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TMI Blog2020 (10) TMI 1167X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in rendering service in the entire year. The assessee in the instant case is covered by Accounting Standard - 9 as it does not deal with revenue of insurance companies arising from insurance contracts. It is open for the assessee to change the method of accounting and the burden is on the department to prove that the method invoked is not correct and that such a method distorts the profits of a particular year. The aforesaid burden has not been discharged by the revenue in the instant case. Besides that, the revenue has accepted the change in the method of accounting in subsequent Assessment Years viz., 2010-11, 2011-12 and 2012-13, therefore, there is no justification on the part of the Assessing Officer to change the method adopted by the assessee and to determine the income on estimate basis. - Decided in favour of assessee. Entitlement to follow accounting standard 9 for revenue recognition in respect of TPA fee received from insurance companies - As held that business of a third party agent is insurance business as third party agent makes payments to the hospital / individuals policy holders, therefore, Accounting Standard - 9 is not applicable in the fact sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of same assessee has held that the assessee's business activities fall under the activities of insurance company? (iv) Whether on the facts and in the circumstances of the case, the Tribunal is correct in coming to conclusion that the assessee is entitled to follow accounting standard 9 for revenue recognition in respect of TPA fee received from insurance companies? 2. The factual background, in which the aforesaid questions of law framed by a bench of this court, which arise for consideration in this appeal, need mention which are stated hereinafter. The assessee is a private limited company which is engaged in the business as third party administrator of insurance companies. The assessee derived income as third party agent fees from the insurance companies as percentage of premium paid by the policy holders to the insurance company. The assessee filed its return of income on 30.09.2009 declaring total income of ₹ 9,20,45,514/- and revised return on 30.09.2009 declaring an income of ₹ 2,82,19,530/-. The return of income was processed under Section 143(1) of the Act and the case was selected for scrutiny under Computer Aided Scrutiny ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oached this court. 4. Learned counsel for the revenue submitted that the assessee is following mercantile system of accounting and under the aforesaid system the income accrues once invoices are raised and the assessee cannot postpone the recognition of income under the aforesaid system of accounting. It is also submitted that the income accrues / arises when the assessee acquires a right to receive the same. In support of aforesaid submissions, reliance has been placed in decision of the Supreme Court in 'MORVI INDUSTRIES LTD. VS. COMMISSIONER OF INCOME-TAX', 82 ITR 835 and 'COMMISSIONER OF INCOME-TAX VS. GAJAPATHY NAIDU', 53 ITR 114. It is also urged that Accounting Standard -9 excludes insurance company and therefore, the Assessing Officer has rightly rejected the contentions of the assessee and has followed the decision of this court wherein this court has held that 'business of third party agent is business of insurance'. It is also argued that the tribunal as well as the Commissioner of Income Tax (Appeals) grossly erred in placing reliance on the decision in the case of 'CIT VS. BILHARI INVESTMENTS (P.) LTD.', 299 ITR 1 (SC) and the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ARNATAKA) and 'COMMISSIONER OF INCOME-TAX AND ANOTHER VS. BANJARA DEVELOPERS AND CONSTRUCTIONS PVT. LTD.', (2020) 425 ITR 673 (KAR). 6. We have considered the submissions made by learned counsel for the parties and have perused the record. Section 145 of the Act deals with method of accounting. Section 145(1) provides that income chargeable under the head 'profits and gains of business or profession' or 'income from other sources' shall be subject to provisions of sub-Section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The Supreme Court in the case of Bilahari Investments P. Ltd., supra has held as under: Every assessee is entitled to arrange its affairs and follow the method of accounting which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion or profits that the Department can insist on substitution of the existing method. 7. The assessee in the instant case has changed invoice method to proportionate completion method. Till 31.03.2007, the assessee used to re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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