DCIT, New Delhi V. M/s. Sistema Shyam Teleservices Ltd., New Delhi

ITA 3926/DEL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3104 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 16-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 08-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ALOK VASANT

Judgement Text

1 ITA NO. 3926/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT M EMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 3926/DEL/2014 (ASSESSMENT Y EAR 2009-10) DCIT CIRCLE-8(1) NEW DELHI (APPELLANT) VS SISTEMA SHYAM TELESERVICES LTD. A-60, NARAINA INDL. AREA-1 NEW DELHI AACCS1709H (RESPONDENT) APPELLANT BY SH. N.K. BANSAL, SR. DR RESPONDENT BY SH. ALOK VASANT, ADV ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 24/4/2014 PASSED BY CIT(A)-XI, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.7,65,19,216/- ON ACCOUNT OF UNACCRUED REVENUE AS ON 31/3/2009 FROM THE SALE OF PREPAID CARDS AND RECOGNIZED IN THE BOOKS OF ACCOUNT. 3. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROV IDING BASIC TELEPHONY SERVICES AS PER LICENSE OBTAINED FROM DOT. THE ASSE SSEE FILED ITS RETURN OF INCOME FOR AY 2009-10 ON SEPTEMBER 29. 2009 DECLARI NG TOTAL LOSS OF RS. DATE OF HEARING 16.05.2017 DATE OF PRONOUNCEMENT 23.05.2017 2 ITA NO. 3926/DEL/2014 5.35.19.88.134. THE ASSESSEES SOURCE OF INCOME IS FROM THE SALE OF PRE-PAID AND POST-PAID CARDS/ CONNECTIONS AND THE METHOD FOL LOWED FOR RECOGNITION OF THE SAME IS ACCRUAL AND AT PAR WITH THAT OF THE TEL ECOM INDUSTRY. THE ASSESSING OFFICER MADE AN ADDITION IN RESPECT OF UN-ACCRUED R EVENUE EARNED FROM SALE OF PRE-PAID CARDS. THE ASSESSEE FILED APPEAL BEFORE TH E CIT(A). THE CIT(A) DELETED THE ADDITION BY FOLLOWING THE EARLIER ASSESSMENT YE ARS ITAT ORDER IN ASSESSEES OWN CASE. 4. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. 5. DURING THE HEARING THE LD. AR SUBMITS THAT DURIN G FY 2008-09 THE ASSESSEE SOLD PRE-PAID VOUCHERS OF VALUE RS. 47,24, 48,097/- AND ON THE BASIS OF THE ACTUAL USAGE WITHIN THE YEAR, RECOGNIZED REV ENUE OF RS. 40,69,67,674/- (INCLUDING UN-ACCRUED REVENUE AS ON MARCH 31, 2008) . THE DETAILS IN FY 2008- 09 ARE TABULATED BELOW:- PARTICULARS SOLD (RS.) USAGE (RS.) PROCESSING FEE PRE-PAID VOUCHERS SOLD 47,24,48,097/- 46,59,48,841/ - 64,99,256/- ADD: UNACRUED REVENUE AS ON 31/3/2008 1,75,38,049/- LESS: UNACCRUED REVENUE AS ON 31/3/2009 (7,65,19,216/-) SERVICE TAX AMOUNT 5,02,43,402/- REVENUE AS PER P & L 41,39,22,205/- 40,69,67,674/- 64,99,256/- THE LD. AR FURTHER POINTED OUT THAT THE ASSESSING O FFICER ADDED UN-ACCRUED REVENUE AS ON 31.03.09 OF RS. 7,65,19,216/- ALLEGIN G THAT THE SAME OUGHT TO BE RECOGNIZED AS REVENUE BY PLACING RELIANCE ON HIS PREDECESSORS ORDERS. THE LD. AR FURTHER POINTED OUT THE TERMS AND CONDITIONS OF PREPAID CARD WHICH STATES THE TALK TIME VALIDITY, THEREBY IMPLYING THA T THE ASSESSEE HAD THE OBLIGATION TO RENDER SERVICES BEYOND THE YEAR IN CA SES WHERE PRE-PAID VOUCHERS 3 ITA NO. 3926/DEL/2014 WERE SOLD TOWARDS THE END OF THE YEAR. THE LD. AR F URTHER POINTED OUT THE EXTRACT OF ACCOUNTING STANDARD - 9 - REVENUE RECOG NITION WHICH STATES THAT IN TRANSACTIONS INVOLVING SERVICES, REVENUE SHOULD BE RECOGNIZED AS SERVICES ARE RENDERED. THE LD. AR SUBMITS THAT THIS IS A COV ERED MATTER IN ASSESSEES OWN CASE FOR PREVIOUS ASSESSMENT YEARS 2004-05 AND 2006-07. THE LD. AR ALSO RELIED ON THE DECISION OF THE DELHI TRIBUNAL I N THE CASE OF BTA CELLCOM LTD. VS. ITO (ITA NO. 133/DEL/2009 DATED 30.06.2011 ) 4. THE LD. DR COULD NOT CONTROVERT THE SAME. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS PLACED BEFORE US. THE ASSESSEES SOURCE OF INCOME IS FROM THE SALE OF PRE-PAID AND POST-PAID CARDS/ CONNECTIONS AND THE METHOD FOLLOWED FOR RECO GNITION OF THE SAME IS ACCRUAL AND AT PAR WITH THAT OF THE TELECOM INDUSTR Y IN THIS YEAR AS WELL. IN THE EARLIER ASSESSMENT YEARS I.E. 2004-05 AND 2006-07, IN ASSESSEES OWN CASE THE ITAT HELD THE ASSESSEE COMPANY CANNOT APPROPRIATE T HE CHARGES RELATING TO AVAILABLE TALK TIME TO THE EXCLUSION OF SUBSCRIBER AS LONG AS IT IS UNDER OBLIGATION TO PROVIDE THE SAID SERVICES. THEREFORE , THE ITAT WAS OF THE OPINION THAT CIT(A) IN PRINCIPLE HAS RIGHTLY ACCEPTED THE M ODE OF REVENUE RECOGNITION BY THE ASSESSEE IN THOSE ASSESSMENT YEAR. THE RELEV ANT EXTRACTS FROM THE ORDER OF TRIBUNAL FOR A.Y. 2004-05 & 2006-07 IS REP RODUCED BELOW: PARA 14...ASSESSEE HAD INSTALLED INTEGRATED SOF TWARE FOR BILLING AND ACCOUNTING PURPOSE. ACCORDING TO THIS SYSTEM TH E REVENUE IN RESPECT OF SERVICES THAT HAD BEEN PROVIDED IN THE FORM OF T ALK TIME TO THE SUBSCRIBERS WAS AUTOMATICALLY RECOGNISED IN THE ACC OUNTS BOTH IN RESPECT OF PREPAID AND POSTPAID CARDS. FURTHER IT I S NOT DISPUTED THAT THE PREPAID CARDS SOLD BY THE ASSESSEE HAD TWO PART S, ONE FIXED AMOUNT KNOWN AS ACTIVATION CHARGE AND SECOND TALK TIME CHA RGE. THE ACTIVATION CHARGE WAS ACCOUNTED FOR IMMEDIATELY WHEN THE PHONE WAS ACTIVATED. HOWEVER, THE TALK TIME CHARGES WERE RECOGNISED ON T HE BASIS OF ACTUAL 4 ITA NO. 3926/DEL/2014 USE WHICH IS NORMAL PRACTICE FOLLOWED IN THE FIELD AS PER THE TERMS WITH DOT. THE AMOUNT IN RESPECT OF WHICH THE CUSTOMER HA D NOT USED THE PREPAID CARD, WAS TREATED AS ADVANCE IN THE BALANCE SHEET AND RECOGNISED IN THE SUBSEQUENT YEAR WHEN THE TALK WAS ACTUALLY USED. THE FUNDAMENTAL PRINCIPLE IS THAT INCOME IS TO BE R ECOGNISED WHEN IT ACCRUES TO ASSESSEE, WHEREAS EXPENDITURE IS TO BE C HARGED THE MOMENT LIABILITY GETS CRYSTALLIZED. THE TWO ASPECTS CANNOT BE MINGLED AND HAVE TO BE CONSIDERED SEPARATELY. PARA 15 EVERY RECEIPT OF AMOUNT CANNOT BE TREATED AS INCOME AND ONLY THAT PART OF RECEIPT CAN BE TREATED AS INCOME WHICH CAN BE LEGALLY APPROPRIATED BY THE RECEIVER IN HIS OWN RIGHT TO TH E EXCLUSION OF ITS GIVER. AS LONG AS THE PAYER HAS SOME RIGHT OVER THE AMOUNT IT HAS PAID TO THE PAYEE, IT CANNOT BE SAID THAT INCOME HAS ACCRUED TO THE PAYEE. A LEGAL RIGHT TO APPROPRIATE THE AMOUNT SHOULD HAVE ACCRUED IN FAVOUR OF THE PAYEE FOR RECOGNISING THE SUM AS INCOME. UNLESS DEBT HAS ACCRUED IN FAVOUR OF PAYEE, IT CANNOT BE SAID THAT INCOME HAS ACCRUED TO THE PAYEE. WE HAVE EXTENSIVELY CONSIDERED THE VARIOUS DECISIONS RELIED UPON BY THE ID. COUNSEL FOR THE ASSESSEE IN ORDER TO DEMONSTRATE THAT THIS PRINCIPLE HAS BEEN APPLIED IN ALL THE DECISIONS WHICH HAS ITS ROOT IN THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF E.D. SASSON COMPANY LT D. VS. CIT, 26 ITR 27. PARA 16. IN THE PRESENT CASE, THE MAIN DISPUTE IS REGARDING REVENUE RECOGNITION RELATING TO UNUSED TALK TINE REMAINING AVAILABLE AS AT THE END OF THE YEAR. AS NOTED EARLIER, THERE IS NO DISP UTE THAT COMPANY HAD TO PROVIDE TALK TIME TO ITS SUBSCRIBER TILL THE EXP IRY OF THE PERIOD OF CARD OR TILL COMPLETE UTILISATION OF TALK TIME, WHICHEVE R IS EARLIER. AS LONG AS ASSESSEE COMPANY IS UNDER OBLIGATION TO PROVIDE TAL K TIME, IT CANNOT BE SAID THAT A DEBT HAS ACCRUED IN FAVOUR OF ASSESSEE COMPANY AGAINST THE SUBSCRIBER. THE ASSESSEE COMPANY CANNOT APPROPRI ATE THE CHARGES RELATING TO AVAILABLE TALK TIME TO THE EXCLUSION OF SUBSCRIBER AS LONG AS IT 5 ITA NO. 3926/DEL/2014 IS UNDER OBLIGATION TO PROVIDE THE SAID SERVICES. THEREFORE, WE ARE OF THE OPINION THAT LEARNED CIT(A) IN PRINCIPLE HAS RIGHTL Y ACCEPTED THE MODE OF REVENUE RECOGNITION BY THE ASSESSEE. .. IN THE PRESENT APPEAL ALSO THE SAME ISSUE IS CONTES TED BY THE REVENUE. AS THE CIT(A) HAS FOLLOWED THE EARLIER YEARS ORDER. THERE IS NO NEED TO INTERFERE WITH THE FINDINGS OF THE CIT(A) IN THIS YEAR AS WEL L. THUS, THE CIT(A)S ORDER IS UPHELD. 6. IN RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MAY, 2017 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 23/05/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 6 ITA NO. 3926/DEL/2014 DATE 1. DRAFT DICTATED ON 16/05/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 17/05/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 23.05.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 2 3 .05.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.