TMI Blog2016 (4) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... he comparative chart was verified by CIT (A) was to know about any leakage of revenue. Hence, we are of the view that the accounting policy followed by the company is bonafide and consistent with the accounting standard 9 of ICAI on 'Revenue Recognition', Income Tax Act as correct profit would be deduced on following this policy and section 209 of The Companies Act, 1956. Therefore, we confirm the order of CIT (A) in deleting the addition - Decided in favour of assessee Addition on account of provision for license purchases - Held that:- On query by the bench, Ld. AR was asked to show how the purchase provision is made. In response to that he submitted a statement which was before lower authorities, wherein details of the provision of ₹ 6154283/- and the details of reversal from that account of ₹ 2310623/- was available which was a wrong accounting entry. Therefore actual provision was of ₹ 38,43,660/- only. This amount tallies with the statement submitted by the assessee. We have perused statement where the details of sales invoice, date of invoice, party wise amount payable and a product wise bifurcation, amount of sales, name of the supplier, date of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting method of the company. 2. On the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the addition of ₹ 61,54,283 1 -on account of provisions for license purchase. 3. On the facts and circumstances of the case and in law, the Cl'I' (A) has erred in deleting the addition of ₹ 23, 10,623 1 -on account of provision for commission. 3. This appeal is filed on 21 st of March 2011 by the Revenue. First time this appeal was fixed for hearing on 30105/2011. Subsequent to that, hearing up to 05/05/2015 matter was adjourned at the request of the assessee. On the next date of hearing on 05/05/2015, it was adjourned at the request of the Learned DR. Subsequently, on 15/12/2015 an adjournment request was moved by Revenue stating that Ld. CIT (A) has admitted additional evidences without allowing opportunity to the assessing officer which is in violation of the provisions of rule 46A of the Income Tax Rules, 1962. Hence revenue would like to take an additional ground of appeal and therefore the matter may be adjourned. Therefore, LD DR submitted that a reminder letter has been issued to the assessing officer for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing officer on 24th of November 2008. 5. The 15tground of appeal is against the deletion of addition of ₹ 6298812, made by assessee officer on account of change in the accounting method of the company. Till now the company was recognizing revenue from annual maintenance service contracts on the basis of bills raised to clients. However, from the current year, the assessee decided to change its accounting policy and has recognized revenue from the services on the basis of period involved in the maintenance contract. It was mentioned in the notes on accounts of the balance sheet of the company that due to this change profit before taxation for the year is lower by ₹ 6298812/-. Therefore, AO was of the view that due to this change the profit has reduced substantially and the original accounting policy is consistently followed by the assessee, therefore change in the method of accounting is not bonafide. Hence, he made an addition of ₹ 6298812 to the income of the assessee. Assessee being aggrieved with the order of AO preferred an appeal before CIT (A). Learned CIT (A) deleted the addition because accounting standard 9 on revenue recognition issued by lCAI this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee on the client for annual maintenance contract services. N now this practice has been changed and the income is being offered by the company on the basis of time period for which the annual contract is in force. Therefore, now there is a certainty of offering income to the revenue. Otherwise if the income is offered at the time of raising of the bills as it was done till now, it gives lot of discretion to the assessee to offer this income for taxation at its sweet will. We are of the view that that the change in the method of accounting is more appropriate and in is in consonance with the accounting standard 9 issued by the ICAI. It was provided in that accounting standard with respect to sale of services that 7. Rendering of Services 7.1 Revenue from service transactions is usually recognised as the service is performed, either by the proportionate completion method or by the completed service contract method. (i) Proportionate completion method-Performance consists of the execution of more than one act. Revenue is recognised proportionately by reference to the performance of each act. The revenue recognised under this method would be determined on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1956. Therefore, we confirm the order of CIT (A) in deleting the addition ofRs. 6298812/-. 8. The 2nd ground of appeal is against the deletion of addition of Rs. on account of provision for license purchases. The brief facts of the issue is that assessee has debited as some of ₹ 6154283/-being provisions for license purchases during the course of assessment proceedings, AO asked about the detail of these expenses. During hearing copy of Ledger account of license purchase was submitted and it was further submitted by the assessee that out of the aforesaid sum of ₹ 6154283/- a sum of ₹ 2310623/- has been reversed. However, the assessing officer held that the provision for license purchase are being made without any basis and made an addition of ₹ 6154283/-. Against this, assessee preferred an appeal before CrT (A) who in turn deleted the addition. The CIT appeal was of the view that the provision for license purchase expenses is a crystallized liability and is not based on estimated. Against this order revenue is in appeal. 9. Learned DR relied on the order of assessing officer and submitted that that the details of the purchases provisions is on estima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has admitted additional evidence without giving an opportunity to the assessing officer to verify those details and therefore the order is invalid. 13. Ld. AR submitted that that to procure Business Company entered into an agreement with one company and as per the terms of memorandum of understanding with that company assessee company was liable to pay 18% of the software sales as commission. This commercial transaction is followed by the company since assessment year 2003 - 2004 onwards and there is no change in the terms of agreement in assessment year 2006 - 2007. In the past these expenditure have been allowed and therefore, this may also be allowed in this year. It was submitted that copy of the working of the purchase provision submitted before AO was also submitted before CIT (A). Before AO it was contended that copy of the commission account and the working of purchase provision was already submitted and regarding justification it was submitted that commission was payable as per the existing agreement with the party. Learned AR relied on the order ofCIT (A) stated that after verification of the all the details disallowance is deleted which is on the same facts and cir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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