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June, 14th 2014
%                                                 DECIDED ON: 06.05.2014

+                           ITA 29/2014
                            CM APPL.1598-1600/2014

                                                         ..... Appellant
                      Through: Mr. Salil Kapoor with Mr. Vikas Jain,
                      Mr. Sanat Kapoor and Mr. Ankit Gupta,

       DEPUTY COMMISSIONER OF INCOME TAX           ..... Respondent
                   Through: Mr. Kamal Sawhney, Sr. Standing


       1.     The following question of law arises for consideration: -
              "Whether the Tribunal fell into error in holding that the sum of
              `1,66,99,360/- had to be treated as income and, therefore,
              brought to tax."

       2.     With consent of the counsel for the parties, matter was heard
       3.     The appellant showed that, during the period relevant to AY
       2008-09, it had received `1,66,99,360/- from two parties, i.e.,
       Samsung      India    Electronics   Pvt.   Ltd.    and    a   Samsung

ITA-29/2014                                                               Page 1
     Telecommunication India Pvt. Ltd. The AO by issuing show cause
     asked: "why the amount should not be treated as income during the
     relevant year". The assessee claimed that in terms of the provisions
     of the Income Tax Act, 1961 the tax had to be deducted from the
     payer which was done. The appellant also stated that the amounts
     were treated as an advance, given the nature of its business which
     was to book and publish advertisements on behalf of its clients. It was
     submitted that the amount continued to be treated as an advance and
     were appropriated towards the expenses actually incurred and
     thereafter reflected as such. It was further urged that the commission
     payable to the assessee was deducted from the advance so received
     and disclosed as the income.         Upon a reference to the Dispute
     Resolution Panel (DRP) on the basis of draft assessment order, the
     panel directed as follows: -
              "4.6 Out directions on this issue:
              We have considered the facts of the case. It is noticed that AO
              has clearly brought on record the discrepancy. The amount
              under reference is received by the assessee. The payer has
              already treated this amount as expenditure during the year. If
              the revenue is recognized in the case of the assessee during this
              year itself it will lead to anomaly. Therefore, we do not find
              any infirmity in the proposed action of the AO. An alternate
              arguments has been raised by the assessee of not giving credit
              of pass through cost in case the amount is being treated as
              revenue. The same also could not have been entertained by
              AO as no detail has been provided by the assessee as how much
              is pass through cost incurred during the year relating to these
              receipts and confirmation thereof, if any. Therefore alternate
              objection of the assessee also cannot be entertained and
              therefore rejected."

ITA-29/2014                                                             Page 2
     4.       The assessee's appealed to the ITAT. The Tribunal in its order
     after recording the submissions, directed a limited remission in the
     following terms: -
          "13. We have heard the rival contentions in light of the
          material produced and precedent relied upon. We find that
          the parties who have paid the said advance has clearly
          informed that the amount in question has been treated as
          expenses incurred by them during the year. Hence, the plea of
          the assessee to treat the amount received as advance is not
          very cogent. However, we find that there is considerable
          cogency in the assessee's submissions that proper credit of
          pass through cost should be taken, if the amount is being
          treated as revenue receipt. Since we have already remitted the
          first issue in this case to the file of the Assessing Officer. We
          find that interest of justice will be served, if this issue is also
          remitted to the file of the Assessing Officer. The Assessing
          Officer will examine the assessee's submission in this regard
          regarding the pass through cost in this case. We hold and
          direct accordingly."

     5.       The assessee relies upon paragraph 12 of Accounting Standard
     No.9 which reads as follows: -

              "12. In a transaction involving the rendering of services,
              performance should be measured either under the completed
              service contract method or under the proportionate completion
              method, whichever relates the revenue to the work
              accomplished. Such performance should be regarded as being
              achieved when no significant uncertainty exists regarding the
              amount of the consideration that will be derived from rendering
              the service."

     6.       It also relies upon the other relevant portion of the Accounting
     Standard No.9 pertaining to advertising and insurance agency

ITA-29/2014                                                              Page 3
     commission, which reads as follows: -
              "2. Advertising and insurance agency commissions
              Revenue should be recognised when the service is completed.
              For advertising agencies, media commissions will normally be
              recognised when the related advertisement or commercial
              appears before the public and the necessary intimation is
              received by the agency, as opposed to production commission,
              which will be recognised when the project is completed.
              Insurance agency commissions should be recognised on the
              effective commencement or renewal dates of the related

     7.       It is argued that in the light of the above provisions, the books
     of accounts and other documents maintained by the assessee
     consistently showed that the amounts were treated as advance and the
     actual expenditure was appropriated as and when the occasion arose.
     The learned counsel submitted that for the succeeding assessment
     year, the revenue was recognized in the books of accounts and taxes
     were paid, accordingly.
     8.       We have considered the submissions of the parties.         Even
     though the DRP and the Tribunal appear to have accepted the merit of
     the assessee's contention, they have not fully endorsed the position ,
     consistently projected by it, that the amounts received were not in the
     nature of income. As to the exact arrangement that existed between
     the assessee and its customers, i.e., Samsung India Electronics Pvt.
     Ltd. and Samsung Telecommunication India Pvt. Ltd. who used to
     remit the amounts towards the expenditure to be incurred by them,
     has not been discussed. Counsel for the assessee had relied upon a
     tabular statement, the 18 invoices raised and the net income reported.

ITA-29/2014                                                             Page 4
     This Court is of the opinion that in the absence of any investigation
     by the lower authority as to the contractual arrangement that existed
     between the assessee and its customers, the AO had to necessarily
     carry out the necessary enquiry or investigation to see the amounts
     received and how they were expended. For these reasons, the matter
     is remitted to the AO for consideration on all aspects and not merely
     on the questions indicated by the Tribunal. In case, it is held that the
     amount is income, the consequential benefit is to be given to the
     assessee for the subsequent years.
     9.       The appeal is partly allowed in the above terms.       All the
     pending applications also stands disposed of.

                                                S. RAVINDRA BHAT

                                                  VIBHU BAKHRU

     MAY 06, 2014

ITA-29/2014                                                           Page 5
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