TMI Blog2019 (11) TMI 1395X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 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 service s - 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 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see was asked to give details of the same and the treatment given to it in the computation of income. 7. In its reply, the assessee stated that since it is engaged in the business of installation and commissioning of telecom equipment, it has to maintain its accounts as per Accounting Standard-7 which mandates that for the purposes of recognition of revenue, the assessee has to follow percentage of completion method. The assessee further explained that even if the billing milestone has been reached as per the customer agreements but revenue cannot be recognized as per AS 7. It was explained that the unearned revenue represents the amount invoiced to the customers as per the terms of agreement but the same has not accrued in the books of account of the assessee. Unearned revenue is accrued in the financials in succeeding years as per the method of accounting followed by the appellant and the same has been offered to tax in the year in which it is accrued. 8. Reply of the assessee did not find any favour with the Assessing Officer who was of the firm belief that Accounting Standard cannot override the provisions of Income tax Act and since the income is due to accrue to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,28,891/-. It is also true that as on 31.03.2009, the immediately preceding F.Y., unearned revenue has been shown at ₹ 10,42,151/- . Customer wise details of unearned revenue which is exhibited at page 437 of the assessee s paper book and the same read as under: Customer Name Unearned Revenue recognized in Financial statements as on March 31, 2010 (Amount in INR), Details of Revenue deferment Bharti Airtel Limited 8,55,37,789 Tata 51,04,09,155 Refer Appendix I Vodafone 10,48,30,713 Refer Appendix II Idea 3,63,91,093 Refer Appendix III Bharat Sanchar 27,85,70,650 Other 1,31,51,655 Grand Total 1,02,88,91,055 15. A further break-up of unearned revenue F.Y. wise for the major Cellular Operators are placed at pages 438 to 441 of the paper b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 20. 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. 21. 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 358 ITR 295. 22. The Hon'ble Delhi High Court in the case of Dinesh Kuma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly be treated as advance otherwise it would lead to an anomalous situation, highly derogatory to the assessee, which is not intended in law, viz., even when the very amount received, expenses are to be deducted to arrive at the net income and those expenses are yet to be incurred (which may be incurred in the next financial year), the entire receipts become income which would be exigible to much tax.-E.D. Sassoon Co. Ltd. Ors. vs. CIT (1954) 26 ITR 27 (SC), 24. The Hon'ble High Court further observed as under: The term 'accrual' relates to revenues earned or cost incurred. Two things follow from this, viz., unless the revenue is earned, it is not accrued. Likewise, the expenses unless are incurred, cost in respect thereof cannot be treated as accrued. Secondly, it recognizes the matching concept, viz., receipts are to be matched expenditure to arrive at the net income, which would then be exigible to tax. Reading of the AS-9 issued by ICAI makes it clear that revenue is recognized only when the services are actually rendered. If the services are rendered partially, revenue is to be shown proportionate with the degree of completion of the services. This reall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s own case in AY 2004-05 and has decided the issue in favour of the assessee and against the Revenue. 28. Per contra, the DR strongly supported the findings of the AO/DRP but could not bring any distinguish addition in favour of the Revenue. 29. We have given a careful consideration to the orders of the authorities below and have also perused the order of the coordinate bench in ITA No. 3202/Del/2014 for AY 2004-05. We find force in the contention of the Ld. Counsel. An identical issue was considered and decided by the coordinate bench. The relevant findings read as under: 4.4.1 Ground no. 5 of appeal is direct against disallowance of a sum of ₹ 17,61,99,671/- towards provision for liquidated damages. During the year, the assessee has claimed provision for liquidated damages to the tune of ₹ 17,61,99,671/-. The assessee stated that in terms of the purchase order received from customers, liquidated damages @ 0.5% per week subject to a maximum of 0.7% or such other rate as per the relevant contract would be imposed for the late delivery of equipment. The stipulation in the purchase order clearly shows that the liability for liquidated damages is certain, accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is allowed in this ground. 8. In the present case from page no. 136 of the assessee s paper book, it is noticed that 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. In the instant case, the Ld. 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. We, therefore, do not see any valid ground to interfere with the factual findings given by the Ld. CIT(A) and accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrency and the same is as under: Name of Vendor Amount in INR SIEMENS AG OSTERREICH 8,97,807 TELEMANAGEMENT FORUM 9,17,375 HIGHDEAL SA 19,07,362 IMOLA INFORMATICA SRL 5,92,193 DIGITAL ROUTE AB 4,75,393 Contra 18,94,84,993 Nokia Siemens Networks GmbH Co. KG BMC SOFTWARE ASIA PACIFIC PTE LTD 53,10,206 2,62,523 Total 19,98,47,851 34. From the above table, the AO found that a sum of ₹ 18.94 crores was not paid to anyone. When the assessee was asked to justify the same, the assessee filed a certificate of a Chartered Accountant stating therein that the said amount has been wrongly included in the figures of foreign exchange outflow. The assessee also filed relevant ledger account to show that it is merely a contra entry and no such expenditure has been charged to the profit and loss account. 35. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and against the Revenue by the decision of the Hon ble Supreme Court in the case of Smifs Securities Ltd. 348 ITR 302. 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 ITA No. 332/Del/2013 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. Ground no. 6 is accordingly allowed. 39. Ground no. 7 relates to the transfer pricing adjustments amounting to ₹ 1,17,24,04,607/-. The adjustments have been made in respect of the international transaction under taken by the appellant namely provision of marketing support services and provision of warranty support services. We find that a similar transfer pricing adjustment was made in AY 2009-10 in respect of market support service segment and the matter travelled upto the Tribunal and the coordinate bench in ITA No. 2810/Del/2014 has decided this issue as under: 44. We have heard the rival submissions and have given thoughtful ..... X X X X Extracts X X X X X X X X Extracts X X X X
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