ACIT 6(3), MUMBAI v. MAERSK GLOBAL SERVICE CENTER (I) P LTD, MUMBAI

ITA 3774/MUM/2011 | 2005-2006
Pronouncement Date: 09-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 377419914 RSA 2011
Assessee PAN AADCM7786M
Bench Mumbai
Appeal Number ITA 3774/MUM/2011
Duration Of Justice 6 month(s)
Appellant ACIT 6(3), MUMBAI
Respondent MAERSK GLOBAL SERVICE CENTER (I) P LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-11-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted L
Tribunal Order Date 09-11-2011
Date Of Final Hearing 02-11-2011
Next Hearing Date 02-11-2011
Assessment Year 2005-2006
Appeal Filed On 09-05-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L MUMBAI BEFORE SHRI R.S.SYAL AM AND SHRI N.V.VASUDEVAN JM ITA NO.3774/MUM/2011 : ASST.YEAR 2005-2006 THE ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE 6(3) MUMBAI. M/S.MAERSK GLOBAL SERVICE CENTER (INDIA) P. LTD. (FORMERLY KNOWN AS M.S.MAERSK INFOTECH SERVICES INDIA P.LTD.) LEVEL 4 TH & 5 TH FLOOR PRUDENTIAL BUILDING HIRANANDANI BUSINESS PARK POWAI MUMBAI 400 076. PAN :AADCM7786M. (APPELLANT) VS. (RESPONDENT) CO NO.111/MUM/2011 : ASST.YEAR 2005-2006 M/S.MAERSK GLOBAL SERVICE CENTER (INDIA) P. LTD. (FORMERLY KNOWN AS M.S.MAERSK INFOTECH SERVICES INDIA P.LTD.) MUMBAI 400 076. THE ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE 6(3) MUMBAI. (CROSS OBJECTOR) VS. (RESPONDENT) REVENUE BY : SMT.MALATHI SRIDHARAN & SHRI JITENDRA YADAV ASSESSEE BY : SHRI SUNIL LALA MS.SHAILVI SINGHAL & SHRI BIPIN DODHIA DATE OF HEARING : 04.11.2011 DATE OF PRONOUNCEMENT :09.11.2011 O R D E R PER R.S.SYAL AM : THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE ARISE OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 25.02.2011 IN RELATION TO THE ASSESSMENT YEAR 2005-2006. 2. FIRST GROUND OF THE ASSESSEES CROSS OBJECTION I S AGAINST UPHOLDING THE VALIDITY OF THE REASSESSMENT PROCEEDINGS INITIATED U/S 148 OF THE ACT AND THE CONSEQUENT ORDER PASSED U/S 147. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN ON 31.10.2005 DECLARING L OSS OF RS.4 72 81 969. THE RETURN WAS PROCESSED U/S 143(1). THEREAFTER ON THE PERUSA L OF THE RECORDS IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD DEBI TED AN AMOUNT OF RS.17 26 280 AS STAMP DUTY AND FILING FEE OUT OF WHICH RS.15 26 500 WAS CAPITAL EXPENDITURE. IT ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 2 WAS ALSO NOTICED THAT THE ASSESSEE WRONGLY CLAIMED THIS DEDUCTION DESPITE THE FACT THAT AUDITORS OF THE ASSESSEE HAD ALSO CLASSIFIED S UCH AMOUNT AS CAPITAL EXPENDITURE IN THE TAX AUDIT REPORT. AS THE INCOME CHARGEABLE T O TAX ON THIS ISSUE ESCAPED ASSESSMENT THE A.O. ISSUED NOTICE DATED 22.01.2007 U/S 148 OF THE ACT. THE ASSESSEE SUBMITTED THAT THE RETURN ORIGINALLY FILED MAY BE TAKEN AS IN RESPONSE TO SUCH NOTICE. THE ASSESSEE REQUESTED FOR THE SUPPLY OF COPY OF REASONS WHICH THE AO COMMUNICATED. THEREAFTER THE ASSESSEE CHALLENG ED THE INITIATION OF REASSESSMENT PROCEEDINGS BEFORE THE A.O. RELYING ON CERTAIN DECISIONS SET OUT ON PAGE 2 OF THE ASSESSMENT ORDER THE ASSESSING OFFIC ER REJECTED SUCH CONTENTION AGAINST THE INITIATION OF REASSESSMENT PROCEEDINGS. 3. IT WAS ARGUED BEFORE THE LEARNED CIT(A) THAT THE DECISION TO TREAT STAMP DUTY EXPENSES AS REVENUE WAS BASED ON CERTAIN JUDGMENTS INCLUDING THAT OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. CINCEITA (P) LTD. [(1982) 137 ITR 652 (BOM.)]. THE LEARNED CIT(A) NOTICED THAT THE SCOPE OF SECTI ON 147 HAS BEEN WIDENED WITH EFFECT FROM 01.04.1989. AS THE ORIGINA L RETURN WAS SIMPLY PROCESSED U/S 143(1)(A) AND NO ASSESSMENT WAS MADE THE LEARN ED CIT(A) HELD THAT THE INITIATION OF PROCEEDINGS BY THE ASSESSING OFFICER WAS AS PER THE MANDATE OF THE PROVISIONS OF THE ACT HENCE VALID. THE ASSESSEE IS NOW AGGRIEVED AGAINST THE DECISION OF THE LD. CIT(A) ON THIS ISSUE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. A COPY OF THE REASONS FOR REOPENING THE ASS ESSMENT ARE AVAILABLE ON PAGE 2 OF THE PAPER BOOK WHICH ARE AS UNDER:- THE ASSESSEE FILED THE RETURN OF INCOME DECLARING THE LOSS OF RS.4 72 81 969/- ON 30.10.2005. THE RETURN WAS PROC ESSED U/S.143(1) ON 16.1.2006. THE ASSESSEE DEBITED THE STAMP DUTY AND FILING FEE S OF RS.17 26 280/- OUT OF WHICH RS.15 26 500/- WAS CAPITAL EXPENDITURE . THE ABOVE FACT HAS BEEN CONFIRMED BY THE AUDITORS ALSO IN THEIR AU DIT REPORT. ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 3 HOWEVER THE SAME IS NOT DISALLOWED BY THE ASSESSEE IN THE COMPUTATION OF INCOME. IN VIEW OF THE ABOVE I HAVE REASON TO BELIEVE THA T THE INCOME OF RS.15 26 500/- BEING THE CAPITAL EXPENDITURE HAS E SCAPED ASSESSMENT. ISSUE NOTICE U/S 148. 5. FROM THE ABOVE REASONS IT IS PALPABLE THAT REASS ESSMENT WAS INITIATED IN RESPECT OF A SUM OF RS.15 26 500 BEING THE STAMP DUTY CHARGES FOR THE REGISTRATION OF LEASE DEED WHICH IN THE OPINION OF THE ASSESSING OFFICER WHICH WAS NOT DEDUCTIBLE AS REVENUE EXPENDITURE. AT THIS JUNCTURE IT WOULD BE RELEVANT TO NOTE THAT THE ASSESSEE COMMENCED ITS BUSINESS IN THE IMMEDIAT ELY PRECEDING YEAR. IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE ENTERED INTO LEASE AGREEMENT WITH M/S. LAKEVIEW DEV ELOPERS FOR ACQUIRING CERTAIN PREMISES AT HIRANANDANI BUSINESS PARK POWAI WITH E FFECT FROM 01.01.2004. THE SAID LEASE WAS INITIALLY FOR A PERIOD OF 27 MONTHS RENEWABLE TWICE FOR A PERIOD OF 3 YEARS EACH. MONTHLY LEASE RENT OF RS.11.56 LAKH WAS SETTLED VIDE THIS AGREEMENT. FOR THE PURPOSES OF REGISTRATION OF THIS LEASE AGRE EMENT THE ASSESSEE INCURRED EXPENDITURE ON STAMP DUTY AMOUNTING TO RS.15 26 500 AND CLAIMED IT AS A REVENUE EXPENDITURE WHICH WAS HELD BY THE ASSESSING OFFIC ER TO BE OF CAPITAL NATURE. IT IS ON THIS BASIS THAT THE ASSESSING OFFICER INITIATED THE REASSESSMENT PROCEEDINGS. 6. THE LD. AR RELIED ON THE CASE OF CINCEITA (P) LTD. (SUPRA) TO CONTEND THAT THE EXPENDITURE ON REGISTRATION FEE SOLICITOR FEE AND STAMP DUTY INCURRED IN CONNECTION WITH THE REGISTRATION OF LEASE DEED WAS REVENUE EXP ENDITURE. IN THAT CASE THE PERIOD OF LEASE WAS FOR TWENTY YEARS AND THERE WAS OPTION FOR RENEWAL OF LEASE AS WELL. THAT ASSESSEE INCURRED STAMP DUTY AND OTHER CHARGES IN CONNECTION WITH THE REGISTRATION OF LEASE DEED WHICH WERE HELD BY THE A SSESSING OFFICER TO BE CAPITAL EXPENDITURE. THE HONBLE JURISDICTIONAL HIGH COURT HELD SUCH EXPENDITURE TO BE REVENUE IN NATURE DEDUCTIBLE U/S 37(1) OF THE ACT. IN REACHING THIS CONCLUSION THE HONBLE JURISDICTIONAL HIGH COURT RELIED ON ITS EAR LIER JUDGMENT IN THE CASE OF CIT ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 4 VS. HOECHST PHARMACEUTICALS LTD. [(1978) 113 ITR 87 7 (BOM.)] IN WHICH CASE BROKERAGE AND STAMP DUTY EXPENDITURE INCURRED FOR O BTAINING A LEASE OF OFFICE PREMISES FOR A SHORT DURATION OF FIVE YEARS WAS HEL D TO BE DEDUCTIBLE AS REVENUE EXPENDITURE U/S 37(1). IN RICHARDSON HINDUSTAN LTD. VS. CIT [(1988) 169 ITR 5 16 (BOM.)] THE HONBLE JURISDICTIONAL HIGH COURT RELYING ON ITS EARLIER JUDGMENT IN THE CASE OF CINCEITA (P) LTD. (SUPRA) HELD STAMP DUTY PAID ON EXECUTION OF LEASE DEED AS REVENUE EXPENDITURE IN RESPECT OF PREMISES TAKEN ON LEASE BY THAT ASSESSEE FOR ITS BUSINESS PURPOSE. 7. IN CONTRAST TO THAT THE ASSESSING OFFICER HAS RE LIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF GOBIND SUGAR MILLS LTD. VS. CIT [(1998) 232 ITR 319 (SC)] FOR CANVASSING THE VIEW THAT THE STAMP DUTY EXPEND ITURE WAS LIABLE TO BE CAPITALIZED. IN THAT CASE THE ASSESSEE CARRYING A BUSINESS OF RUNNING OF SUGAR MILL OBTAINED ON LEASE ANOTHER SUGAR FACTORY IN CONSIDERATION OF ANNUAL RENT. FOR THE EXECUTION OF THE SAID DEED THE ASSESSEE I NCURRED SOME EXPENSES ON ACCOUNT OF STAMP FEE REGISTRATION CHARGES ETC. WHI CH WERE CLAIMED AS REVENUE EXPENDITURE. THE ITO REJECTED SUCH CLAIM ON THE GRO UND THAT THE SAME HAD BEEN INCURRED FOR ACQUIRING THE RIGHT TO RUN A FACTORY O N LEASE AND HENCE IT WAS CAPITAL EXPENDITURE. EVENTUALLY THE HONBLE SUPREME COURT UPHELD THE VIEW OF THE HONBLE CALCUTTA HIGH COURT IN GOBIND SUGAR MILLS LTD. VS. CIT [(1979) 117 ITR 747 (CAL)] BY TREATING SUCH EXPENDITURE AS CAPITAL IN NATURE. 8. IT IS INTERESTING TO NOTE THAT THE HONBLE CALCU TTA HIGH COURT IN GOBIND SUGAR MILLS LTD. (SUPRA) IN DECIDING THE ISSUE AGAINST THE ASSESSEE ALSO TO OK NOTE OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HOECHST PHARMACEUTICALS LTD. (SUPRA) WHICH HAS BEEN RELIED BY THE LD. AR IN SUPPORT OF ITS CASE ALONG WITH TWO OTHER JUDGMENTS TAKING THE SIMILAR VIEW. IN PARA 6 OF GOBIND SUGAR MILLS LTD. (SUPRA) THE HONBLE CALCUTTA HIGH COURT HAS DISCUSSED THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN HOECHST PHARMACEUTICALS LTD. (SUPRA) AND HELD THAT IT OVERLOOKED CERTAIN RELEVANT A SPECTS IN DECIDING THE ISSUE ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 5 IN FAVOUR OF THE ASSESSEE. IN OTHER WORDS THE HON BLE CALCUTTA HIGH COURT DID NOT CONCUR WITH THE VIEW TAKEN BY THE HONBLE BOMBAY HI GH COURT IN HOECHST PHARMACEUTICALS LTD. (SUPRA) WHILE DECIDING THE ISSUE AGAINST THE ASSESSE CONTRARY TO THE VIEW OF THE HONBLE BOMBAY HIGH COU RT IN THE AFORENOTED CASE. THE VERY FACT THAT THIS JUDGMENT OF THE HONBLE CAL CUTTA HIGH COURT IN GOBIND SUGAR MILLS LTD. (SUPRA) HAS BEEN UPHELD BY THE HONBLE SUPREME COURT ON TH E BASIS OF WHICH THE ASSESSING OFFICER CANVASSED THE VIEW THAT THE EXPENDITURE ON STAMP DUTY AND REGISTRATION ETC. WAS NOT ALLOWABLE AMPLY PROVES THAT PRIMA FACIE THERE WAS A REASONABLE BASIS WITH THE ASSESSING OFF ICER TO ENTERTAIN A BELIEF ABOUT THE ESCAPEMENT OF INCOME ON THIS ISSUE. THE SITUATI ON WOULD HAVE BEEN DIFFERENT IF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN HOECHST PHARMACEUTICALS LTD. (SUPRA) HAD NOT BEEN ADVERSELY COMMENTED UPON BY THE HONBL E CALCUTTA HIGH COURT IN THE CASE OF GOBIND SUGAR MILLS LTD. (SUPRA) AND SUCH LATER JUDGMENT HAD NOT BEEN APPROVED BY THE HONBLE SUPREME COURT. IN THAT CASE THE HITHERTO CONSISTENT VIEW OF THE HONBLE JURISDICTIONAL HIGH COURT ON THE POINT WOULD HAVE PROHIBITED THE A.O. FROM BELIEVING THAT THE EXPENDI TURE WAS NOT DEDUCTIBLE AND THERE WAS NO ESCAPEMENT ON INCOME. THE FACT THAT HOECHST PHARMACEUTICALS LTD. (SUPRA) WAS NOT ACCEPTED BY THE CALCUTTA HIGH COURT IN GOBIND SUGAR MILLS LTD. (SUPRA) AND SUCH LATER JUDGMENT OF THE HONBLE CALCUTTA HI GH COURT HAS APPROVED BY THE HONBLE SUPREME COURT DID IN OUR CONSIDERED OPINION CONSTITUTE GOOD REASONS WITH THE ASSESSING OFFICER TO BELIEVE THAT THE ASSESSEE HAD WRONGLY CLAIMED DEDUCTION AND THERE WAS ESCAPEMENT OF INCOM E. 9. IT IS FURTHER RELEVANT TO NOTE THAT THE AS SESSEES AUDITOR AGAINST COLUMN 17 A. EXPENDITURE OF CAPITAL IN NATURE IN TAX AUDIT REPORT MENTIONED `STAMP DUTY OF RS.15 26 500. IT THEREFORE SHOWS THAT THE ASS ESSEES AUDITOR ALSO HELD SUCH EXPENDITURE TO BE CAPITAL IN NATURE. DESPITE THAT T HE ASSESSE CLAIMED DEDUCTION FOR SUCH AMOUNT. IN OUR CONSIDERED OPINION THE AO WAS FULLY JUSTIFIED TO ENTERTAIN A BELIEF THAT THE INCOME CHARGEABLE TO TAX IN THIS RE SPECT HAS ESCAPED ASSESSMENT. ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 6 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RIG HTLY ARGUED THAT THERE SHOULD BE SOME PRIMA FACIE MATERIAL TO REOPEN THE ASSESSMENT. SUFFICIENCY OF SUCH MATERIAL IS NOT RELEVANT AT THE TIME OF INITIATION OF REASSESSMENT. THE JUDGMENTS OF THE HONBLE SUPREME COURT IN THE CASE OF RAYMOND WOOLLEN MILLS LTD. VS. ITO & ORS. [(1999) 236 ITR 34 (SC)] AND PHOOL CHAND BAJRANG LAL & ANR VS. ITO & ANR. (1993) 203 ITR 456 (SC) ALONG WITH OTHER SEVERAL OTHER JUDGMENTS ON THE POINT ARE CLEAR AUTHORITIES FOR THE PROPOSITION THA T THERE SHOULD BE SOME PRIMA FACIE MATERIAL ON THE BASIS OF THE WHICH THE DEPARTMENT C AN REOPEN THE CASE. THE SUFFICIENCY OF SUCH MATERIAL IS NOT A FACTOR THAT S HOULD BE CONSIDERED AT THAT STAGE. THE AO IS NOT REQUIRED TO CONCLUSIVELY PROVE AT THE STAGE OF INITIATION OF REASSESSMENT PROCEEDINGS THAT THE EXPENDITURE IS NO T DEDUCTIBLE OR SOME INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. AT THE JU NCTURE OF INITIATION OF REASSESSMENT PROCEEDINGS THE PRIMA FACIE BELIEF OF THE AO ABOUT THE ESCAPEMENT OF INCOME SUFFICES THE CONDITION OF `REASON TO BELI EVE THAT SOME INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. 11. OUR ABOVE OBSERVATIONS SHOULD NOT BE CONSTRUED OR UNDERSTOOD IN A LOOSE MANNER AS EMPOWERING THE AO TO INITIATE THE REASSES SMENT PROCEEDINGS AT THE DROP OF A HAT. WHAT IS RELEVANT IN THIS CONTEXT IS THAT THERE SHOULD BE SOME VALID FOUNDATION IN FORMING A BELIEF THAT THERE IS AN ESC APEMENT OF INCOME ALBEIT IT IS NOT NECESSARY THAT THE AO SHOULD HAVE CONCLUSIVE PR OOF OF ESCAPEMENT OF INCOME AT THE STAGE OF THE ISSUANCE OF NOTICE FOR REASSESS MENT. THE REASONS WITH THE AO SHOULD BE MORE THAN MERE SUSPICION BUT NEED NOT BE CONCLUSIVE AS TO THE ESCAPEMENT OF INCOME. IN OTHER WORDS AT THE STAGE OF INITIATION OF REASSESSMENT THERE SHOULD BE SOME GENUINE BELIEF TO EMBARK UPON THE INQUIRY AS TO THE ESCAPEMENT OF INCOME SO AS TO GIVE A LOGICAL CONCLU SION ABOUT THE ESCAPEMENT IN THE PROCEEDINGS TO FOLLOW. JUST INITIATING REASSESS MENT WITHOUT ANY COGENT REASON OR MATERIAL IS NOT PERMISSIBLE. ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 7 12. AS IN THE INSTANT CASE THE AO HAD THE ADVERSE REPORT OF THE ASSESSEES AUDITOR ON THE ONE HAND AND THE CERTAIN JUDGMENTS INCLUDING THAT OF THE HONBLE SUPREME COURT IN GOBIND SUGAR MILLS LTD. (SUPRA) ON THE OTHER AGAINST THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE IN ITS RETURN OF INC OME IN OUR CONSIDERED OPINION SUCH MATERIAL WAS DEFINITELY MORE THAN PRIMA FACIE AND SUFFICIENT ENOUGH FOR THE AO TO ENTERTAIN A BELIEF ABOUT THE ESCAPEMENT OF I NCOME. AS SUCH WE ARE NOT PERSUADED TO ACCEPT THIS CONTENTION ADVANCED ON BEH ALF OF THE ASSESSEE. 13. THE LEARNED COUNSEL FOR THE ASSESSEE ASSAILED T HE INITIATION OF REASSESSMENT PROCEEDINGS FROM ONE MORE ANGLE BY CONTENDING THAT THE AO RELIED ON THE AUDITORS REPORT AND CERTAIN DECISIONS FOR INITIATING THE REA SSESSMENT WHICH WERE ALREADY THERE ON RECORD. IT WAS PUT FORTH THAT IN THE ABSE NCE OF ANY FRESH OR NEW MATERIAL COMING IN THE POSSESSION OF THE AO CASTING DOUBT OV ER THE DEDUCTIBILITY OF REGISTRATION CHARGES FROM THE STAGE OF ASSESSMENT U /S 143(1) HE COULD NOT HAVE VALIDLY STARTED THE EXERCISE OF REASSESSMENT. IT WA S ARGUED THAT HAVING COMPLETED THE ASSESSMENT U/S. 143(1) THE AO MISSED THE BUS T O RECONSIDER THE DEDUCTIBILITY OF STAMP DUTY CHARGES. IT WAS ALSO STATED THAT IF THE AO IS ALLOWED TO RECONSIDER THE SAME MATERIAL TIME AND AGAIN WITHIN THE EXTENDED P ERIOD PROVIDED FOR THE REASSESSMENT THEN THE TIME LIMIT FOR MAKING REGULA R ASSESSMENT U/S 153(1) WOULD BECOME OTIOSE. IT WAS THUS PUT FORTH THAT THERE BE ING NO `NEW MATERIAL WITH THE AO AT THE TIME OF INITIATION OF REASSESSMENT PROCEE DINGS HE SHOULD NOT BE PERMITTED TO TAKE ACTION U/S 147. 14. WE FIND THE ABOVE CONTENTIONS SANS MERITS. IT I S IMPERATIVE TO NOTE AT THE THRESHOLD THAT IN THE INSTANT CASE NO REGULAR ASSES SMENT U/S 143(3) WAS EARLIER MADE BY THE AO. THE RETURN FILED WAS SIMPLY PROCESSED U/S 143(1). THUS THE ARGUMENT THAT THE AO FAILED TO CONSIDER THE NON-DEDUCTIBILIT Y OF SUCH EXPENDITURE AT THE TIME OF ORIGINAL ASSESSMENT IS DEVOID OF ANY MERIT. O NLY WHEN REGULAR ASSESSMENT IS MADE THAT THE AO GETS OPPORTUNITY OF APPLYING HIS M IND TO VARIOUS ASPECTS ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 8 CONCERNING THE ASSESSMENT. IT IS RELEVANT TO NOTE T HAT THE SCOPE OF SECTION 147 HAS BEEN AMPLIFIED WITH EFFECT FROM 01.04.1989. APART F ROM THE PRESCRIPTION OF MAIN SECTION 147 DEALING WITH ESCAPEMENT OF INCOME EXPLANATION 2 PROVIDES FOR THE DEEMED CASES OF ESCAPEMENT OF INCOME. THIS EXPLANAT ION HAS THREE CLAUSES (A) TO (C) DEALING WITH DISTINCT SITUATIONS OF ESCAPEMENT OF INCOME VIZ. WHERE NO RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE; WHER E RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEE N MADE; AND WHERE AN ASSESSMENT HAS BEEN MADE. THE INSTANT CASE SQUAREL Y FITS IN EXPLANATION 2(B) WHICH STATES THAT : ` WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED B Y THE ASSESSING OFFICER THAT THE ASSESSEE HAS UNDERSTATED THE INCOME OR HAS CLAIMED EXCESSIVE LOSS DEDUCTION ALLOWANCE OR RELIEF IN THE RETURN . FROM THE MANDATE OF THIS PROVISION IT IS AMPLY BORNE OUT THAT EVEN IF NO ASSESSMENT WAS ORIGINALL Y MADE BY THE ASSESSING OFFICER BUT SUBSEQUENTLY IT COMES TO HIS NOTICE THAT THE AS SESSEE HAS UNDERSTATED THE INCOME IT SHALL BE DEEMED TO BE A CASE OF INCOME E SCAPING ASSESSMENT. ACTION U/S 147 IN SUCH CIRCUMSTANCES WILL BE VALID SUBJECT TO THE FULFILLMENT OF OTHER REQUISITE CONDITIONS. 15. ADVERTING TO THE FACTS OF THE PRESENT CASE IT I S NOTICED THAT THE ASSESSEE FILED IT RETURN OF INCOME. NO ASSESSMENT WAS MADE. ONLY T HE RETURN WAS PROCESSED U/S 143(1). SUBSEQUENTLY WHEN THE ASSESSING OFFICER OBS ERVED THAT THE DEDUCTION CLAIMED BY THE ASSESSEE WAS NOT IN CONSONANCE WITH THE AUDIT REPORT AND THE LAW DECLARED BY THE HONBLE SUPREME COURT IN GOBIND SUGAR MILLS LTD. (SUPRA) HE ENTERTAINED A PRIMA FACIE BELIEF THAT THE INCOME CHARGEABLE TO TAX HAS ESCAP ED ASSESSMENT. WE ARE UNABLE TO READ THE COMING OF A ` NEW MATERIAL INTO EXISTENCE AFTER THE FILING OF RETURN AS A PRE-CONDITION FOR A SSESSMENT OR REASSESSMENT U/S 147 IN THE CONTEXT OF EXPLANATION 2(B). THE ONLY REQUIREMENT FOR ASSUMING JURISDICTION IN THE LIGHT OF EXPL. 2(B) IS THAT : ` IT IS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS UNDERSTATED THE INCOME ETC. SUCH NOTICING MAY BE FROM THE MATERIAL ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 9 ALREADY ON RECORD OR SOME NEW MATERIAL COMING IN HI S KNOWLEDGE. THE REQUIREMENT IS OF NOTICING UNDERSTATEMENT OF INCOME. SO LONG AS NOTICING OF UNDERSTATEMENT OF INCOME IS THERE THE SOURCE OF SUCH NOTICING AS EMA NATING FROM SOME `NEW MATERIAL OR AN EXISTING MATERIAL IS WHOLLY IRRELE VANT IN THE CONTEXT OF EXPL. 2(B). 16. WE FIND THAT THE CONTENTION OF THE LD. AR ABOUT THE COMING IN EXISTENCE OF `NEW MATERIAL AS A CONDITION PRECEDENT FOR REASSES SMENT IS NOT TOTALLY ALIEN TO REASSESSMENT. IT IS SETTLED LEGAL POSITION THAT THE REASSESSMENT IS NOT PERMISSIBLE ON A MERE CHANGE OF OPINION BY THE AO. IN SIMPLE WORDS IF THE AO AFTER EXAMINING THE RELEVANT FACTUAL AND LEGAL POSITION FORMS A BEL IEF THAT A PARTICULAR EXPENDITURE IS DEDUCTIBLE OR INCOME IS NOT TAXABLE THEN IT IS NOT PERMISSIBLE TO RECONSIDER THE SAME MATERIAL AND LEGAL POSITION FOR COMING TO A DI FFERENT CONCLUSION THAT THE ITEM OF EXPENDITURE WHICH HE EARLIER CONSIDERED AS DEDUC TIBLE IS NOT DEDUCTIBLE OR THE ITEM OF INCOME WHICH WAS EARLIER CONSIDERED AS EXEM PT IS TAXABLE. IF IN SUCH CIRCUMSTANCES HE ENTERTAINS A BELIEF THAT HIS EARLI ER VIEW WAS NOT CORRECT THEN IT WILL AMOUNT TO CHANGE OF OPINION WHICH IS STRICTLY PROHIBITED IN THE REALM OF REASSESSMENT AFTER MAKING THE ORIGINAL ASSESSMENT. 17. IT ALSO DOES NOT MEAN THAT THE HANDS OF THE A O ARE TIED TO MAKE A REASSESSMENT IN CASE HE HAS EARLIER MADE AN ASSESSMENT. IT IS IN THIS CONTEXT THAT IF AFTER THE CONCLUSION OF THE EARLIER ASSESSMENT SOME `NEW MA TERIAL COMES INTO EXISTENCE ON WHICH BASIS THE AO ENTERTAINS A BELIEF THAT THERE I S AN ESCAPEMENT OF INCOME HE CAN VALIDLY TAKE RECOURSE TO THE PROVISIONS OF REA SSESSMENT AFTER SATISFYING THE NECESSARY REQUIREMENTS. 18. FROM THE ABOVE DISCUSSION IT IS MANIFEST THAT THE REQUIREMENT OF `NEW MATERIAL COMING IN POSSESSION OF THE AO AS A PRE-R EQUISITE FOR THE REASSESSMENT IS APPLICABLE ONLY WHERE HE MADE AN ASSESSMENT EARLIER . IT WILL NOT BE APPLICABLE IF NO ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 10 ASSESSMENT WAS ORIGINALLY MADE AND THE AO IS NOW G OING TO PROCEED WITH ASSESSMENT U/S 147 FOR THE FIRST TIME. 19. IT IS PERTINENT TO NOTE THAT SECTION 147 DOE S NOT DEAL ONLY WITH THE CASES OF REASSESSMENT BUT ALSO WITH THE ASSESSMENT FOR THE F IRST TIME. IT CAN BE NOTICED FROM THE LANGUAGE OF SECTION 147 WHICH PROVIDES IN UNEQU IVOCAL TERMS THAT : ` IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY I NCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR HE MAY SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153 ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION . FURTHER CLAUSES (A) AND (B) OF EXPLANATION 2 TO SECTION 147 AS DISCUSSED ABOVE ENLIST THE CASES OF DEEMED ESCAPEMENT OF INCOME WHERE NO ASS ESSMENT WAS EARLIER MADE EITHER BECAUSE OF THE ASSESSEE NOT FILING THE RETUR N OR THE AO NOT MAKING ASSESSMENT DESPITE THE ASSESSEE FURNISHING THE RETU RN OF INCOME. SIMILAR POSITION IS EVIDENT FROM EXPLANATION 3 WHICH BEGINS WITH : `FOR THE PURPOSE OF ASSESSMENT OR REASSESSMENT UNDER THIS SECTION THE ASSESSING OFFICER MAY ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISSUE WHICH HAS ESCAPED A SSESSMENT AND SUCH ISSUE COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF T HE PROCEEDINGS UNDER THIS SECTION.. . IT THEREFORE CLEARLY TRANSPIRES THAT WHERE TH E ASSESSMENT WAS ORIGINALLY MADE AND THE AO WANTS TO MAKE REASSESSMENT UNDER SECTION 147 HE CANNOT DO SO IN THE ABSENCE OF `NEW MATERIAL COMIN G IN HIS POSSESSION AFTER THE MAKING OF THE ORIGINAL ASSESSMENT. IF HE VENTURES T O DO SO IT WILL AMOUNT TO CHANGE OF OPINION CONSTRAINING HIM TO PROCEED. BUT WHERE N O ASSESSMENT WAS EARLIER MADE AND THE AO WANTS TO MAKE ASSESSMENT U/S 147 FOR THE FIRST TIME THERE IS NO REQUIREMENT OF A NEW MATERIAL. THE ONLY REQUIREMENT IS THE EXISTENCE OF SOME MATERIAL ON THE BASIS OF WHICH THE AO FORMS BELIEF THAT SOME INCOME HAS ESCAPED ASSESSMENT. FURTHER AS THERE WAS NO ASSESSMENT AT A LL IN THE FIRST INSTANCE THE YARDSTICK FOR JUDGING THE NEW OR OLD MATERIAL WITH REFERENCE TO THE STARTING POINT FOR ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 11 DEFINING A MATERIAL AS NEW OR OLD WILL NEVER BE AV AILABLE. AS WE ARE CONFRONTED WITH A CASE IN WHICH NO ASSESSMENT WAS ORIGINALLY M ADE THE ARGUMENT TO ANNUL THE ASSESSMENT U/S 147 ON THE GROUND OF THERE BEING NO NEW MATERIAL AT THE TIME OF ISSUING NOTICE U/S 148 DESERVES AND IS HEREBY ASSI GNED THE FATE OF DISMISSAL. IF THE CONTENTION ADVANCED ON BEHALF OF THE ASSESSEE IN TH IS RESPECT IS ACCEPTED THAT IN THE ABSENCE OF ANY `NEW MATERIAL COMING IN THE POSSESS ION OF THE ASSESSING OFFICER HE CANNOT EMBARK UPON REASSESSMENT U/S 147 THEN IT WOULD REQUIRE RE-WRITING OF EXPLANATION 2(B) OF SECTION 147 WHICH ARGUMENT IS PATENTLY NOT SUS TAINABLE. 20. THE HONBLE SUPREME COURT IN ACIT VS. RAJESH JHAVERI STOCK BROKERS (P) LTD. [(2007) 291 ITR 500 (SC)] HAS HELD THAT U/S 147 AS SUBSTITUTED WITH EFFECT FROM 01.04.1989 IF THE A.O. FOR WHATEVER REASON HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT IT CONFERS JURISDICT ION TO REOPEN THE ASSESSMENT WHERE THE CASE IS NOT COVERED BY PROVISO TO SECTION 143. IN THIS CASE IT HAS BEEN HELD THAT INTIMATION U/S 143(1)(A) CANNOT BE TREATE D ASAN ORDER OF ASSESSMENT AND THERE BEING NO ASSESSMENT U/S 143(1)(A) THE QUESTI ON OF CHANGE OF OPINION DOES NOT ARISE. IN OUR CONSIDERED OPINION THE FACTUAL PANOR AMA PREVAILING IN THE PRESENT CASE IS ON ALL FOURS WITH THAT BEFORE THE HONBLE S UPREME COURT. IN THE LIGHT OF THE CLEAR CUT APPLICATION OF THE RATIO DECIDENDI OF THE JUDGMENT IN RAJESH JHAVERI STOCK BROKERS (P) LTD.(SUPRA) TO THE PRESENT CASE WE ARE OF THE CONSIDERED OPIN ION THAT THERE REMAINS NO DOUBT WHATSOEVER THAT THE A.O . WAS FULLY COMPETENT TO ISSUE NOTICE U/S 148 AND FRAME ASSESSMENT U/S 147. 21. THE SECOND LEG OF THE LD. ARS CONTENTION IN TH IS REGARD WAS ABOUT THE AO GAINING MORE TIME FOR ASSESSMENT IN THE GARB OF REA SSESSMENT. IT WAS ARGUED THAT IF THE AO IS ALLOWED TO TAKE ACTION U/S 147 FOR MAKIN G ASSESSMENT THEN THE TIME SHORTER TIME LIMIT AVAILABLE FOR ASSESSMENT WILL B ECOME MEANINGLESS. WE RIGHTLY SHARE THE CONCERN EXPRESSED BY THE LEARNED A.R. THA T THE ASSESSING OFFICER SHOULD NOT BE ALLOWED TO RESORT TO THE PROVISIONS OF SECTI ON 147 THEREBY USURPING MORE ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 12 TIME THAN THAT PERMISSIBLE FOR MAKING REGULAR ASSES SMENT U/S 143(3). THIS ARGUMENT THOUGH ATTRACTIVE ON DEEP SCRUTINY TURN S OUT TO DEVOID OF LEGAL SANCTITY IN THE PRESENT CONTEXT. 22. IT WILL BE RELEVANT TO NOTE THAT THE FOUNDAT ION FOR ASSESSMENT HAS BEEN SET OUT U/S 143(3) THE RELEVANT PART OF WHICH READS AS UND ER :- (I) PROVIDED THAT NO NOTICE UNDER THIS CLAUSE SHALL BE SERVED ON THE ASSESSEE ON OR AFTER THE 1ST DAY OF JUNE 2003 ; (II) NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE ( I) IF HE CONSIDERS IT NECESSARY OR EXPEDIENT TO ENSURE THAT THE ASSESSEE HAS NOT UNDER STATED THE INCOME OR HAS NOT COMPUTED EXCESSIVE LOSS OR HAS NOT UNDER PAID THE TAX IN ANY MANNER SERVE ON THE ASSESSEE A NOTICE REQUIRIN G HIM ON A DATE TO BE SPECIFIED THEREIN EITHER TO ATTEND HIS OFFICE OR T O PRODUCE OR CAUSE TO BE PRODUCED THERE ANY EVIDENCE ON WHICH THE ASSESSEE MAY RELY IN SUPPORT OF THE RETURN : ( EMPHASIS SUPPLIED BY US) 23. AT THE SAME TIME IT WILL BE IN ORDER TO NOT E THE FOUNDATION FOR ACTION U/S 147 THE RELEVANT PART OF WHICH IS AS UNDER : - 147. INCOME ESCAPING ASSESSMENT.--IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAP ED ASSESSMENT FOR ANY ASSESSMENT YEAR HE MAY SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153 ASSESS OR REASSESS SUCH INCOME .. ( EMPHASIS SUPPLIED BY US) ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 13 24. WHEN WE READ THE ABOVE EXTRACTED PORTIONS OF S ECTION 143(3) IN JUXTAPOSITION TO SECTION 147 IT CAN BE EASILY OBSERVED THAT TH ERE IS GREAT DIFFERENCE IN SCOPE FOR TAKING ACTION UNDER THESE SECTIONS. WHEREAS REGULAR ASSESSMENT U/S 143(3) IS MADE TO VERIFY THE CORRECTNESS OF THE CLAIMS MADE BY THE ASSESSEE IN ITS RETURN AND TO ENSURE THAT THE ASSESSEE HAS NOT UNDERSTATED THE IN COME ACTION U/S 147 IS POSSIBLE ONLY WHEN THE AO HAS REASON TO BELIEVE THAT ANY INC OME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN THE REGULAR ASSESSMENT U/S 143(3) THERE IS NO PRE-REQUISITE CONDITION THAT THE ASSESSING OFFICER MUST HAVE A RE ASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. SUCH ASSE SSMENT IS DONE TO ENSURE THE ASSESSEE NOT UNDERSTATED THE INCOME. ON THE CONTRA RY THE EXISTENCE OF REASONS TO BELIEVE ABOUT THE ESCAPEMENT OF INCOME IS SINE QUA NON FOR ISSUING NOTICE U/S 148 AND CONSEQUENTLY MAKING ASSESSMENT OR REASSESSMENT U/S 147. SUCH REASONS HAVE TO BE SPECIFIC CLEARLY DEPICTING THE ASPECTS ON WH ICH THE AO BELIEVES THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THUS IT F OLLOWS THAT SECTION 143(3) EMPOWERS THE AO TO MAKE ASSESSMENT FOR ENSURING THA T THE ASSESSEE HAS NOT UNDERSTATED THE INCOME. IT IS QUITE POSSIBLE THAT O N SUCH ASSESSMENT U/S 143(3) THE AO MAY NOT FIND ANY UNDERSTATED INCOME THEREBY ACC EPTING THE RETURNED INCOME AS SUCH. BUT IT IS NOT SO IN THE CASE OF ASSESSMENT U/ S 147. NOT ONLY THERE SHOULD BE POSITIVE AND DEFINITE REASONS TO BELIEVE ABOUT THE ESCAPEMENT OF INCOME AT THE TIME OF ISSUING NOTICE U/S 148 BUT SUCH REASONS MUST AL SO BE TRANSLATED INTO REALITY DURING THE COURSE OF ASSESSMENT U/S 147. FROM THE LANGUAGE OF SECTION 147 AND SEVERAL JUDGMENTS ON THE POINT INCLUDING THAT OF TH E HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. JET AIRWAYS (I.) LTD. (2011) 331 ITR 236 ( BOM) IT IS MANIFEST THAT THE REASONS FOR WHICH THE ACTION IS TAKEN U/S 148 MUST FIND ITS PLACE IN THE ASSESSMENT U/S 147 BY WAY OF ADDITION. IF THE NOTIC E WAS ISSUED IN RESPECT OF SAY INCOME A ESCAPING ASSESSMENT IN THE OPINION OF THE AO AT THE TIME OF INITIATION OF ASSESSMENT/REASSESSMENT BUT EVENTUALLY NO SUCH ADD ITION IS MADE THEN THE ENTIRE ASSESSMENT U/S 147 IS VITIATED. ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 14 25. THE NATURAL COROLLARY WHICH THEREFORE FOLLOW S IS THAT IF THE TIME LIMIT FOR MAKING ASSESSMENT HAS EXPIRED AND THE AO INTENDS TO TAKE UP ASSESSMENT IN THE EXTENDED PERIOD AVAILABLE FOR REASSESSMENT BY ISSUI NG NOTICE U/S 148 WITHOUT THERE BEING ANY POSITIVE REASON ABOUT THE ESCAPEMENT OF D EFINITE INCOME HIS ACTION WILL BE TREATED AS BAD IN LAW LACKING THE INHERENT JURIS DICTION. IF HOWEVER THE TIME LIMIT FOR COMPLETION OF REGULAR ASSESSMENT HAS EXPIRED AN D LATER ON THE ASSESSING OFFICER ENTERTAINS REASONS TO BELIEVE THAT ANY INCO ME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT HE IS VERY MUCH WITHIN HIS POWER TO ISS UE NOTICE U/S 148. IT IS NOTICED THAT THE INSTANT CASE FALLS IN THE LATTER CATEGORY AND HENCE WE CANNOT COUNTENANCE THE CONTENTION OF THE LD. AR IN THIS REGARD. 26. IN VIEW OF THE FOREGOING REASONS WE REJECT GR OUND NO.1 RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION. 27. NOW WE TAKE UP GROUND NO. 2 OF THE REVENUES AP PEAL WHICH IS PARTLY RELATED TO THE ABOVE DISCUSSED GROUND NO. 1 OF THE ASSESSEES CROSS OBJECTION. THROUGH THIS GROUND THE DEPARTMENT HAS ASSAILED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF STAMP DUTY CHARGES. WE HAVE NOTED ABOVE THAT THE ASSESSEE PAID STAMP DUTY CHARG ES ON REGISTRATION OF LEASE DEED AMOUNTING TO RS.15 26 500 WHICH WERE CLAIMED AS RE VENUE EXPENDITURE BY RELYING INTER ALIA ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CINCEITA (P) LTD. (SUPRA) . THE ASSESSING OFFICER RELYING ON THE JUDGMENT O F THE HONBLE SUPREME COURT IN THE CASE OF GOBIND SUGAR MILLS LTD. (SUPRA) AND OTHERS HELD THAT SUCH EXPENDITURE WAS LIABLE TO BE CAPITAL IZED. HE THEREFORE DID NOT GRANT DEDUCTION ON THIS ACCOUNT. THE LD. CIT(A) OVERTURN ED THE DECISION OF THE AO ON THIS ASPECT. 28. WHILE DISPOSING OF FIRST GROUND OF THE ASSESSEE S CROSS OBJECTION IN EARLIER PARAS WE HAVE SET OUT THAT THE ASSESSEE RELIED ON THREE JUDGMENTS OF THE HONBLE BOMBAY HIGH COURT ON THIS ISSUE. WE HAVE ALSO ADVER TED TO THE FACT THAT THE ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 15 HONBLE CALCUTTA HIGH COURT IN THE CASE OF GOBIND SUGAR MILLS LTD. (SUPRA) DID NOT CONCUR WITH THE VIEW EXPRESSED BY THE HONBLE B OMBAY HIGH COURT IN THE CASE OF HOECHST PHARMACEUTICALS LTD. (SUPRA) . THIS JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT HAS BEEN APPROVED BY THE HONBLE SUPREME COURT IN THE CASE OF GOBIND SUGAR MILLS LTD. (SC) (SUPRA). THE RATIO OF THIS JUDGMENT IS THAT THE EXPENDITURE ON ACCOUNT OF STAMP FEES REGISTRATION CHARGES AND SOLICITORS FEES ETC. FOR REGISTRATION OF A LEASE DEED FOR OBTAINING ANOT HER SUGAR FACTORY CANNOT BE ALLOWED AS REVENUE EXPENDITURE. DURING THE COURSE O F HEARING THE ATTENTION OF THE LEARNED A.R. WAS DRAWN TOWARDS ANOTHER JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ADITYA MINERALS (P) LTD. [(1999) 239 ITR 817 (SC)] IN WHICH IT HAS BEEN LAID DOWN THAT LEASE RENT PAID BY THE LESSEE T O THE LESSOR FOR THE ENTIRE PERIOD OF LEASE ADJUSTABLE AGAINST THE STIPULATED MONTHLY RENT IS A CAPITAL EXPENDITURE. IN HOLDING SO THE HONBLE SUPREME COURT APPLIED THE MA NDATE OF ITS EARLIER JUDGMENT IN PINGLE INDUSTRIES LTD. VS. CIT [(1960) 40 ITR 67 (S C)] . THOUGH THE LEARNED A.R. INITIALLY RELIED ON THREE JUDGMENTS OF THE HON BLE BOMBAY HIGH COURT CHOSE NOT TO DISTINGUISH THE JUDGMENTS OF THE HONBLE SUP REME COURT AS NOTED ABOVE BY IMPLIEDLY ACCEPTING THAT THESE JUDGMENTS GOVERN THE FACTS OF THE CASE AND THE EXPENDITURE IS NOT DEDUCTIBLE AS REVENUE. ON THE OT HER HAND THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE RATIO OF THE JUDGMENT IN THE CASE OF GOBIND SUGAR MILLS LTD. (SC) (SUPRA) AND OTHER DECISIONS WAS FULLY APPLICABLE AND THE EXPENDITURE WAS NOT DEDUCTIBLE. IN VIEW OF THES E FACTS WE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND RESTORE THE VIEW T AKEN BY THE ASSESSING OFFICER ON THIS POINT. THIS GROUND OF THE REVENUES APPEAL IS ALLOWED. 29. THE FIRST GROUND OF THE REVENUES APPEAL IS AGA INST THE DELETION OF ADDITION ON ACCOUNT OF ADJUSTMENT TO ARMS LENGTH PRICE (HER EINAFTER CALLED ALP). BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT TH E ASSESSEE IS A CAPTIVE SERVICE PROVIDER RENDERING BACK OFFICE SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISES (HEREINAFTER CALLED AES). THE ACTIVITIES UNDERTAK EN BY THE ASSESSEE ARE ESSENTIALLY ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 16 IT ENABLED SERVICES SUCH AS DATA ENTRY TRANSCRIPTI ON AND DATA OF SHIPPING DOCUMENTS SUCH AS BILL OF LEADING ETC. FOR THE YEAR ENDING ON 31.03.2005 THE ASSESSEE EARNED AN ADJUSTED NET COST PLUS MARGIN (H EREINAFTER CALLED NCP) OF 7.90% AS UNDER:- TABLE A PARTICULARS TIME AND MATERIAL / ACTIVITY BASED MODEL COST PLUS MODEL COMBINED (IN RS.) TOTAL OPERATING INCOME (A) 491 454 573 77 121 000 568 575 573 TOTAL OPERATING COST (B) 460 018 079 6 936 766 526 954 845 OPERATING PROFIT (C = A B) 31 436 494 10 184 234 41 620 728 NCP MARGIN (C / B X 100) 6.83 15.21 7.90 30. THE ASSESSEE IN ITS TRANSFER PRICING STUDY CONS IDERED TRANSACTIONAL NET MARGIN METHOD (HEREINAFTER CALLED TNMM) AS THE MOST APPR OPRIATE METHOD WITH NCP MARGIN AS THE PROFIT LEVEL INDICATOR TO BENCHMARK I TS INTERNATIONAL TRANSACTIONS WITH AES. THE ASSESSEE CONDUCTED ANALYSIS FOR DETERMININ G THE ALP OF INTERNATIONAL TRANSACTIONS PERTAINING TO THE PROVISIONS OF BACK O FFICE SUPPORT SERVICES. BASED ON DATA AVAILABLE THE WEIGHTED AVERAGE ARITHMETICAL M EAN OF NCP MARGINS EARNED BY THE COMPARABLE INDEPENDENT COMPANIES PERFORMING SIM ILAR FUNCTIONS WAS DETERMINED AT 7.62%. AS THE ASSESSEE EARNED NCP OF 7.90% FROM ITS INTERNATIONAL TRANSACTIONS IT WAS CONCLUDED THAT SUCH TRANSACTI ONS WITH AES WERE AT ALP. THE ASSESSING OFFICER MADE REFERENCE TO TPO FOR COMPUTA TION OF ALP IN RESPECT OF INTERNATIONAL TRANSACTIONS. THE TPO VIDE HIS ORDE R DATED 31.10.2008 COMPUTED THE ADJUSTMENTS TO THE ALP AMOUNTING TO RS.10 49 07 225. IN SUCH COMPUTATION THE TPO NOTED IN PARA 4 OF HIS ORDER THAT NO COMPANIES WERE IDENTIFIED AS ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 17 COMPARABLES. HE SELECTED TWELVE COMPANIES AS COMPA RABLE WITH THE ASSESSEES INTERNATIONAL TRANSACTIONS DEPICTING THE NCPS AS UNDER:- TABLE B SR. NO. COMPARABLE COMPANIES OP/T % 1. ALLSEC TECHNOLOGIES LIMITED 30.49 2. TULSYAN TECHNOLOGIES LTD. (COSMIC GLOBAL) 19.08 3. SAFFRON GLOBAL 24.89 4. WIPRO BPO SOLUTIONS LTD. 27.60 5. VISHAL INFORMATION TECHNOLOGIES LTD. 45.65 6. ACE SOFTWARE EXPORTS LTD. 15.46 7. NUCLEUS NETSOFT & GIS INDIA LTD. 40.60 8. ASIAN CERC INFORMATION TECHNOLOGY LTD. (SEG) 37.40 9. AIRLINE FINANCIAL SUPPORT SERVICES (I) LTD. 26. 54 10. GOLDSTONE TELESERVICES LTD. (SEG) 15.95 11 TRANSWORKS INFORMATION SERVICES LTD. 2.87 12 CEPHA IMAGING PVT. LTD. 47.70 MEAN 27.80 31. THE ASSESSEE WAS CALLED UPON TO EXPLAIN AS TO W HY THE ARITHMETIC MEAN OF 27.80% OF TWELVE COMPARABLES CHOSEN BY HIM SHOULD N OT BE ADOPTED AND THE ALP OF ITS TRANSACTION WITH ITS AES RE-DETERMINED. THE ASSESSEE SUBMITTED IT CLAIMED DEDUCTION OF RS.8.28 CRORES TOWARDS EARLIER YEARS EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT FOR THE CURRENT YEAR AND FURTHER T HERE WAS DIFFERENCE IN DEPRECIATION AT RS.1.86 CRORES WHICH WAS EXCESS C HARGED IN ACCOUNTS. APART FROM THAT IT WAS ALSO URGED THAT SUITABLE ADJUSTMENTS TOWARDS CAPITAL RISKS ETC. SHOULD BE ALLOWED BEFORE DETERMINING ALP. THE TPO PARTLY A CCEPTED THE ASSESSEES CONTENTIONS AND ALLOWED DEDUCTION ON ACCOUNT OF EXP ENSES OF EARLIER YEAR DEBITED IN THE ACCOUNTS FOR THE CURRENT YEAR AMOUNTING TO RS.8.28 CRORES AND THE DIFFERENCE IN DEPRECIATION AT RS.1.86 CRORE FROM TH E TOTAL EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT AT RS.62.83 CRORES. THE TPO FURTHER HELD THAT SINCE THE ASSESSEE HAD NOT PROVIDED ANY SCIENTIFIC BASIS FOR CAPITAL RISK ADJUSTMENTS ETC. NO ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 18 DEDUCTION COULD BE GIVEN ON THIS SCORE. IN THE FINA L ANALYSIS THE TPO DETERMINED OPERATING PROFIT MARGIN OF THE ASSESSEE AT 7.89%. A PPLYING THE ARITHMETIC MEAN OF 27.80% OF TWELVE COMPARABLES CHOSEN BY HIM THE TP O PROPOSED ADJUSTMENT IN THE ALP TO THE TUNE OF RS.10.49 CRORES. THE A.O. MA DE ADDITION FOR SUCH AMOUNT WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE. IN THE FIRST APPEAL THE LEARNED CIT(A) ORDERED FOR THE DELETION OF ADDITION ON THIS ISSUE. THE REVENUE IS AGGRIEVED AGAINST SUCH DELETION. 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE TPO SUO MOTU FOUND OUT TWELVE COMPARABLES LISTED ABOVE TO DETERMINE THE ALP OF THE ASSESSEES INTERN ATIONAL TRANSACTIONS AFTER RECORDING THAT THE ASSESSEE DID NOT IDENTIFY ANY C OMPARABLES. THIS FINDING OF THE TPO ABOUT THE ASSESSEE NOT IDENTIFYING ANY COMPARAB LES AT THE VERY OUTSET IS ERRONEOUS. FROM THE TRANSFER PRICING STUDY CONDUCTE D BY THE ASSESSEE A COPY OF WHICH IS AVAILABLE ON RECORD IT IS OSTENSIBLE THAT THE ASSESSEE IDENTIFIED NINE COMPARABLE CASES AS UNDER:- TABLE C SR. NO. COMPANY NAME WEIGHTED AVERAGE % 1. ASK ME INFO HUBS LTD. -8.38 2. C S SOFTWARE ENTERPRISE LTD. 10.63 3. CMC LTD. 14.12 4. M C S LTD. 11.42 5. MPHASIS BFL LTD. 11.70 6. NUCLEUS NETSOFT & GIS INDIA LTD. 0.30 7. ONLINE MEDIA SOLUTIONS LTD. 1.51 8. SPANCO TELESYSTEMS AND SOLUTIONS LTD. 18.81 9. TATA SHARE REGISTRY LTD. 8.48 ARITHMETICAL MEAN 7.62 33. THE ASSESSEE FILED DETAILED SUBMISSIONS BEFORE THE AO OBJECTING TO THE TPOS DETERMINATION OF THE ALP WHICH THE AO REFUSE D TO TAKE COGNIZANCE OF ON ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 19 THE GROUND THAT SUCH SUBMISSIONS WERE NOT DIFFERENT FROM THOSE MADE BEFORE THE TPO WHICH WERE DULY CONSIDERED BY HIM. DISCUSSION IN THIS REGARD IS AVAILABLE ON PAGE 4 PARA 7.1 OF THE ASSESSMENT ORDER. IT INDICAT ES THAT ALL THE DETAILS INCLUDING THE LIST OF COMPARABLES WAS AT THE DISPOSAL OF THE TPO . FURTHER SINCE THESE COMPARABLE CASES ARE PART OF THE ASSEESSEES TRANSF ER PRICING STUDY THERE REMAINS NO DOUBT THAT SUCH DETAILS WERE AVAILABLE BEFORE HI M. THE ASSESSEE REITERATED THE DETAILED REASONS BEFORE THE FIRST APPELLATE AUTHORI TY AS WELL SHOWING HOW THE CASES CHOSEN BY THE TPO WERE NOT COMPARABLE. THE LD. CIT( A) HAS RECORDED SUCH SUBMISSIONS ON PAGES 8 TO 13 OF THE IMPUGNED ORDER WHICH NEED NOT BE REPRODUCED. IT WAS ARGUED THAT OUT OF TWELVE CHOSEN BY THE TPO NINE WERE EITHER FUNCTIONALLY DIFFERENT OR HAD CONTROLLED TRANSACTIO NS OR HIGHER TURNOVER AND HIGHER BRAND VALUE OR DATA NOT AVAILABLE CONTEMPORANEOUSLY OR HIGHER OR LOWER NET WORTH ETC. THE LEARNED CIT(A) WAS PARTLY SATISFIED WITH T HE ASSESSEES CONTENTION. AFTER CONSIDERING THE ENTIRE MATERIAL AVAILABLE ON RECORD AND ELIMINATING THE INCONSISTENCIES IN THE TPOS SET OF COMPARABLES HE PICKED UP FOURTEEN CASES AS COMPARABLE WITH THE NCP GIVEN AS UNDER:- TABLE D SR. NO. NAME OF THE COMPANY NCP (%) TPO / APPELLANT COMPARABLE 1. ALLSEC TECHNOLOGIES LIMITED 28.70 TPO 2. GOLDSTONE TELESERVICES LIMITED 15.93 TPO 3. NUCLEUS NETSOFT & GIS INDIA LTD. 41.93 APPELLANT & TPO 4. ASK ME INFO HUBS LTD. -13.92 APPELLANT 5. M C S LTD. 3.35 APPELLANT 6. SAFFRON GLOBAL LIMITED 25.08 TPO 7. ACE SOFTWARE EXPORTS LIMITED 14.79 TPO 8. ONLINE MEDIA SOLUTIONS LTD. 7.09 APPELLANT 9. SPANCO TELESYSTEMS & SOLUTIONS LTD. (SEGMENT) 13.24 APPELLANT 10 C S SOFTWARE ENTERPRISES LIMITED 9.98 APPELLANT 11 CMC LIMITED 1.46 APPELLANT ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 20 12 MPHASIS BFL LIMITED 13.71 APPELLANT 13 TATA SHARE REGISTRY LIMITED 15.16 APPELLANT 14 TRANSWORKS INFORMATION SERVICES LTD. 2.08 TPO ARITHMETIC MEAN 12.71 34. FROM THE ABOVE TABLE D IT CAN BE SEEN THAT THE LD. CIT(A) IN HIS FINAL LIST OF COMPARABLES INCLUDED NINE CASES AS CHOSEN BY THE AS SESSEE AND SIX OUT OF TWELVE CHOSEN BY TPO. SINCE ONE CASE OF NUCLEUS NETSOFT & GIS INDIA LTD. IS COMMON IN BOTH THE LISTS OF THE ASSESSEE AS WELL AS THAT OF T HE TPO IT HAS MADE THE TOTAL OF FOURTEEN. 35. THE LD. DR OBJECTED TO THE INCLUSION OF NINE CASES CHOSEN BY THE ASSESSEE AS PER TABLE C IN THE FINAL LIST OF COMPARABLES DRAW N BY THE LD. CIT(A). WE HAVE GONE THROUGH TRANSFER PRICING STUDY CONDUCTED BY TH E ASSESSEE FOR THE YEAR IN QUESTION A COPY OF WHICH IS AVAILABLE ON PAGES 92 TO 145 OF THE PAPER BOOK. THE TPO HAS NOT AT ALL CONSIDERED ANY OF SUCH CASES AND SIMPLY BRUSHED THEM ASIDE BY MENTIONING THAT NO COMPANIES WERE IDENTIFIED BY THE ASSESSEE AS COMPARABLE. ON THE CONTRARY THE FACT IS THAT LIST OF THESE NINE CA SES IS VERY MUCH THERE IN ASSESSEES TRANSFER PRICING STUDY WHICH WAS PROVIDED TO TPO A S WELL. NO REASONS WORTH THE NAME HAVE BEEN ASSIGNED BY THE TPO WHILE BLACKOUTIN G SUCH LIST OF COMPARABLE CASES CITED BY THE ASSESSEE. NOW THE QUESTION ARISE S AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN INCLUDING SUCH CASES AS SUCH IN THE FINAL LIST DRAWN BY HIM WITHOUT GOING INTO THE DETAILS OF SUCH CASES FOR D ETERMINING WHETHER OR NOT THESE WERE COMPARABLE. 36. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE O F AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD. VS. ACIT [(2007) 107 ITD 1 41 (BANG.) (SB)] HAS HELD THAT THE BURDEN OF DEMONSTRATING THE ALP OF AN INT ERNATIONAL TAXATION IS ON THE TAX PAYER AND WHEN SUCH ONUS IS DISCHARGED AND THE TAX AUTHORITIES PROPOSE ANY VARIATION IN THE METHOD OF COMPARABLES SELECTED BY THE TAXPAYER THEY ARE REQUIRED ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 21 TO SHOW THAT THE COMPARABLES SELECTED BY THE ASSESS EE WERE NOT IN FACT COMPARABLE. THIS DECISION HAS BEEN RENDERED BY A FIVE MEMBER SP ECIAL BENCH IN THE CONTEXT OF TRANSFER PRICING PROVISION AMPLY HOLDING THAT THE P RIMARY DUTY TO DISCLOSE COMPARABLE CASES IS THAT OF THE ASSESSEE. IF THE R EVENUE AUTHORITIES ARE NOT SATISFIED WITH THE ALP AND THE SUPPORTING DOCUMENTS FURNISHED BY THE ASSESSEE THE RESPONSIBILITY OF DETERMINATION OF THE ALP IS S HIFTED TO THE REVENUE AUTHORITIES WHO THEN NEED TO DETERMINE THE SAME IN ACCORDANCE W ITH THE STATUTORY REGULATIONS AND ON THE BASIS OF MATERIAL COLLECTED OR AVAILABLE ON RECORD. IT IS THEREFORE MANIFEST THAT THE INITIAL PREROGATIVE OF CHOOSING T HE COMPARABLE CASES IS ALWAYS THAT OF THE ASSESSEE. IT IS BUT NATURAL ALSO FOR T HE REASON THAT THE ASSESSEE IS THE BEST JUDGE TO KNOW THE EXACT SERVICES RENDERED BY IT IN THE INTERNATIONAL TRANSACTIONS AND THUS FINDING OUT THE COMPARABLE CASES FROM THE VAST DATA BASE AVAILABLE IN THE PUBLIC DOMAIN. ONCE THIS EXERCISE IS DONE THEN TH E BALL COMES IN THE COURT OF THE REVENUE. THEN THEY HAVE TO EXAMINE VARIOUS ASPECTS OF THE COMPARABLE CASES SUBMITTED BY THE ASSESSEE WITH A VIEW TO TEST WHETH ER OR NOT THESE ARE IN FACT COMPARABLE. IF TPO AGREES WITH THE COMPARABLES GIV EN BY THE ASSESSEE THE MATTER ENDS. IF HE WANTS TO EXCLUDE ANY OF SUCH COMPARABL ES THEN IT IS FOR HIM TO JUSTIFY THE EXCLUSION BY ADDUCING COGENT REASONS. IT IS NO T OPEN TO THE TPO TO EXCLUDE THE COMPARABLE CASES GIVEN BY THE ASSESSEE AT HIS WHIMS AND FANCIES. TO PUT IT IS SIMPLE TERMS WHERE THE ASSESSEE FURNISHES A LIST OF COMPARABLE CASES AND THE TPO FAILS TO SHOW EXPRESSLY AS TO HOW ALL OR ANY OF SUC H CASES ARE NOT COMPARABLE THEN A PRESUMPTION HAS TO BE DRAWN THAT THOSE CASES ARE COMPARABLE. IT IS ONLY WHEN THE TPO GIVES REASON FOR NON-ACCEPTANCE OF ANY CASE AS NOT COMPARABLE THE DUTY IS CAST ON THE APPELLATE AUTHORITIES TO EXAMINE THE RE ASONS GIVEN BY THE TPO WITH A VIEW TO DETERMINE AS TO WHETHER OR NOT SUCH CASES W ERE RIGHTLY EXCLUDED. BUT WHERE THE TPO FAILS TO GIVE ANY REASON FOR THE EXCL USION OF THE COMPARABLES GIVEN BY THE ASSESSEE THEN GOING BY THE PRESUMPTION OF ACCEPTABILITY OF SUCH CASES THE FIRST APPELLATE AUTHORITIES CANNOT BE SAID TO HAVE ANY DUTY TO CHECK THE WORK DONE BY THE AO/TPO WITH A VIEW TO ENSURE WHETHER OR NOT IT WAS PROPERLY DONE. ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 22 37. AS PER SECTION 92CA(4) AT THE MATERIAL TIME :`ON RECEIPT OF THE ORDER UNDER SUB-SECTION (3) THE ASSESSING OFFICER SHALL PROCEE D TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE UNDER SUB-SECTION (4) OF SECTION 92C HAVING REGARD TO THE ARMS LENGTH PRICE DETERMINED UNDER SUB-SECTION (3) BY THE TRANSFER PRICING OFFIC ER. IT MEANS THAT THE ASSESSMENT IS TO BE MADE BY THE AO HAVING REGARD TO THE ALP DETERMINED BY THE TPO WHICH IS NOT BINDING ON HIM. IN SUCH A SITUATION THE ORDER OF THE TPO U/S 92CA(3) CONSTITUTES NOT MORE THAN A MERE INPUT TO THE AO. THE AO IS COMPETENT TO MAKE SUITABLE ADJUSTMENTS TO THE ALP D ETERMINED BY THE TPO OR OBSERVE DEPARTURE THERE FROM. ONCE AN APPEAL IS PRE FERRED BEFORE THE CIT(A) AGAINST THE ORDER OF AO ON THE ADDITION TOWARDS ADJ USTMENTS TO THE ALP THE WHOLE EXERCISE DONE BY THE TPO WHICH STANDS BODILY ADOPT ED IN THE ASSESSMENT ORDER IN CASE NO ADJUSTMENT IS CARRIED OUT BY THE AO TO TH E ALP DETERMINED BY THE TPO AUTOMATICALLY STANDS CHALLENGED. AS ONLY THE ASSESS EE CAN FILE APPEAL BEFORE THE FIRST APPELLATE AUTHORITY AND NOT THE REVENUE NATU RALLY IT IS A FORUM FOR THE REDRESSAL OF THE GRIEVANCES OF THE ASSESSEE AND NO T THE REVENUE. IN SUCH A SITUATION THE DUTY OF THE LD. CIT(A) GETS RESTRIC TED TO EXAMINING THE ORDER APPEALED BEFORE HIM TO FIND OUT WHETHER THE ASSESSE E HAS RIGHTLY CHALLENGED IT. AS THE ASSESSEES CHALLENGE WILL ONLY BE TO THE POINTS DECIDED AGAINST HIM THERE IS NO QUESTION OF THE CIT(A)S DUTY TO EXAMINE THE ORDER TO THE PREJUDICE OF THE ASSESSEE. 38. HERE IT IS IMPORTANT TO NOTE WE ARE DISCUSSIN G ABOUT THE DUTIES OF THE LD. CIT(A) IN CONTRADISTINCTION TO HIS POWERS U/S 251. UNDER CLAUSE (A) OF SUB-SECTION (1) THE CIT(A) IN AN APPEAL AGAINST AN ORDER OF ASS ESSMENT MAY CONFIRM REDUCE ENHANCE OR ANNUL THE ASSESSMENT. THE EXERCISE OF POWER OF ENHANCEMENT UNDER SUB-SECTION (1) IS SUBJECT TO THE CONDITION SET OUT IN SUB-SECTION (2) AS PER WHICH HE IS OBLIGED TO ISSUE A SHOW CAUSE NOTICE TO THE ASSE SSEE AGAINST SUCH ENHANCEMENT. THUS IT IS AXIOMATIC THAT WHEREAS THE DUTIES HAVE TO BE INVARIABLY DISCHARGED THE EXERCISE OF POWERS IS OPTIONAL DEPENDING UPON THE F ACTS AND CIRCUMSTANCES OF EACH ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 23 CASE. DISPOSING THE GROUNDS TAKEN BY THE ASSESSEE IN ITS APPEAL IS THE DUTY OF THE CIT(A) BUT TO ENHANCE THE ASSESSMENT IS A POWER WH ICH MAY OR MAY NOT BE EXERCISED. NON-DISCHARGE OF DUTIES BY THE CIT(A) AF FECTS THE VALIDITY OF HIS ORDER BUT NOT EXERCISING ANY POWER DOES NOT HAVE THIS IMP ACT. AS THE POWER TO MODIFY THE ORDER APPEALED AGAINST TO THE PREJUDICE OF THE ASSESSEE CANNOT BE EQUATED WITH HIS DUTY IN OUR CONSIDERED OPINION IT CANNOT BE HE ARD THAT THE LD. CIT(A) OUGHT TO HAVE EXAMINED THE WORK DONE BY THE AO/TPO TO ADVER SELY AFFECT THE ASSESSEES INTEREST. IT IS NORMALLY ARGUED ON BEHALF OF THE RE VENUE THAT THE POWERS OF THE CIT(A) ARE CO-TERMINUS WITH THAT OF THE AO INASMUCH AS HE CAN DO ANYTHING WHICH THE AO SHOULD HAVE DONE BUT FAILED TO DO. HERE A LSO IT IS IMPORTANT TO NOTE THAT THIS POSITION IS ONLY IN THE REALM OF HIS POWERS AN D NOT DUTIES. THE DUTY OF THE CIT(A) IS TO DISPOSE OF THE APPEAL ON THE GROUNDS R AISED BEFORE HIM AND NOT TO DO REDO ASSESSMENT. THUS WE DO NOT FIND ANY LOGIC IN ACCEPTING THE CONTENTION OF THE LD DR THAT THE CIT(A) WAS DUTY BOUND AND HENCE SHOU LD HAVE EXAMINED THE COMPARABLES GIVEN BY THE ASSESSEE TO FIND OUT WHETH ER OR NOT THESE WERE IN FACT COMPARABLE. 39. ADVERTING TO THE FACTS OF THE INSTANT CASE IT IS SEEN THAT THE ASSESSEE FURNISHED A LIST OF NINE COMPARABLE CASES. WHAT TO TALK OF THE TPO GIVING REASONS FOR THEIR NON- ACCEPTANCE HE SIMPLY SET ASIDE ALL SUCH CASES BY M ENTIONING IN ONE LINE THAT NO COMPANIES WERE IDENTIFIED AS COMPARABLES. BY REASO N OF THE FACT THAT THE TPO DID NOT DISCHARGE HIS OBLIGATION OF DISTINGUISHING THE CASES CITED BY THE ASSESSEE AS COMPARABLE IN OUR CONSIDERED OPINION THE LEARNED CIT(A) WAS JUSTIFIED IN RETAINING ALL SUCH NINE CASES IN HIS LIST OF COMPAR ABLES FOR DETERMINING THE ALP. 40. HAVING EXHAUSTED THE ARGUMENT THAT THE LD. CIT (A) SHOULD HAVE EXAMINED THE CASES CITED BY THE ASSESSEE AS COMPARABLE THE LD. DR THEN TOOK UPON HERSELF THE TASK OF DISTINGUISHING SOME OF SUCH CASES. REFERRI NG TO THE MATERIAL ON RECORD IT WAS STATED THAT IN CERTAIN CASES THE COMPARISON W AS NOT PROPER. SHE ARGUED THAT ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 24 SUCH CASES BE EXCLUDED FROM THE FINAL LIST DRAWN BY THE LD. CIT(A) FOR THE PURPOSES OF DETERMINING THE ALP. WHEN THE LEARNED AR OBJECTE D TO THIS ARGUMENT ADVANCED ON BEHALF OF THE REVENUE BY STATING THAT THE LEARNE D DEPARTMENTAL REPRESENTATIVE COULD NOT IMPROVE THE ORDER OF THE TPO THE LEARNED DEPARTMENTAL REPRESENTATIVE PRESSED INTO SERVICE THE SPECIAL BENCH ORDER IN THE CASE OF DCIT VS. QUARK SYSTEMS P. LTD. [(2010) 38 SOT 307 (CHD.) (SB)] . 41. PRIMARILY WE NEED TO DECIDE AS TO WHETHER THE L EARNED DEPARTMENTAL REPRESENTATIVE WHILE ARGUING THE APPEAL CAN VALI DLY IMPROVE THE ORDER OF THE AO/TPO BY CONTENDING THAT THE ASSESSING AUTHORITY W AS WRONG IN ACCEPTING A PARTICULAR CLAIM OF THE ASSESSEE. IN THE CASE OF QUARK SYSTEMS P. LTD. (SUPRA) THE ASSESSEE BY WAY OF ADDITIONAL GROUND CONTENDED BEF ORE THE TRIBUNAL THAT A PARTICULAR CASE OF HIGH PROFIT RATE WAS NOT COMPARA BLE WITH THAT OF THE CASE BEFORE THE BENCH ON ACCOUNT OF POSITIVE REASONS POINTED OU T AND HENCE THE SAME BE EXCLUDED. THE BENCH OBSERVED IN PARA 30 OF THE ORDE R THAT DUE TO NEW IMPLEMENTATION OF THE TRANSFER PRICING LEGISLATION IN INDIA BOTH THE TAX PAYERS AS WELL AS CONSULTANTS WERE NOT FULLY CONVERSENT WITH THIS BRANCH OF TAXATION. IT WAS ALSO NOTED THAT THE CASE SOUGHT TO BE REMOVED BY TH E ASSESSEE HAD EXTRA ORDINARY PROFIT AND HUGE TURNOVER BESIDES DIFFERENCE IN ASSE TS AND OTHER CHARACTERISTICS. THE BENCH WHILE HOLDING THAT THE ASSESSEE COULD NOT BE STOPPED FROM POINTED OUT THAT SUCH CASE WAS WRONGLY TAKEN AS A COMPARABLE REMITT ED THE MATTER TO THE FILE OF A.O. FOR DE NOVO EXAMINATION OF THE ASSESSEES STAND IN THIS REGARD . THUS IT IS APPARENT THAT THE SPECIAL BENCH DECISION IN QUARK SYSTEMS P. LTD. (SUPRA) RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH EXAMINATION IN THE LIGHT OF THE FACT THAT THOSE WERE THE INITIAL YEARS OF IMPLE MENTATION OF TRANSFER PRICING PROVISION AND THE TAX PAYERS WERE NOT FULLY CONVERS ANT WITH SUCH PROVISIONS. THIS DECISION IS THUS NOT OF ANY HELP TO THE REVENUE. ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 25 42. WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE LD. DR FOR EXCLUDING CERTAIN CASES NOT REJECTED BY THE TPO BUT WHICH IN HER OPIN ION DID NOT PASS THE TEST OF COMPARABILITY. IT IS EVIDENT THAT DEPARTMENTAL REP RESENTATIVE HAS THE DUTY TO DEFEND THE ORDER OF THE ASSESSING OFFICER WHILE ARG UING THE APPEAL FILED BY THE REVENUE. HE IS FULLY COMPETENT AND FREE TO SUPPORT THE REASONING OF THE ASSESSING OFFICER FROM ANY OTHER ANGLE SO AS TO PUT FORWARD A STRONG CASE OF THE REVENUE. THERE IS A MARKED DISTINCTION BETWEEN SUPPORTING OR DER OF THE AO/TPO BY THE DEPARTMENTAL REPRESENTATIVE ON ONE HAND AND FINDING FLAWS IN THE ORDER OF THE AO/TPO IN AN ATTEMPT TO SHOW THAT THE AO/TPO FAILED TO DO WHAT WAS REQUIRED TO BE DONE BY HIM. IN OUR CONSIDERED OPINION IF THE DE PARTMENTAL REPRESENTATIVE IS ALLOWED TO FILL IN THE GAPS LEFT BY THE AO/TPO IT W OULD AMOUNT TO CONFERRING THE JURISDICTION OF THE CIT U/S 263 TO THE DEPARTMENTAL REPRESENTATIVE WHICH IS NOT PERMITTED BY THE STATUTE. LET US TAKE ANOTHER SITUA TION. SUPPOSE A PARTICULAR DEDUCTION IS PERMISSIBLE ON THE CUMULATIVE SATISFAC TION OF THREE CONDITIONS. THE AO EXAMINES THE CASE AND FINDS THE VERY FIRST COND ITION AS LACKING. WITHOUT EXAMINING THE FULFILLMENT OR OTHERWISE OF THE OTHER TWO CONDITIONS HE REJECTS THE CLAIM. IN THAT CASE IF SUCH FIRST REQUIREMENT IS S UBSEQUENTLY FOUND TO BE FULFILLED IN THE APPELLATE PROCEEDINGS THE DEPARTMENTAL REPRESE NTATIVE CAN VERY WELL POINT OUT TO THE TRIBUNAL THAT THE OTHER TWO CONDITIONS WERE ALSO NOT FULFILLED. BY SO CONTENDING THE DR CANNOT BE SAID TO SET UP A NEW CA SE. RATHER IT WOULD AMOUNT TO SUPPORTING THE VIEW POINT OF THE ASSESSING OFFICER ON THE QUESTION OF DEDUCTION. BUT IN NO CIRCUMSTANCE THE DEPARTMENTAL REPRESENTAT IVE CAN BE ALLOWED TO TAKE A STAND CONTRARY TO THE ONE TAKEN BY THE AO/TPO. 43. THE SPECIAL BENCH OF THE TRIBUNAL IN MAHINDRA & MAHINDRA LIMITED VS. DCIT [(2009) 122 TTJ (MUM.) (SB) 577] HAS LAID DOWN THE PROPOSITION TO THE EFFECT THAT THE DEPARTMENTAL REPRESENTATIVE HAS NO JURISDICTION TO GO BEYOND THE ORDER PASSED BY THE A.O. IT HAS FURTHER BEEN OBSERV ED IN THIS CASE THAT THE SCOPE OF ARGUMENT OF THE DEPARTMENTAL REPRESENTATIVE SHOULD BE CONFINED TO SUPPORTING OR ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 26 DEFENDING THE IMPUGNED ORDER AND HE CANNOT BE PERMI TTED TO SET UP AN ALTOGETHER DIFFERENT CASE. 44. IN THE LIGHT OF THE ABOVE REASONS WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED DEPARTMENTAL REPRESENTATIVE CANNOT BE ALLOW ED TO ARGUE THAT CERTAIN CASES INCLUDED BY THE ASSESSEE IN THE LIST OF COMPARABLES WERE IN FACT NOT COMPARABLE WHEN THE TPO HIMSELF FAILED TO POINT OUT AS TO HOW SUCH CASES WERE DISTINGUISHABLE. THE SITUATION WOULD HAVE BEEN DIF FERENT IF THE TPO HAD FOUND A CASE TO BE INCOMPARABLE SAY ON ACCOUNT OF FUNCTIONA L TEST. IN THAT CASE ON FINDING SUCH A CASE TO BE FUNCTIONALLY SIMILAR THE LD. DR COULD HAVE JUSTIFIABLY SHOWN SUCH CASE TO BE DISTINGUISHABLE ON SOME OTHER VALID GROU ND. PRESENTLY WE ARE DEALING WITH A SITUATION IN WHICH THE TPO BY NOT ADVERSELY COMMENTING UPON THE ASSESSEES COMPARABLES IMPLIEDLY ACCEPTED SUCH CAS ES AS COMPARABLE. NOW IT IS TOO LATE IN THE DAY FOR THE LD. DR TO ARGUE THAT SU CH CASES WERE NOT COMPARABLE. IF THE ARGUMENT ON THE BEHALF OF THE REVENUE IN THIS R EGARD IS ALLOWED TO BE MADE IT WILL AMOUNT TO PERMITTING THE LD. DR TO ARGUE CONT RARY TO WHAT HAS BEEN DONE BY THE TPO. OBVIOUSLY IT IS NOT PERMISSIBLE WITHIN TH E FRAMEWORK OF THE STATUTORY PROVISIONS. WE THEREFORE REFUSE TO PERMIT THE LD. DR TO ARGUE CONTRARY TO WHAT TPO HAS DONE. 45. THE SAME REASONING IS APPLICABLE TO THE CONTENT ION ADVANCED BY THE LD. DR THAT THE TPO WAS NOT JUSTIFIED IN REDUCING THE EXPE NSES OF EARLIER YEAR AMOUNTING TO RS.8.28 CRORES DEBITED THIS YEAR. WE ARE UNABLE TO ACCEPT THIS ARGUMENT FOR THE REASON THAT THE TPO INDEPENDENT OF ANY OTHER FACTO R VOLUNTARILY GRANTED DEDUCTION FOR EARLIER YEARS EXPENSES FROM THE TOTAL EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT. WHEN HE EXPRESSLY GRANTED SUCH DEDUCTION THE LD. DR CANNOT ARGUE THAT THE TPO WAS WRONG IN ALLOWING DEDUCTION FOR SUCH EX PENSES. ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 27 46. REVERTING TO THE FINAL LIST OF COMPARABLE CASES DRAWN BY THE LD. CIT(A) AS PER TABLE D ABOVE TO COMPUTE THE ALP WE HOLD THAT HE WAS FULLY JUSTIFIED IN INCLUDING NINE COMPARABLE CASES CHOSEN BY THE ASSES SEE AS PER TABLE C. 47. NOW WE TURN TO THE LIST OF TWELVE COMPARABLE CA SES DRAWN BY THE TPO AS PER TABLE B. IT IS FOUND THAT THE CASE OF NUCLEUS NETSO FT & GIS INDIA LTD. FINDS PLACE IN THE LIST OF ASSESSEES COMPARABLES ALSO. AS SUCH NO INFIRMITY CAN BE FOUND IN THE IMPUGNED ORDER IN INCLUDING THIS CASE IN THE FINAL LIST OF COMPARABLES. OUT OF THE REMAINING ELEVEN CASES THE LEARNED CIT(A) HAS INCL UDED FIVE CASES THEREBY EXCLUDING THE FOLLOWING CASES:- PART OF TABLE B SR. NO. NAME OF THE COMPANY 1. TULSYAN TECHNOLOGIES LTD. (COSMIC GLOBAL) 2. WIPRO BPO SOLUTIONS LTD. 3. VISHAL INFORMATION TECHNOLOGIES LTD. 4. ASIAN CERC INFORMATION TECHNOLOGY LTD. (SEG) 5. AIRLINE FINANCIAL SUPPORT SERVICES (I) LTD. 6 CEPHA IMAGING PVT. LTD. 48. INSOFAR AS THE CASES OF TULSYAN TECHNOLOGIES LI MITED AND VISHAL INFORMATION TECHNOLOGIES LIMITED ARE CONCERNED IT IS NOTICED FROM THEIR ANNUAL ACCOUNTS THAT THESE COMPANIES OUTSOURCED A CONSIDER ABLE PORTION OF THEIR BUSINESS. AS THE ASSESSEE CARRIED OUT ENTIRE OPERATIONS BY IT SELF IN OUR CONSIDERED OPINION THESE TWO CASES WERE RIGHTLY EXCLUDED. COMING TO TH E CASES OF CEPHA IMAGING PRIVATE LIMITED AND ASIAN CERC INFORMATION TECHNOLO GY LTD. (SEG.) WE FIND THAT THESE COMPANIES ARE ENGAGED IN PROVIDING SOFTWARE D EVELOPMENT SERVICES AS IS EVIDENT FROM THEIR ANNUAL REPORTS AVAILABLE ON PAGE S 52 ONWARDS AND 64 ONWARDS OF THE PAPER BOOK. THUS THESE COMPANIES BECOME FUNCTIO NALLY DIFFERENT. INSOFAR AS WIPRO BPO SOLUTIONS LIMITED IS CONCERNED WE FIND T HAT THEIR TURNOVER IS ELEVEN ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 28 TIMES GREATER THAN THAT OF THE ASSESSEE. THIS COMPA NY HAVING SUCH A HIGH BRAND VALUE ALONG WITH MUCH HIGHER TURNOVER IN OUR CONSI DERED OPINION HAS BEEN RIGHTLY EXCLUDED BY THE LD. CIT(A). THE LAST CASE BEING THA T OF AIRLINE FINANCIAL SUPPORT SERVICES (I) LTD. HAS 31.76% OF THE TOTAL SERVICE F EES RECEIVED FROM THE CONTROLLED TRANSACTIONS WITH THE RELATED PARTIES. THIS FACT I S EVIDENT FROM PAGES 62 OF THE PAPER BOOK WHICH MAKES IT INCOMPARABLE WITH THE AS SESSEE. 49. WHEN WE PERUSE THE ABOVE TABLE D CONTAINING FOU RTEEN COMPARABLE CASES FINALLY CHOSEN BY THE LD. CIT(A) COMPRISING OF THOS E NINE SELECTED BY THE ASSESSEE (AS PER TABLE C) AND SIX LEFT OVER FROM THE TPOS LIST (AS PER TABLE B) IT CAN BE SEEN THAT THE ARITHMETICAL MEAN OF THE NCP MARGIN O F SUCH FOURTEEN CASES COMES TO 12.71%. WHEN WE GRANT 5% REDUCTION AS PER SECTION 9 2C(2) THE NCP MARGIN COMES TO 7.71%. AS AGAINST THAT THE TPO HAS COMPU TED NCP MARGIN AS PER ASSESSEES SUBMISSIONS AT 7.90% (AS PER TABLE A) W HICH IS HIGHER THAN 7.71% REMAINING AFTER ALLOWING CUSHION OF PLUS MINUS FIVE PER CENT . IN THAT VIEW OF THE MATTER THE ALP DECLARED BY THE ASSESSEE IS HELD TO BE RIGHTLY ACCEPTED BY THE LEARNED CIT(A). 50. AS WITH THE ABOVE EXERCISE THE ALP DECLARED B Y THE ASSESSEE IS FOUND TO BE ACCEPTABLE WE DO NOT DEEM IT PROPER TO CONSIDER TH E ASPECT OF FURTHER REDUCTION ALLOWED BY THE LD. FIRST APPELLATE AUTHORITY ON ACC OUNT OF WORKING CAPITAL ADJUSTMENT AT 6.25% WHICH HAS NOW BECOME ACADEMIC . THUS THE GROUND RAISED BY THE REVENUE FAILS. 51. THE LD. AR SUBMITTED THAT IF THE GROUND OF THE REVENUES APPEAL ON TRANSFER PRICING ADJUSTMENTS IS NOT ALLOWED THEN GROUND NOS . 2 TO 9 OF THE ASSESSEES CROSS OBJECTION SHOULD BE TREATED AS NOT PRESSED. IN VIE W OF OUR DECISION IN NOT ACCEPTING THE GROUND OF THE REVENUE ON THIS ISSUE THESE GROUNDS OF THE ASSESSEES CROSS OBJECTION FAIL. ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 29 52. THE ONLY OTHER GROUND WHICH SURVIVES IN THE APP EAL OF THE REVENUE IS AGAINST THE ALLOWING OF PRIOR PERIOD EDP AND COMMUN ICATION EXPENSES. THE FACTUAL MATRIX OF THIS GROUND IS THAT THE ASSESSING OFFICER NOTED THAT THE ASSESSEE CLAIMED HAD EXPENSES AMOUNTING TO RS.8 28 00 380 PERTAINING TO THE PERIOD JANUARY TO MARCH 2004. ON BEING CALLED UPON TO EXPLAIN AS TO W HY THE EXPENSES OF EARLIER YEAR WERE INCLUDED IN THE CURRENT YEARS EXPENDITUR E AND CLAIMED AS DEDUCTION THE ASSESSEE STATED THAT THE DETAILS OF SUCH EXPENSES W ERE RECEIVED ONLY AFTER THE YEAR ENDING 31 ST MARCH 2004 AND SUCH AMOUNT WAS NOT ALLOWED AS DED UCTION IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2004-200 5. THE ASSESSING OFFICER DISALLOWED SUCH AMOUNT AS PRIOR PERIOD EXPENSES. 53. WHEN THE MATTER CAME UP BEFORE THE LEARNED CI T(A) HE ORDERED FOR THE DELETION OF ADDITION BY OBSERVING THAT THE ASSESSEE RECEIVED INVOICE DATED 18 TH MARCH 2005 FROM A.P.MOLLER MAERSK A/S (APMM) ON ACCOUNT OF EDP AND COMMUNICATION EXPENSES PERTAINING TO CALENDAR YEAR 2004. IT WAS FURTHER OBSERVED THAT WHILE PASSING THE ASSESSMENT ORDER FOR ASSESSM ENT YEAR 2004-2005 THE A.O. DID NOT GRANT THIS DEDUCTION AND THE APPEAL FILED B Y THE ASSESSEE ON THIS ISSUE WAS PENDING BEFORE THE CIT(A).HE THEREFORE ALLOWED DE DUCTION IN THE INSTANT YEAR. 54. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. PAGE 163 OF THE PAPER BOOK IS A COPY OF INV OICE DATED 18 TH MARCH 2005 RAISED BY APMM TOWARDS ASSESSEES SHARE OF IT COST FOR DATA PRODUCTION DATA COMMUNICATION AND APPLICATION SUPPORT IN RESPECT OF THE PERIOD FROM 1 ST JANUARY TO 31 ST DECEMBER 2004. ON PROPORTIONATE BASIS A SUM OF R S.8.28 CRORES RELATES TO THE PERIOD JANUARY TO MARCH 2004 WHICH PERIOD FALLS IN THE IMMEDIATELY PRECEDING YEAR. THE ASSESSEE CLAIMED DEDUCTION IN RESPECT OF TOTAL AMOUNT OF RS.33.12 CRORE IN THIS YEAR WHICH INCLUDED A SUM OF RS.8.28 CROR E TOWARDS PROPORTIONATE EXPENSES FOR THE PRECEDING YEAR. ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 30 55. THE ASSESSEE IS ADMITTEDLY FOLLOWING MERCANTI LE SYSTEM OF ACCOUNTING. IN SUCH A METHOD THE EXPENSES ARE ALLOWED AS DEDUCTION WH EN LIABILITY TO PAY ARISES. EVEN IF SUCH LIABILITY IS NOT DISCHARGED IN THE YEAR TH E ASSESSEE IS ENTITLED TO CLAIM DEDUCTION IF SUCH LIABILITY HAS ARISEN AND GETS CRY STALLIZED IN THE CURRENT YEAR. QUANTIFICATION ASPECT OF SUCH LIABILITY IS NOT RELE VANT IN DETERMINING THE STAGE OF ACCRUAL OF LIABILITY TO PAY. IN OTHER WORDS IF TH E LIABILITY TO PAY HAS CRYSTALLIZED BUT THE EXACT QUANTIFICATION OF SUCH EXPENDITURE IS NOT POSSIBLE THE DEDUCTION IS ALLOWABLE TOWARDS SUCH LIABILITY ONLY IN THE YEAR T O WHICH IT PERTAINS. IT IS IMPERMISSIBLE TO CLAIM DEDUCTION TOWARDS SUCH EXPEN SES IN THE SUCCEEDING YEAR SIMPLY ON THE GROUND THAT THE LIABILITY WAS QUANTIF IED IN THE NEXT YEAR. IF THE DEDUCTION IS ALLOWED IN THE YEAR OF DISCHARGE OF LI ABILITY DE HORS ITS ACCRUAL THE VERY CONCEPT OF MERCANTILE SYSTEM WILL BE MARGINALI ZED. DEDUCTION IN THE YEAR OF PAYMENT INDEPENDENT OF THE YEAR OF ACCRUAL CAN B E ALLOWED ONLY IF DUE TO ONE REASON OR THE OTHER THE LIABILITY IS NOT FINALLY AS CERTAINED. THERE MAY BE A CASE IN WHICH THE PARTY MADE LIABLE TO PAY DOES NOT ACKNOWL EDGE SUCH LIABILITY AS CORRECTLY COMPUTED AND DISPUTE ARISES. IN SUCH AN EVENTUALITY THE LIABILITY WILL ACCRUE WHEN THE DISPUTE IS FINALLY SETTLED INASMUCH AS IT WIL L BE A CASE OF CRYSTALLIZATION OF LIABILITY AT SUCH LATER EVENT. BUT WHERE THERE IS N O DISPUTE AS TO THE LIABILITY TO PAY THE DEDUCTION BECOMES PERMISSIBLE ON THE ACCRUAL O F SUCH LIABILITY IRRESPECTIVE OF THE FACT WHETHER THE BILL IS RAISED AND THE PAYMENT IS MADE SIMULTANEOUSLY OR LATER ON. THUS THE CRUCIAL TEST FOR GRANT OF DEDUCTION U NDER THE MERCANTILE SYSTEM OF ACCOUNTING IS THE CRYSTALLIZATION OF LIABILITY AND NOT ITS QUANTIFICATION. 56. ADVERTING TO THE FACTS OF THE INSTANT CASE IT I S SEEN THAT APMM IS AN ASSOCIATED ENTERPRISE OF THE ASSESSEE WHICH RAISED A BILL ON IT TOWARDS IT COST FOR THE CALENDAR YEAR 2004 ON 18 TH MARCH 2005. THE PROPORTIONATE EXPENSES FOR THE PERIOD 1 ST JANUARY TO 31 ST MARCH 2004 RELATE TO PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2004-2005. WHEN THE ASSESSEE AVAILE D THE BENEFIT OF SUCH SERVICES ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 31 IN THE PRECEDING YEAR THE DEDUCTION TO THAT EXTENT WAS ALSO ALLOWABLE IN THE EARLIER YEAR NOTWITHSTANDING THE FACT THAT SERVICE PROVIDER DID NOT RAISE INVOICE IN THE EARLIER YEAR. FURTHER IT IS NOT A CASE OF THE ASSE SSEE THAT SOME DISPUTE WAS GOING ON ABOUT THE LIABILITY TO PAY SUCH AMOUNT WHICH WAS S UBSEQUENTLY SETTLED AND ONLY THEREAFTER THE INVOICE WAS RECEIVED. IT IS A SIMPL E CASE OF ONE ENTERPRISE RAISING INVOICE OVER THE OTHER ENTERPRISE TOWARDS CERTAIN C HARGES. THE PROPORTIONATE EXPENSES OF RS.8.28 CRORE RELATING TO THE PRECEDING YEAR WERE ALLOWABLE AS DEDUCTION IN ASSESSMENT YEAR 2004-2005 AND NOT IN A SSESSMENT YEAR 2005-2006. 57. THE LEARNED COUNSEL FOR THE ASSESSEE CONTEN DED THAT AS PER THE PRESCRIPTION OF SECTION 40(A) THE AMOUNT IN QUESTION WAS DISAL LOWABLE IN ASSESSMENT YEAR 2004-2005 IN VIEW OF THE FACT THAT NO TAX WAS DEDUC TED AT SOURCE FROM SUCH PAYMENT IN THE PRECEDING YEAR. HE SUBMITTED THAT GO ING BY THE MANDATE OF SECTION 40(A) THE AMOUNT NEEDED TO BE ALLOWED AS DEDUCTION IN ASSESSMENT YEAR 2005-2006 FOR THE REASON THAT TAX WAS DEDUCTED AT SOURCE FROM SUCH PAYMENT IN THE YEAR IN QUESTION WHICH WAS DULY DEPOSITED ON THE RECEIPT OF INVOICE. A COPY OF THE CHALLAN FOR THE DEPOSIT OF DUE TAX AT SOURCE ON 31.3.2005 WAS ALSO PLACED ON RECORD. 58. SECTION 40 STARTS WITH A NON-OBSTANTE CLAUSE P ROVIDING THAT NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38 THE AMOUNTS IN RESPECT OF THE ITEMS SPECIFIED IN VARIOUS CLAUSES UNDER THIS SECTION S HALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE TO TAX UNDER THE HEAD `PROFIT S AND GAINS OF BUSINESS OR PROFESSION. SUB-CLAUSE (I) PROVIDES THAT ANY INTER EST ROYALTY FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT WHI CH IS PAYABLE OUTSIDE INDIA ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVI I-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID DURIN G THE PREVIOUS YEAR OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF TIME PRESCRIBE D U/S 200(1) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. PROVISO TO THIS SUB-CLAUSE (I) PROVIDES THAT WHERE IN RESPECT OF ANY SUCH SUM TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 32 YEAR OR HAS BEEN DEDUCTED IN THE PREVIOUS YEAR BUT PAID IN ANY SUBSEQUENT YEAR AFTER THE EXPIRY OF THE TIME PRESCRIBED U/S 200(1) SUCH SUM SHALL BE ALLOWED AS DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS Y EAR IN WHICH SUCH TAX HAS BEEN PAID. THE NUTSHELL OF THIS PROVISION IS THAT ANY SU M IN THE NATURE OF EXPENDITURE WHICH IS PAYABLE OUTSIDE INDIA OR IN INDIA TO A NON -RESIDENT NOT BEING A COMPANY OR TO A FOREIGN COMPANY ON WHICH TAX IS DEDUCTIBLE BUT THE SAME IS NOT DEDUCTED OR PAID WITHIN THE PERIOD PRESCRIBED U/S 200(1) THE A MOUNT SHALL NOT BE ALLOWED AS DEDUCTION IN THE YEAR OF INCURRING SUCH EXPENDITURE . IF HOWEVER SUCH TAX IS PAID AFTER THE TIME PRESCRIBED THE ASSESSEE SHALL BE EN TITLED TO CLAIM DEDUCTION FOR SUCH EXPENDITURE IN THE YEAR OF PAYMENT. IT CAN BE SEEN THAT SECTION 40(A) HAS PARTLY MODIFIED THE CONCEPT OF DEDUCTION OF LIABILITY ON I TS ACCRUAL UNDER THE MERCANTILE SYSTEM OF ACCOUNTING. RESULTANTLY THE MERCANTILE S YSTEM OF ACCOUNTING AS UNDERSTOOD IN COMMON CONNOTATION NEEDS TO BE HARMON IOUSLY ADJUSTED IN THE LIGHT OF SECTION 40(A) TO THE EXTENT OF THE ITEMS OF EX PENSES COVERED UNDER IT. 59. ADVERTING TO THE FACTS OF THE INSTANT CASE IT IS NOTICED THAT THE ASSESSEE DEDUCTED AND DEPOSITED TAX ON EDP CHARGES FOR THE PERIOD 1.1.2004 TO 31.3.2004 ON 31.3.2005. THIS DATE FALLS WITHIN THE PREVIOUS Y EAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. AS THE PAYMENT OF TAX HAS BEEN MADE AFTER THE DATE PRESCRIBED U/S 200(1) AND IN THE PREVIOUS YEAR RELE VANT TO THE ASSESSMENT YEAR 2005-2006 THE DEDUCTION WAS NOT ALLOWABLE IN RESPE CT OF SUCH EXPENSES IN ASSESSMENT YEAR 2004-2005. THE SAME IN OUR CONSIDE RED OPINION HAS BEEN RIGHTLY ALLOWED BY THE LEARNED CIT(A) IN THE CURRENT YEAR W HEN THE ASSESSEE PAID TAX DEDUCTED ON THE AMOUNT ON THE LAST DAY OF THE PREVI OUS YEAR. 60. HOWEVER IT IS RELEVANT TO NOTE THAT THE LD. CI T(A) HAS RECORDED A CATEGORICAL FINDING THAT THE AO DID NOT GRANT THIS DEDUCTION T O THE ASSESSEE WHILE PASSING THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2004-2005 AND THE APPEAL FILED BY THE ASSESSEE ON THIS ISSUE WAS PENDING BEFORE THE CIT(A ). THE LD. AR INVITED OUR ITA NO.3774/M/2011 & CO.111/M/2011 M/S.MEARSK GLOBAL SERVICE CENTERS (INDIA) P.LTD. 33 ATTENTION TOWARDS A COPY OF THE ORDER PASSED BY T HE LD. FIRST APPELLATE AUTHORITY FOR THE A.Y. 2004-05 AND STATED THAT THIS ISSUE WAS DEC IDED AGAINST THE ASSESSEE. ON A PERTINENT QUERY IT WAS ADMITTED THAT THE ASSESSEE S APPEAL FOR THE A.Y. 2004-05 WAS PENDING BEFORE THE TRIBUNAL. IT WAS ASSERTED TH AT THIS ISSUE WAS NOT TAKEN UP IN SUCH APPEAL. AS THE LD. AR COULD NOT PRODUCE A COP Y OF APPEAL MEMO WITH GROUNDS OF APPEAL BEFORE THE TRIBUNAL FOR THE A.Y. 2004-05 IT NEEDS TO BE ENSURED THAT NO DOUBLE DEDUCTION ON THIS ISSUE IS ALLOWED IN THE CURRENT AS WELL AS THE PRECEDING YEAR. THE AO IS DIRECTED TO VERIFY THIS FACT ABOUT NOT GRANTING OF DOUBLE DEDUCTION. THIS GROUND IS ALLOWED SUBJECT TO SUCH VERIFICATION. 61. IN THE RESULT ASSESSEES CROSS OBJECTION IS DI SMISSED AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 09 TH DAY OF NOVEMBER 2011. SD/- SD/- (N.V.VASUDEVAN) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 09 TH NOVEMBER 2011. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - XV MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI.