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2014 (1) TMI 982 - AT - Income TaxRevenue recognition for advertising agencies - Held that - For advertising agencies, media commissions will normally be recognised when the related advertisement or commercial appears before the public and the necessary intimation is received by the agency - The assessee has received pre-billing payment - Assessee treats this advance as advance for advertisement receipts and recognises the revenue as income when the directories are complete, published and put to public circulation. The above method of accounting adopted by the assessee is in accordance with AS-9 of the Institute of Chartered Accountant of India - The method of accounting adopted by the assessee is in consonance with the AS-9 and the same is also mentioned in Schedule 21 to the needs of the assessee - Following CIT vs. Excel Industries Ltd. 2013 (10) TMI 324 - SUPREME COURT - The accrual of income must be considered from a realistic and practical angle - If Department has accepted the verdict in some year it cannot be allowed to challenge verdict in other years and dispute as to the year of taxability with no / meagre tax effect should not be raised by Department - Decided against Revenue.
Issues Involved:
1. Deletion of addition of Rs. 1,75,51,561/- made by the Assessing Officer on account of advance receipt for incomplete work. 2. Applicability of Accounting Standard AS-9 for revenue recognition. 3. Consistency in the method of accounting followed by the assessee. 4. Validity of the appeal against the Assessing Officer's order pursuant to section 263 of the I.T. Act. Detailed Analysis: 1. Deletion of Addition of Rs. 1,75,51,561/-: The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] which deleted the addition of Rs. 1,75,51,561/- made by the Assessing Officer (AO). The AO had added this amount to the income of the assessee, arguing that since the company followed the mercantile system of accounting, the advance receipts should be recognized as income for the year. 2. Applicability of Accounting Standard AS-9: The CIT(A) and the Tribunal examined the applicability of Accounting Standard AS-9 (AS-9) on revenue recognition. AS-9 mandates that revenue should be recognized when the service is completed. For advertising agencies, media commissions are recognized when the advertisement appears before the public. The assessee followed this standard, treating advance receipts as pre-billing and recognizing them as income only when the directories were completed and circulated. The Tribunal agreed with the CIT(A) that the assessee's method of accounting was consistent with AS-9. 3. Consistency in the Method of Accounting: The Tribunal noted that the assessee had consistently followed this method of accounting for many years, and the Revenue had accepted this practice in the past. The CIT(A) referenced the Supreme Court decision in Radhasoami Satsang Vs CIT, which upheld the principle of consistency in accounting practices. The Tribunal found no justification for the AO's change in the accounting policy for the current assessment year, especially since the assessee had recognized the advance receipts as income in subsequent years (Rs. 52,09,040/- in FY 2006-07 and Rs. 1,23,42,521/- in FY 2007-08). 4. Validity of the Appeal Against AO's Order Pursuant to Section 263: The Revenue argued that since the assessee did not appeal against the order under section 263, it should not have appealed against the AO's order pursuant to the section 263 order. The Tribunal found this argument to lack merit. The Tribunal also rejected the Revenue's argument that the advance amount should be treated as income because it was not required to be returned, stating that the nature of the advance remains unchanged regardless of whether it is returned. Conclusion: The Tribunal upheld the CIT(A)'s order, agreeing that the assessee's method of accounting was in line with AS-9 and had been consistently followed and accepted by the Revenue in previous years. The Tribunal found no merit in the AO's addition of Rs. 1,75,51,561/- as income for the year and dismissed the Revenue's appeal. Order Pronouncement: The order was pronounced in the Open Court on 17/1/2014, dismissing the Revenue's appeal.
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