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2019 (11) TMI 1395 - AT - Income TaxAddition on account of unearned revenue - revenue recognition as per AS 7 - HELD THAT:- On perusal of the summary of unearthed revenue, as mentioned elsewhere, clearly shows the F.Ys in which Revenue has been recognised. This is in consonance with the well recognised Accounting Standard – 7 issued by the Institute of Chartered Accountants, which is the highest accounting body created by an Act of the Parliament and the same cannot be brushed aside lightly. In our considered opinion, as managed services are to be rendered for 42 months, income thereof is spread over four years since services are rendered for 10 months in the F.Y. under consideration commensurate amount is booked in the current year and the balance is treated as unearned revenue at the year-end as these services are provided by indeterminate number of acts over a specified period of time. Revenue is, therefore, recognised on straight-line basis over a period for which services are to be rendered. 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) categorically stated that when the payments were 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 Act by crediting the liquidated damages accounts. Therefore, the impugned amount was not only the provision but the actual amount of the liquidated damages pertaining to the period of delay falling within the previous year relating to the assessment year under consideration. The Ld. CIT(A) categorically stated that the assessee was following this method consistently. 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 - HELD THAT:- It is not in dispute that school fees of the children of the employees have been paid by the assessee company. We are of the considered view that if the same is treated as perquisites in the hands of the employees then the same takes the colour of the salaries. We, accordingly, restore this issue to the files of the AO. The assessee is directed to demonstrate that the school fees has been treated as perquisites in the hands of the employees and the AO is directed to examine the same and decide the issue afresh after giving a reasonable opportunity of being heard to the assessee. Ground no. 4 is treated as allowed for statistical purposes. Disallowance out of technical training expenditure - HELD THAT:- 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. Disallowance 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 services - 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 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. Warranty support services - As decided in [2019 (8) TMI 1394 - ITAT DELHI]since the TP adjustment is of a very small amount being 1.01 crores. Considering the facts in totality, we direct the TPO to accept the TSS segment as part of network division for bench marking the international transaction which means that this segment should be taken with the main network division of aggregated approach for bench marking.
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