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TMI Blog2019 (11) TMI 1395X X X X Extracts X X X X X X X X Extracts X X X X ..... . Needless to mention her that same accounting principle has been accepted in earlier A.Y. It is also pertinent to note that the assessee has offered tax in subsequent years amount as and when services are rendered and, therefore, by any stretch of imagination, it cannot be said that there is some revenue leakage. For this proposition, we derive support from the decision of the Hon ble Supreme Court in the case of Excel Industries [ 2013 (10) TMI 324 - SUPREME COURT ] - the light of contractual terms and conditions and considering the fact that the unearned revenue has been offered for tax in the subsequent years as exhibited in chart elsewhere, we are of the considered opinion that the addition is uncalled for and deserves to be deleted. Disallowance of provision for liquidated damages - scrutiny assessment proceedings - HELD THAT:- As decided in NOKIA SIEMENS NETWORKS INDIA PVT. LTD. [ 2018 (4) TMI 311 - ITAT DELHI ] total provision for liquidated damages was of 19,66,51,910/- out of which 2,04,52,238/- were utilized and credited/written back, the remaining amount of 17,61,99,672/- was the actual amount of the damages which were accounted for in the profit and loss account. CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of depreciation on goodwill - HELD THAT:- Issue is now well settled in favour of the assessee and against the Revenue by the decision of the Hon ble Supreme Court in the case of Smifs Securities Ltd. [ 2012 (8) TMI 713 - SUPREME COURT ]. So far as the claim of depreciation is concerned, we find that the Assessing Officer himself has allowed the claim of depreciation while giving effect to the order of the coordinate bench in [ 2018 (10) TMI 424 - ITAT DELHI ] for AY 2008-09. Since the depreciation has already been allowed for AY 2008-09 by the coordinate bench (supra). We, accordingly, direct the AO to allow the depreciation on goodwill as per the provisions of law. Transfer pricing adjustments - international transaction under taken by the appellant namely provision of marketing support services and provision of warranty support service s - HELD THAT:- As decided in own case [ 2019 (8) TMI 1394 - ITAT DELHI ] cost of marketing team should be bifurcated based on revenue of AE from its operations in India vis a vis revenue generated by the assessee from its sales to third party vendors. We, accordingly, restore this issue to the file of the Assessing Officer/TPO. The assessee is di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to it in the computation of income. 7. In its reply, the assessee stated that since it is engaged in the business of installation and commissioning of telecom equipment, it has to maintain its accounts as per Accounting Standard-7 which mandates that for the purposes of recognition of revenue, the assessee has to follow percentage of completion method. The assessee further explained that even if the billing milestone has been reached as per the customer agreements but revenue cannot be recognized as per AS 7. It was explained that the unearned revenue represents the amount invoiced to the customers as per the terms of agreement but the same has not accrued in the books of account of the assessee. Unearned revenue is accrued in the financials in succeeding years as per the method of accounting followed by the appellant and the same has been offered to tax in the year in which it is accrued. 8. Reply of the assessee did not find any favour with the Assessing Officer who was of the firm belief that Accounting Standard cannot override the provisions of Income tax Act and since the income is due to accrue to the assessee as per the provisions of Section 5 of the Act, once the invoices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unearned revenue has been shown at ₹ 10,42,151/- . Customer wise details of unearned revenue which is exhibited at page 437 of the assessee's paper book and the same read as under: Customer Name Unearned Revenue recognized in Financial statements as on March 31, 2010 (Amount in INR), Details of Revenue deferment Bharti Airtel Limited 8,55,37,789 Tata 51,04,09,155 Refer Appendix I Vodafone 10,48,30,713 Refer Appendix II Idea 3,63,91,093 Refer Appendix III Bharat Sanchar 27,85,70,650 Other 1,31,51,655 Grand Total 1,02,88,91,055 15. A further break-up of unearned revenue F.Y. wise for the major Cellular Operators are placed at pages 438 to 441 of the paper book and the same are as under: 16. This is supported by the contracts with the Cellular Operators which have same terms and conditions and for the sake of convenience, contract with TTSL has been considered which is placed at pages 490 to 505 of the paper book. This contract is for the managed services and the managed services encompass the following: a) Start up Fees b) Acceptance Support Fees c) Program Management Fees d) Managed Services Fees 17. It has been provided that TTSL shall pay 100% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, which may be of two years' duration, collected by the assessee running a coaching institute from the students at the time of admission, can be taxed in the year of receipt?" 23. The Hon'ble High Court held as under: "It is important that receipt of a particular amount in the relevant year should be an "income" under the provision of s. 5. What is the relevant yardstick is the time of accrual or arisal for the purpose of its taxation, viz., in order to be chargeable, the income should accrue or arise to the assessee during the previous year. If income has accrued or arisen, even if actual receipt of the amount is not there, it would be chargeable to tax in the said year. Though the amount may be received later in the succeeding year, the income would be said to accrue or arise if there is a debt owed to the assessee by somebody at that moment. From this, it follows that there must be the "right to receive the income on a particular date, so as to bring about a creditor and debtor relationship on the relevant date".-E.D. Sassoon & Co. Ltd. & Ors. vs. CIT (1954) 26 ITR 27 (SC) followed. At the time of admission, the students are required to deposit the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted packages, which are not shown in the instant year would be shown in the succeeding year. Rate of tax in respect of companies remains the same in all these years. Therefore, the Revenue does not lose anything, as it would receive the tax on this income in the succeeding year. Still issues are raised and much outcry is made for nothing. All these appeals are dismissed with costs quantified at ₹ 10,000 in each appeal. The entire cost shall be paid within a period of two weeks to the Library Fund of the Delhi High Court Bar Association.-CIT vs. Woodward Governor India (P) Ltd. (2009) 223 CTR (SC) 1 : (2009) 21 DTR (SC) 106 :(2009) 312 ITR 254 (SC) and CIT vs. Bilahari Investment (P) Ltd. (2008) 215 CTR (SC) 201 :(2008) 3 DTR (SC) 329 :(2008) 299 ITR 1 (SC) applied. " 25. Considering the facts of the case in totality, in the light of contractual terms and conditions and considering the fact that the unearned revenue has been offered for tax in the subsequent years as exhibited in chart elsewhere, we are of the considered opinion that ht addition of ₹ 1,02,88,91,000/- is uncalled for and deserves to be deleted. Thus, Ground No. 2 is allowed. 26. Ground no. 3 relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company defaulted in the delivery terms, the liquidated damages have been rightly considered as business expenditure. The company is following the method on a consistent basis. When the payment was actually made the accounts were adjusted with reference to any remission or waiver that the company may get in respect of damages payable for the late delivery and the same was brought to tax u/s 41(1) of the IT Act, 1961 by crediting the liquidated damages account. The AO held that the provision made for liquidity damages amounting to ₹ 17,61,99,671/- is unascertained liability in the nature of contingent liabilities and, therefore, added the same. In terms of the purchase order, liquidated damages @ 0.5% per week subject to a maximum of 0.7% would be imposed. The company defaulted in the delivery terms, therefore, the above liability is as definite liability. Further, as the liability is determinable 0.05% per week subject to a maximum of 0.7%, therefore, the liability is also an ascertained liability. The liability to pay liquidated damages arose no sooner than there was a breach. The company had provided for the liquidated damages pertaining to the period of delay falling wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of the coordinate bench, we direct for the deletion of the addition of ₹ 57,93,45,721/-. The Ground no. 3 is accordingly allowed. 31. Ground no. 4 relates to the disallowance of expenditure incurred in foreign currency. While scrutinizing the return of income and on perusal of Form 15CA the AO noticed that the assessee has made certain payments in foreign currency without deducting tax at source. The assessee was asked to furnish the details and on perusal of the details the AO found that the assessee has paid an amount of ₹ 9,70,103/- as school fee to various schools. The AO was of the firm belief that this is not allowable business expenditure and, accordingly, made the addition of ₹ 9,70,103/- which was upheld by the DRP. Before us, the Counsel for the assessee stated that the expenditure has been incurred for the welfare of the employees and hence should be allowed as business expenditure. The Counsel further stated that the said school fee has been treated as perquisites in the hands of the employees and, therefore, the same part takes the character of salaries. The DR strongly supported the findings of the AO. It is the say of DR that a new plea h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... currency. It is the say of the Counsel that complete ledger accounts were filed before the AO and the DRP but none of them examined the ledger accounts. The DR strongly supported the findings of the AO/DRP. 36. We have carefully considered the orders of the authorities below. It is true that amount of ₹ 18.94 crores is part of the details of the expenditure in foreign currency as mentioned else where. It is equally true that the Chartered Accountant certificate clearly shows that it is a contra entry inadvertently shown under the head "details of expenditure" in foreign currency. We find that complete ledger accounts were given to the lower authorities which were not examined by them. In the interest of justice and fair play, we restore this issue to the files of the AO. The AO is directed to examine the ledger accounts and verify whether it is contra entries and after verifying the same and if found correct delete the addition, after giving a reasonable opportunity of being heard to the assessee. Ground no. 5 is treated as allowed for statistical purposes. 37. Ground no. 6 relates to the disallowance of depreciation on goodwill. At the very outset, the Counsel of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is not warranted as per the inter company agreement. In our considered opinion, considering the attribution to the services provided to the AE, vis a vis actual Revenue realised from the AE, margin of the assessee from the provision of marketing support services has to be higher than 3%. We find that now the assessee has obtained certain documentary evidence and, accordingly, wishes to submit the same in respect of the claim. 45. In view of the above, we are of the considered opinion that cost of marketing team should be bifurcated based on revenue of AE from its operations in India vis a vis revenue generated by the assessee from its sales to third party vendors. We, accordingly, restore this issue to the file of the Assessing Officer/TPO. The assessee is directed to submit the India Specific Profit and Loss Account, network equipment sales to Indian telecom operators of the AE duly certified by an authorised public accountant of Finland. The TPO is directed to examine the same and decide the issue afresh after giving reasonable and sufficient opportunity of being heard to the assessee." 40. Respectfully following the findings of the coordinate bench on finding parity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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