The Pr. Commissioner of Income Tax -6 v. Nokia Solutions and Networks India Pvt. Ltd.

1. This appeal concerns Assessment Year (AY) 2010-11.

2. Via this appeal, the appellant/revenue seeks to assail the order dated 19.11.2019 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].

3. The appellant/revenue has proposed the following questions of law: “(i) Whether on the facts and circumstances of the case and in law, Id. ITAT erred in deleting the addition of Rs.1,02,88,91,000/- made by Assessing officer on account of unearned revenue ignoring the fact that Accounting Standard cannot override the provision of the Income Tax Act, 1961?

(ii) Whether on the facts and circumstances of the case and in law. Id. ITAT erred in deleting the addition of Rs.57,93,45,721/- made by Assessing officer on account of provision for liquidated damages?”

4. Insofar as the first question is concerned, it would be convenient to refer to paragraph 14 of the impugned order which discloses the breakup of Rs.1,02,88,91,000/-, which is shown as unearned revenue by the respondent/assessee. For the sake of convenience, the said table is extracted hereafter: 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

5. Furthermore, we find that the Tribunal has returned a finding of fact that these very amounts were offered to tax in the subsequent year, as and when services were offered. This is evident on perusal of paragraphs 21 and 25 of the impugned order. For the sake of convenience, the said paragraphs are extracted hereafter:

6. From a reading of the impugned order two findings of fact emerge.

(i) First, the money received by the respondent/assessee was offered for imposition of tax only when services were rendered.

(ii) Second, this was an accounting practice followed consistently for several years. (iii). Lastly, since the tax rate remained the same, no loss was caused to the revenue by the respondent/assessee offering the aforementioned amount for the tax in the subsequent period.

7. This position of law appears to have been, in a sense, recognized by the coordinate bench of this court in a judgment rendered in Commissioner of Income Tax-III vs Shyam Telelink Ltd., [2019] 101 Taxmann.com 218 (Delhi). The relevant observations made in the said judgement, are extracted hereafter:

16. Thereafter, the Delhi High Court in Dinesh Kumar Goel (supra) had quoted the following passage from the decision of Bombay High Court in Commissioner of Income Tax v. Nagri Mills Co. Ltd., [1958] 33 ITR 681 (Bom): “We have often wondered why the Income tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the income tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other.”