Transfer Pricing – Comparable rejected by TPO without giving cogent reasons must be presumed to be comparable and DR cannot argue to the contrary

ACIT vs. Maersk Global Service Centre (ITAT Mumbai) -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 observed in this case that the scope of argument of the Departmental Representative should be confined to supporting or defending the impugned order and he cannot be permitted to set up an altogether different case.

INCOME TAX APPELLATE TRIBUNAL MUMBAI

ITA No. 3774/Mum/2011 : Asst. Year: 2005- 2006

The Asst. Commissioner of Income- Tax 

Vs.

M/s. Maersk global Service Centre (India) P. Ltd., (Formerly known as M.S. Maersk Info tech Services India P.Ltd.)

CO No. 111/Mum/2011 : Asst. Year 2005- 2006

M/s.Maersk global Service Centre (India) P. Ltd., (Formerly known as M.S. Maersk Info tech Services India P.Ltd.)

Vs.

The Asst. Commissioner of Income- Tax

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 the 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 assessee’s cross objection is 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 3 1.10.2005 declaring loss of Rs. 4,72,81,969. The return was processed u/s 143(1). Thereafter, on the perusal of the records it was noticed by the Assessing Officer that the assessee had debited an amount of Rs. 17,26,280 as stamp duty and filing fee out of which Rs. 15,26,500 was capital expenditure. It was also noticed that the assessee wrongly claimed this deduction despite the fact that auditors of the assessee had also classified such amount as capital expenditure in the tax audit report. As the income chargeable to 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 challenged the initiation of reassessment proceedings before the A.O. Relying on certain decisions, set out on page 2 of the assessment order, the Assessing Officer 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 judgements including that of the Hon’ble jurisdictional High Court in CIT Vs. Cinceita (P) Ltd. [(1982) 137 ITR 652 (Bom.)]. The learned CIT(A) noticed that the scope of section 147 has been widened with effect from 01.04.1989. As the original return was simply processed u/s 143(1)(a) and no assessment was made, the learned 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 assessment 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 30.1 0.2005. The return was processed u/s.143(1) on 16.1.2006.

The assessee debited the Stamp Duty and Filing fees 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 audit report.

However, the same is not disallowed by the assessee in the computation of income.

In view of the above, I have reason to believe that the income of Rs. 15,26,500/- being the capital expenditure, has escaped assessment.

Issue notice u/s 148.”

5. From the above reasons it is palpable that reassessment 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 immediately preceding year. In the previous year relevant to the assessment year under consideration the assessee entered into lease agreement with M/s. Lakeview Developers for acquiring certain premises at Hiranandani Business Park, Powai with effect 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 agreement, 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 Officer 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 expenditure. 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 Assessing Officer to be capital expenditure. The Hon’ble jurisdictional High Court held such expenditure to be revenue in nature deductible u/s 37(1) of the Act. In reaching this conclusion, the Hon’ble jurisdictional High Court relied on its earlier judgment in the case of CIT Vs. Hoechst Pharmaceuticals Ltd. [(1978) 113 ITR 877 (Bom.)] in which case brokerage and stamp duty expenditure incurred for obtaining a lease of office premises for a short duration of five years was held to be deductible as revenue expenditure u/s 37(1). In Richardson Hindustan Ltd. Vs. CIT [(1988) 169 ITR 516 (Bom.)], the Hon’ble 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 relied on the judgment of the Hon’ble 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 expenditure was liable to be capitalised. 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 incurred some expenses on account of stamp fee, registration charges etc. which were claimed as revenue expenditure. The ITO rejected such claim on the ground that the same had been incurred for acquiring the right to run a factory on lease and hence it was capital expenditure. Eventually the Hon’ble Supreme Court upheld the view of the Hon’ble 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 Honourable Calcutta High Court in Gobind Sugar Mills Ltd. (supra), in deciding the issue against the assessee, also took note of the judgement of the Honourable 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 judgements taking the similar view. In para 6 of Gobind Sugar Mills Ltd. (supra), the Honourable Calcutta High Court has discussed the judgement of the Honourable Bombay High Court in Hoechst Pharmaceuticals Ltd. (supra) and held that it “overlooked” certain relevant aspects in deciding the issue in favour of the assessee. In other words, the Honourable Calcutta High court did not concur with the view taken by the Honourable Bombay High Court in Hoechst Pharmaceuticals Ltd. (supra) while deciding the issue against the assesse, contrary to the view of the Honourable Bombay High Court in the afore noted case. The very fact that this judgement of the Honourable Calcutta High Court in Gobind Sugar Mills Ltd. (supra) has been upheld by the Honourable Supreme Court, on the 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 Officer to entertain a belief about the escapement of income on this issue. The situation would have been different if the judgement of the Honourable Bombay High Court in Hoechst Pharmaceuticals Ltd. (supra) had not been adversely commented upon by the Honourable Calcutta High Court in the case of Gobind Sugar Mills Ltd. (supra) and such later judgement had not been approved by the Honourable Supreme Court. In that case the hitherto consistent view of the Honourable jurisdictional High Court on the point would have prohibited the A.O. from believing that the expenditure 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 judgement of the Honourable Calcutta High Court has approved by the Honourable 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 income.

9. It is further relevant to note that the assessee’s 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 assessee’ s auditor also held such expenditure to be capital in nature. Despite that the 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 respect has escaped assessment.

10. The learned Departmental Representative has rightly 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 judgements of the Honourable 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 judgements on the point are clear authorities for the proposition that there should be some prima facie material on the basis of the which the Department can reopen the case. The sufficiency of such material is not a factor that should 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 not deductible or some income chargeable to tax has escaped assessment. At the juncture of initiation of reassessment proceedings, the prima facie belief of the AO about the escapement of income suffices the condition of `reason to believe’ 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 reassessment 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 escapement of income, albeit it is not necessary that the AO should have conclusive proof of escapement of income at the stage of the issuance of notice for reassessment. 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 conclusion about the escapement in the proceedings to follow. Just initiating reassessment without any cogent reason or material is not permissible.

12. As in the instant case the AO had the adverse report of the assessee’s auditor on the one hand and the certain judgements including that of the Honourable Supreme Court in Gobind Sugar Mills Ltd. (supra) on the other, against the claim of deduction made by the assessee in its return of income, 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 income. As such we are not persuaded to accept this contention advanced on behalf of the assessee.

13. The learned Counsel for the assessee assailed the initiation of reassessment proceedings from one more angle by contending that the AO relied on the auditor’s report and certain decisions for initiating the reassessment, which were already there on record. It was put forth that in the absence of any fresh or new material coming in the possession of the AO casting doubt over 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 was argued that having completed the assessment u/s. 143(1), the AO missed the bus to 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 period provided for the reassessment, then the time limit for making regular assessment u/s 153(1) would become otiose. It was thus put forth that there being no `new material’ with the AO at the time of initiation of reassessment proceedings, he should not be permitted to take action u/s 147.

14. We find the above contentions sans merits. It is imperative to note at the threshold that in the instant case no regular assessment 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-deductibility of such expenditure at the time of original assessment, is devoid of any merit. Only when regular assessment is made that the AO gets opportunity of applying his mind to various aspects concerning the assessment. It is relevant to note that the scope of section 147 has been amplified with effect from 01.04.1989. Apart from the prescription of main section 147 dealing with escapement of income, Explanation 2 provides for the deemed cases of escapement of income. This Explanation 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; where return of income has been furnished by the assessee but no assessment has been made; and where an assessment has been made. The instant case squarely 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 by 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 originally made by the Assessing Officer but subsequently it comes to his notice that the assessee has understated the income, it shall be deemed to be a case of income escaping assessment. Action u/s 147 in such circumstances will be valid subject to the fulfilment of other requisite conditions.

15. Adverting to the facts of the present case it is noticed that the assessee filed it return of income. No assessment was made. Only the return was processed u/s 143(1). Subsequently when the Assessing Officer observed that the deduction claimed by the assessee was not in consonance with the audit report and the law declared by the Honourable Supreme Court in Gobind Sugar Mills Ltd. (supra), he entertained a prima facie belief that the income chargeable to tax has escaped assessment. We are unable to read the coming of a `new material’ into existence after the filing of return as a pre-condition for assessment 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 already on record or some new material coming in his 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 emanating from some `new material’ or an existing material is wholly irrelevant 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 reassessment 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 belief 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 different conclusion that the item of expenditure which he earlier considered as deductible is not deductible or the item of income which was earlier considered as exempt is taxable. If in such circumstances he entertains a belief that his earlier 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 AO 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 material’ comes into existence on which basis the AO entertains a belief that there is an escapement of income, he can validly take recourse to the provisions of reassessment 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-requisite for the reassessment is applicable only where he made an assessment earlier. It will not be applicable if no assessment was originally made and the AO is now going to proceed with assessment u/s 147 for the first time.

19. It is pertinent to note that section 147 does not deal only with the cases of reassessment but also with the assessment for the first time. It can be noticed from the language of section 147 which provides in unequivocal terms that : `If the Assessing Officer, has reason to believe that any income 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 assessment was earlier made either because of the assessee not filing the return or the AO not making assessment despite the assessee furnishing the return 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 assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section ………….’. It, therefore, clearly transpires that where the assessment was originally made and the AO wants to make reassessment under section 147, he cannot do so in the absence of `new material’ coming in his possession after the making of the original assessment. If he ventures to do so, it will amount to change of opinion constraining him to proceed. But where no 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 all in the first instance, the yardstick for judging the new or old material with reference to the starting point for defining a material as new or old, will never be available. As we are confronted with a case in which no assessment was originally made, 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 assigned the fate of dismissal. If the contention advanced on behalf of the assessee in this respect is accepted that in the absence of any `new material’ coming in the possession 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 sustainable.

20. The Honourable 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 jurisdiction 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 treated asan order of assessment and there being no assessment u/s 143(1)(a), the question of change of opinion does not arise. In our considered opinion, the factual panorama prevailing in the present case is on all fours with that before the Honourable Supreme Court. In the light of the clear cut application of the ratio decidendi of the judgement in Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) to the present case, we are of the considered opinion 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. AR’s contention in this regard was about the AO gaining more time for assessment in the garb of reassessment. It was argued that if the AO is allowed to take action u/s 147 for making assessment, then the time shorter time limit available for assessment will become meaningless. We rightly share the concern expressed by the learned A.R. that the Assessing Officer should not be allowed to resort to the provisions of section 147 thereby usurping more time than that permissible for making regular assessment u/s 143(3). This argument though attractive, on deep scrutiny, turns out to devoid of legal sanctity in the present context.

22. It will be relevant to note that the foundation for assessment has been set out u/s 143(3), the relevant part of which reads as under :-

(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 requiring him, on a date to be specified therein, either to attend his office or to 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 note 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 escaped 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)

24. When we read the above extracted portions of section 143(3) in juxtaposition to section 147, it can be easily observed that there 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 income, action u/s 147 is possible only when the AO has reason to believe that any income 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 reason to believe that any income chargeable to tax has escaped assessment. Such assessment is done to ensure the assessee not understated the income. On the contrary, 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 which the AO believes that income chargeable to tax has escaped assessment. Thus it follows that section 143(3) empowers the AO to make assessment for ensuring that the assessee has not understated the income. It is quite possible that on such assessment u/s 143(3), the AO may not find any understated income, thereby accepting 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 also 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 the Hon’ble 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 notice 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 addition is made, then the entire assessment u/s 147 is vitiated.

25. The natural corollary which, therefore, follows 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 issuing notice u/s 148 without there being any positive reason about the escapement of definite income, his action will be treated as bad in law lacking the inherent jurisdiction. If however, the time limit for completion of regular assessment has expired and later on the Assessing Officer entertains reasons to believe that any income chargeable to tax has escaped assessment, he is very much within his power to issue 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 ground no.1 raised by the assessee in its cross objection.

27. Now we take up ground no. 2 of the Revenue’s appeal which is partly related to the above discussed ground no. 1 of the assessee’s 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 charges on registration of lease deed amounting to Rs. 15,26,500 which were claimed as revenue expenditure by relying inter alia on the judgement of the Honourable Bombay High Court in the case of Cinceita (P) Ltd. (supra). The Assessing Officer, relying on the judgement of the Honourable Supreme Court in the case of Gobind Sugar Mills Ltd. (supra) and others, held that such expenditure was liable to be capitalised. He, therefore, did not grant deduction on this account. The ld. CIT(A) overturned 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 judgements of the Honourable Bombay High court on this issue. We have also adverted to the fact that the Honourable Calcutta High Court in the case of Gobind Sugar Mills Ltd. (supra) did not concur with the view expressed by the Honourable Bombay High court in the case of Hoechst Pharmaceuticals Ltd. (supra). This judgement of the Honourable Calcutta High Court has been approved by the Honourable Supreme Court in the case of Gobind Sugar Mills Ltd. (SC) (supra). The ratio of this judgement is that the expenditure on account of stamp fees, registration charges and solicitors fees etc. for registration of a lease deed for obtaining another sugar factory cannot be allowed as revenue expenditure. During the course of hearing, the attention of the learned A.R. was drawn towards another judgement of the Honourable 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 to the lessor for the entire period of lease adjustable against the stipulated monthly rent is a capital expenditure. In holding so the Hon’ble Supreme Court applied the mandate of its earlier judgement in Pingle Industries Ltd. Vs. CIT [(1960) 40 ITR 67 (SC)]. Though the learned A.R. initially relied on three judgements of the Honourable Bombay High Court, chose not to distinguish the judgements of the Honourable Supreme Court as noted above, by impliedly accepting that these judgements govern the facts of the case and the expenditure is not deductible as revenue. On the other hand, the learned Departmental Representative submitted that the ratio of the judgement 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 these facts we set aside the impugned order on this issue and restore the view taken by the Assessing Officer on this point. This ground of the Revenue’s appeal is allowed.

29. The first ground of the Revenue’s appeal is against the deletion of addition on account of adjustment to Arm’s Length Price (hereinafter called “ALP”). Briefly stated the facts of this ground are that the assessee is a captive service provider rendering back office support services to its Associated Enterprises (hereinafter called “AEs”). The activities undertaken by the assessee are essentially IT enabled services such as data entry, transcription and data of shipping documents such as bill of leading etc. For the year ending on 3 1.03.2005 the assessee earned an adjusted Net Cost plus Margin (hereinafter 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 considered transactional net margin method (hereinafter called “TNMM”) as the most appropriate method with NCP margin as the profit level indicator to benchmark its international transactions with AEs. The assessee conducted analysis for determining the ALP of international transactions pertaining to the provisions of back office support services. Based on data available, the weighted average Arithmetical Mean of NCP margins earned by the comparable independent companies performing similar functions, was determined at 7.62%. As the assessee earned NCP of 7.90% from its international transactions, it was concluded that such transactions with AEs were at ALP. The Assessing Officer made reference to TPO for computation of ALP in respect of international transactions. The TPO, vide his order 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 comparables”. He selected twelve companies as comparable with the assessee’s 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 asses see was called upon to explain as to why the arithmetic mean of 27.80% of twelve com-parables chosen by him should not 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 year’s expenses debited to the profit and loss account for the current year and further there was difference in depreciation at Rs. 1.86 crores, which was excess charged 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 accepted the assessee’s contentions and allowed deduction on account of expenses 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 the 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 deduction could be given on this score. In the final analysis, the TPO determined operating profit margin of the assessee at 7.89%. Applying the arithmetic mean of 27.80% of twelve com-parables chosen by him, the TPO proposed adjustment in the ALP to the tune of Rs. 10.49 crores. The A.O. made 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 assessee’s international transactions after recording that the assessee did not identify any comparables. This finding of the TPO about the assessee not identifying any comparables, at the very outset, is erroneous. From the Transfer pricing study conducted 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.	Span-co Tele systems 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 TPO’s determination of the ALP, which the AO refused to take cognizance of on 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 indicates 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 asseessee’ s transfer pricing study, there remains no doubt that such details were available before him. The assessee reiterated the detailed reasons before the first appellate authority 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 transactions 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 the assessee’ s contention. After considering the entire material available on record and eliminating the inconsistencies in the TPO’s 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
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 assessee 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 the 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 com parables drawn by the ld. CIT(A). We have gone through transfer pricing study conducted by the 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 cases is very much there in assessee’ s transfer pricing study, which was provided to TPO as well. No reasons worth the name have been assigned by the TPO while black-outing such list of comparable cases cited by the assessee. Now the question arises 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 determining whether or not these were comparable.

36. The Special Bench of the Tribunal in the case of Aztec Software & Technology Services Ltd. Vs. ACIT [(2007) 107 ITD 141 (Bang.) (SB)] has held that the burden of demonstrating the ALP of an international taxation, is on the tax payer and when such onus is discharged and the tax authorities propose any variation in the method of com-parables selected by the taxpayer, they are required to show that the com-parables selected by the assessee were not in fact comparable. This decision has been rendered by a five Member Special Bench in the context of transfer pricing provision amply holding that the primary duty to disclose comparable cases is that of the assessee. If the Revenue authorities are not satisfied with the ALP and the supporting documents furnished by the assessee, the responsibility of determination of the ALP is shifted to the Revenue authorities who then need to determine the same in accordance with the statutory regulations and on the basis of material collected or available on record. It is, therefore, manifest that the initial prerogative of choosing the comparable cases is always that of the assessee. It is but natural also for the 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 the 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 whether or not these are, in fact, comparable. If TPO agrees with the com parables given by the assessee, the matter ends. If he wants to exclude any of such com-parables, then it is for him to justify the exclusion by adducing cogent reasons. It is not 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 such 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 reasons given by the TPO with a view to determine as to whether or not such cases were rightly excluded. But where the TPO fails to give any reason for the exclusion of the com-parables 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.

37. As per section 92CA(4), at the material time :`On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C having regard to the arm’s length price determined under sub-section (3) by the Transfer Pricing Officer’. 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 determined by the TPO or observe departure there from. Once an appeal is preferred before the CIT(A) against the order of AO on the addition towards adjustments to the ALP, the whole exercise done by the TPO, which stands bodily adopted in the assessment order in case no adjustment is carried out by the AO to the ALP determined by the TPO, automatically stands challenged. As only the assessee can file appeal before the first appellate authority and not the Revenue, naturally it is a forum for the redressal of the grievances of the assessee and not the Revenue. In such a situation, the duty of the ld. CIT(A) gets restricted to examining the order appealed before him to find out whether the assessee has rightly challenged it. As the assessee’s 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 discussing 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 assessment, 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 assessee 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 facts and circumstances of each 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 which may or may not be exercised. Non-discharge of duties by the CIT(A) affects the validity of his order, but not exercising any power does not have this impact. 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 heard that the ld. CIT(A) ought to have examined the work done by the AO/TPO to adversely affect the assessee’ s interest. It is normally argued on behalf of the Revenue 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 also it is important to note that this position is only in the realm of his powers and not duties. The duty of the CIT(A) is to dispose of the appeal on the grounds raised 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 should have examined the com-parables given by the assessee to find out whether 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 nonacceptance, he simply set aside all such cases by mentioning in one line that “No companies were identified as com-parables”. By reason 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 com-parables 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. Referring to the material on record, it was stated that in certain cases, the comparison was not proper. She argued that 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 objected to this argument advanced on behalf of the Revenue by stating that the learned 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 learned Departmental Representative, while arguing the appeal, can validly improve the order of the AO/TPO by contending that the assessing authority was 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 before the Tribunal that a particular case of high profit rate was not comparable with that of the case before the bench on account of positive reasons pointed out and hence the same be excluded. The bench observed in para 30 of the order that due to new implementation of the transfer pricing legislation in India both the tax payers as well as consultants were not fully conversant with this branch of taxation. It was also noted that the case sought to be removed by the assessee had extra ordinary profit and huge turnover besides difference in assets 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, remitted the matter to the file of A.O. for de novo examination of the assessee’s 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 implementation of transfer pricing provision and the tax payers were not fully conversant with such provisions. This decision is thus not of any help to the Revenue.

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 opinion did not pass the test of comparability. It is evident that Departmental Representative has the duty to defend the order of the Assessing Officer while arguing 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 order 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 Departmental Representative is allowed to fill in the gaps left by the AO/TPO it would 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 situation. Suppose a particular deduction is permissible on the cumulative satisfaction of three conditions. The AO examines the case and finds the very first condition 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 subsequently found to be fulfilled in the appellate proceedings, the Departmental Representative 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 case. Rather it would amount to supporting the view point of the Assessing Officer on the question of deduction. But in no circumstance the Departmental Representative 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 observed in this case that the scope of argument of the Departmental Representative should be confined to supporting or defending the impugned order and he cannot be permitted 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 allowed to argue that certain cases included by the assessee in the list of com-parables, 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 different if the TPO had found a case to be incomparable say on account of functional 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 ground. Presently we are dealing with a situation in which the TPO, by not adversely commenting upon the assessee’s com-parables, impliedly accepted such cases as comparable. Now it is too late in the day for the ld. DR to argue that such cases were not comparable. If the argument on the behalf of the Revenue in this regard is allowed to be made, it will amount to permitting the ld. DR to argue contrary to what has been done by the TPO. Obviously it is not permissible within the 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 contention advanced by the ld. DR that the TPO was not justified in reducing the expenses 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 factor, voluntarily granted deduction for earlier year’s 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 expenses.

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 assessee as per Table C.

47. Now we turn to the list of twelve comparable cases drawn by the TPO as per Table B. It is found that the case of Nucleus Netsoft & GIS India Ltd. finds place in the list of assessee’ s com-parables also. As such no infirmity can be found in the impugned order in including this case in the final list of com-parables. Out of the remaining eleven cases, the learned CIT(A) has included 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 Limited and Vishal Information Technologies Limited are concerned, it is noticed from their annual accounts that these companies outsourced a considerable portion of their business. As the assessee carried out entire operations by itself, in our considered opinion, these two cases were rightly excluded. Coming to the cases of Cepha Imaging Private Limited and Asian Cerc Information Technology Ltd. (Seg.), we find that these companies are engaged in providing software development services as is evident from their annual reports available on pages 52 onwards and 64 on wards of the paper book. Thus these companies become functionally different. Insofar as WIPRO BPO Solutions Limited is concerned, we find that their turnover is eleven times greater than that of the assessee. This company having such a high brand value along with much higher turnover, in our considered opinion, has been rightly excluded by the ld. CIT(A). The last case being that of Airline Financial Support Services (I) Ltd. has 31.76% of the total service fees received from the controlled transactions with the related parties. This fact is evident from pages 62 of the paper book, which makes it incomparable with the assessee.

51. The ld. AR submitted that if the ground of the Revenue’s appeal on transfer pricing adjustments is not allowed, then ground nos. 2 to 9 of the assessee’s cross objection should be treated as not pressed. In view of our decision in not accepting the ground of the Revenue on this issue, these grounds of the assessee’s cross objection fail.

54. We have heard the rival submissions and perused the relevant material on record. Page 163 of the paper book is a copy of invoice dated 18^th March, 2005 raised by APMM towards assessee’ s 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 Rs.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 crore towards proportionate expenses for the preceding year.

55. The assessee is admittedly following mercantile system of accounting. In such a method, the expenses are allowed as deduction when liability to pay arises. Even if such liability is not discharged in the year, the assessee is entitled to claim deduction if such liability has arisen and gets crystallised in the current year. Quantification aspect of such liability is not relevant in determining the stage of accrual of liability to pay. In other words, if the liability to pay has crystallised but the exact quantification of such expenditure is not possible, the deduction is allowable towards such liability only in the year to which it pertains. It is impermissible to claim deduction towards such expenses in the succeeding year simply on the ground that the liability was quantified in the next year. If the deduction is allowed in the year of discharge of liability de hors its accrual, the very concept of mercantile system will be marginalised. Deduction in the year of payment, independent of the year of accrual, can be allowed only if due to one reason or the other the liability is not finally ascertained. There may be a case in which the party made liable to pay does not acknowledge 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 will be a case of crystallisation of liability at such later event. But where there is no dispute as to the liability to pay, the deduction becomes permissible on the accrual of 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 under the mercantile system of accounting is the crystallisation of liability and not its quantification.

56. Adverting to the facts of the instant case it is 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 3 1^st March, 2004 relate to previous year relevant to assessment year 2004-2005. When the assessee availed the benefit of such services 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 assessee that some dispute was going on about the liability to pay such amount, which was subsequently settled and only thereafter the invoice was received. It is a simple case of one enterprise raising invoice over the other enterprise towards certain charges. 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 assessment year 2005-2006.

57. The learned Counsel for the assessee contended that as per the prescription of section 40(a), the amount in question was dis-allowable in assessment year 2004-2005 in view of the fact that no tax was deducted at source from such payment in the preceding year. He submitted that going 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 providing 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, shall not be deducted in computing the income chargeable to tax under the head `Profits and gains of business or profession’. Sub-clause (i) provides that any interest, royalty, fees for technical services or other sum chargeable under this Act which is payable outside India on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or after deduction has not been paid during the previous year or in the subsequent year before the expiry of time prescribed 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 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 year in which such tax has been paid. The nutshell of this provision is that any sum, 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 amount 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 entitled 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 its accrual under the mercantile system of accounting. Resultantly, the mercantile system of accounting as understood in common connotation needs to be harmoniously adjusted in the light of section 40(a), to the extent of the items of expenses 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 year 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 relevant to the assessment year 2005-2006, the deduction was not allowable in respect of such expenses in assessment year 2004-2005. The same, in our considered opinion, has been rightly allowed by the learned CIT(A) in the current year when the assessee paid tax deducted on the amount on the last day of the previous year.

60. However it is relevant to note that the ld. CIT(A) has recorded a categorical finding that the AO did not grant this deduction to 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 attention towards a copy of the order passed by the ld. first appellate authority for the A.Y. 2004-05 and stated that this issue was decided 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 that this issue was not taken up in such appeal. As the ld. AR could not produce a copy 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.