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2011 (11) TMI 465 - AT - Income TaxReopening of assessment u/s 148 - stamp duty charges for the registration of lease deed not to be deductible as revenue expenditure - Held that - The time limit for completion of regular assessment has expired and later on the AO 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 & the instant case falls in this category. As AO had the adverse report of the assessee s auditor on the one hand and the certain judgments including that of the Gobind Sugar Mills Ltd. (1997 (7) TMI 16 - SUPREME Court) wherein held that such expenditure is capital in nature thus against the claim of deduction made by the assessee in its return of income, thus such material was definitely more than prima facie and sufficient enough for the AO to entertain a belief about the escapement of income - against assessee. Transfer pricing Adjustment - ALP - rejection of comparables selected by assessee by TPO - CIT(A) retaining comparables selected by assessee, deleted addition on account of ALP - Held 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 mentioning in one line that No companies were identified as comparables . By reason of the fact that the TPO did not discharge his obligation of distinguishing the cases cited by the assessee as comparable, CIT(A) was justified in retaining all such nine cases in his list of comparables for determining the ALP - unable to accept the contention of the DR for excluding certain cases not rejected by the TPO but which in her opinion did not pass the test of comparability. DR cannot be allowed 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. Decided against the Revenue. Exclusion of comparables - Held that - For Tulsyan Technologies Limited and Vishal Information Technologies Limited as 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 these two cases were rightly excluded. Coming to the cases of Cepha Imaging Private Limited and Asian Cerc Information Technology Ltd. (Seg.) these companies are engaged in providing software development services as is evident from their annual reports thus become functionally different. Insofar as WIPRO BPO Solutions Limited is concerned their turnover is eleven times greater than that of the assessee. This company having such a high brand value along with much higher turnover has been rightly excluded by CIT(A). And for Airline Financial Support Services (I) Ltd. has 31.76% of the total service fees received from the controlled transactions with the related parties which makes it incomparable with the assessee. Deduction of prior period expenses - EDP and communication expenses - deduction of tax at source in relevant previous year - Held that - As the payment of tax has been made after the date prescribed u/s 200(1) and in the previous year relevant to the AY 2005-2006, the deduction was not allowable in respect of such expenses in AY 2004-2005. The same has been rightly allowed by the CIT(A) in the current year when the assessee paid tax deducted on the amount on the last day of the previous year. Since assessee s appeal for the A.Y. 2004-05 was pending before the tribunal hence, AO is directed to verify this fact about not granting of double deduction. This ground is allowed subject to such verification.
Issues Involved:
1. Validity of reassessment proceedings initiated under Section 148 of the Act. 2. Deletion of addition made by the AO on account of stamp duty charges. 3. Adjustment to Arm's Length Price (ALP). 4. Allowing of prior period EDP and communication expenses. Detailed Analysis: 1. Validity of Reassessment Proceedings Initiated Under Section 148: The assessee filed its return declaring a loss, which was processed under Section 143(1). The AO noticed that the assessee had wrongly claimed stamp duty and filing fees as revenue expenditure, despite the auditors classifying it as capital expenditure. Consequently, a notice under Section 148 was issued for reassessment. The assessee challenged this initiation, but the CIT(A) upheld the validity, noting the widened scope of Section 147 post-01.04.1989. The Tribunal affirmed this, emphasizing that the AO had a reasonable belief about income escapement based on the auditor's report and relevant judgments, such as Gobind Sugar Mills Ltd. v. CIT. 2. Deletion of Addition Made by the AO on Account of Stamp Duty Charges: The AO treated the stamp duty charges for lease registration as capital expenditure, relying on the Supreme Court judgment in Gobind Sugar Mills Ltd. The CIT(A) overturned this, but the Tribunal restored the AO's view, noting the Supreme Court's stance that such expenses are capital in nature. The assessee's reliance on Bombay High Court judgments was not accepted due to the Supreme Court's approval of the Calcutta High Court's contrary view. 3. Adjustment to Arm's Length Price (ALP): The assessee, a captive service provider, used the Transactional Net Margin Method (TNMM) to benchmark its international transactions, concluding they were at ALP. The TPO, however, selected twelve comparables and proposed an adjustment. The CIT(A) revised this list, including nine comparables from the assessee's study and five from the TPO's list, resulting in an arithmetic mean margin of 12.71%. The Tribunal upheld the CIT(A)'s approach, rejecting the Revenue's objections and noting that the TPO had not justified excluding the assessee's comparables. 4. Allowing of Prior Period EDP and Communication Expenses: The AO disallowed expenses claimed for a prior period, but the CIT(A) allowed them, noting that the invoice was received in the current year and the expenses were not allowed in the previous year. The Tribunal agreed, emphasizing that under the mercantile system, expenses are deductible when the liability accrues, not when quantified. Since the tax was deducted and paid in the current year, the deduction was permissible. However, the Tribunal directed the AO to ensure no double deduction was allowed for the same expenses in both years. Conclusion: The Tribunal upheld the validity of the reassessment proceedings, restored the AO's view on stamp duty charges as capital expenditure, affirmed the CIT(A)'s approach to determining ALP, and allowed the prior period expenses subject to verification of no double deduction. The Revenue's appeal was partly allowed, and the assessee's cross objection was dismissed.
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