DCIT, NEW DELHI vs. M/S. SISTEMA SHYAM TELESERVICES LTD., NEW DELHI

PER SUCHITRA KAMBLE, JM

are as follows:-

1. On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in deleting the addition of Rs.7,65,19,216/- on account of unaccrued revenue as on 31/3/2009 from the sale of prepaid cards and recognized in the books of account.”

3. The Assessee was engaged in the business of providing basic telephony services as per license obtained from DOT. The assessee filed its return of income for AY 2009-10 on September 29. 2009 declaring total loss of Rs. 5.35.19.88.134. The Assessee’s source of income is from the sale of pre-paid and post-paid cards/ connections and the method followed for recognition of the same is accrual and at par with that of the telecom industry. The Assessing Officer made an addition in respect of un-accrued revenue earned from sale of pre-paid cards. The assessee filed appeal before the CIT(A). The CIT(A) deleted the addition by following the earlier Assessment Year’s ITAT order in assessee’s own case.

4. The Ld. DR relied on the order of the Assessing Officer and submitted that the CIT(A) erred in deleting the addition made by the Assessing Officer.

5. During the hearing the Ld. AR submits that during FY 2008-09 the assessee sold pre-paid vouchers of value Rs. 47,24,48,097/- and on the basis of the actual usage within the year, recognized revenue of Rs. 40,69,67,674/- (including un-accrued revenue as on March 31, 2008). The details in FY 2008- 09 are tabulated below:-

Particulars Sold (Rs.) Usage (Rs.) Processing Fee Pre-paid vouchers sold 47,24,48,097/- 46,59,48,841/- 64,99,256/- Add: Unacrued revenue 1,75,38,049/- as on 31/3/2008 Less: Unaccrued revenue (7,65,19,216/-) as on 31/3/2009 Service Tax Amount 5,02,43,402/- Revenue as per P & L 41,39,22,205/- 40,69,67,674/- 64,99,256/-

The Ld. AR further pointed out that the Assessing Officer added un-accrued revenue as on 31.03.09 of Rs. 7,65,19,216/- alleging that the same ought to be recognized as revenue by placing reliance on his predecessor’s orders. The Ld. AR further pointed out the Terms and Conditions of prepaid card which states the talk time validity, thereby implying that the Assessee had the obligation to render services beyond the year in cases where pre-paid vouchers were sold towards the end of the year. The Ld. AR further pointed out the Extract of Accounting Standard - 9 - “Revenue Recognition” which states that in transactions involving services, revenue should be recognized as services are rendered. The Ld. AR submits that this is a covered matter in assessee’s own case for previous Assessment Years 2004-05 and 2006-07. The Ld. AR also relied on the decision of the Delhi Tribunal in the case of BTA Cellcom Ltd. Vs. ITO (ITA No. 133/DEL/2009 dated 30.06.2011)

use which is normal practice followed in the field as per the terms with DOT. The amount in respect of which the customer had not used the prepaid card, was treated as advance in the balance sheet and recognised in the subsequent year when the talk was actually used. The fundamental principle is that income is to be recognised when it accrues to assessee, whereas expenditure is to be charged the moment liability gets crystallized. The two aspects cannot be mingled and have to be considered separately. ”

“para 15 ………Every receipt of amount cannot be treated as income and only that part of receipt can be treated as income which can be legally appropriated by the receiver in his own right to the exclusion of its giver. As long as the payer has some right over the amount it has paid to the payee, it cannot be said that income has accrued to the payee. A legal right to appropriate the amount should have accrued in favour of the payee for recognising the sum as income. Unless debt has accrued in favour of payee, it cannot be said that income has accrued to the payee. We have extensively considered the various decisions relied upon by the Id. Counsel for the assessee in order to demonstrate that this principle has been applied in all the decisions which has its root in the decision of Hon’ble Supreme Court in the case of E.D. Sasson Company Ltd. vs. CIT, 26 ITR 27. ”

“para 16. In the present case, the main dispute is regarding revenue recognition relating to unused talk tine remaining available as at the end of the year. As noted earlier, there is no dispute that company had to provide talk time to its subscriber till the expiry of the period of card or till complete utilisation of talk time, whichever is earlier. As long as assessee company is under obligation to provide talk time, it cannot be said that a debt has accrued in favour of assessee company against the subscriber. The assessee company cannot appropriate the charges relating to available talk time to the exclusion of subscriber as long as it is under obligation to provide the said services. Therefore, we are of the opinion that Learned CIT(A) in principle has rightly accepted the mode of revenue recognition by the assessee. …..”

In the present appeal also the same issue is contested by the Revenue. As the CIT(A) has followed the earlier years order. There is no need to interfere with the findings of the CIT(A) in this year as well. Thus, the CIT(A)’s order is upheld.

Order pronounced in the Open Court on 23rd MAY, 2017.