Income Tax Appellate Tribunal - Mumbai
Dcit Circle 2.3.1, Mumbai, Mumbai vs Onsite Electro Services Private ... on 11 May, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI "C" BENCH : MUMBAI
BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER
AND
SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER
ITA No. 5262/Mum/2025
Assessment Year : 2023-24
DCIT, Circle-2(3)(1), Onsite Electro Services
552, 5th Floor, Private Limited,
Aayakar Bhavan, vs. G3/A, Ground Floor,
M.K. Road, Skyline Icon 86/92,
Mumbai-400020. Andheri Kurla Road,
Marol, Andheri (E),
J.B.Nagar S.O.
Mumbai-400059.
PAN : AABCO3691F
(Appellant) (Respondent)
For Assessee : Shri Bhavesh Jain
For Revenue : Shri R.A. Dhyani, CIT-DR
Date of Hearing : 10-02-2026
Date of Pronouncement : 11-05-2026
ORDER
PER VIKRAM SINGH YADAV, A.M :
This is an appeal filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi ['Ld.CIT(A)'], dated 25-06-2025, pertaining to Assessment Year (AY) 2023-24, wherein the Revenue has taken the following grounds of appeal:
I. "Whether, on the facts and in the circumstances of the case, the entire receipts from the sale of extended warranty services, which are collected upfront, constitute income accruing to the assessee in the year of receipt, irrespective of the period over which the services are to be rendered, thereby requiring the taxation of the full amount in that assessment year.2 ITA No. 5262/Mum/2025
II. Whether, on the facts and in the circumstances of the case, the CIT(A) erred in law by holding that the deferred revenue of Rs. 1,84,18,65,578/- should not be taxed in the assessment year 2023-24, thereby incorrectly applying the principles of the mercantile system of accounting. AS 9. and ICDS IV, and misinterpreting the "matching concept" in the context of the assessee's business model?
III. Whether, on the facts and in the circumstances of the case, the CIT(A) was justified in relying on the judicial pronouncement in CIT vs. Rakesh Agrawal (197 Taxmann 375 [2011]) and M/s Sun Direct TV Pvt. Ltd. Vs ACTT (ITA Nos.2162-2165/Chny/2018) to hold that the deferred revenue did not accrue in the year of receipt, given the specific nature of the extended warranty contracts and the upfront collection of consideration in the present case.
2. Briefly, the facts of the case are that the assessee filed its return of income declaring loss of Rs. 63,94,43,247/-. Thereafter, the case of the assessee was selected for complete scrutiny and notices u/s. 143(2) and 142(1) of the Income Tax Act, 1961 ('the Act') were issued calling for necessary information and documentation. During the course of assessment proceedings, the AO, on perusal of the Profit & Loss Account and Balance Sheet of the assessee-company, noticed that the assessee has shown Rs. 184,18,65,578/- towards unearned/deferred revenue which was claimed as advance payments received from the customers which is recognized systematically over the respective warranty periods. A show cause was issued to the assessee in this regard. In response to the show cause, the assessee submitted that it operates in the extended warranty service sector where it collects payments for warranty services at the time of sales. However, revenue from same is recognized on a straight line basis over a period of contract/warranty as per the revenue recognition policy of the company, which is in line with accounting standard 9 on revenue recognition and income computation and disclosure standard (ICDS IV) relating to revenue recognition. It was submitted that for the AY. 2023-24, amount of Rs. 184,18,65,578/- classified under "other current liabilities"
3 ITA No. 5262/Mum/2025represents advance payment received from customers and which has subsequently been offered to tax in AY. 2024-25.
3. The submissions so filed by the assessee were considered, but not found acceptable to the AO. As per the AO, recognition of revenue requires that revenue is measurable and at the time of sale or the rendering of service, there will not be any problem in collection of the same. Further, when the assessee is able to assess the collection with reasonable certainty, but the same is lacking at the time of raising any claim on account of escalation of prices, exports incentives etc., and many other allied issues, the revenue recognition is not to be allowed. When the uncertainty relating to collectability arises subsequent to the time of sales or rendering of the services, the assessee needs to make separate provisions to reflect the uncertainty with supporting and concrete evidences. Further it is also essential to determine for recognizing the revenue on account of sales of goods or services or from the use by other connected enterprises. When such consideration is not determinable, the provisions cannot be made. It was held by the AO that as per assessee's submission, it is found that assessee is receiving upfront payment to sales of each month. So as there is no one time payment, the receipts needs to be recognized in the year of receipts. Further, it is observed that the assessee has claimed TDS on total receipts not on recognized receipts. Further, the assessee company has submitted that Rs. 184,18,65,578/- is classified under "Other Current Liabilities" and same has been offered to tax in AY. 2024-25. On perusal of ITR for AY. 2024-25, it is seen that the assessee company has shown the same under 'Other Current Liabilities' as deferred revenue and no tax was offered or paid against the said receipts. Further, the assessee has charged all the expenses incurred for providing the services without taking into account the corresponding revenue. Thus, 4 ITA No. 5262/Mum/2025 the assessee company has violated the matching concept of accounting by acknowledging the entire expenses without accruing the corresponding revenue. Finally, it was held by the AO that in view of the above facts, the assessee has failed to furnish submission with supporting evidences substantiating that the warranty provisions has been made keeping in mind the above requisite issues. In view of the above, the submission of the assessee is not tenable and hence the Deferred Revenue of Rs.184,18,65,578/- is disallowed and added to the total income of the assessee and assessment proceedings were completed u/s 143(3) r/w 144B vide order dt. 21-03-2025 wherein assessed income was determined at Rs. 1,20,24,22,331/-.
4. The assessee thereafter carried the matter in appeal before the Ld.CIT(A), who has since deleted the addition so made by the AO and the relevant findings of the Ld.CIT(A) are contained at para 7.1 to 7.1.9, which read as under:
"7.1 Ground Numbers 1 to 5 7.1.1 The assessee is in the business of providing extended warranty services, which imply that the buyer of the warranty has security of being provided warranty and repair services for a particular period of time, which may run over multiple years. The flow chart can be summarised as follows:
1. The assessee enters into an agreement with the retailers to sell its warranty services to the ultimate buyers through the retailer.
2. The retailer/vendor sells these warranties for electronic goods to its customers who buy them on the vendors' platform/stores
3. Customer pays the sale consideration to the intermediaries and purchases warranty services provided by Onsite(the assessee) on their goods.
4. Onsite raises invoices and the intermediaries/vendors pay the assessee total collection on account of sale of warranties.
5. Vendors/intermediaries raise invoices on the assessee for commission which is due for the sale of warranties because the sale has occurred through them.
7.1.2 Assessee contends that the entire income on account of sale of warranties cannot be considered in the year of receipt because even though the payment is 5 ITA No. 5262/Mum/2025 received, the liability to provide services run through multiple years. Thus the revenues are spread over the years. The assessee submitted as to how the revenue is recognised. For the year under consideration the gross collection was Rs.
2,42,55,02,468/- out of which Rs. 2,10,50,56,909/- was deferred to future years and the remainder Rs. 32,04,45,559/- was offered for tax in the current year. This related to the gross collection effected in the current year. Thereafter the assessee added the receipts of previous years which are being recognized in the current year, which stood at Rs. 1,34,52,11,964/-. Thereafter the interest income of Rs. 13,90,34,678/- was added and the total income was arrived at Rs. 1,80,46,90,201/-
7.1.3 Assessee also submitted the liabilities break up of Deferred Revenue as follows Liabilities Breakup of Deferred Revenue Amount Opening balance as on 1st April 2022 2,62,76,30,577 Less Deferred Income of LY offered for Tax -1,34,52,11,964 in CY Add Deferred Income of CY carried forward 2,10,50,56,909 Closing balance as on 31st March 2023 3,38,74,75,522 Bifurcated between Other Current Liability 1,84,18,65,578 Other Non-Current Liabilities 1,54,56,09,944 7.1.4 The primary bone of contention between the assessee and the AO in the present case is of apportionment of revenue. AO is of the view that all the receipts of a particular year should be construed as accrued in that year itself, whereas the assessee contends that the receipts in a particular year are for a providing a service which stretches over multiple year. The liability of assessee to provide a specific service does not get terminated merely in the year in which the proceeds of extended warranty sales are received, his liability shall be exhausted only when the tenure of extended warranty terminates. Until then, even if he may have received the money, the right to receive the money does not arise for the unexpired period of warranty.
7.1.5 Assessee's contention finds validity in the decision of Hon'ble Delhi High Court in the case of CIT vs Rakesh Agrawal 197 Taxmann 375 [2011] wherein the assessee, who was running a coaching institute, claimed that entire fees received in a year could not be taken as income because the course spread over next year as well. Assessee's contention was upheld by CIT(A) and ITAT both and the matter travelled to High Court. Hon'ble Bench agreed with the assessee and commented as follows:
"After considering the respective submissions, we are not in a position to take a view different from what is taken by the Tribunal in the instant case. In the facts of this case, it is apparent that at the time of admission, the students are required to deposit the whole fee of the entire course, but that would only remain a 'deposit" or 'advance' and it cannot be said that this fee had become 6 ITA No. 5262/Mum/2025 'due' at the time of deposit. Fee is charged in advance for the entire course, presumably because of the reason that there should not be any default in making the said by the students during the period of course The Hon'ble Court further commented that "When we applies the principles of law laid down in ED. Sassoon & Co. Ltd.'s case (supra) and Calcutta Co., Ltd. v. CIT [1959] 37 ITR 1 (SC), it becomes apparent that the fee was not due at the time of deposit. The services in respect of financial year 1997-98, for which also the payment was taken in advance were yet to be rendered. Therefore, applying the principle in the case of Calcutta Co Ltd. (supra), this could only be treated as advance otherwise it would lead to an anomaly 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 higher tax. It is for this reason, the following principle was enunciated by the Supreme Court in Calcutta Co. Ltd.'s case (supra):
"The expression "profits or gains" in section 10(1) of the Income-tax Act has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipts is deducted therefrom -whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date."
16. We may also, at this stage, usefully refer to another judgment of the Apex Court in the case of CIT v. Shri Goverdhan Ltd. (1968) 69 ITR 675 in the following terms:
"It is, however, well-established that the income may accrue to an assessee without actual receipt of the same and if the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on, on its being ascertained. The legal position is that a liability depending upon a contingency is not a debt in praesenti or in futuro till the contingency happens, But if it is a debt the fact that the amount has to be ascertained does not make it any the less a debt if the liability is certain and what remains is only a quantification of the amount: debitum in praesenti, solvendum in futuro."
17. The judgments cited by the learned counsel for the Revenue do not concern the issue, which we are dealing with these appeals.
18. We, thus, answer the question in the affirmative and as a consequence, dismiss these appeals."
23. We may refer to the judgment of the Supreme Court in the case of CIT v. Bilahari Investment (P.) Ltd. [2008] 299 ITR 11 wherein the Supreme Court has taken various judgments where the matching concept is defined and explained. We may refer to the passage extracted by the Supreme Court from its judgment in the 7 ITA No. 5262/Mum/2025 case of J.K. Industries v. Union of India [2007] 165 Taxman 323 in the following terms:
"82. Matching Concept is based on the accounting period concept. The paramount object of running a business is to earn profit. In order to ascertain the profit made by the business during a period, it is necessary that "revenues" of the period should be matched with the costs (expenses) of that period. In other words, income made by the business during a period can be measured only with the revenue earned during a period is compared with the expenditure incurred for earning that revenue. However, in cases of mergers and acquisitions, companies sometimes undertake to defer revenue expenditure over future years which brings in the concept of Deferred Tax Accounting. Therefore, today it cannot be said that the concept of accrual is limited to one year.
83. It is a principle of recognizing costs (expenses) against revenues or against the relevant time period in order to determine the periodic income. This principle is an important component of accrual basis of accounting. As stated above, the object of AS 22 is to reconcile the matching principle with the Fair Valuation Principles. It may be noted that recognition, measurement and disclosure of various items of income, expenses, assets and liabilities is done only by Accounting Standards and not by provisions of the Companies Act."
The court also went into the applicability of AS9 (which is also the contention of the present assessee) and noted that "25. Reading of the aforesaid (AS) 9 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 really clinches the issue in favour of the assessee.
26. Though our discussion on the issue is complete, the parting comments need to be made. The receipts relate to the unexecuted packages, which are not shown in the instant year would be shown in the succeeding year. Rate of tax in respect of companies remains the same in all these years. Therefore, the Revenue does not lose anything, as it would receive the tax on this income in the succeeding year 7.1.6 It would be relevant to mention here that a similar issue had been arisen for the Assessment Year 2017-18 and therein the AO had again gone through the submissions during the remand proceeding and had arrived at the opinion that the assessee's stance was valid. The appeal order for the AY 2017-18 and 2018-19 deliberated upon the same issue and has concluded that the entire receipts could not be brought to tax in the same year as the assessee's liability to perform was spread over different years.
7.1.7 The AO had noted, that the assessee has claimed TDS on total receipts not on recognized receipts. The appellant in his submissions has stated as follows "TDS has been claimed only to the extent of income recognized during the year, and the balance TDS has been duly carried forward in accordance with law.
8 ITA No. 5262/Mum/20257.1.8 The assessing officer is directed to verify the TDS claimed by the assessee for the A.Y 2023-24 and allow as per the provisions of Income Tax. 7.1.9 Considering the facts of the case, case laws, I am of the opinion that the AO was not justified in making the aforementioned additions and hence the assessee succeeds on Ground Numbers 1 to 5. However, AO has to be mindful of the provisions of Sec 199 read with Rule 37BA(3), hence where the income is assessable across a number of years, the credit of TDS should also be allowed across those years in the same proportion in which income is assessable."
5. During the course of hearing, the Ld.DR relied on the findings of the AO. It was submitted that the Revenue recognition requires that it must be measurable and there should be no problem in collection, that the assessee has claimed TDS of total receipts not on recognized receipts and on perusal of ITR, it is seen that no income is offered in AY. 2024-25 as so claimed by the assessee, that all expenses relating to the said revenue claimed by the assessee in current year and, therefore, there is a violation of matching concept where the assessee has claimed entire expenses without corresponding revenues.
6. Per contra, the Ld.AR relied on the findings of the Ld.CIT(A). Further, our reference was drawn to the detailed written submissions filed before the Ld.CIT(A), as duly considered by the ld CIT(A) at Pgs. No. 21 to 27 of the impugned order, which reads as under:
"3) Business Profile/model of the Appellant:-
a. The Appellant is in the business of providing "Extended Warranty" on electronics goods to the end consumers. An extended warranty, sometimes called a service agreement, a service contract, or a maintenance agreement, is a prolonged warranty offered to consumers in addition to the Original Equipment Manufacturer (OEM/standard) warranty on new items. Extended warranty begins after expiry of Original Equipment Manufacturer warranty and ranges from 1 to 4 years depending on the electronic product.
b. Though the appellant receives the entire consideration for extended warranty at the time of sale in advance, the revenue in connection with this extended warranty is recognized and offered to Income-tax proportionately over the period of the service contract (i.e. usually 1 to 4 years), which spreads beyond the financial year in which such warranty is sold. The appellant has adopted deferred revenue 9 ITA No. 5262/Mum/2025 system under the mercantile system of accounting which is in accordance with ICDS and accounting standards.
c. The following illustration will help in understanding the appellants business and its accounting of income. Mr. X purchases a TV from Croma on April 1, 2022. The OEM warranty on that TV is 12 months. Now alongwith the TV, Mr. X also purchases, Onsite's product of extended warranty of additional 24 months for a price of Rs. 5,000 through Croma. Thus, the extended warranty period (i.e., Onsite's service) will commence from April 1, 2023 (i.e., after the expiry of manufacturer's warranty of 12 months). Croma will collect the entire consideration of Rs. 5,000 and after deducting its share of commission, transfer the balance to Onsite as per the agreed terms.
d. Your Honor would appreciate that the extended warranty charges are collected by Onsite in advance and the service period would always commence at a future date which is typically after a year of collecting the service charges. Accordingly, Onsite would book the income on accrual ie, in the period of providing the services in the aforesaid illustration Onsite would book the income over 2 years beginning from April 1, 2023. Accordingly, the advance fee received is reflected as deferred revenue bifurcated between current liabilities & Non-current liability till such time. This is in line with Accounting Standard 9 and the Income Computation and Disclosure Standard IV.
e. During the course & furtherance of its business the Appellant had engaged itself/entered into agreement with various ecommerce companies & retail outlets such as Amazon, Croma (infinity Retail), Vijay sales etc. for selling of its Extended warranty services on the product/goods sold by these vendors. f. Hence it can be clearly noted that these vendors would just act as an intermediary/distributor for selling the Extended warranty services offered by the appellant. These intermediaries would sell the Extended warranties to the end consumer through their stores/platforms on behalf of appellant. g. After the sale of the warranty services by these vendors to its end customers, the vendors would intimate the appellant & then the appellant would raise invoices for the total sales made by the vendors based on their mutually agreed terms. h. The vendors would collect the sales of warranty amounts from its customers & after deducting the mutually agreed commission/service charge, the balance amount would be remitted to the appellant.
4) The following is the schedule of Gross collection, Liabilities & Income offered for tax for your reference: -10 ITA No. 5262/Mum/2025
(Table 1) Particulars Amount Receipts on which TDS is deducted as per 2,25,25,80,396/- 26AS (A) Receipts on which TDS is not deducted (B) 17,29,22,072/-
Gross Collection (A+B) 2,42,55,02,468/-
Less: Deferred to future years 2,10,50,56,909/-
Balance:- Offered for tax in CY i.e. AY 23- 32,04,45,559/-
24
Gross Total Income as per P & L A/c Amount
Income from Receipts of current year 32,04,45,559/-
Receipts of previous years recognized in 1,34,52,11,964/-
current year
FD Interest (Income from Other Sources) 13,90,34,678/-
Total Income 1,80,46,92,201/-
Liabilities Breakup of Deferred Revenue Amount
Opening balance as on 1 April 2022 2,62,76,30,577/-
Less: Deferred Income of LY offered for -1,34,52,11,964/-
Tax in CY
Add: Deferred Income of CY carried 2,10,50,56,909/-
forward
Closing balance as on 31 March 2023 3,38,74,75,522/-
Bifurcated between
Other Current Liability 1,84,18,65,578
Other Non-Current Liabilities 1,54,56,09,944
5) Addition of Rs. 1,84,18,65,578 in Gross Receipts on basis of treating deferred revenue as income in the current year: -
a. The Ld AO in its Asst order has grossly erred in making addition of Rs. 1,84,1865,578/- on account of treating deferred revenue as income in the current year.
b. A notice dated 22-07-2024 under section 142 (1) of the said Act was issued to the appellant by the AO asking for information relating to reconciliation of 26AS with books of the company. The appellant replied to the said notice vide letters dated 06-08-2024 providing Party wise reconciliation of 26AS with books of accounts along with TDS claimed and carried forward. c. AO by a draft assessment order dated 24-02-2025 stated that the details for provisions has not been provided by the assessee company.11 ITA No. 5262/Mum/2025
d. In response, the appellant vide its letter dated 26-02-2025 disagreed with the above proposed addition. Your appellant once again reiterated the nature of business undertaken, the scientific method of accounting system employed for deferment of revenue along with detailed working for the same, agreements with various vendors specifying nature of service provided, tenure of agreement, revenue recognition policy consistently followed. Your appellant event explained the details of deferred revenue to AO over video conferencing held on 03-03-2025. Your appellant even specified to AO that assessee is completely willing to provide any further information/documents required by AO for passing an informed order.
e. The Ld. AO disregarded all submissions, agreements with vendors, and consistent application of revenue recognition principles. He erroneously concluded that all revenue must be taxed in the year of receipt, without appreciating that the services were to be rendered in future years and revenue had already been/would be taxed accordingly.
f. The Ld. AO without understanding your appellant's nature of business, and also without considering your appellants submission of the above-mentioned information along with documentary evidence made addition amounting to Rs. 1,84,18,65,578/-
g. Notably, similar additions made in earlier years on the same issue have been fully adjudicated and deleted in favour of the Appellant by the CIT(A) in AY 2017-18 and AY 2018-19. The present addition thus not only lacks legal basis but also ignores binding appellate precedent.
h. The Ld AO has also erred in understanding the business model/profile of the appellant & also the terms of agreement with its vendors. i. During the year in consideration the total receipt from sale of Extended Warranties was Rs 2,42,55,02,468/-, which is collected by the vendors & remitted to the appellant as explained above. Out of the above 2,42,55,02,468/- the appellant has recognized revenue amounting to Rs. 32,04,45,559/- and balance amount is deferred to future years. j. As already explained in detail in pt. no. 3 above the business model of the appellant is of providing "Extended Warranty" on electronic goods to the end consumers.
k. Since the extended warranty service is provided for a period of time, revenue from the same is recognized on a straight-line basis over the period of contract/warranty as per Revenue Recognition policy followed by the Appellant as the appellant would legally claim the amount only after the rendering the services. This is in line with Accounting Standard 9 on Revenue Recognition and Income Computation and Disclosure Standard (ICDS) IV relating to revenue recognition. Following is relevant extract of the Accounting Standard and ICDS 12 ITA No. 5262/Mum/2025 AS 9- "(i) Proportionate completion method Performance consists of the execution of more than one act. Revenue is recognized proportionately by reference to the performance of each act. The revenue recognized under this method would be determined on the basis of contract value, associated costs, number of acts or another suitable basis. For practical purposes, when services are provided by an indeterminate number of acts over a specific period of time, revenue is recognized on a straight-line basis over the specific period unless there is evidence that some other method better represents the pattern of performance."
ICDS-
"Rendering of Services 6. Subject to Para 7, revenue from service transactions shall be recognized by the percentage completion method. Under this method, revenue from service transactions is matched with the service transaction costs incurred in reaching the stage of completion, resulting in the determination of revenue, expenses and profit which can be attributed to the proportion of work completed. Income Computation and Disclosure Standard on construction contract also requires the recognition of revenue on this basis. The requirements of that Standard shall mutatis mutandis apply to the recognition of revenue and the associated expenses for a service transaction. However, when services are provided by an indeterminate number of acts over a specific period of time, revenue may be recognized on a straight-line basis over the specific period."
The same is also reiterated in companies notes to account ie. Note No. 1 Significant accounting policies sub point 1.4 Revenue Recognition.
1. Your honor may note that as per table no 3 and explanation above, the appellant has correctly followed the accounting principles laid by the Indian Accounting Standards & has correctly deferred the revenue to the future years & we would also like to state that the income has been offered for tax in the relevant year in which it is deferred & has neither escaped assessment nor it has been understated in any year.
m. Onsite is incorporated under the Companies Act, 1956 and accordingly is required to maintain books of accounts under the mercantile system of accounting. The learned AO assessed the income under cash system of accounting ignoring the basic tenets of law. Your Appellants independent auditor has certified that the appellant company has prepared books of accounts in accordance with the company law and accounting standards prescribed under the Company law as well as in accordance with the accounting standards prescribed for computation of income as per Income-tax Act, 1961.
n. We would like to refer the Hon'ble Delhi High Court order in the case of CIT vs. Dinesh Kumar Goel (331 ITR 10) that company registered under the Companies 13 ITA No. 5262/Mum/2025 Act has to follow the accounting standards and mercantile system of accounting for preparing profit and loss account and balance sheet. o. We would also like to bring to your consideration to the Ld. AO's claim with respect to various points in the Asst order.
1. Incorrect observation relating to Onetime payment/upfront fee i. The Ld.AO has stated that the assessee has not received one-time payment/upfront fee. Hence, he would like to reject the business model explanation given by the appellant during the Asst Proceedings. ii. In contention to this we would like to clarify that as already explained in point no. 3 above, various vendors for the appellant who used to sell the extended warranty on behalf of the appellant in all its stores across India to its retail/unique customers. On a monthly basis a report containing total extended warranty sold on all electronic products was provided to the appellant by the vendor based on which the appellant issued a bill to the vendor. In this due process commission was charged by the vendor to the appellant at a mutually agreed rate and balance payment would be released to the appellant.
iii. During the course of assessment proceedings, the appellant had submitted a copy of agreement between it & its vendors i.e. IRL (Infiniti Retail Ltd). Point no. 14 of the agreement clearly states as follows.
"......IRL will collect the consideration for sale of onsite product. IRL will release 100% of onsite share of the consideration (after deduction of Tax and IRL commission....."
iv. The Ld AO has clearly erred in assuming/concluding that no one time payment/upfront fee is received by the appellant for sale of its extended warranty but in fact the real/actual case was that the appellant had actually received upfront fee/onetime payment every time whenever a retail/unique customer purchased the extended warranty from the vendors. v. In case of Termination of Agreement with Infiniti Retail, it is mentioned..(on page 53 of the Submission) "In event of any termination, Onsite will be borne the liability of any expenses for the coverage taken upto the warranty period. Onsite will provide services to those customers and also bear Amount from customer...... during the tenure of extended warranty period. "
vi. Here the Company means the assessee company. So as per the terms and conditions mentioned in the Agreement if the agreement terminates at any date, the Onsite Electro Services Pvt. Ltd will provide the services to the End Customers for the Extended Warranty Period for which IRL collected revenue from its customers and paid to the assessee in full after deducting agreed commission in every month.14 ITA No. 5262/Mum/2025
vii. Hence the assumption/claim/conclusion made by the Ld. AO is grossly erroneous, wrong, incorrect & baseless without considering the actual facts/evidence/submissions made by the appellant.
2. Incorrect Observation on TDS Claimed: The AO has blatantly made this statement without even undertaking a basic verification of the ITR and related documents filed. It is evident that the assessee has claimed TDS only to the extent of income recognized during the year, while the remaining TDS has been rightfully carried forward, as clearly reflected in the ITR for AY 2023-24.
3. Incorrect Observation on Deferred Revenue Taxation: The order states that 184,18,65,578 shown under "Other Current Liabilities" was not offered to tax in AY 2024-25. However, this amount has been duly offered to tax in AY 2024-25, as is evident from the audited financials of FY 2023-24 and ITR for AY 2024-25.
4. Mismatch in Expense Recognition vs. Revenue: The AO observed that expenses were claimed without matching revenue, thus violating the matching principle. However, this is incorrect. The assessee provided complete expense-wise details during assessment, and no specific instance was identified by the AO where an expense should have been deferred. Hence, this remark is factually incorrect and prejudicial.
p. The addition was made despite detailed submissions, reconciliations, and explanation during video conferencing on 03.03.2025 and prior written replies (e.g., 06.08.2024, 26.02.2025).
q. Since receipt was relatable to a particular period in future, it would fructify and mature into income during that period and not earlier. The system of revenue followed by the appellant has been found well-reasoned scientific and in conformity with the accounting standard and is consistent too.
r. The appellant places its reliance on the following case laws:-
Citation Decision Rakesh Agarwal, New Delhi vs. It was held that the remuneration received Department Of Income Tax for extended warranty period cannot be I.T.A. No. 2989/DEL/2008 considered as income for the year under Asst Yr 2004-05 consideration. Assessee would legally claim the amount only after the rendering the services. Since receipt was relatable to a particular period in future, it would fructify and mature into income during that period and not earlier. We further find that assessee has been following this principle of recognizing revenue in the past also. This has not been disputed by the Revenue. In these circumstances, when the assessee has been following AS-9 and AS-29 and has been following consistent system of 15 ITA No. 5262/Mum/2025 accounting, we agree with the CIT(A) that there is no need to interfere with the assessee's method of accounting.
Furthur........the impugned amount has been offered by the assessee for taxation in the subsequent years. Hence, it is not a case that income is escaping assessment.
s. Similarly the assessee also relies on the case law of M/s Sun Direct TV Pvt. Ltd. Vs ACIT ITA Nos.2162-2165/Chny/2018, whereas it was head that "The cardinal principal of taxing the income under mercantile basis of accounting is that the income should have accrued to the assessee. Mere advances could not be brought to tax. The amount lying in 'deferred income account', in assessee's case, is nothing but advances received for rendering services in future period. Unless these receipts are held to be taxable under the statute, the same could not be brought to tax since only those incomes could be taxed which has accrued to the assessee during the year. In assessee's case, these are unearned revenue and mere advances. The income would accrue to the assessee in future. To clothed the same as the income of the assessee during this year, is bereft of any merits"
t. Hence it can be seen that the addition of Rs. 184.19 Crores has resulted in a highly exaggerated and arbitrary assessment and does not reflect the correct income of the Appellant as per accounting standards or tax law. u. We would also like to request your good self to correct the addition made in the assessment order along with canceling/rejecting the penalty proceedings levied/initiated if any for furnishing inaccurate particulars of income/concealment of income as the same stands to be null & void."
7. It was further submitted that similar additions were made in earlier years on the same issue which have been fully adjudicated and deleted in favour of the assessee by the ld CIT(A) in AY 2017-18 and AY 2018-19. It was submitted that in A.Y 2018-19, the AO in the remand proceedings has himself accepted that there is no basis in taxing the deferred revenue receipts. It was further submitted that in A.Y 2022-23, the AO while completing the assessment u/s 143(3) has not proposed and made any adjustment on account of deferred revenue receipts and thus has accepted the method of accounting so followed by the assessee. It was accordingly submitted that even on principle of consistency, the assessee seeks 16 ITA No. 5262/Mum/2025 necessary relief and the order of the ld CIT(A) be confirmed and the appeal of the Revenue be dismissed.
8. We have heard the rival contentions and perused the material available on record. The assessee-company is engaged in the business of providing after sales services termed as 'extended warranty' for digital products and home appliances to its customers. As per the audited financial statements for the year ended 31-03-2023, the financial statements are prepared in accordance with the generally accepted accounting principles under the historical cost convention on accrual basis of accounting which includes mandatory accounting standards as specified u/s. 133 of the Companies Act. As part of significant accounting policies, regarding revenue recognition, it has been provided that revenue is derived from providing after sales and service customers post expiry of manufacturers' warranty for digital products and home appliances and spot damage protection for digital provision which is typically contracted for specified period of time. It has been further provided that revenue is recognized on a straight line basis over the period of contract with the customers. The revenue associated with the spot damage protection is recognized over a period of 12 months from date of sale of product. The unbilled revenue represents revenues recognized in excess of billing as at the Balance Sheet date which is presented as a part of trade receivables. Further, the deferred revenue represents the billing in excess of revenue recognized as at the Balance Sheet date. It is this latter part of revenue recognition revenue policy whereby the revenue is deferred to the subsequent period and not recognized for the year when the same is billed and collected from the customers which is subject matter of dispute before us.
17 ITA No. 5262/Mum/20259. During the course of hearing, the Ld.AR submitted that the assessee is in the business of providing extended warranty services, which imply that the buyer of the warranty has security of being provided warranty and repair services for a particular period of time, which may run over the period of time. It was submitted that the extended warranty begins after expiry of original equipment manufacturer's warranty and ranges from 1 to 4 years depending on the electronic product. It was submitted that the assessee receives the entire consideration for extended warranty at the time of sale in advance, however, the revenue in connection with this extended warranty is recognized and offered to income tax proportionately over the period of the service contract (ie., usually 1 to 4 years), which spreads beyond the financial year in which such warranty is sold. It was further submitted that the assessee adopted deferred revenue system under the mercantile system of accounting which is in accordance with ICDS and accounting standards whereby the revenue is recognized and offered to tax proportionately over the period of service contract which spread over the period of service contract beyond the financial year in which such warranty services are sold and advance revenue receipt is reflected as part of deferred revenues in the Balance Sheet. In this regard our reference was drawn to the following table:
Particulars AY 2022-23 AY 2023-24 AY 2024-25 Receipts on which TDS is 1,52,11,11,418 2,25,25,80,396 1,99,48,98,986 deducted as per 26AS (A) Receipts on which TDS is 58,43,38,260 17,29,22,072 52,03,04,418 not deducted (B) Gross Collection (A+B) 2,10,54,49,678 2,42,55,02,468 2,51,52,03,404
Less: Deferred to future (1,71,00,98,304) (2,10,50,56,909) (2,12,79,99,651) years Balance:- Offered for tax 39,53,51,374 32,04,45,559 38,72,03,753 in CY i.e. AY 23-24 Gross Total Income as AY 2022-23 AY 2023-24 AY 2024-25 per P & L A/c 18 ITA No. 5262/Mum/2025 Income from Receipts of 39,53,51,374 32,04,45,559/- 38,72,03,753 current year Receipts of previous years 1,13,34,22,777 1,34,52,11,964/- 1,84,18,65,578 recognized in current year FD Interest (Income from 13,59,18,898 13,90,34,678/- 16,00,29,425 Other Sources) Total Income 1,66,46,93,049 1,80,46,92,201/- 2,38,90,98,756 Liabilities Breakup of AY 2022-23 AY 2023-24 AY 2024-25 Deferred Revenue Opening balance as on 2,05,09,55,050 2,62,76,30,577 3,38,74,75,522 1st April 2022 Less: Deferred Income of (1,13,34,22,777) (1,34,52,11,964) (1,84,18,65,578) LY offered for Tax in CY Add: Deferred Income of 1,71,00,98,304 2,10,50,56,909 2,12,79,99,651 CY carried forward Closing balance as on 31 2,62,76,30,577 3,38,74,75,522 3,67,36,09,595 March 2023 Bifurcated between Other Current Liability 1,34,52,11,964 1,84,18,65,578 2,11,02,43,323 Other Non-Current 1,28,24,18,613 1,54,56,09,944 1,56,33,66,271 Liabilities
10. On perusal of the table, it is noted that during the year under consideration, there are gross collections to the tune of Rs. 2,42,55,02,468/- out of which Rs. 2,10,50,56,909/- has been deferred to future years and the remaining amount of Rs. 32,04,45,559/- has been offered to tax as part of current year's Profit & Loss Account. Further, it is noted that the receipts of previous years which were shown as part of "other current liability" as at the beginning of the financial year amounting to Rs. 1,34,52,11,964/- has been offered to tax during the year under consideration. Further, it is noted that at the beginning of the financial year, there were deferred revenue receipts of Rs. 2,62,76,30,577/-, out of which Rs. 1,34,52,11,964/- has been offered to tax during the current financial year and an amount of Rs. 2,10,50,56,909/- has been added from the current year's collection and taking the same into consideration, the closing balance of deferred revenue receipts comes to Rs.
19 ITA No. 5262/Mum/20253,38,74,75,522/-. Out of which, an amount of Rs. 1,84,18,65,578/- has been shown under the head "other current liabilities" and the remaining amount of Rs. 1,54,56,09,944/- has been shown under the head "other non-current liabilities". The said classification is guided by the period when the said receipts would be recognized as revenue in the near future i.e, depending upon the period less than one year and beyond one year. It is further noted that the amount of Rs. 1,84,18,65,578/- has been offered to tax as part of next year's revenues amounting to Rs. 2,38,90,98,756/-.
11. We, therefore, find that the assessee has been following the said method of accounting consistently over the years where part of the revenues are offered to tax in the year of collection and remaining part of revenues are reflected as part of deferred revenues and offered to tax in the subsequent financial years. For AY. 2022-23, we find that the AO has accepted the method of accounting so followed by the assessee and no adverse finding has been recorded while completing the scrutiny assessment proceedings u/s 143(3) and so is the case in the earlier two AYs. 2017-18 and 2018-19, wherein the matter was specifically examined during the scrutiny assessment proceedings u/s 143(3) and the matter thereafter was carried in appeal before the Ld.CIT(A) who has upheld the method of accounting and revenue recognition so followed by the assessee. Nothing has been brought to our notice in terms of challenging the findings of the Ld.CIT(A) in these two years. Further, nothing has been brought to our notice and it is not even the case of the Revenue that there is a change in accounting policy so followed by the assessee over the last years and, therefore, where there is no change in the method of accounting, so followed by the assessee consistently over the years unless and until there is any fundamental distinction which has been pointed out by the Revenue and which adversely effects the true and fair reflection of 20 ITA No. 5262/Mum/2025 the financial results, we do not find any justifiable basis to question the accounting policy so followed by the assessee.
12. Further, our reference was drawn to the Accounting Standard (AS) 9 relating to Revenue Recognition and the relevant clauses therein read as under:
"7. Rendering of Services 7.1 Revenue from service transactions is usually recognised as the service is performed, either by the proportionate completion method or by the completed service contract method.
(i) Proportionate completion method-Performance consists of the execution of more than one act. Revenue is recognised proportionately by reference to the performance of each act. The revenue recognised under this method would be determined on the basis of contract value, associated costs, number of acts or other suitable basis. For practical purposes, when services are provided by an indeterminate number of acts over a specific period of time, revenue is recognised on a straight line basis over the specific period unless there is evidence that some other method better represents the pattern of performance.
(ii) Completed service contract method-Performance consists of the execution of a single act. Alternatively, services are performed in more than a single act, and the services yet to be performed are so significant in relation to the transaction taken as a whole that performance cannot be deemed to have been completed until the execution of those acts. The completed service contract method is relevant to these patterns of performance and accordingly revenue is recognised when the sole or final act takes place and the service becomes chargeable.
9. Effect of Uncertainties on Revenue Recognition 9.1 Recognition of revenue requires that revenue is measurable and that at the time of sale or the rendering of the service it would not be unreasonable to expect ultimate collection.
9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognise revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is 21 ITA No. 5262/Mum/2025 recognised at the time of sale or rendering of service even though payments are made by instalments.
9.3 When the uncertainty relating to collectability arises subsequent to the time of sale or the rendering of the service, it is more appropriate to make a separate provision to reflect the uncertainty rather than to adjust the amount of revenue originally recorded.
9.4 An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use by others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed.
9.5 When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognised.
10. Revenue from sales or service transactions should be recognised when the requirements as to performance set out in paragraphs 11 and 12 are satisfied, provided that at the time of performance it is not unreasonable to expect ultimate collection. If at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed. Explanation:
The amount of revenue from sales transactions (turnover) should be disclosed in the following manner on the face of the statement of profit or loss:
Turnover (Gross) XX
Less: Excise Duty XX
Turnover (Net) XX
The amount of excise duty to be deducted from the turnover should be the total excise duty for the year except the excise duty related to the difference between the closing stock and opening stock. The excise duty related to the difference between the closing stock and opening stock should be recognised separately in the statement of profit or loss, with an explanatory note in the notes to accounts to explain the nature of the two amounts of excise duty.
12. In a transaction involving the rendering of services, performance should be measured either under the completed 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 seats regarding the amount of the consideration that will be derived from rendering the service."
13. Further, our reference was drawn to "Income Computation disclosure standard IV relating to revenue recognition" and relevant clauses dealing with rendering of services read as under:22 ITA No. 5262/Mum/2025
"6. Subject to Para 7, revenue from service transactions shall be recognised by the percentage completion method. Under this method, revenue from service transactions is matched with the service transaction costs incurred in reaching the stage of completion, resulting in the determination of revenue, expenses and profit which can be attributed to the proportion of work completed. Income Computation and Disclosure Standard on construction contract also requires the recognition of revenue on this basis. The requirements of that Standard shall mutatis mutandis apply to the recognition of revenue and the associated expenses for a service transaction. However, when services are provided by an indeterminate number of acts over a specific period of time, revenue may be recognised on a straight line basis over the specific period.
7. Revenue from service contracts with duration of not more than ninety days may be recognised when the rendering of services under that contract is completed or substantially completed."
14. On reading thereof, it is noted that it provides that revenue from service transactions should be recognized when the requirement as to the performance are satisfied provided that at the time of performance, it is not unreasonable to expect ultimate collection. If any time of raising any claim, it is unreasonable to expect ultimate collection, revenue recognition should be postponed. It further provides that transaction involving rendering of services, performance should be measured either under the completed service method or proportionate completion method. In the instant case, the assessee has followed the proportionate completion method, where the services are provided by an indeterminate number of acts over a period of specified period of time and the revenue is recognized on a straight line basis over the specified period of contract. No adverse finding has been recorded by the Assessing officer in terms of the performance of warranty services over the period of warranty contract which span beyond the end of the financial year. The AO's observation are primarily focused on the uncertainty in terms of collection of revenues. It is not in dispute that the assessee has collected the revenues in advance and there is thus no uncertainty in terms of collection of revenues. However, the real question is in terms of rendering of services which spread over the period of contract well beyond the end of the financial year 23 ITA No. 5262/Mum/2025 which the AO has failed to appreciate and has brought to tax the deferred revenue receipts to tax in the hands of the assessee for the impugned assessment year. We find that the Ld.CIT(A) has rightly held that the liability of the assessee to provide specific service does not get terminated merely in the year in which the proceeds of extended warranty sales are received, rather its liability shall be exhausted only when the tenure of extended warranty terminates. Until then, even if it has received the money, the right to receive the money does not arise for the unexpired period of warranty. In light of the same, where the assessee has accounted for receipts for the unexpired warranty period as part of the deferred revenue receipts, we find that the accounting policy of revenue recognition is in consonance with the AS9 and ICDS standard and no adverse view can be taken in this regard.
15. In light of the aforesaid discussions and considering the entirety of facts and circumstances of the case, we upheld the order of the ld CIT(A) and the grounds of appeal so taken by the Revenue are dismissed.
16. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 11-05-2026
Sd/- Sd/-
[SANDEEP SINGH KARHAIL] [VIKRAM SINGH YADAV]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 11-05-2026
TNMM
Copy to :
1) The Appellant
2) The Respondent
3) The CIT concerned
4) The D.R, ITAT, Mumbai
5) Guard file
24
ITA No. 5262/Mum/2025
By Order
Dy./Asst. Registrar
I.T.A.T, Mumbai