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Siemens Products Lifecycle Management Versus DCIT

2015 (4) TMI 709 - ITAT DELHI

Ad-hoc addition on account of advance billing / deferred revenue - Tribunal deleted such additions in earlier years - Foreign exchange loss recongnised on capitalised assets i.e. computer software - Held that:- There is nothing like device to defer payment of taxes due but as per the recognized method of accounting of matching revenue with cost, the income accrues only in the subsequent year when such services are provided. This is in form of a provision for warranty claims which is also recogni .....

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is to be taxed in the year when such services are rendered or recognised as income by the assessee.

Foreign Exchange loss - Held that:- since the amount payable is in foreign currency and not in India rupees, therefore, loss occasioned due to upward revision in the rate of exchange was to be borne by the assessee was allowable. On the reading of the agreement, we find that it is rightly interpreted by the Tribunal and, therefore, no questions of law arises. - Decided in favour of ass .....

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red in confirming an ad-hoc addition of ₹ 4,08,32,659 on account of income from maintenance enhancement and support services(Advance Billing I Deferred Revenue) by the Ld. AO without appreciating that no income has accrued to the assessee for the year under consideration, and also without appreciating that on similar facts the Hon'ble Tribunal deleted such additions in earlier years. 1.1 The Ld. AO/DRP has also erred on facts and in law in disregarding the regular and the consistent me .....

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above grounds are without prejudice to each other. The appellant craves leave to alter, amend or withdraw all or any grounds herein or add any further grounds as may be considered necessary either before or during the hearing. 2. Right at the outset the Ld.A.R. submitted that the points at issue are fully covered in assessee s favour by virtue of the orders of the Tribunal rendered in the earlier A.Ys and the issue addressed in ground no.2 has been further agitated by the Revenue before the Hon .....

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7; 9,07,39,242/- shown as advance billing is shown as a liability as per Schedule 6 to the Balance Sheet, and why it should not be treated as income for the current year as there is no concept of a provision for deferred income. Inviting attention to the reply dated 26.10.2010 and 3rd December,2010 which has been extracted in the assessment order, it was submitted by the Ld.A.R. that on behalf of the assessee it had been explained that the assessee primarily sells software in two ways and the Re .....

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Programs will perform substantially in accordance with the SDRC user documentation. In the event the Licensed Program(s) do not perform in accordance with the user documentation, then during the 90 day warranty period, SDRC shall at its option (i) correct any material variance between the performance of the Licensed Program(s) and the specifications for the Licensed Programs(s) contained in the applicable user documentation; or (ii) replace the Licensed Program(s) Media. The foregoing shall be .....

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correct material variance between the performance of the Licensed Program(s) and the specifications for the Licensed Program(s) contained in the applicable user documentation and / or software codes. The assessee will distribute to the Customer enhancements to the Licensed Program(s) released without restriction by Siemens PLMS to other licenses. Enhancement includes updates of Licensed Program(s), updates of user documentation and Systems updates. Also the assessee would provide support servic .....

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the computer software and charges towards maintenance, enhancements and support services. However in accordance with the accounting principles and standards, the assessee recognizes a portion of the revenue towards the value of the computer software as sales in its books of accounts and the other portion of revenue viz. Charges towards maintenance, enhancement and support services is recognized in the books of accounts over the period of maintenance contract on an accrual basis. The above accoun .....

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d by the D.R.P. 2.2. In the said background to support his submission that the issue is covered in assessee s favour our attention was invited to copy of the consolidated order dt. 1st May,2007 in ITA 584, 585/Del/2006 and ITA 322/Del/2007 in the case of the assessee for the A.Ys 2001-02 to 2003-04 a copy of which is placed at pages 8 to 26 of the paper book. Referring to the same it was submitted that the assessee s name in the said order is recorded as M/s UGS India Pvt.Ltd. and a perusal of t .....

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said background common finding on facts were recorded thereby deciding the issue in assessee s favour vide para 6 in the following manner. 6. We have considered rival submissions. On the basis of submissions made before AO and before us, it can be held that where the assessee sells the software/license with free warranty, full invoice amount is recognized as revenue. However, where the sale of software license is with extended period of warranty or with the paid maintenance enhancement and supp .....

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nciple of matching revenue with cost. On general principle, it was held that if no work is done in the year of receipt of sum, it has to be treated as kind of a advance payment and when the work was done taxable in the subsequent year. Even if the amount is not separately shown in invoice the effect remain that addition sum was charged for ME&S services. The amount is not uncertain not to be calculated. The amount can very well be arrived at best on the sale price of software sold with or wi .....

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m of a provision for warranty claims which is also recognized by Hon ble Delhi High Court in the case of CIT vs Vintex Corporation P. Ltd. 278 ITR 337 wherein it was held that provision for warranties embedded in the sale price is an ascertained liability and to that extent, revenue need not be recognized. We accordingly hold that the amount treated as deferred revenue by the assessee is not to be brought to tax in the year under consideration but to be taxed in the year when such services are r .....

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The Ld.CIT, D.R. places reliance upon the assessment order. However in the face of the consistent orders of the Tribunal on the said issue no submissions were advanced canvassing a contrary view. 4. In the light of the above facts and circumstances we find no good reason to deviate from the view taken as facts remain the same. Accordingly following the precedent, we hold that the amount treated as deferred revenue is not to be brought to tax in the year under consideration and is to be taxed in .....

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s to its P&L account. From the details placed on record, it is observed that the exchange loss was booked on account of purchase of computer software which has been capitalized by the assessee and depreciation has also been claimed thereupon. Since the loss has been incurred on an capital assets and in view of the facts that same disallowance has been made in earlier years, proceedings against which are still pending before the appellate authorities, therefore, an addition of Rs.l,08,33,210/ .....

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d at pages 8 to 26) wherein the said issue is discussed at specific pages 12 and 13 of the paper book. The said view it was submitted was followed by the ITAT in A.Y. 2004-05 wherein relying upon CIT vs. Woodward Governor reported in 312 ITR 254 dismissed the department s appeal vide order dt. 20th November,2009. He further invited our attention to pages 2 to 4 of the paper book wherein copy of the order of the Jurisdictional High Court dt. 9th September, 2010 is placed at pages 1 to 7 and the H .....

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