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2020 (10) TMI 1167 - KARNATAKA HIGH COURTIncome recognition - 'unearned income' - scrutiny under Computer Aided Scrutiny Selection (CASS) - Change of accounting method - Accounting Standard - 9 Applicability - as per AO assessee to be an insurance company by treating it as outside the purview of Accounting Standard - 9 - HELD THAT:- Assessee in the instant case has changed invoice method to proportionate completion method. Till 31.03.2007, the assessee used to recognize revenue immediately on raising of invoice, even though, the service under the contract is not completed or substantially completed. The assessee is involved in execution of more than one act i.e., rendering service in the entire year, therefore, it adopted the proportionate completion method. The revenue from service transactions usually recognized as the service is performed either by proportionate completion method or completed service contract method. The assessee is therefore, rightly adopted proportionate completion method as it is 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 situation of the case - HELD THAT:- Regulation 3 prescribes the health services, which may be provided by a third party agent to an insurer under the agreement in connection with health insurance business. Section 2(9) of the Insurance Act defines the expression 'insurer' which includes insurance company. Thus, it is evident that the third party agent and the insurance company are different entities. Therefore, the finding recorded by the tribunal that the assessee's business activities do not fall under the business of insurance company is correct. - Decided in favour of assessee.
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