Revenue has raised the following question  before the High Court

”Whether on the facts and in the circumstances of the case the Tribunal erred in holding that the amount received on sale of prepaid cards to the extent of unutilized talk time did not accrue as income in the year of sale?“

Dismissing the appeal of the revenue the Court held that; the appropriation of prepaid amount was contingent upon the respondent-assessee performing its obligation and rendering services to the prepaid customers as per the terms. If the respondent-assessee had failed to perform the services as promised, it would be liable and under an obligation to refund the advance payment received under the ordinary law of contract or special enactments, like the Consumer Protection Act. The aforesaid legal position would meet the argument of the Revenue that the prepaid amount received was not liable to be refunded or repaid, whether or not any services were rendered. In J.K. Industries Ltd. and Anr.v. UOI [2008] 297 ITR 176 (SC) and CIT v. Woodward Governor India P. Ltd. [2009] 312 ITR 254 (SC), the Supreme Court has emphasized that the accounting standards as framed and followed by the auditors should be respected, for they provide harmonization of concepts and accounting principles and ensure discipline. Accounting methods followed continuously by the assessee for given period of time would ensure revenue neutrality and reflect true and correct income or profits.
Counsel for the Revenue has submitted that in some cases the prepaid cards would have lapsed and the subscribers may not have utilized or availed of services/talk time. Unutilized amount when the prepaid card lapses has to be treated as income or receipt of the respondent-assessee on the date when the card had lapsed. The respondent-assessee has accepted this position. Assessing Officer would be accordingly entitled to examine this aspect when passing the appeal effect order.Looked at from all angles, we do not find any reason or good ground to interfere with the order passed by the Tribunal. The substantial question of law is accordingly answered in favour of the respondent-assessee and against the Revenue. The appeals are disposed of. We would clarify that the Assessing Officer while passing the appeal effect order, would ensure that the unutilized talk time has been accounted for and included in the receipt of the year in which the amount had lapsed and was forgone. [ITA No. 70/2013 dt. 15.11.2018) ( AY.  2003-04, 2004 -05,2009-10)]