2011 (6) TMI 840 - AT - Income Tax

Summary

Issues Involved:
1. Validity of notices issued u/s 143(2) and 142(1) of the Income-tax Act, 1961.
2. Treatment of amounts received under prepaid calling services, sim process fees, and recharge fees as revenue receipts or current liabilities.

Summary:

1. Validity of Notices Issued u/s 143(2) and 142(1):
The assessee challenged the validity of the notices issued u/s 143(2) and 142(1) of the Income-tax Act, 1961. The Assessing Officer (AO) did not accept the contention of the assessee regarding the validity of these notices and proceeded with the assessment.

2. Treatment of Amounts Received Under Prepaid Calling Services, Sim Process Fees, and Recharge Fees:
The assessee, engaged in providing cellular mobile telecommunication services, received advances against prepaid calling services (Rs. 3,24,90,772), sim process fees (Rs. 2,74,727), and recharge fees (Rs. 24,66,666). These amounts were shown under "current liabilities." The AO treated these receipts as revenue receipts and added them to the total income of the assessee. The CIT(Appeals) upheld the AO's action.

The CIT(Appeals) observed that amounts received from selling prepaid vouchers for calling charges and sim processing charges are not refundable and thus become revenue receipts on the date of sale. Consequently, these amounts cannot be termed as liabilities. The CIT(Appeals) confirmed the addition of Rs. 3,24,90,772 (prepaid calling services), Rs. 2,74,727 (sim processing fees), and Rs. 24,66,666 (recharge fees) as income.

The assessee argued that these advances should not be considered income as they were received for services to be provided in the future. The assessee relied on the judgment of the Hon'ble Delhi High Court in CIT vs. Dinesh Kumar Goel, which held that income accrues when the right to receive it crystallizes. The assessee also referred to the Special Bench decision in ACIT vs. Mohindra Resorts, which allowed spreading the income over the period of service.

The Tribunal noted that the assessee's method of accounting for these receipts had been accepted by the department in earlier and subsequent years. The Tribunal, following the principle of consistency as laid down by the Hon'ble Supreme Court in Radha Soami Satsang vs. CIT and the Hon'ble Delhi High Court in CIT vs. Neopoly Pack (P) Ltd., held that the revenue authorities should not have disturbed the method of accounting adopted by the assessee for one assessment year when it was accepted in other years.

Conclusion:
The Tribunal allowed the appeal of the assessee and deleted the addition confirmed by the CIT(Appeals), holding that the amounts received under prepaid calling services, sim process fees, and recharge fees should not be treated as revenue receipts in the year of receipt but should be recognized as income over the period of service.