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2013 (5) TMI 332 - HC - Income TaxReopening of assessment – u/s 148 – As per the AO amount received for prepaid services at the time of purchase of the recharge is not an advance which could be appropriated against future use of service but the income crystallized as soon as the payment was made by the customer. - Held that:- In the original assessment, the AO asked the assessee to furnish details of advance income and the corresponding expenditure incurred. The petitioner pointed out that the company follows mercantile system of accounting and such principles regularly followed by the petitioner, revenue is recognized only when the customer actually uses the network of the company and services are actually rendered to the customers. It was therefore clarified that the incomes received in respect of which services are not rendered during the year are accounted for in the balance sheet as advance income. The assessee thereafter proceeded to explain that the expenditure relateable to such incomes would be available deduction during the year itself. AO in his detailed reasoned order of assessment, gave reasons for disallowing expenditure relateable to such advance income. He concluded that the assessee in the books recognizes this expenditure as current liabilities but the corresponding services are to be offered in the next financial year. He therefore held that, "the expenditure not relateable to the earning of income naturally has to be allowed in the year in which the corresponding income is offered to tax". He thus proceeded on the basis that the income in question would be taxed in the future years and that therefore, expenditure relateable to such income cannot be a valid deduction in the current year. Thus AO having examined the nature of receipts and the corresponding expenditure in the original assessment, now cannot be permitted to change his view with respect to the nature of treatment such receipts must receive. AO made no additions on the count that the payments towards re-charges were not advance but accrued income and made disallowances of the expenditure pro-rata relatable to such income deferred by the assessee to be accounted for in the future years. Thus, impugned notice is quashed.
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