGNISED FOR THE PURPOSE OF LEVY OF SERVICE TAX IS NOT RELEVANT IN THE CONTEXT OF CO MPUTATION OF TOTAL INCOME FOR THE PURPOSE OF LEVY OF INCOME TAX UNDER THE ACT . THE CONCEPT OF VALUE OF SERVICE FOR THE PURPOSE OF LEVY OF SERVICE TAX A ND TOTAL INCOME FOR THE PURPOSE OF LEVY OF INCOME TAX ARE DIFFERENT AND ARE DETERMINED ON RELEVANT STATUTORY PROVISIONS APPLICABLE. 14. WE HOWEVER WISH TO MAKE IT CLEAR THAT THE INCO ME RECOGNITION OF WHICH WAS POSTPONED BY THE ASSESSEE BY FOLLOWING AS -9 CANNOT BE REGARDED AS INCOME IN THE YEAR IN WHICH IT IS OFFER ED TO TAX BY THE ASSESSEE, BECAUSE THE LAW IS WELL SETTLED THAT SAME INCOME CANNOT BE TAXED TWICE. THE BURDEN WILL HOWEVER BE ON THE ASS ESSEE TO SHOW AS TO HOW THE INCOME OFFERED IN A LATER ASSESSMENT YEAR W AS INCOME WHICH WAS NOT RECOGNISED IN EARLIER ASSESSMENT YEAR BY REASON OF APPLICATION OF AS-9. SUBJECT TO THESE OBSERVATIONS, WE FIND NO MERIT IN THIS APPEAL BY THE ASSESSEE AND DISMISS THE SAME. ITA NO. 1068/BANG/2016 PAGE 11 OF 11 15. IN THE RESULT, APPEAL BY THE ASSESSEE IS DISMI SSED. PRONOUNCED IN THE OPEN COURT ON THIS 8 TH DAY OF FEBRUARY, 2019. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 8 TH FEBRUARY, 2019. / D ESAI S MURTHY / COPY TO: 1. THE APP ELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.