M/s BTA Cellcom Ltd., Mumbai V. ITO, New Delhi

ITA 133/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3639 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-04-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 14-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MEETMALA MOHNANI
• Assessee Lawyers: RONAK G DOSHI
• Section: 143(3); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE G.E. VEERABHADRAPPA, HON'BLE VICE-PRESIDENT AND SHRI RAJPAL YADAV: HONBLE JUDICIAL MEMBER ITA NO. 133/DEL/2009 ASSESSMENT YEAR: 2002-03 M/S. BTA CELLCOM LIMITED, VS. INCOME-TAX OFFICER, C/O IDEA CELLULAR LTD., WINDOR, 3(2), 5 TH FLOOR, OFF.CST ROAD, NEAR NEW DELHI. VIDYA NAGARI, KALINA, SANTACRUZ (E), MUMBAI-400 098 (PAN: AAACR5498Q) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RONAK G. DOSHI, CA RESPONDENT BY: MS. MEETMALA MOHNANI, CI T(DR) ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE OR DER OF LEARNED CIT(APPEALS) DATED 05.11.2008 PASSED FOR THE ASSESS MENT YEAR 2002-03. THE ASSESSEE HAD RECEIVED ADVANCE AGAINST PREPAID CALLI NG SERVICES OF RS.3,24,90,772, ADVANCE AGAINST SIM PROCESS FEES AM OUNTING TO RS.2,74,727 AND ADVANCE AGAINST RECHARGE FEES AMOUNTING TO RS.2 4,66,666. IT HAS SHOWN THESE AMOUNTS UNDER THE HEAD CURRENT LIABILITIES. ASSESSING OFFICER HAS TREATED THESE RECEIPTS AS REVENUE RECEIPTS AND ADDE D IN THE TOTAL INCOME OF THE ASSESSEE. LEARNED CIT(APPEALS) HAS UPHELD THE ACTIO N OF THE ASSESSING OFFICER. ASSESSEE IS IMPUGNING ORDERS OF REVENUE AU THORITIES. 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING CELLULAR MOBILE TELECO MMUNICATION SERVICES IN THE STATE OF MP AND CHHATISGARH. IT HAS FILED ITS R ETURN OF INCOME ON 28 TH OCTOBER 2002 DECLARING LOSS OF RS.66,44,56,611. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICES UN DER SEC. 143(2) AND 142 OF THE INCOME-TAX ACT, 1961 WERE ISSUED AND SERVED. LEARNED CIT(APPEALS) HAS OBSERVED THAT WHEN INITIAL OPPORTUNITIES WERE G IVEN BY THE ASSESSING OFFICER TO THE ASSESSEE, IT HAD FURNISHED SOME REPL IES BUT APART FROM SUBMITTING SOME DETAILS AS CALLED FOR, IT ALSO CHAL LENGED THE VALIDITY OF THE NOTICES ISSUED UNDER SEC. 143(2)/142(1) OF THE ACT. ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSES SEE REGARDING VALIDITY OF NOTICES ISSUED UNDER SEC. 143(2)/147(1) OF THE ACT. HE FINALLY ISSUED A SHOW- CAUSE NOTICE ON 24.3.2005 AND DIRECTED THE ASSESSEE TO FILE DETAILS WHICH ACCORDING TO THE ASSESSING OFFICER WERE NOT FILED B Y THE ASSESSEE AND HE PASSED THE ASSESSMENT ORDER UNDER SEC. 143(3) READ WITH SECTION 144 OF THE ACT. HE MADE THE FOLLOWING ADDITIONS/DISALLOWANCES AND IN THIS WAY REDUCED THE LOSS DECLARED BY THE ASSESSEE. 1. UNSECURED LOAN RS.1825.26 LACS 2. CURRENT LIABILITIES RS.3682.48 LACS 3. 25% EXPENSES RS.1156.51 LACS 3 3. BEFORE US, OUT OF THE THREE ISSUES AGITATED BEFO RE LEARNED CIT(APPEALS), ASSESSEE IS AGITATING ONE ISSUE PARTL Y I.E. ADDITION MADE ON ACCOUNT OF CURRENT LIABILITIES. 4. THE BRIEF FACTS OF THE CASE ARE THAT ON PERUSAL OF SCHEDULE 10 OF THE BALANCE SHEET, ASSESSING OFFICER FOUND A SUM OF RS. 3,682.48 LACS SHOWN AS CURRENT LIABILITIES AND PROVISIONS. HE OBSERVED THA T THESE LIABILITIES ARE FOR SUNDRY CREDITORS, ADVANCES FROM CUSTOMERS, DEPOSITS FROM CUSTOMERS, OTHER LIABILITIES AND INTEREST ACCRUED. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE COMPANY HAS BEEN AVOIDING THE ASSESSMENT P ROCEEDINGS BY TAKING PLEA OF LIMITATION AND DID NOT FILE DETAILS/CONFIRM ATION REGARDING THE OUTSTANDING LIABILITIES. HE ADDED THE AMOUNTS SHOWN AGAINST THE CURRENT LIABILITIES. BEFORE THE LEARNED CIT(APPEALS), ASSES SEE HAS FILED A DETAILED SUBMISSIONS. IT HAS FILED THE BREAK UP OF THE AMOUN TS SHOWN UNDER THE HEAD CURRENT LIABILITIES THE DETAILS HAVE BEEN NOTICED BY THE LEARNED CIT(APPEALS) ON PAGE 9. ON PERUSAL OF THESE DETAILS , WE FIND THAT THE CURRENT LIABILITIES ARE IN RESPECT OF FOR FOUR ITEMS, NAMEL Y, SUNDRY CREDITORS, ADVANCE FROM CUSTOMERS, SECURITY DEPOSITS AND OTHER LIABILI TIES. IN THE PRESENT APPEAL, WE ARE CONCERNED WITH ONE COMPONENT ONLY WHICH IS A DVANCE FROM THE CUSTOMERS. THE DETAILS IN THIS REGARD REPRODUCED BY THE LEARNED CIT(APPEALS) ON PAGE 9 READ AS UNDER: 4 ADV. FROM CUSTOMERS ADVANCE AGAINST PREPAID CALLED SERVICE 3,24,90,771 3,91,02,356 ADVANCE AGAINST SIM PROCESSING CHARGES -2,74,727 ADVANCE AGAINST RECHARGE FEES 24,66,666 CREDIT BALANCE OF SUBSCRIBERS 38,70,190 5. LEARNED CIT(APPEALS) HAS CONFIRMED THE ADDITION IN RESPECT OF THIS ITEM BY RECORDING FOLLOWING FINDINGS: 7.32 I HAVE VERY CAREFULLY PERUSED THE REMAND REPORT AND REJOINDER OF THE APPELLANT ON THIS REPORT. I FULLY AGREE WITH THE CONTENTION OF ASSESSING OFFICER RAISED IN THE REMAND REPORT THAT AMOUNTS RECEIVED ON SELLING THE PREPAID VOUCHERS FOR CALLING CHARGES AND SIM PROCESSING CHARGES ARE NOT REFUNDABLE AT ALL IRRESPECTIVE OF T HE FACT AS TO WHETHER THE SAME HAS BEEN FULLY UTILIZED BY THE CUSTOMER OR NOT. EVEN IN THE HYPOTHETICAL SITUATION WHEN THE COMPANY IS CLOSED S TILL THIS AMOUNT IS NOT REFUNDABLE. THEREFORE, THE SALE PROCEEDS BECOME REVENUE RECEIPT AND INCOME ACCRUES TO THE ASSESSEE ON THE DATE OF S ALE ITSELF. AS THE APPELLANT IN NO CASE HAS TO REPAY THE AMOUNT TO THE CUSTOMER, IT CANNOT BE TERMED AS LIABILITY. I THEREFORE, AGREE WITH THE ASSESSING OFFICER THAT THESE AMOUNTS ARE NOT LIABILITY BUT ACTUALLY R EVENUE RECEIPTS. BUT THIS FINDING IS TRUE NOT ONLY FOR THESE TWO ITEMS N AMELY ADVANCE AGAINST PRE-PAID CALLING SERVICES AND SIM PROCESSIN G CHARGES, BUT FOR ADVANCE AGAINST RE-CHARGE FEES ALSO AS THIS IS ALSO OF SIMILAR NATURE AND 5 IS NOT A LIABILITY. THUS THE AMOUNT OF RS.3,24,90,7 72 BEING ADVANCE AGAINST PRE-PAID CALLING SERVICES, RS.2,74,727 BEIN G ADVANCE AGAINST SIM PROCESSING FEES AND RS.24,66,666 BEING ADVANCE AGAINST RECHARGE FEES ARE LIABLE TO BE ADDED AS INCOME AS TO THAT EX TENT REVENUE HAS NOT BEEN RECOGNIZED BY THE APPELLANT AND HAS BEEN REDUC ED FROM THE REVENUE AND TRANSFERRED TO THE CURRENT LIABILITY. 7.3.3 I DO NOT AGREE WITH APPELLANTS ALTERNATE CLAIM ALSO THAT IF THE TREATMENT AS MENTIONED BY THE ASSESSING OFFICER IS TO BE ACCEPTED, THE INCOME APPEARING IN THE CURRENT ACCOUNT IN THE YEAR ARISING OUT IN THE PREVIOUS YEAR WILL ACCORDINGLY HAVE TO BE DELETED. THE INCOME WHICH HAS BEEN OFFERED IN THIS YEAR SHOULD HAVE BEEN OFFE RED IN THE EARLIER YEAR. THEREFORE, THE SAME IS NEUTRALIZED. HOWEVER, THE INCOME WHICH IS BEING TAXED THIS YEAR DUE TO THE CHANGE IN TREAT MENT OF PREPAID RECEIPTS, WILL HAVE IMPACT IN THE NEXT YEAR. THEREF ORE, IN THE NEXT YEAR THE ASSESSING OFFICER IS DIRECTED TO VERIFY AS TO W HETHER THE INCOME HAS BEEN OFFERED OR NOT AND GIVE CONSEQUENTIAL REDU CTION IN THE NEXT YEAR, IF THE SAME IS OFFERED. 7.3.4 THUS TO SUM UP OUT OF TOTAL DISALLOWANCE OF RS.3682.48 LAKHS, DISALLOWANCE TO THE EXTENT OF RS.3,52,32,165 IS UPHELD. THE BALANCE DISALLOWANCE OF RS.33,30,15,840 IS DIRECTED TO BE DELETED. RELIEF RS.33,30,15,840. 6 6. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPUG NING THE ORDER OF THE LEARNED CIT(APPEALS) SUBMITTED THAT ADVANCES RECEIV ED FROM THE CUSTOMERS ON SALE OF SIM CARD CANNOT BE TERMED AS A INCOME, B ECAUSE WHEN ASSESSEE SOLD THE SIM CARD IT TOOK THE AMOUNT TO ADVANCE IN COME ACCOUNT WHICH IS A LIABILITY ACCOUNT. THE ASSESSEE HAS TO PROVIDE SERV ICES FOR THOSE RECEIPTS AND, THEREFORE, THE RECEIPT WAS WITHOUT ACQUIRING THE RI GHT TO RECEIVE IT AS INCOME. IT WAS ONLY A DEPOSIT OR ADVANCE AND IT COULD NOT B E SAID THAT IT ATTAIN THE CHARACTER OF INCOME. IT WILL ATTAIN THE CHARACTER O F INCOME, WHEN AN ABSOLUTE RIGHT TO RETAIN IS ACCRUED. FOR BUTTRESSING THIS CO NTENTION, HE RELIED UPON THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DINESH KUMAR GOEL REPORTED IN 331 ITR 10. HE PLACED ON RECORD CO PY OF THE HON'BLE HIGH COURTS DECISION. HE FURTHER RELIED UPON THE SPECIA L BENCHS DECISION OF THE ITAT IN THE CASE OF ACIT VS. MOHINDRA RESORTS REPOR TED IN 131 TTJ 1. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT RESEARCH COMMITTEE OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA HAS PREPARED AN EXPOSER DRAFT UNDER THE TITLE TECHNICAL GUIDE ON REVENUE RECOGNI TION FOR TELECOMMUNICATION OPERATORS. IN THIS DRAFT, THE C OMMITTEE HAS EXAMINED COMPLEX ACCOUNTING ISSUES OFTEN FACED BY TELECOM OP ERATOR IN THE AREA OF REVENUE RECOGNITION. ACCORDING TO THE LEARNED COUNS EL FOR THE ASSESSEE, THIS REPORT MAY NOT HAVE A BACKING OF STATUTE, BUT IT IS PREPARED BY EXPERT. IT CAN 7 HELP INDIVIDUAL, CORPORATE OR AUTHORITY IN APPRECIA TING THESE COMPLEX ISSUES. THE COMMITTEE, IN ORDER TO APPRAISE THE ISSUES IN M ORE SIMPLE AND SCIENTIFIC WAY HAS GIVEN VARIOUS EXAMPLES. HE PLACED ON RECORD COPY OF THIS DRAFT AND TOOK US THROUGH PARAGRAPH NOS. 17 TO 22 IN PARTICUL AR. FROM PARAGRAPH 17 UP TO 21, THE COMMITTEE HAS EXPLAINED AS TO HOW REVENU E IN A PRE-PAID PLAN OF CELLULAR SERVICES IS TO BE RECOGNIZED. THE DISCUSSI ON MADE BY THE COMMITTEE AND THE EXAMPLES CONSIDERED READS AS UNDER: 17. REVEN UES EARNED FROM END CUSTOMERS CAN TYPICALLY BE CLASSIFIED AS MONTHLY RENTALS, AIRTIME USAGE CHARGE S, DOMESTIC/INTERNATIONAL ROAMING SERVICES AND OTHER V ALUE ADDED SERVICES. CELLULAR SUBSCRIBERS CAN CHOOSE FROM POST PAID PLANS OR PREPAID PLANS. EACH OF THESE ARRANGEMENTS IS DISCUS SED HEREIN BELOW. PREPAID PLANS 18. SINCE THERE IS NO ON-GOING CUSTOMER COMMITMENT UNDER PREPAID PLANS, THESE ARE SIGNIFICANTLY MORE POPULAR INDIA WHERE A MAJORITY OF MOBILE CUSTOMERS OPT FOR PREPAID PROD UCTS. CUSTOMERS USUALLY PAY FOR ON-GOING SERVICES BY PURC HASING SCRATCH CARDS OR VOUCHERS THAT ENTITLE THEM TO A SE T AMOUNT OF MINUTES. ONLINE REFILLS AND DIRECT REFILLS THROUGH MOBILE PHONES USING DEBIT AND CREDIT CARDS ARE ALSO GAINING POPUL ARITY. 8 19. SINCE UNDER THESE PLANS THE CUSTOMER PAYS IN AD VANCE FOR SERVICES TO BE PROVIDED BY THE OPERATOR IN FUTURE, THE TIMING OF REVENUE RECOGNITION BECOMES CRITICAL. FOR PREPAID P LANS, REVENUES SHOULD BE RECORDED IN THE PERIOD IN WHICH THE SERVICES ARE RENDERED, I.E. IN THE PERIOD IN WHICH CALLS ARE MADE. THIS WILL USUALLY BE DIFFERENT FROM THE PERIOD IN WHICH CASH IS RECEIVED. 20. ACCOUNTING FOR UNUSED MINUTES NEEDS CAREFUL CONSIDERATION. IN CASES WHERE THERE IS A SERVICE EX PIRY DATE ON THE PREPAID CARD, REVENUE FOR UNUSED MINUTES IS REC OGNIZED ON SUCH EXPIRY DATE. IF THERE IS NO EXPIRY DATE ON THE CARD THE OPERATOR NEVER EXTINGUISHES ITS RESPONSIBILITIES TO DELIVER SERVICE. THE REVENUE RELATING TO THE UNUSED MINUTES SHOULD NOT BE RECOGNIZED, EVEN WHERE THE OPERATOR IS ABLE TO D EMONSTRATE THAT IT IS UNLIKELY THAT THE CARD WILL BE USED AGAI N. EXAMPLE 1. LIFETIME VALIDITY SCHEMES TELECOM COMPANY XYZ ANNOUNCED A LIFETIME VALIDITY P LAN IN THE MARKET WHEREBY THE CUSTOMERS NEEDED TO PAY RS.1 ,000 TO STAY CONNECTED FOR A LIFETIME PROVIDED THE CUSTOMER RECHARGES AT LEAST ONCE EVERY SIX MONTHS WITH A MINIMUM VALUE CO UPON AVAILABLE IN THE MARKET OF RS.100. HOW SHOULD REVEN UE BE RECOGNIZED UNDER THIS ARRANGEMENT? THE LIFETIME VALIDITY PLAN ESSENTIALLY COMPRISES AC CESS FEE AND TALK TIME. ACCESS FEE PERTAINING TO THIS TRANSACTIO N WOULD 9 CONSTITUTE APPROXIMATELY RS.900 AND THE REMAINING A MOUNT WOULD CONSTITUTE THE AMOUNT AVAILABLE FOR THE TALK TIME. TALK TIME REVENUES WOULD BE RECOGNIZED BY THE TELECOM CO MPANY BASED ON USAGE. THE ACCESS FEE PAID IS NOTHING BUT REVENUE RECEIVED FROM THE CUSTOMER THE BENEFITS OF WHICH AR E UTILIZED OVER THE PERIOD HE IS EXPECTED TO REMAIN CONNECTED TO THE SAME NETWORK. HENCE, IT IS PRUDENT TO RECOGNIZE AND AMOR TIZE THE ACCESS FEE OVER THE CUSTOMER RELATIONSHIP PERIOD US ING AN APPROPRIATE CHURN RATE. 21. CERTAIN PREPAID PLANS ALLOW CUSTOMERS A FIXED N UMBER OF MINUTES OR TEXT MESSAGES EACH MONTH FOR A FIXED CHA RGE WITH AN OPTION TO CARRY FORWARD UNUSED MINUTES OR TEXT MESS AGES TO FUTURE PERIODS. AGAIN, FROM AN ACCOUNTING PERSPECTI VE, REVENUE RECOGNITION SHOULD BE BASED ON USAGE RATHER THAN BI LLINGS. IN RESPECT OF CARRIED FORWARD MINUTES, REVENUE RECOGNI TION SHOULD BE DEFERRED AND SHOULD ONLY BE RECOGNIZED WHEN THE CUSTOMER LOSES ANY ENTITLEMENT TO FUTURE USE. REVENUE SHOULD NOT BE RECOGNIZED UNTIL THE ENTITY HAS NO FURTHER LIABILIT Y IN RESPECT OF UNUSED MINUTES WHICH COULD ONLY BE THE CASE WHEN TH E RIGHT TO USE THE MINUTES ACTUALLY EXPIRES. EXAMPLE 2. ROLL OVER MINUTES (I) A TARIFF OFFERS 1000 MINUTES FOR A FEE OF RS.50 0 PER MONTH WITH THE OPTION OF ROLLING OVER ANY UNUSED MINUTES. AT THE END OF THE FIRST MONTH, THE CUSTOMERS USES 900 MINUTES AND USES THE REMAINING 100 MINUTES IN THE SECOND MONTH. 10 REVENUE TO THE EXTENT OF RS.450(90%) SHOULD BE RECO GNIZED IN THE FIRST MONTH AND RS.50 (10% X RS.500) IS DEFERRE D UNTIL THE SECOND MONTH WHEN IT SHOULD BE RECOGNIZED. (II) A TARIFF OFFERS 1000 MINUTES FOR A FEE OF RS.5 00 PER MONTH WITH THE OPTION OF ROLLING OVER ANY UNUSED MINUTES INTO THE FOLLOWING MONTH. THE MINUTES EXPIRE AFTER 3 MONTHS. AT THE END OF THE FIRST MONTH, THE CUSTOMER HAS USE D 800 MINUTES AND THEREFORE THE SERVICES PROVIDER RECOGNI ZES REVENUE OF RS.400 (80% X RS.500) AND REVENUE OF RS.100 IS D EFERRED. THE CUSTOMER USES 100 OF THE ROLLOVER MINUTES IN TH E SECOND MONTH AND NONE IN THE THIRD MONTH. REVENUE OF RS. 5 0 WOULD BE RECOGNIZED IN MONTH TWO. EVEN THOUGH THE CUSTOMER HAS USED NONE OF THE ROLLO VER MINUTES IN THE THIRD MONTH, THE CUSTOMERS RIGHT TO USE THEM, I.E. LIABILITY OF THE COMPANY TO SERVE THE CUSTOMER HAS EXPIRED. HENCE, THE REMAINING RS.50 OF REVENUE IS RECOGNIZED IN THE THIRD MONTH. WHERE ROLLOVER MINUTES HAVE A LONGER E XPIRY DATE, THE RECOGNITION OF THIS FINAL 10% CAN ONLY TAKE PLA CE WHEN THE CUSTOMERS ABILITY TO USE THEM HAS EXPIRED. 7. THE LEARNED COUNSEL FOR THE ASSESSEE IN HIS NEXT FOLD OF SUBMISSION CONTENDED THAT RIGHT FROM ASSESSMENT YEAR 1998-99, ASSESSEE IS FOLLOWING 11 THIS PRINCIPLE. THE DEPARTMENT HAS ACCEPTED THE MET HOD OF ACCOUNTANCY FOLLOWED BY THE ASSESSEE UP TO ASSESSMENT YEAR 2001 -02. IT HAS AGAIN ACCEPTED FROM ASSESSMENT YEAR 2003-04 UP TO 2006-07 . IN THE INITIAL YEARS, THE ASSESSEE WAS UNABLE TO TRANSFER THESE AMOUNTS I N THE REVENUE ACCOUNT BUT IN THE PRESENT YEAR 84% AMOUNT RECEIPT HAS BEEN TRA NSFERRED TO THE REVENUE ACCOUNT. THIS TRANSFER HAS INCREASED IN THE SUBSEQU ENT YEARS AND IN ASSESSMENT YEAR 2006-07, THE ASSESSEE HAS RECOGNIZE D 92% OF RECEIPTS AS REVENUE RECEIPTS. HE PLACED ON RECORD DETAILS IN TA BULAR FORM WHICH READS AS UNDER: A.Y. 2001-02 2002-03 2003-04 2004-05 2005-06 20 06-07 F.Y. 1996- 97 1997- 98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 200 4-05 2005-06 OPENING BALANCE - - - 315.218 1,339,784 11,082,195 35,232,166 68,53 3,644 76,783,583 128,533,597 ADD:RECEIVED DURING THE YEAR - - 4,396,491 15,295,483 76,625,496 19,10,30,744 51 0,620,392 704,871,639 1,301,697671 1,787,503,598 LESS:TRANSFER TO REVENUE - - 4,081,273 14,270,917 66,883,085 16,68,80773 47, 73,18,914 696,621,699 ,1249,947,657 1,742,769,948 CLOSING BALANCE - - 315,218 1,339,784 11,082,195 35,232,166 6,85,3 3,644 76,783,383 128,533,597 17,32,67,246 84% 87% 90% 91% 92% 8. ON THE STRENGTH OF THESE DETAILS, HE SUBMITTED T HAT IN ONE ASSESSMENT YEAR, THE ASSESSING OFFICER OUGHT TO HAVE NOT CHANG ED THE METHOD OF ACCOUNTING. IT IS NOT GOING TO GIVE ANY BENEFIT TO THE REVENUE. THE ULTIMATE ASSESSED INCOME IS NIL BECAUSE ASSESSEE HAS SHOWN L OSSES. ITS LOSSES HAVE 12 ONLY BEEN REDUCED. FOR THE PRINCIPLE OF CONSULTANCY , HE RELIED UPON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF RA DHA SOAMI SATSANG VS. CIT REPORTED IN 193 ITR 321. HE ALSO RELIED UPON TH E JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. A.R.J. SECU RITIES REPORTED IN 264 ITR 276 AND CIT VS. NEOPOLY PACK (P) LTD. REPORTED IN 245 ITR 492. 9. ON THE OTHER HAND, LEARNED DR RELIED UPON THE OR DER OF THE LEARNED CIT(APPEALS). SHE SUBMITTED THAT IN ALL THE CASES, RELIED UPON BY THE ASSESSEE, THERE WERE CHANCES OF REFUNDING THE AMOUN T RECEIVED BY THE ASSESSEE. IN THE PRESENT CASE, ASSESSEE IS NOT UNDE R ANY OBLIGATION TO REFUND THE AMOUNT RECEIVED ON SALE OF PREPAID SIM CARD. SH E REFERRED THE AGREEMENT ENTERED BY THE ASSESSEE WITH ITS DISTRIBUTORS. TAKI NG US THROUGH CLAUSE 7 OF THE AGREEMENT, SHE POINTED OUT THAT NO REFUND WOULD BE GIVEN TO THE DISTRIBUTORS. 10. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. IN BRIEF, THE CASE OF THE ASSESSE E IS THAT AMOUNTS RECEIVED BY IT UNDER PREPAID CALLING SERVICES, SIM PROCESS FEES AND RECHARGE FEE ARE CONCERNED, THEY WERE RECEIVED IN THE SHAPE OF ADVAN CE. THE SERVICES AGAINST THE SAID ADVANCE WERE YET TO BE PROVIDED WHICH COUL D BE RENDERED BY THE ASSESSEE IN SUBSEQUENT PERIOD AND, THEREFORE, INCOM E QUA THOSE RECEIPTS 13 WOULD ACCRUE ONLY IN THE LATER PERIOD. THE OBLIGATI ON TO PROVIDE SERVICE IS UPON THE ASSESSEE AND THERE WOULD BE OUT FLOW OF AM OUNT FOR PROVIDING SUCH SERVICES TO THE ULTIMATE CUSTOMERS. HENCE, TOTAL RE CEIPTS CANNOT BE RECOGNIZED AS A REVENUE RECEIPT AT THE TIME OF RECE IPTS. ON THE OTHER HAND,, CASE OF THE REVENUE IS THAT THERE IS NO OBLIGATION UPON THE ASSESSEE TO REFUND THESE AMOUNTS TO THE ULTIMATE CUSTOMERS HENCE AN AB SOLUTE RIGHT TO RETAIN THE MONEY HAS BEEN CRYSTALLIZED ON THE DATE OF SALE OF SIM CARD. THE RECOGNITION OF INCOME CANNOT BE DEFERRED FOR A SUBSEQUENT PERIO D. HENCE, IT IS TAXABLE IN THE YEAR IN WHICH THESE AMOUNTS HAVE BEEN RECEIVED. LET US CONSIDER THE CASE LAW RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSE SSEE. THE FIRST JUDGMENT REFERRED BY HIM IS OF HON'BLE DELHI HIGH COURT IN T HE CASE OF CIT VS. DINESH KUMAR GOEL. IN THIS CASE, THE ASSESSEE SHRI DINESH KUMAR GOEL WAS RUNNING A COACHING INSTITUTE UNDER THE NAME AND STYLE OF M/ S. FIITJEE. HE IS THE SOLE PROPRIETOR. AT THE TIME OF ADMISSION OF THE STUDENT , THE INSTITUTE TAKE THE FEES FOR TWO YEARS. THE ISSUE WAS WHETHER TOTAL FEES REC EIVED BY THE ASSESSEE AT THE TIME OF ADMISSION FOR A COURSE OF TWO YEARS DUR ATION IS TO BE RECOGNIZED AS REVENUE RECEIPTS IN THE YEAR OF RECEIPT OR IT HA S TO BE SPREAD FOR TWO YEARS. ASSESSING OFFICER, TREATED THE TOTAL RECEIPTS AS TA XABLE IN THE YEAR OF RECEIPT, HOWEVER, LEARNED CIT(APPEALS) AS WELL AS ITAT DELET ED THE ADDITION AND ALLOWED THE ASSESSEE TO SPREAD THE RECEIPTS IN TWO YEARS. HON'BLE HIGH COURT 14 HAS CONSIDERED THE SCOPE OF TOTAL INCOME PROVIDED I N SECTION 5 OF THE INCOME-TAX ACT, 1961 AND HAS OBSERVED THAT INCOME W OULD ACCRUE OR ARISE OR IS DEEMED TO ACCRUE OR ARISE TO AN ASSESSEE IN INDI A DURING SUCH YEAR WHEN A RIGHT TO RECEIVE CRYSTALLIZED IN FAVOUR OF THE ASSE SSEE. HON'BLE HIGH COURT HAS UPHELD THE ORDER OF THE ITAT. THE SECOND CASE R ELIED UPON BY THE ASSESSEE IS OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF MOHINDRA RESORTS. IN THIS CASE, ASSESSEE HAS BEEN RECEIVING AMOUNTS FOR SELLING TIME SHARE UNIT. UNDER THE SCHEME, A PERSON CAN BECOME A MEMBER EITHER BY PAYING THE FULL AMOUNT AT A TIME OR BY PAYING INSTA LLMENTS. THE MEMBERS ARE ENTITLED TO ENJOY THE HOLIDAYS ONLY AFTER 12 OR 18 MONTHS FROM THE DATE OF MEMBERSHIP. THE MEMBER WILL BE ENTITLED TO FACILITA TE A STAY AT A RESORT FOR ONE WEEK IN A YEAR FOR 33/25 YEARS. THE ASSESSEE HA S RECOGNIZED 40% OF THE TOTAL COST OF MEMBERSHIP TOWARDS ACCOMMODATION AND 60% TOWARDS FACILITIES. IT OFFERED 40% RECEIPT FOR FARE. THE D ISPUTE AROSE BETWEEN THE ASSESSEE AND REVENUE, WHETHER ENTIRE AMOUNT OF THE TIME SHARE MEMBERSHIP FEES RECEIVABLE BY THE ASSESSEE UP FRONT AT THE TIM E OF ENROLLMENT OF A MEMBER IS THE INCOME CHARGEABLE TO TAX IN THE INITI AL YEAR WHEN THERE IS A CONTRACTUAL OBLIGATION FASTENED TO THE RECEIPT TO P ROVIDE THE SERVICE IN FUTURE OVER THE TREATMENT OF THE CONTRACT. THE SPECIAL BEN CH HAD MADE A DETAILED ANALYSIS AND ARRIVED AT A CONCLUSION THAT ENTIRE AM OUNT OF TIME SHARE 15 MEMBERSHIP FEES RECEIVABLE BY THE ASSESSEE UPFRONT AT THE TIME OF ENROLLMENT OF A MEMBER IS NOT THE INCOME CHARGEABLE TO TAX IN THE INITIAL YEAR. ASSESSEE HAS RIGHTLY SPREAD OVER IT IN THE FUTURE YEAR. THE ASSESSEE HAS TREATED 60% OF THE SUMS AS AN INCOME AND 40% WAS OFFERED FOR TAXAT ION. SIMILARLY, THE ASSESSEE HAS RELIED UPON THE ORDER OF THE ITAT IN T HE CASE OF M/S. CAREER LAUNCHER VS. ACIT. APART FROM THESE DECISIONS, LEAR NED COUNSEL FOR THE ASSESSEE ALSO PLACED ON RECORD THE INITIAL REPORT I N RESPECT OF OTHER OPERATORS I.E. RELIANCE COMMUNICATION AND AIRTEL. HE POINTED OUT THAT THESE CONCERNS ARE ALSO IN THE SIMILAR LINES OF BUSINESS AND THEY ARE ALSO FOLLOWING SIMILAR ACCOUNTING PRINCIPLES. 11. THUS, FROM PERUSAL OF HON'BLE HIGH COURTS DECI SION, IT REVEALS THAT AT THE TIME OF ADMISSION, THE FEE PAID BY THE STUDENTS FOR THE ENTIRE COURSE WAS ONLY A DEPOSIT OR ADVANCE, IT COULD NOT BE SAID THA T THIS FEE HAD BECOME DUE AT THE TIME OF DEPOSIT. SIMILARLY, FROM THE PERUSAL OF ITATS ORDER IN THE CASE OF ACIT VS. MOHINDRA HOLIDAYS & RESORTS INDIA LTD., IT EMERGES OUT THAT TWO CONDITIONS ARE NECESSARY TO SAY THAT INCOM E HAS ACCRUED OR EARNED BY THE ASSESSEE. THEY ARE (I) IT IS NECESSARY THAT ASSESSEE MUST HAVE CONTRIBUTED TO ITS ACCRUING OR ARISING BY RENDERING SERVICES OR OTHERWISE & (II) A DEBT MUST HAVE CAME INTO EXISTENCE AND ASSES SEE MUST HAVE ACQUIRED A 16 RIGHT TO RECEIVE THE PAYMENT. ACCORDING TO THE ITAT , A DEBT WAS CREATED IN FAVOUR OF THE ASSESSEE IMMEDIATELY ON EXECUTION OF AGREEMENT FOR BECOMING THE MEMBER OF RESORT UNDER THE POLICY BUT THE ASSES SEE HAS NOT FULLY CONTRIBUTED TO ITS ACCRUING BY RENDERING SERVICES. IN THE CASE IN HANDS, ASSESSMENT ORDER IS AKIN TO AN EX PARTE ORDER. IT I S RUNNING ONLY INTO TWO AND HALF PAGES. ON THIS ISSUE, NO DISCUSSION IS AVAILAB LE. SIMILARLY, LEARNED CIT(APPEALS) HAS ALSO EXAMINED THE ISSUE WITH DIFFE RENT ANGLES. THE CONDITIONS AVAILABLE IN THE DISTRIBUTORS AGREEMENT AS WELL AS RIGHT OF CONSUMERS HAVE NOT BEEN DISCUSSED. THE DETAILS WHIC H WERE AVAILABLE BEFORE THE AUTHORITIES IN THESE TWO DECISIONS ARE NOT AVAI LABLE BEFORE US. IN PRINCIPLE, WE HAVE NO HESITATION IN ARRIVING AT A C ONCLUSION THAT IF SERVICES ARE TO BE RENDERED FOR A FUTURE PERIOD THEN THE AMO UNT RECEIVED BY AN ASSESSEE CANNOT BE SAID AS A DEBT DUE. IN OTHER WOR DS, THE RIGHT TO ENFORCE THE DEBT IS SUBJECT TO IFS AND BUTS. IT IS NOT CRYSTALL IZED. IN THE ABSENCE OF DETAILS, THE APPLICABILITY OF THESE TWO JUDGMENTS WITH ALL F OUR CORNERS IS DIFFICULT TO EXAMINE. WE WOULD HAVE OPT FOR SENDING IT TO THE AS SESSING OFFICER FOR EXAMINATION OF THE FACTS IN THE LIGHT OF THESE DECI SIONS. HOWEVER, ON PERUSAL OF THE TABLE EXTRACTED SUPRA, WE FIND THAT EXCEPT I N THIS ASSESSMENT YEAR THE ACCOUNTING POLICY OF THE ASSESSEE HAS NEVER BEEN DI STURBED BY THE DEPARTMENT. IF WE UPHELD THIS CHANGE IN THE METHOD IN ONE YEAR THEN 17 ACCOUNTS OF ALL OTHER YEARS HAS TO BE DISTURBED. TH E RECEIPT RECEIVED BY THE ASSESSEE HAS ULTIMATELY OFFERED FOR TAX AT THE END OF RENDERING SERVICES. THEREFORE, FOLLOWING THE DECISIONS OF HON'BLE SUPRE ME COURT IN THE CASE OF RADHA SOAMI SATSANG AND THAT OF HON'BLE DELHI HIGH COURT IN THE CASE OF NEOPOLY PACK (SUPRA), WE ARE OF THE VIEW THAT LEARN ED REVENUE AUTHORITIES SHOULD HAVE NOT DISTURBED THE METHOD OF ACCOUNTANCY ADOPTED BY THE ASSESSEE IN ONE ASSESSMENT YEAR WHEN IT IS ACCEPTED IN THE EARLIER ASSESSMENT YEAR AND ALSO IN SUBSEQUENT ASSESSMENT YEARS. ON TH IS ALTERNATIVE CONTENTION, WE ALLOW THE APPEAL OF THE ASSESSEE AND DELETE THE ADDITION CONFIRMED BY THE LEARNED CIT(APPEALS). 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 30.06.201 1 SD/- SD/- (G.E. VEERABHADRAPPA ) ( RAJPAL YA DAV ) VICE-PRESIDENT JUDICIAL MEMBER DATED: 30/06/2011 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR