INCOME TAX ACT, 1961

Section 43(3) Section 143(3)

Assessment - Additions to income - Assessee engaged as third party administrator of insurance company derived income as percentage of premium paid by policy holders to insurance company - Applicability of AS-9 to assessee

Assessee was a private limited company engaged in business as third party administrator of insurance companies. It derived income as third party agent fees from insurance companies as percentage of premium paid by policy holders to insurance company. AO alleged that amount declared as 'unearned income' was liable to be added to income of assessee because Accounting Standard- 9 (AS-9) was not applicable to assessee and invoices raised in financial year but not recognized as revenue were to be included in income of assessee. Held: Assessee changed invoice method to proportionate completion method. Assessee was involved in execution of more than one Act, i.e., rendering service in the entire year, therefore, it adopted the proportionate completion method. Revenue from service transactions usually recognized as service was performed either by proportionate completion method or completed service contract method. Assessee, therefore, rightly adopted proportionate completion method as it was engaged in rendering service in entire year. Assessee was covered by AS-9 as it did not deal with revenue of insurance companies arising from insurance contracts. It was open for assessee to change the method of accounting and the burden was on department to prove that method invoked was not correct and that such a method distorted profits of a particular year. Aforesaid burden was not discharged by revenue.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2009-10

INCOME TAX ACT, 1961

Section 143(3)

SUBSCRIBE FOR FULL CONTENT