M/s. Deloitte Tax Services India P. Ltd, Hyderabad V. The DCIT, Circle - 1(2), Hyderabad

ITA 1479/HYD/2010

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6058 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 20-09-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 29-11-2010
• Court: TRIBUNAL
• Department Lawyers: MOHAN KUMAR SINGHANIA
• Assessee Lawyers: S RAMA RAO
• Keywords: Transfer pricing; Double taxation relief; International transaction; Retrospective amendment; Revised return; Capital expenditure
• Section: 139(5); 131; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 1476/HYD/2010 2006-07 M/S. DELOITTE SUPPORT SERVICES INDIA PVT. LTD., HYDERABAD [PAN: AABCD9761D] DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(2), HYDERABAD 1477/HYD/2010 2006-07 M/S. DELOITTE AND TOUCHE ASSURANCE AND ENTERPRISE RISK SERVICES INDIA PVT. LTD., HYDERABAD [PAN: AABCD9794N] 1478/HYD/2010 2006-07 M/S. DELOITTE FINANCIAL ADVISORY SERVICES INDIA PVT. LTD., HYDERABAD [PAN: AABCD9760C] 1479/HYD/2010 2006-07 M/S. DELOITTE TAX SERVICES INDIA PVT. LTD., HYDERABAD [PAN: AABCD9771F] DEPUTY COMMISSIONER OF INCOME TAX, (I/C.) CIRCLE-1(2), HYDERABAD FOR ASSESSEE : SHRI S. RAMA RAO, AR FOR REVENUE : SHRI MOHAN KUMAR SINGHANIA, CIT-DR DATE OF HEARING : 20-09-2016 DATE OF PRONOUNCEMENT : 28-10-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE FOUR APPEALS ARE BY ASSESSEE AGAINST THE ORDERS OF THE ASSESSING OFFICER [AO] READ WITH THE ORDERS OF THE DI SPUTE RESOLUTION PANEL [DRP] U/S. 144C(5) AND 8 OF THE OF TH E INCOME TAX ACT [ACT]. SINCE COMMON ISSUE IS INVOLVED IN ALL THE SE APPEALS, THEY ARE HEARD TOGETHER AND DECIDED BY THIS ORDER. I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 2 -: 2. BRIEFLY STATED, ASSESSEES IN THIS GROUP ARE INDIAN COMPANIES OF M/S. DELOITTE GROUP PROVIDING VARIOUS SERVICES. T HERE ARE TRANSFER PRICING [TP] ADJUSTMENTS IN ASSESSEES CASES AND ASSESSEES HAVE PREFERRED MUTUAL AGREEMENT PROCEDURE [MAP], AS PROVIDED UNDER ARTICLE 27(1) OF INDO-USA DOUBLE TAXATION AVOID ANCE AGREEMENT [DTAA]. THE COMPETENT AUTHORITIES OF BOTH TH E COUNTRIES AFTER HAVING EXAMINED THE FACTS OF THE CASE AND ISSUES INVOLVED HAVE ARRIVED AT A RESOLUTION WITH RESPECT TO ASSESSMENT OF THE INCOMES OF ASSESSEE IN TERMS OF SECTION 90 OF THE ACT, READ WITH ARTICLE 27(1) OF INDO-USA, DTAA AND RULE 44 OF IT RU LES 1962. 3. PURSUANT TO THE ABOVE RESOLUTION, ASSESSEE RECEIVED A LETTER DT. 02-11-2015 FROM AO FOR AYS. 2005-06 TO 210-11, IN PURSUANT TO THE LETTERS RECEIVED FROM THE BOARD DT. 21-10-2015 C ONSEQUENT TO THE MUTUAL AGREEMENT. ASSESSEE FILED LETTER OF ACCEP TANCE DT. 01-12-2015 IN CONNECTION WITH THE MAP RESOLUTIONS. I N PURSUANT TO THAT, ASSESSEE WITHDREW THE TP GROUNDS OF APPEAL FI LED IN THE CAPTIONED APPEALS, PARTICULARLY GROUND NOS. 2 TO 10. HOWEVER, ASSESSEE IS CONTESTING THE ISSUE ONLY ON GROUND NO.1 W HICH IS AS UNDER: 1. NON-COGNIZANCE OF REVISED MARGIN AND REVISED R ETURN 1.1 THE LEARNED AO ERRED IN IGNORING THE REVISED RETURN OF INCOME FILED BY THE APPELLANT CLAIMING DEDUCTION OF RS. 4,25,13,544 /- UNDER SECTION 10A OF THE ACT ON THE BASIS THAT THE REVISED RETURN IS NOT VALID AS CONTEMPLATED UNDER SECTION 139(5) OF THE ACT AS THE RE WAS NO OMISSION OR WRONG STATEMENT IN THE ORIGINAL RETURN OF INCOME . 1.2 THE LEARNED AO ERRED IN NOT APPRECIATING THE FACT T HAT THE REVISED RETURN WAS FILED IN ORDER TO CLAIM DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF SUO MOTO ADJUSTMENT OF ARMS LENGT H PRICE MADE ON THE BASIS OF UPDATED FINANCIAL DATA OF COPTEMPORANE OUS AND COMPARABLE COMPANIES. I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 3 -: 1.3 THE REVISED RETURN FILED BY THE APPELLANT WAS IN AC CORDANCE WITH LAW AND THE LEARNED AO OUGHT TO HAVE CONSIDERED THE SAM E. 3.1. THIS GROUND IS SIMILAR IN ALL THE APPEALS EXCEP T THE AMOUNT OF DEDUCTION CLAIMED U/S. 10A CONSEQUENT TO SUO MOTTO ADJUSTMENT MADE BY ASSESSEE IN THE REVISED RETURN. 4. THE FACTS LEADING TO THE PRESENT APPEALS ON GROUND NO. 1 IS THAT ASSESSEES FILED AN ORIGINAL RETURN ADMITTING CERTAI N RECEIPTS FROM THE ASSOCIATED ENTERPRISE [AE] ALONG WITH A TP REPORT. AFTER THAT ASSESSEE SUO MOTTO REVISED THE RECEIPTS FROM THE AE THEREBY OFFERING MORE INCOME AS A SUO MOTTO ADJUSTMENT AND JUSTIFIED THE SAME BY FILING A REVISED TP REPORT. ASSESSEE ACCORD INGLY, CLAIMED A HIGHER DEDUCTION U/S. 10A, INCLUDING THE SUO MOTTO ADJUSTMENT MADE IN THE REVISED RETURN. THERE IS NO CHANGE IN RE TURNED INCOME. THE AO AS WELL AS THE DRP TREATED THE REVISED RETURN AS INVALID AND COMPUTED THE ALP ADJUSTMENT ON THE BASIS OF THE ORIGINAL RETURN FILED. IT IS THE CONTENTION OF ASSESSE E THAT THE REVISED RETURN SHOULD BE TAKEN INTO ACCOUNT FOR WORKIN G OUT THE ADJUSTMENT. ON THIS CONTENTION, ASSESSEES IN THIS GROUP ARE PURSUING THE APPEALS, EVEN THOUGH THEY ARE SUPPOSED TO BE WITHDRAWN CONSEQUENT TO MAP. FOR THE SAKE OF CLARITY, THE FACTS IN ITA NO. 1476/HYD/2010 IN M/S. DELOITTE SUPPORT SERVICE S INDIA PVT. LTD., ARE DISCUSSED IN DETAIL. 5. ASSESSEE M/S. DELOITTE SUPPORT SERVICES INDIA PVT. L TD ORIGINALLY FILED RETURN OF INCOME DECLARING A TOTAL I NCOME OF RS. 11,76,610/- AFTER CLAIMING 10A DEDUCTION OF RS. 2,37, 68,801/-. IT HAS ELECTRONICALLY UPLOADED THE RETURN ON 26-10-2006 A ND MANUALLY FILED BEFORE THE AO ON 31-10-2006. IT HAS D ECLARED THE I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 4 -: SAME INCOME IN THE REVISED RETURN FILED ELECTRONICALL Y ON 25-04-2007 AND MANUALLY ON 29-05-2007. HOWEVER, THE ARMS LENGTH PRICE [ALP] AS PER ORIGINAL TP STUDY AT RS. 40, 48,86,457/- WAS REVISED TO RS. 42,36,31,201/-. CONSEQUENT TO THE I NCREASE IN THE SUO MOTTO ADJUSTMENT OF ALP IN THE REVISED TP STUDY, ASSESSEE ALSO REVISED THE CLAIM U/S. 10A TO RS. 4,25,13,544/- (THE SAME AMOUNT AS THE INCREASED IN ALP). TOTAL INCOME HOWEVE R, IS SAME IN BOTH THE RETURNS. EVEN THOUGH, ASSESSEE FILED ELECTRON ICALLY UPLOADED RETURN ON 25-04-2007, IT HAS OBTAINED REVISED FORM 56F AND REVISED FORM 3CEB ON 24-05-2007 I.E., JUST BEFOR E FILING MANUAL RETURN. THE SUO MOTTO ADJUSTMENT MADE IN THIS ASSESSMENT YEAR BY ASSESSEE IS TO THE TUNE OF RS. 1,87, 44,743/-. AO, HOWEVER, HAS NOT ACCEPTED THE REVISED RETURN. IT WAS THE ASSESSEES CONTENTION THAT THE MARK UP PERCENTAGE AS PE R THE MASTER SERVICE AGREEMENT WITH THE AE PROVIDES FOR 8% O N COST AND THIS WAS SUPPOSED TO BE REVISED WHICH WAS DONE SUBSEQ UENTLY TO ABOUT 13% (INADVERTENTLY MENTIONED AS 15% IN REVISED F ORM 3CEB). ON THE BASIS OF THE SAID REVISED AMENDMENT TO MASTER SERVICE AGREEMENT, ASSESSEE SUPPORTS THAT IT HAS REVISED THE RECEIPTS AS WELL. IN ORDER TO JUSTIFY THE RECEIPT AT 13% , ASSESSEE REVISED THE TP STUDY AS WELL. IT WAS THE CONTENTION OF A SSESSEE THAT SECTION 139(5) PERMITS FILING OF REVISED RETURN WHERE ASSESSEE HAVING FURNISHED A RETURN DISCOVERS ANY OMISSION OR ANY WRONG STATEMENT IN THE RETURN ALREADY FILED, HE MAY FURNISH A REVISED RETURN. NEEDLESS TO SAY THAT OMISSION/WRONG STATEMENT IS MEANT TO BE AN INADVERTENT ONE, NOT A DELIBERATE OMISSION OR DELIBERATE WRONG STATEMENT. IT WAS THE CONTENTION OF AO THAT ASSESS EE HAS REVISED RETURN SO AS TO CLAIM A HIGHER DEDUCTION AS IT S MARK-UP AT I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 5 -: 13% IS NOT CORRECT. THESE ARE THE OBJECTIONS OF THE AO AS SUMMARISED BY THE DRP IN THE ORDER. 4.1.2. NOW WE HAVE TO CONSIDER THE NATURE OF THE AL LEGED OMISSION INVOLVED IN THE ASSESSEE'S CASE. WAS IT CONSCIOUS O R WAS IT UNWITTING? AT THE ROOT OF THE MATTER ARE THE TP STUDIES CARRIED O UT BY THE ASSESSEE I.E. ONE BEFORE THE FILING OF THE ORIGINAL RETURN, ANOTH ER FIVE MONTHS LATER I.E. IN MARCH, 2007. THE SALIENT FACTS ARE (A) THE ORIGINAL RETURN WAS FILED DISCLOSING THE TO TAL VALUE OF INTERNATIONAL TRANSACTION AT RS.40,48,86,457 I- ON THE BASIS OF T P STUDY CARRIED OUT BY THE ASSESSEE. ON BEHALF OF THE ASSESSEE THE TP STUD Y HAD BEEN DONE BY M/S DELOITTE HASKINS & SELLS, SECUNDERABAD. (B) TRANSACTIONAL NET MARGIN METHOD (TNMM FOR SHORT ) WAS SELECTED BY THE ASSESSEE AS THE MOST APPROPRIATE METHOD. THE SEARCH FOR UNCONTROLLED COMPARABLES HAD BEEN DONE USING PROWESS AND CAPITAL INE DATABASE. (C) THE MOST IMPORTANT POINT IS THE SELECTION OF TH E PARTICULAR DATE UPTO WHICH THE INFORMATION AVAILABLE ON THE DATABASE WAS USED BY THE ASSESSEE. IN CASE OF PROWESS, THE ASSESSEE SELECTED THE DATE OF 16.02.2006 I.E. MORE THAN A MONTH BEFORE THE CLOSUR E OF THE RELEVANT ACCOUNTING PERIOD I.E. 31.03.2006. IN THE CASE OF C APITALINE THE DATE SELECTED WAS 24.04.2006 I.E. THREE WEEKS AFTER THE CLOSURE OF THE ACCOUNTING PERIOD (D) IN TERMS OF I.T. RULE 10B(4), IT WAS LEGALLY IN CUMBENT UPON THE ASSESSEE TO USE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAD BEEN ENTERED INTO. IN THIS CASE, IT IS FIN.YEAR 2005-06. THE PROVISO TO THIS RULE, PERMITS USE OF DATA OF PR ECEDING TWO FINANCIAL YEARS, ONLY IF AN ASSESSEE ESTABLISHES THAT SUCH DA TA OF PRIOR PERIOD HAD INFLUENCE ON DETERMINATION OF TRANSFER PRICE IN REL ATION TO THE INTERNATIONAL TRANSACTION IN QUESTION. IN VIEW OF THIS LEGAL OBLI GATION, THE ASSESSEE'S CONDUCT IN SELECTING 16.02.2006 AND 24.04.2006 AS T HE DATES FOR DATA AVAILABILITY CLEARLY ESTABLISH A CONSCIOUS INTENT T O AVOID USE OF MANDATORY DATA RELATING TO THE RELEVANT FINANCIAL YEAR OF THE INTERNATIONAL TRANSACTION I.E. 2005-06. THE VERY SELECTION OF THESE DATES I.E . 16.02.2006 AND 24.04.2006 ENSURED SUBSTANTIAL ELIMINATION OF THE D ATA RELATING TO THE RELEVANT FINANCIAL YEAR 2005-06 AS SUCH DATA WOULD ONLY BE AVAILABLE TOWARDS AUGUST, SEPTEMBER, 2006, AND CERTAINLY NOT BEFORE THE CLOSURE OF THE ACCOUNTING PERIOD AND IN A FEW CASES, WITHIN 3 WEEKS OF THE CLOSURE OF THE ACCOUNTING PERIOD 2005-06. IN FACT, IN RESPECT OF 2 CASES, OUT OF TEN COMPARABLES CHOSEN BY IT IN ITS TP STUDY, THE ASSES SEE HAD NOT FURNISHED RELEVANT FINANCIAL YEAR'S DATA (VIDE PAGE NO.36 OF THE TPO REPORT). THE STATUTORY TIME LIMIT AVAILABLE TO THE ASSESSEE FOR FILING OF ITS RETURN WAS UPTO 31.10.2006 AND IT HAD BEEN EXTENDED BY THE CBD T FOR THAT YEAR BY I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 6 -: ONE MORE MONTH I.E. 30.11.2006. THESE BEING THE FAC TS OF THE CASE THERE DOES NOT APPEAR TO BE ANY CONVINCING REASON OR LOGI C ON THE PART OF THE ASSESSEE TO CIRCUMVENT THE LEGAL OBLIGATION TO USE THE RELEVANT FINANCIAL YEAR'S DATA. THE EVIDERICE OF THE SELECTION OF INAP PROPRIATE DATES BY THE ASSESSEE I.E. 16.02.2006 AND 24.04.2006 CLEARLY EST ABLISH A DELIBERATE ACT OF CHOICE AND DELIBERATE EXERCISE OF VOLITION O N THE PART OF THE ASSESSEE TO AVOID USING APPROPRIATE DATA. (E) SINCE THE ASSESSEE HAD TIME TILL 30.11.2006 TO FILE ITS RETURN OF INCOME, IT COULD HAVE INITIATED TP STUDY IN AUGUST/SEPTEMBE R, 2006 BY WHICH TIME IT COULD HAVE ACCESSED THE DATA OF THE RELEVANT FIN ANCIAL YEAR I.E. 200506 PERTAINING TO UNCONTROLLABLE COMPARABLES AND THERE WOULD HAVE BEEN NO OCCASION OR NECESSITY FOR A SUBSEQUENT TP STUDY LEA DING TO A REVISED RETURN AND CONCOMITANT ACCOUNTING CONTRIVANCES AS R ESORTED TO BY THE ASSESSEE. (F) FURTHER, ALL THE RELEVANT FACTS AND CIRCUMSTANC ES SHOW THE REVISED RETURN TO HAVE BEEN A PRODUCT OF CALCULATED AFTERTH OUGHT RATHER THAN OF DISCOVERY OF ANY EARLIER OMISSION. IT IS NOT THE CA SE THAT THERE WERE INADVERTENT MISTAKES, OMISSIONS OR WRONG STATEMENTS IN THE ORIGINAL RETURN FILED BY THE ASSESSEE. IT IS ALSO NOT THE CASE THAT THERE WERE ANY VARIATIONS BETWEEN THE ASSESSEE'S ACCOUNT BOOKS MAINTAINED IN THE REGULAR COURSE OF BUSINESS AND THE ORIGINAL RETURN FILED. THE FACT IS THAT THE ORIGINAL RETURN WAS TOTALLY IN HARMONY WITH THE ASSESSEE'S ACCOUNT BOOKS AND IT TRULY AND CORRECTLY REFLECTED THE SUM OF TRANSACTIONS AS ENTE RED IN THE ASSESSEE'S ACCOUNT BOOKS. IN VIEW OF THIS, IT CAN BE STATED TH AT THERE WAS ABSOLUTELY NO OMISSION OR WRONG STATEMENT IN THE ORIGINAL RETU RN FILED BY THE ASSESSEE. THE ORIGINAL RETURN WAS BASED ON A TP STU DY WHICH WAS DELIBERATE ACT AND WHICH DELIBERATELY SELECTED THE DATES I.E. 16.02.2006 AND 24.04.2006. THERE WAS NO INADVERTENCE ABOUT SUC H DATES. (G) IRONICALLY, IT IS THE REVISED RETURN WHICH WAS NOT IN HARMONY WITH THE ASSESSEE'S ACCOUNT BOOKS. (H) AN IMPORTANT POINT TO NOTE IS THE MANNER IN WHI CH THE ASSESSEE ATTEMPTED TO ENHANCE THE ALP IN THE SO CALLED REVIS ED RETURN. ON 31.03.2007 I.E. THE CLOSING DATE OF THE NEXT FINANC IAL YEAR I.E. 2006-07. THE ASSESSEE RAISED AN INVOICE OF SALES OF RS.1,87,44,7 43/- AND DESCRIBED IT AS PRIOR PERIOD INCOME RELATING TO THE FINANCIAL YE AR 2005-06 I.E. ASST. YEAR 2006-07 WHICH IS UNDER CONSIDERATION. (I) SECTION 139(5) OF THE INCOME TAX ACT, PERMITS F ILING OF REVISED RETURN TO RECTIFY ANY EARLIER OMISSION OR ANY EARLIER WRONG S TATEMENT IN THE ALREADY FILED RETURN. THE WORD OMISSION HAS BEEN DEFINED IN THE NEW SHORTER ENGLISH OXFORD DICTIONARY AS UNDER: I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 7 -: 'OMISSION: THE ACTION OR AN ACT OF NEGLECTING OR FA ILING TO PERFORM SOMETHING, ESP, A DUTY. THE ACTION OF OMITTING OR F AILING TO INCLUDE SOMETHING OR SOMEONE. OMIT (V): LEAVE OUT, FAIL TO INCLUDE, FAIL TO PERFO RM, LEAVE UNDONE, NEGLECT TO DO, TAKE NO NOTICE OF' THUS, FOR ANY OMISSION OR WRONG STATEMENT TO OCCUR, THERE HAS TO BE PRIOR EXISTENCE OF RELEVANT DATA OR OF UNDISCHARGED DUTY / RESPONSIBILITY. TESTED IN THE LIGHT OF THIS DEFINITION, THE FACTS OF THE A SSESSEE'S CASE DO NOT INDICATE ANY OMISSION OR WRONG STATEMENT WITHIN THE MEANING OF SECTION 139(5) OF THE ACT. THE TPO, IN THE COURSE OF PROCEE DINGS BEFORE HIM, HAD EXAMINED THE ASSESSEE'S STATUTORY AUDITOR UNDER OAT H U/S.131 OF THE LT. ACT, 1961. IN REPLY TO QUESTION NO.20, THE AUDITOR SRI M.V. RAMANA MURTHY HAD CATEGORICALLY AFFIRMED THAT THERE WAS NO OMISSI ON OR ERROR AS UNDER: ' Q.NO. 20: WHICH ACCOUNTING STANDARD YOU ARE REFER RING TO AND EXPLAIN THIS STANDARD ? ANS: ACCOUNTING STANDARD 5 WHICH REQUIRES IN CASE O F ANY MATERIAL CHARGES OR CREDITS ON ACCOUNT OF ERROR OR OMISSION TO BE DISCLOSED SEPARATELY IN THE YEAR FY 2006-07. HOWEVER, IN THIS RESPECT THERE IS NO ERROR OR OMISSION AND ACCORDINGLY INCLUDED IN SERVI CE INCOME FOR FY 2006- 07.' THE ASSESSEE HAD DULY CARRIED OUT A TP STUDY WHICH RATIFIED THE COST + 8% MARK- UP SHOWN BY THE ASSESSEE AS ALP. IN FACT, THE ASSESSEE'S AGREEMENT WITH ITS AE, HAD LAID DOWN THAT THE SERVI CES RENDERED BY THE ASSESSEE WOULD BE REIMBURSED AT COST + 8%. THUS, TH ERE WAS NO FAILURE IN THE SENSE OF AN OMISSION. SIMILARLY, THERE WAS NO W RONG STATEMENT IN THE ORIGINAL RETURN. FURTHER, THE I.T.RULE 10D(4) CASTS AN OBLIGATION UPON THE ASSESSEE TO MAINTAIN AND USE DATA EXISTING LATEST B Y THE DUE DATE FOR FILING OF RETURN- THE DUE DATE IN THE CASE OF THE A SSESSEE BEING 30.11.2006. THUS, IT IMPLIEDLY PROHIBITS USE OF DATA ACCESSED B EYOND THE RETURN FILING DATE. IN OTHER WORDS, GIVEN RULE 10D(4), A REVISED RETURN CAN ONLY BE FILED TO RECTIFY OMISSION OR WRONG STATEMENT WITH REFEREN CE TO THE DATA EXISTING BY THE DUE DATE OF RETURN FILING, NOT FRESH DATA AC CESSED LATER ON I.E. AFTER FILING OF RETURN. IN THE CASE OF THE PRESENT ASSESS EE, THE REVISED RETURN WAS BASED ON FURTHER TP STUDY CARRIED OUT IN THE YEAR 2 007. (J) ALONG WITH THE ORIGINAL RETURN, THE ASSESSEE HA D SUBMITTED DETAILS IN THE PRESCRIBED FORM 56F U/S 1OA WHEREIN, THE TOTAL TURN OVER OF THE UNDERTAKING WAS SHOWN AT RS. 40,48,86,457/- AND IN THE ORIGINAL 3CEB REPORT IT WAS CATEGORICALLY AFFIRMED THAT THE TOTAL AMOUNT RECEIVED I RECEIVABLE TOWARDS PROVIDING INCIDENTAL AND SUPPORT SERVICES TO THE ASSOCIATED ENTERPRISE WAS RS.40,48,86,457/- AS PER THE BOOKS OF ACCOUNT. BUT ON 29.05.2007, THE ASSESSEE FURNISHED REVISED 3 CEB WHEREIN, IT HAD I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 8 -: ALTERED THE FIGURE OF TURNOVER HIGHER TO RS. 42,36, 31,201/- A REVISED RETURN WAS FILED ON 25.04.2007 CLAIMING BERIEFIT OF 10A IN RESPECT OF THE ENHANCED FIGURE OF RS. 4,25,13,544/-. IN THE LAST P ARA ON PAGE NO.4 OF HIS REPORT, THE TPO HAS CLEARLY AFFIRMED THAT THE RELEV ANT DATA OF ALL THE COMPARABLES SELECTED BY THE ASSESSEE IN THE REVISED T.P. STUDY WERE AVAILABLE BY 31.10.2006. THIS FINDING OF THE TPO HA S NOT BEEN CHALLENGED, NOR REBUTTED BY THE ASSESSEE. (K) FURTHER, THE AGREEMENT BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISE DATED 27.09.2004 CLEARLY LAID DOWN THE M ARK- UP PERCENTAGE TO BE 8% SUBJECT TO ANNUAL REVIEW TO BE DONE BEFORE TH E ANNIVERSARY DATE OF AGREEMENT. THERE WAS NO REVISION OF THE MARK-UP BY THE ANNIVERSARY DATE I.E. 27.09.2005 RELEVANT TO THE ASSESSMENT YEAR UND ER CONSIDERATION. BUT, STRANGELY THE ASSESSEE HAS CONTRIVED AN AMENDED AGR EEMENT DATED 11.11.2007 WHICH ENHANCED THE MARK-UP FROM 8% TO 13 % WITH RETROSPECTIVE EFFECT FROM 01.04.2005 ( VIDE PAGES 5 TO 8 OF THE REPORT OF THE TPO U/S.92CA OF THE ACT). IN ACTUAL FACT, THE FIGUR E OF TURNOVER WAS NEVER CHANGED IN THE ASSESSEE'S BOOKS OF ACCOUNT RELATING TO THE ASST.YEAR UNDER CONSIDERATION. ON PAGE NO.8 OF HIS ORDER U/S.92CA D ATED 30.10.2009, THE TPO HAD INVOKED AS-9 WHICH IS EVIDENTLY AGAINST THE CONTRIVED SALES INVOICE PREPARED BY THE ASSESSEE ON 31.03.2007 AND THE ASSESSEE'S ATTEMPT TO PASS IT OFF AS ENHANCED TURNOVER FIGURE FOR THE ASST.YEAR 2006- 07 BY FILING A REVISED RETURN. IN FACT, THE ASSESSE E HAS NOT BEEN ABLE TO CHALLENGE OR REBUT AS INVOKED AND APPLIED BY THE TP O (L) IN THE COURSE OF THE PROCEEDING BEFORE US, A QU ESTION HAD BEEN ADDRESSED TO THE AUTHORISED REPRESENTATIVE AS TO WH ETHER THE ASSOCIATED ENTERPRISE HAD REVISED ITS RETURN OF INCOME IN USA IN CONSEQUENCE OF THE REVISED RETURN FILED BY THE ASSESSEE? TO THIS QUERY , THE ASSESSEE, IN THE ADDITIONAL SUBMISSIONS FILED ON 24.08.2010, HAD REP LIED THAT THE ASSOCIATED ENTERPRISE, BEING A PARTNERSHIP FIRM, HA D NO LEGAL OBLIGATION IN USA TO FILE INCOME TAX RETURN. HENCE, IT HAD NOT FI LED INCOME TAX RETURN IN THE USA. (M) IN THE COURSE OF PROCEEDING BEFORE US, A FURTHE R QUESTION WAS PUT TO THE AUTHORISED REPRESENTATIVE AS TO WHETHER THERE IS AN Y RECOGNIZED ACCOUNTING STANDARD IN SUPPORT OF WHAT THE ASSESSEE HAD DONE I.E. RAISING A SALES INVOICE ON 31.03.2007AND DESCRIBING IT AS P ART OF THE PRECEDING YEAR'S TURNOVER I.E. RELATING TO ASST. YEAR 2006-07 AND FILING A REVISED RETURN BUT NO ALTERATION CARRIED OUT IN THE REGULAR ACCOUNT BOOKS OF THE PRIOR PERIOD I.E. 2005-06. TO THIS QUERY, THE TAX P AYER HAS REPLIED IN ITS ADDITIONAL SUBMISSION DATED 24.08.2010 INVOKING ACC OUNTING STANDARD-5 (AS-5). IT IS IN PLACE TO QUOTE VERBATIM THE ASSESS EE'S REPLY: '(A) ACCOUNTING STANDARD-5(AS-5) DEALS WITH THE ACC OUNTING AND DISCLOSURE OF PRIOR PERIOD ITEMS. THE TERM 'PRIOR PERIOD ITEMS ' IS DEFINED TO MEAN 'INCOME OR EXPENSES WHICH ARISE IN THE CURRENT PERI OD AS A RESULT OF ERROR I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 9 -: OR OMISSION IN THE PREPARATION OF FINANCIAL STATEME NTS OF ONE OR MORE PRIOR PERIODS'. (A) THUS, AS PER THE ACCOUNTING STANDARD, INCOME OR EARLIER PERIOD CAN BE SHOWN AS INCOME OF THE CURRENT PERIOD IF THERE HAS BEEN AN ERROR IN THE PREPARATION OF THE FINANCIAL STATEMENTS OF THE PRIO R PERIOD WHICH HAS BEEN DISCOVERED IN THE CURRENT PERIOD' GOING BY AS-5, THE SALES INVOICE RAISED BY THE ASSE SSEE ON 31.03.2007 HAS TO BE PART OF THE TURNOVER RELATING TO FIN.YEAR 2006-07 I.E. ASST. YEAR 2007 -08. IT CANNOT BE PART OF THE TURNOVER RELATIN G TO THE FY 2005-06 I.E. ASST. YEAR 2006-07. IT IS NECESSARY TO QUOTE AT LEN GTH THE SALIENT FEATURES OF AS-5 AS FAR AS PRIOR PERIOD ITEMS ARE CONCERNED AS FOLLOWS: ' ERRORS IN THE PREPARATION OF THE FINANCIAL STATEM ENTS OF ONE OR MORE PRIOR PERIODS MAY BE DISCOVERED IN THE CURRENT PERIOD. ERRORS MAY OCCUR AS A RESULT OF- - MATHEMATICAL MISTAKES - MISTAKES IN APPLYING ACCOUNTING POLICIES - MISINTERPRETATION. OF FACTS (INCLUDES FRAUDULENT AC TIVITIES) - OVERSIGHT PERIOD DOES NOT INCLUDE OTHER ADJUSTMENTS NECESSITA TED BY CIRCUMSTANCES, WHICH THOUGH RELATED TO PRIOR PERIODS, ARE DETERMIN ED IN THE CURRENT PERIOD. PRIOR PERIOD ITEMS ARE GENERALLY INFREQUENT IN NATURE AND CAN BE DISTINGUISHED FROM CHANGES IN ACCOUNTING ESTIMATES. ACCOUNTING ESTIMATES BY THEIR NATURE ARE APPROXIMATIONS THAT MAY NEED RE VISION AS ADDITIONAL INFORMATION BECOMES KNOWN. FOR EXAMPLE, INCOME OR E XPENSE RECOGNIZED ON THE OUTCOME OF A CONTINGENCY WHICH PREVIOUSLY CO ULD NOT BE ESTIMATED RELIABLY DOES NOT CONSTITUTE A PRIOR PERIOD ITEMS O R ARREARS PAYABLE 'TO WORKERS AS A RESULT OF REVISION OF WAGES WITH RETRO SPECTIVE EFFECT DURING THE CURRENT PERIOD DOES NOT CONSTITUTE A PRIOR PERI OD ITEM. THE WAIVER OF PENAL INTEREST RELATING TO PREVIOUS YEAR IN A SUBSE QUENT YEAR DOES NOT MEAN THAT THERE WAS AN ERROR OR OMISSION IN THE PRE PARATION OF FINANCIAL STATEMENTS OF SUCH PREVIOUS YEAR. THE PENAL INTERES T WAIVED THEREFORE CANNOT BE BOOKED AS A PRIOR PERIOD ITEM. ' PRIOR PERIOD ITEMS ARE NORMALLY INCLUDED IN THE D ETERMINATION OF NET PROFIT OR LOSS FOR THE CURRENT PERIOD. AN ALTERNATIVE APPR OACH IS TO SHOW SUCH ITEMS IN THE STATEMENT OF PROFIT AND LOSS AFTER DET ERMINATION OF CURRENT NET PROFIT OR LOSS. IN EITHER CASE, THE OBJECTIVE IS TO INDICATE THE EFFECT OF SUCH ITEMS ON THE CURRENT PROFIT OR LOSS. THE NATURE AND AMOUNT OF PRIOR PERIOD ITEMS SHOULD BE SEPARATELY DISCLOSED IN THE STATEME NT OF PROFIT AND LOSS IN A MANNER THAT THEIR IMPACT ON THE CURRENT PROFIT OR LOSS CAN BE PERCEIVED. I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 10 -: XXXXXXXXXXXXXXXXXXXXXXX PRIOR PERIOD ITEMS AND PROFESSIONAL NEGLIGENCE: WHILST THERE IS NO BAR EITHER UNDER THE COMPANIES A CT TO ADJUST SUBSEQUENT FINANCIAL STATEMENTS FOR PRIOR PERIOD ER RORS AND THE ACCOUNTING STANDARDS REQUIRE SUCH DISCLOSURES IN A PARTICULAR MANNER, ONE HAS TO BE SENSITIVE ABOUT THE FACT THAT ADJUSTMENT OF SUCH ER RORS REFLECTS NEGLIGENCE DELIBERATE OR OTHERWISE ON THE PART OF THE ENTERPRI SE AND THE AUDITOR (WHEN PREVIOUS PERIOD FINANCIAL STATEMENTS WERE NOT QUALIFIED.) SUCH NEGLIGENCE MAY RESULT IN AN ACTION UNDER THE INSTIT UTE'S DISCIPLINARY PROCEEDINGS OR EVEN UNDER VARIOUS LEGISLATION.' XXXXXXXXXXXXXXXXXXXXXXX CHANGES IN PREVIOUS PERIOD COMPARATIVES QUE RY WHETHER THE COMPANY CAN CHANGE THE PREVIOUS YEA R'S FIGURES IN THE CURRENT YEAR'S ANNUAL ACCOUNTS TO MAKE THEM COM PARABLE? 'RESPONSE NOTE (N) TO PART I OF SCHEDULE VI TO THE COMPANIES ACT, 1956 REQUIRES THAT' EXCEPT IN THE CASE OF THE FIRST BALANCE SHEET LAID BEFORE THE COMPANY AFTER THE COMMENCEMENT OF THE ACT, THE CORRESPONDING AMOU NTS FOR THE IMMEDIATELY PRECEDING FINANCIAL YEAR FOR ALL ITEMS SHOWN IN THE BALANCE SHEET SHALL ALSO BE GIVEN IN THE BALANCE SHEET. ' IT IS PERMISSIBLE TO CHANGE THE PREVIOUS YEAR'S FIGURES IN THE CURRENT Y EAR'S ANNUAL ACCOUNTS WHERE SUCH A CHANGE IS DUE TO REGROUPING OF VARIOUS ITEMS TO FACILITATE COMPARISON, PROVIDED, AN APPROPRIATE DISCLOSURE THE REOF IS MADE IN THE ACCOUNTS. HOWEVER, WHERE A CHANGE IN THE ACCOUNTING POLICY AFFECTS THE VERY BASIS OF COMPUTATION OF THE AMOUNT OF THE CONC ERNED ITEM (E.G. A CHANGE IN' THE BASIS OF VALUATION OF INVENTORIES) T HEN, RECOMPUTATION AND DISCLOSURE OF THE PREVIOUS YEAR'S FIGURES IN ACCORD ANCE WITH THE NEW ACCOUNTING POLICY WOULD NOT BE PERMISSIBLE. A CHANG E IN THE ACCOUNTING POLICY SHOULD BE DISCLOSED AS SUGGESTED IN AS 1 AND AS 5. SIMILARLY PRIOR PERIOD ITEMS CANNOT BE ADJUSTED BY CHANGING PREVIOU S PERIOD COMPARATIVES. THEY HAVE TO BE ADJUSTED IN THE CURRE NT YEAR'S INCOME STATEMENTS AS PER AS-5.' (SOURCE OF THE ABOVE 3 EXTRACTS : 'INDIAN ACCOUNTIN G STANDARDS & GAAP' VOLUME -I, 2006 EDITION BY DOLPHY D SOUZA) THE ABOVE EXTRACTS CLEARLY EVIDENCE THAT WHAT THE A SSESSEE HAS CONTRIVED OR ATTEMPTED IS OPPOSED TO THE PRESCRIBED ACCOUNTIN G STANDARD AS-5. (N) ADMITTEDLY, THE SALES INVOICE RAISED ON 31.03.2 007 WAS CREDITED TO THE P&L ACCOUNT FOR THE YEAR ENDING 31.03.2007. ADMITTE DLY, THE ASSESSEE IS I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 11 -: CONSTRAINED FROM REVISING THE FINANCIAL STATEMENT F OR THE FIN.YEAR ENDED 31.03.2006 AS PER THE GUIDANCE NOTE ON REVISION/ RE CTIFICATION OF FINANCIAL STATEMENTS AND AUDIT REPORTS ISSUED BY THE INSTITUT E OF THE CHARTERED ACCOUNTANTS OF INDIA (ICAI). THE SAME IS ALSO PROHI BITED BY THE CIRCULAR ISSUED BY THE DEPARTMENT OF COMPANY AFFAIRS DATED 2 8.08.1987. IN THE TEETH OF THESE FACTS AND EVIDENCE, IT IS SURPRISING TO FIND THE ASSESSEE ATTEMPTING TO PASS OFF SALES INVOICE OF 31.03.2007 AS TURNOVER OF FINANCIAL YEAR 2005-06 IN THE REVISED RETURN. (O) FURTHER, THIS CONTRIVED ATTEMPT OF THE ASSESSEE IS OPPOSED TO THE LETTER AND SPIRIT OF THE AGREEMENT BETWEEN THE ASSESSEE AN D THE ASSOCIATED ENTERPRISE. TO EXTRACT THE RELEVANT PORTION OF THE AGREEMENT DATED 27.09.2004: 'IN CONSIDERATION OF DELOITTE SERVICES INDIA PROVID ING SERVICES TO DELOITTEE SERVICES AS SET OUT UNDER THIS AGREEMENT AND SPECIF ICALLY SET FORTH ON EXHIBIT A AND AS MAY BE SET FORTH ON STATEMENTS OF WORK, DELOITTEE SERVICES SHALL PAY TO DELOITTE SERVICES INDIA A MON THLY FEE EQUAL TO DELOITTEE SERVICES INDIA'S TOTAL DIRECT COSTS TO TH E END OF SUCH MONTH, TO THE EXTENT NOT PREVIOUSLY BILLED, PLUS A MARK-UP PERCEN TAGE OF THOSE COSTS, PLUS ANY OUT- 0[- POCKET EXPENSES INCURRED SPECIFICALLY IN CONNECTION WITH THE PERFORMANCE OF THE SERVICES DURING SUCH MONTH; PROV IDED, HOWEVER, THE MONTHLY FEE PAYABLE FOR THE LAST MONTH IN EACH OF D ELOITTEE SERVICES INDIA'S FISCAL YEARS SHALL BE ADJUSTED, AS AGREED BY THE PA RTIES, FOR ANY OVERPAYMENT OR UNDERPAYMENT OF FEES DURING THE PREC EDING MONTHS OF 'THE THEN FINISHED FISCAL YEAR AFTER TAKING INTO ACCOUNT ALL EMPLOYEE -RELATED AND OTHER OPERATING COSTS INCURRED DURING SUCH FISC AL YEAR. FOR PURPOSES OF THIS AGREEMENT, THE TERM 'TOTAL DIRECT COSTS' MEANS WITH RESPECT TO ANY MONTH, THE COSTS OF EMPLOYEE SALARIES AND BENEFITS AND OTHER OPERATING COSTS INCURRED BY DELOITTEE SERVICES INDIA DURING S UCH MONTH. DURING THE INITIAL YEAR OF THE AGREEMENT, THE MARK-UP PERCENTA GE WILL BE 8 PERCENT. THE MARK-UP PERCENTAGE WILL BE REVIEWED ANNUALLY AN D, AS MUTUALLY AGREED BY THE PARTIES, REVISED ON OR BEFORE THE ANN IVERSARY DATE OF THIS AGREEMENT TO ACCOUNT FOR ECONOMIC AND REGULATORY CO NDITIONS. THE FEES AND EXPENSES PAYABLE BY DELOITTE SERVICES TO DELOITTE SERVICES INDIA SHALL BE PAID AS SET FORTH IN PARAGRAPH 5 OF THE AGREEMENT.' XXXXXXXXXXXXXXX 'PAYMENT OF FEES AND EXPENSES: SUBJECT TO SECTIO NS 3 AND 4 OF THIS AGREEMENT , DELOITTE SERVICES INDIA SHALL INVOICE D ELOITTE SERVICES ON A MONTHLY BASIS FOR DELOITTE SERVICES INDIA'S FEES FO R ITS SERVICES PERFORMED HEREUNDER AND OUT-OF- POCKET EXPENSES INCURRED BY D ELOITTE SERVICES INDIA DURING THAT MONTH IN PERFORMING ITS SERVICES HEREUN DER. DELOITTE SERVICES INDIA'S INVOICES SHALL BE DUE WITHIN FORTY-FIVE DAY S OF PRESENTATION. DELOITTE SERVICES MAY, UPON REASONABLE PRIOR NOTICE, AUDIT T HE BOOKS AND RECORDS I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 12 -: DELOITTE SERVICES INDIA THAT RELATE TO THE FEES INV OICED TO DELOITTE SERVICES HEREUNDER FOR SERVICES PERFORMED AND EXPENSES INCUR RED' (UNDERLING SUPPLIED FOR EMPHASIS). THE ABOVE EXTRACT FROM THE AGREEMENT CLEARLY SHOW T HAT WHATEVER FEES/PAYMENTS ARE DUE TO THE ASSESSEE FIRM FROM ITS ASSOCIATED ENTERPRISE WERE TO BE PAID EVERY MONTH OR AT LEAST IN THE FOLL OWING MONTH. IT IS INCONCEIVABLE, THEREFORE, THAT CONTRARY TO THE PRAC TICE, INTENDED AND ENFORCED BY THE AGREEMENT, THERE WOULD BE OCCASION FOR SUCH BELATED RAISING OF INVOICE ( THE DELAY BEING ONE YEAR) THAT TOO FOR SO SUBSTANTIAL AMOUNT. AS PER THE NOTES TO THE ACCOUNTS ENCLOSED T O THE RETURN, REVENUE HAS TO BE RECOGNIZED ON THE BASIS OF THE SERVICES R ENDERED. THE POSSIBILITY OF THE TYPE OF ERROR PLEADED BY THE ASSESSEE, WOULD BE NIL. IF THE SERVICES WERE REALLY RENDERED AS ALLEGED TO THE SUBSTANTIAL EXTENT OF RS.1,87,44,743/- THEN THE POSSIBILITY OF OVERSIGHT OF ' THE SAME FOR AS LONG AS ONE YEAR WOULD BE INCONCEIVABLE. (P) ADMITTEDLY, THE ASSESSEE RAISED THE SALES INVOI CE FOR RS.1,87,44,743/- ON 31.03.2007. THE NORMAL SEQUENCE IN RESPECT OF AN Y OF ASSESSEE'S TRANSACTIONS IS THAT THE ASSESSEE HAS TO RAISE AN I NVOICE FIRST AND THEN THE PAYMENT FROM THE ASSOCIATED ENTERPRISE WILL FOLLOW. THE INVOICE RAISED BY THE ASSESSEE HAS TO BE AN INVOICE OF THE COST OF SE RVICES RENDERED TILL THE END OF A MONTH- THIS IS THE AGREEMENT. THE ASSOCIAT ED ENTERPRISE IS OBLIGATED TO COMPENSATE THE ASSESSEE WITH PAYMENT O F COST + 8% MARK- UP. THE ASSESSEE HAS NOT LED AN IOTA OF EVIDENCE RE LATING TO UNBILLED SERVICES, IF ANY, RENDERED DURING THE RELEVANT FINA NCIAL YEAR I.E. 2005-06, THE NATURE OF SUCH SERVICE, IF ANY, THE MONTH OF SU CH SERVICE, IF ANY, AND HOW AND WHY SUCH SERVICE WAS OMITTED TO BE BILLED- ABSOLUTELY NO EVIDENCE OF THESE. GOING BY NORMAL SEQUENCE, IF ANY INVOICE IS RAISED BY AN ASSESSEE IN MARCH, 2007, PAYMENT FROM THE ASSOCI ATED ENTERPRISE CAN BE EXPECTED SUBSEQUENTLY. BUT THE ASSESSEE'S PLEA I S THE CONTRARY TO THE NORMAL SEQUENCE. EVEN FOR 10A BENEFIT, THE SALE CON SIDERATION HAS TO BE RECEIVED WITHIN A PERIOD OF SIX MONTH OR LATER IN C ASE SO EXTENDED BY THE RESERVE BANK OF INDIA. IN THE PRESENT CASE, THE INV OICE IN QUESTION WAS RAISED ON 31.03.2007. WHEN DID THE PAYMENT RELATING TO THE INVOICE MATERIALIZE? IT IS THE ASSESSEE'S CASE THAT THE SA LES INVOICE DATED 31.03.2007 FOR RS.1,87,44,743/- WAS ADJUSTED AGAINS T THE AMOUNT OF ADVANCE APPEARING IN THE ASSESSEE'S BALANCE SHEET A S AT 31.03.2006, THE INVOICE COPY HAS BEEN SCANNED ON PAGE 6 OF THE REPO RT OF THE TPO. THIS PARTICULAR INVOICE IS NOT FOR ANY SPECIFIC SERVICE, IN ANY SPECIFIC MONTH BUT RATHER THE NARRATION IN THE INVOICE READS : 'SERVIC ES FOR THE PERIOD 01 ST APRIL, 2005 TO 31ST MARCH, 2006'. THUS, IT IS EVIDE NTLY GENERAL FOR THE ENTIRE PERIOD, FURTHER, AGAINST WORK ORDER, IT HAS BEEN ST ATED; 'AGREEMENT DATED 27.09.2004'. A MOMENT'S REFLECTION WOULD MAKE IT CL EAR THAT THIS INVOICE CAN NEVER BE WARRANTED BY THE SAID AGREEMENT DATED 27.09.2004, BECAUSE IF THIS INVOICE IS TAKEN INTO ACCOUNT FOR T HE FINANCIAL YEAR 2005- 06, AS DESIRED BY THE ASSESSEE, I.E , AS A PART OF THE TURNOVER, THE RESULT I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 13 -: WOULD EXCEED THE COST + 8% MARK-UP STIPULATED IN TH E AGREEMENT DATED 27.09.2004. TO CIRCUMVENT THIS CONTRADICTION, THE A SSESSEE HAD MUCH LATER I.E. IN NOVEMBER, 2007, EXECUTED AN AMENDED AGREEME NT WITH RETROSPECTIVE EFFECT FROM 01.04.2005. COMING BACK T O THE ISSUE OF ALLEGED ADJUSTMENT AGAINST ADVANCE: WHAT IS THE ADVANCE AGA INST WHICH THE ASSESSEE ALLEGEDLY ADJUSTED THE SALE INVOICE DATED 31.03.2007? ACCORDING TO THE ASSESSEE, THIS ADVANCE IS THE FIGURE OF ADVA NCE APPEARING IN THE ASSESSEE'S BALANCE SHEET AS AT 31.03.2006 UNDER SCH EDULE-6 I.E. CURRENT LIABILITIES AND PROVISIONS - THIS SPECIFIC ITEM IS ADVANCE FROM CUSTOMERS RS.5,75,54,070/- I.E. AS AT 31.03.2006. THE FIGURE OF ADVANCE AS ON 31.03.2005, I.E. AS ON 01.04.2005 I.E. THE BEGINNIN G OF THE FINANCIAL YEAR 2005-06 UNDER CONSIDERATION WAS MUCH HIGHER I.E. RS .5,26,64,484/-. NOW WHAT IS THE NATURE OF THIS ADVANCE? ON PAGE 79 OF H IS REPORT (VIDE THE LAST 5 SENTENCES IN THE 2ND PARA), THE TPO HAS RECORDED A FINDING WHICH IS EXTRACTED AS UNDER; 'HOWEVER, ON PERUSAL OF THE AUDITED ACCOUNTS, TAX P AYER HAS RECEIVED ADVANCE FROM ITS AE(CUSTOMER) WHICH IS AT RS.5,75,5 4,070/- FOR THE YEAR ENDING 31.03.2006. IT IS SEEN FROM THE BALANCE SHEE T THAT THE SAID ADVANCES IS TOWARDS CAPITAL EXPENDITURE AS IS KNOWN FROM THE ADDITIONS TO THE FIXED ASSETS AND TOWARDS FIXED DEPOSITS. THE TAXPAYER HAS OFFERED AN INCOME OF RS.11,76,610/- BY THE WAY OF INTEREST RECEIVED FROM THE DEPOSITS WHICH SUBSTANTIATES THE VIEW OF THE TPO' THIS FINDING OF THE TPO HAS NEITHER BEEN CHALLENGED NOR REBUTTED BY THE ASSESSEE. THUS, THE AMOUNT OF ADVANCE I .E , RS.5,7 5,54,070/- WAS ACTUALLY ADVANCE TOWARDS CAPITAL EXPENDITURE, FIXED DEPOSITS ETC., HENCE, THERE WOULD BE NOTHING LEFT OVER FROM THE ADVANCE F OR BEING ADJUSTED AGAINST THE SALES INVOICE IN QUESTION THAT TOO ONE YEAR LATER. HENCE, EVIDENTLY, THE MATTER HAS BEEN CONTRIVED SUPERFICIA LLY IN DISREGARD OF ACTUAL FACTS AND EVIDENCE ON RECORD. (Q) IN SUPPORT OF ITS CONTENTION, THE ASSESSEE HAS PLACED RELIANCE ON THE CASE OF M/S. I-GATE GLOBAL SOLUTIONS LTD. VS ACIT ( 112 TTJ L002-TBAN). THE FACTS OF THE SAID CASE ARE ENTIRELY DIFFERENT F ROM THE ASSESSEE' CASE. IN THE CITED CASE, THERE WAS NO ENHANCEMENT OF INCOME DUE TO DETERMINATION OF ARM'S LENGTH PRICE. IN THE CASE OF THE PRESENT A SSESSEE, THE ARM'S LENGTH PRICE HAD BEEN DETERMINED BY THE TPO. IN THE CITED CASE, THERE WAS NO MATTER OF FILING OF REVISED RETURN BY THE ASSESS EE BUT IN THE PRESENT CASE, THE PIVOTAL ISSUE IS THE FILING OF REVISED RE TURN WHICH IS EVIDENTLY BEYOND THE PURVIEW OF SECTION 139(5). IN THE CITED CASE, THE ALP HAD BEEN SHOWN CORRECTLY IN THE ORIGINAL RETURN ITSELF WHICH WAS HIGHER THAN THE ASSESSEE'S BOOK FIGURE BUT IN THE PRESENT CASE, THE ALP ADMITTED IN THE ORIGINAL RETURN WAS VERY MUCH AS PER THE ASSESSEE'S ACCOUNT BOOKS AND THE ALP WAS UNDERSTATED IN BOTH THE REGULAR ACCOUNT BOOKS AS WELL AS THE ORIGINAL RETURN. THE ASSESSEE HAS CITED SOME OTHER CASES (VIDE PAGE 24-26 OF THE VOLUME-I OF THE PAPER BOOK) BUT SUFFICE IT T O SAY THAT SUCH CASES NO I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 14 -: WAY ASSIST THE ASSESSEE'S CLAIM- SUCH CITED CASES B EING ON ENTIRELY DIFFERENT ISSUES AND IN THE CONTEXT OF ENTIRELY DIF FERENT FACTS AND CIRCUMSTANCES. A CASE BY CASE DISCUSSION/ ANALYSIS WOULD NEEDLESSLY ADD TO THE LENGTH OF THE PRESENT ORDER WITHOUT ADDI NG A JOT TO THE ASSESSEE'S DEFENCE. 6. THE DRP, HOWEVER, REJECTED THE OBJECTIONS OF ASSE SSEE BY STATING AS UNDER: 4.1.3. TO SUM UP THE DISCUSSION ON THE FIRST GROUN D OF OBJECTION OF THE ASSESSEE: THE ASSESSEE'S SUBMISSION AND CONTENT ION, LOOKED AT FROM WHATEVER ANGLE, EVEN WITH POSITIVE PREPOSSESSION IN THE ASSESSEE'S FAVOUR, ARE FOUND TO BE TOTALLY DEVOID OF SUBSTANCE AND MERIT. ALL THE FACTS AND CIRCUMSTANCES CUMULATIVELY AND OVERWHELMINGLY L EAD TO THE INFERENCE THAT THE ASSESSEE HAD SIMPLY CONTRIVED THE RAISING OF AN IMPROPER SALES INVOICE AND FURTHER CONTRIVED AN AFTERTHOUGHT EXPOS TFACTO AMENDED AGREEMENT WITH RETROSPECTIVE EFFECT, IN ORDER TO FI LE A REVISED RETURN WHICH IS CERTAINLY INVALID IN THE EYE OF THE INCOME TAX L AW ALL CONTRIVED IN ORDER TO CIRCUMVENT THE TAX LIABILITY INCIDENTAL TO DETER MINATION OF A PROPER ARMS LENGTH PRICE. THE SAID REVISED RETURN IS TOTALLY R EPUGNANT TO SECTION 139(5), TO AS-5, TO AS-9. EVEN THE ASSESSEES OWN STATUTORY AUDITOR SRI M.V. RAMANA MURTHY, FCA HAD TESTIFIED BEFORE TPO U/ S. 131 OF THE I.T. ACT, 1961 I.E., ON 23.02.2009 THAT THERE WAS NO ERR OR OR OMISSION RELATING TO THE SALES INVOICE RAISED ON 31.03.2007. IN OTHE R WORDS, THE ACTION OF THE TPO, IN REFUSING TO GIVE COGNIZANCE TO THE ASSE SSEES REVISED RETURNS, ARE CONFIRMED. 6.1. ON THIS, ASSESSEE IS AGGRIEVED. IN THE COURSE OF HEARING BEFORE US, LD. COUNSEL MADE ELABORATE SUBMISSIONS REITERATI NG THE CONTENTIONS MADE BEFORE THE AUTHORITIES THAT ASSESSEE HAS VALIDLY REVISED THE RETURN AS PER THE PROVISIONS OF THE ACT. HE HAS REFERRED TO THE ORIGINAL TP STUDY IN WHICH MULTIPLE YEAR DATA W AS TAKEN MISTAKENLY AND REVISED TP STUDY IN WHICH CORRECT COMP ARABLES WERE ADOPTED AND THE SUO MOTTO ADJUSTMENT MADE. IT WAS THE CONTENTION THAT REVISED RETURN HAVING BEEN VALIDLY FILE D, ASSESSEES ALP SHOULD HAVE BEEN CALCULATED ON THE BASIS OF THE AM OUNTS ADMITTED BY ASSESSEE AND DEDUCTION OF 10A SHOULD HAVE BEEN ALLOWED. I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 15 -: 7. IN RESPONSE, LD. DR, HOWEVER, RAISED PRELIMINARY OBJECTION THAT ASSESSEE HAVING ACCEPTED THE MAP, HE SHOULD HAVE WITHDRAWN THE APPEAL IN ITS ENTIRETY AND REFERRED TO THE LETTER FIL ED BEFORE THE AO VIDE ACCEPTANCE LETTER. IT WAS HIS CONTENTION THAT THE REVISED RETURN WAS NOT VALID RETURN AND RELIED ON THE FINDINGS OF THE DRP. FURTHER, HE ALSO POINTED OUT THAT ASSESSEE FILED THE REV ISED RETURN FIRST AND LATER OBTAINED THE REVISED 3CEB REPORT. NOT ONLY THAT, 3CEB REPORT MENTIONS THE MARK-UP AT 15%, WHEREAS THE R EVISED AGREEMENT INDICATES 13% ONLY. FURTHER, IT WAS SUBMITTED THAT REVISED AGREEMENT ITSELF IS MUCH LATER TO THE REVISED 3C EB REPORT. HE REFERRED TO THE AMENDED MASTER SERVICE AGREEMENT P LACED AT PAPER BOOK 260 WHICH WAS DATED 11-08-2007 I.E., MUCH LATER TO EVEN 3CEB REPORT. HE ALSO DREW OUR ATTENTION TO THE FAC T THAT THIS ADDITIONAL MARK-UP INCOME WAS OFFERED IN THE LATER YE AR BUT CLAIMED HIGHER 10A DEDUCTION IN THIS YEAR. IT WAS OF FERED IN THE FORM OF REVISED RETURN AS SUO MOTTO ADJUSTMENT. THE MAIN OBJECTION OF THE DR IS THAT ASSESSEE HAVING ACCEPTED THE MAP SHOULD NOT HAVE PURSUED THE APPEAL EVEN ON GROUND NO. 1. THEN HE REFERRED TO THE RESOLUTION COMMUNICATED BY THE BOARD TO SUBMIT THAT THE ADJUSTMENTS WERE TAKEN AS PER THE AOS ORDER BASE D ON THE ORIGINALLY RETURNED INCOME AND NOT ON THE REVISED RETURNED INCOME AND ASSESSEE HAVING PURSUED THE MAP AND ACCEP TED THE RESOLUTIONS SHOULD NOT CONTEST THE ISSUE AS ANY DECISI ON ON THIS WOULD NULLIFY THE MAP AS IT VARIES ADJUSTMENTS BEING SUSTAINED/MADE IN THE CONSEQUENTIAL ORDERS PASSED AFT ER THE CONSENT OF ASSESSEE. HE REFERRED TO THE ADJUSTMENTS MA DE BY THE AO AND THE SETTLEMENT MADE BETWEEN PARTIES AND ADJUSTMENT SUSTAINED AS PER THE FOLLOWING TABLES: I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 16 -: 1. COMPUTATION MADE BY THE TPO : S NO A.Y. IT ENABLED SERVICES DETER MINED MARGI N TOTAL US RELATED NON-US RELATED ALP ADJUSTMENTS ALP ADJUSTMENTS ALP ADJU STME NTS 1 2005-06 22.14 6,00,42,310 61,43,444 60,042,310 6, 143,444 0 0 2 2006-07 21.70 45,71,82,345 5,22,95,888 45,71,82,3 45 52,295,888 0 0 3 2007-08 28.26 111,43,63,974 12,41,52,110 111,43,6 3,974 12,41,52,110 0 0 4 2008-09 26.13 167,84,84,712 20,88,84,447 167,84,8 4,712 20,88,84,447 0 0 5 2009-10 26.20 206,65,32,682 22,29,07,596 206,65,3 2,682 22,29,07,596 0 0 6 2010-11 28.22 250,11,81,538 36,13,28,669 250,11,8 1,538 36,13,28,669 0 0 2. IN PURSUANCE OF THE MUTUAL AGREEMENT, CORRESPONDIN G RELIEF TO THE ADJUSTMENTS MADE BY THE TPO/AO HAS BEEN COMPUTED AS FOLLOWS: IT ENABLED SERVICES: S NO AY IT ENABLED SERVICES ADJUSTMENTS MADE TOWARDS US TRANSACTIONS INCO ME ADJUS TED BY TPO NOT UNDE R MAP TOTAL ADJUSTED INCOME RELIEF ADJUSTMENT SUSTAINED TPO INDIAN CA TPO INDIAN CA 1 2005- 06 6,143,444 2,825,241 0 61,43,444 28,25,241 3,31,82,0 13 28,25,241 2 2006- 07 5,22,95,888 2,69,11,918 0 5,22,95,888 2,69,11,918 2 ,53,83,970 2,69,11,918 3 2007- 08 12,41,52,110 1,23,47,462 0 12,41,52,110 1,23,47,462 11,18,04,648 1,23,47,462 4 2008- 09 20,88,84,447 5,48,28,647 0 20,88,84,447 5,48,28,647 15,40,55,800 5,48,28,647 5 2009- 10 22,29,07,596 6,63,96,826 0 22,29,07,596 6,63,96,826 15,65,10,770 6,63,96,826 6 2010- 11 36,13,28,669 7,96,67,677 0 36,13,28,669 7,96,67,677 28,16,60,992 7,96,67,677 97,57,12,154 24,29,77,771 0 97,57,12,154 24,29,77 ,771 73,27,34,383 24,29,77,771 IT WAS THE CONTENTION THAT THE BASIS FOR THE MAP IS THE COM PUTATION MADE BY AO REJECTING THE REVISED RETURN AS CAN BE SEE N FROM THE I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 17 -: ADJUSTMENTS. IT WAS FURTHER SUBMITTED THAT ABOVE MUTUAL AGREEMENT HAS BEEN REACHED UNDER A FRAMEWORK AGREEME NT IN RESPECT OF PAST CASES INVOLVING IT ENABLED SERVICES A ND IS NOT A BINDING PRECEDENT FOR THE PURPOSE OF FUTURE TRANSFER PR ICING AUDITS. TRANSFER PRICING ADJUSTMENTS FOR THE RESPECTIVE ASSESS MENT YEAR, WAS FINALIZED AS PER THE PROVISIONS AND CONDITIONS L AID DOWN IN RULE 44H(4) OF THE I.T. RULES, 1961, WHICH ARE AS FO LLOWS: THE EFFECT TO THE RESOLUTION ARRIVED AT UNDER MUTU AL AGREEMENT PROCEDURE SHALL BE GIVEN BY THE ASSESSING OFFICER W ITHIN NINETY DAYS OF RECEIPT OF THE SAME BY THE CHIEF COMMISSIONER OR TH E DIRECTOR-GENERAL OF INCOME-TAX, IF THE ASSESSEE, - I. GIVES HIS ACCEPTANCE TO THE RESOLUTION TAKEN UNDER MUTUAL AGREEMENT PROCEDURE; AND II. WITHDRAWS HIS APPEAL, IF ANY, PENDING ON THE ISSUE WHICH WAS THE SUBJECT MATTER FOR ADJUDICATION UNDER MUTUAL AGREEM ENT PROCEDURE. IT WAS SUBMITTED THAT THESE ASSESSMENT YEARS ARE INVOLVED IN MAP AND THE INCOMES CONSIDERED THERE IN HAVE BECOME FINA L, THE GROUND AS CONTESTED BY ASSESSEE SHOULD NOT SURVIVE. 8. IN REPLY, LD. COUNSEL SUBMITTED THAT ASSESSEE WITHDRE W THE TP ADJUSTMENTS BUT THIS GROUND BEING INDEPENDENT SHOULD BE ADJUDICATED. HE ALSO REFERRED TO 3CEB CERTIFICATE TO S UBMIT THAT THIS WAS FILED MUCH BEFORE THE MANUAL RETURN WAS FILED . THEREFORE, THE OBJECTION OF THE DR IS NOT VALID. HE SUPPORTED THE B ONAFIDES OF THE REVISED RETURN BY REFERRING TO VARIOUS CASE LAW. I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 18 -: 9. HAVING CONSIDERED THE RIVAL CONTENTIONS AND PERUSIN G THE DOCUMENTS ON RECORD INCLUDING THE RESOLUTION OF MAP P ROCEDURE ACCEPTED BY ASSESSEE, WE ARE OF THE OPINION THAT THIS FORUM CANNOT ADJUDICATE GROUND NO.1 AS IT IS PART OF THE TP ADJUST MENT ITSELF. FIRST OF ALL, AS CAN BE SEEN FROM THE TABLES, THE DETER MINATION OF MARGINS AND THE ALP ADJUSTMENTS WHICH ARE SUBJECT MATTER OF MAP IS ON THE BASIS OF THE ADJUSTMENT MADE BY THE AO IGNORIN G THE REVISED RETURN. CONSEQUENTLY, ASSESSEE HAVING ACCEPT ED THE SAME AND ALSO HAVING CONSENTED TO WITHDRAW THE APPEAL, IT IS INCUMBENT ON ASSESSEE TO WITHDRAW THE ENTIRE APPEAL, IN WHICH TH E GROUNDS ON THE TP ADJUSTMENTS WERE RAISED. THERE ARE NO OTHER ISS UES TO BE ADJUDICATED. SINCE SIX YEARS ARE INVOLVED IN THE MAP AND DTAA PRESCRIBES THE MAP WHICH IS BINDING ON THE PARTIES ONC E CONSENTED TO THE PROCEDURE, WE ARE OF THE OPINION THAT THIS FORUM CANNOT ADJUDICATE THE ISSUES WHICH ARE SUBJECT MATTER OF MAP. WHETHER ASSESSEES REVISED RETURN IS VALID OR NOT CANNOT BE AD JUDICATED NOW AS THE ORDER PASSED BY THE AO, BASED ON THE ORIGINAL R ETURN IGNORING THE REVISED RETURN AND ADJUSTMENTS MADE THEREON HAS BEEN THE SUBJECT MATTER OF MAP PROCEDURE AND HAS BEEN C OMPUTED AFTER THE CONSENT WAS GIVEN BY ASSESSEE TO WITHDRAW THE APPEALS. 10. NOT ONLY THAT ON THE CONTENTIONS RAISED BY ASSESSEE TH AT REVISED RETURN WAS VALID, WE ARE OF THE OPINION THAT THE REVISED RETURN WAS NOT VALIDLY FILED. THE SO CALLED REVISIO N OF THE MARK-UP WAS PER THE AMENDED AGREEMENT DATED 11-08-2007, WHER EAS ASSESSEE FILED THE REVISED RETURN ON 25-04-2007 AND A UDITED REPORT IN FORM 3CEB WAS OBTAINED ON 24-05-2007. IT IS TO BE NOTED THAT 3CEB REPORT INDICATES THAT THE MARK-UP WAS REVISED TO 15 %, WHICH I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 19 -: ASSESSEE SUBMITS THAT IT WAS AN INADVERTENT MISTAKE. HOW EVER, THIS REPORT IS PRE-DATED TO THE AMENDED MASTER SERVICE AGREEMENT. THIS INDICATES THAT ASSESSEE HAS DECIDED TO MAKE CERTAIN SUO MOTTO ADJUSTMENT SO AS TO CLAIM A HIGHER DEDUCTION ON 10A AS THE ADJUSTMENTS MADE BY THE AO ARE NOT ELIGIBLE FOR DEDUCTI ON U/S. 10A. IN THE GUISE OF MAKING SUO MOTTO ADJUSTMENT, IT FILED THE REVISED RETURN ELECTRONICALLY ON 25-04-2007 AND OBTAIN ED A CERTIFICATE IN FORM 3CEB AND FORM 56F ON 24-05-2007 A ND MANUALLY FILED RETURN ON 29-05-2007 AND SUBSEQUENTLY, FILED AMENDED MASTER SERVICE AGREEMENT AT 13% ON 11-08-2007. THIS INDICATES THAT THERE IS NO BONAFIDE IN ASSESSEES CLAIM THAT REVISED RETURN FILED WAS DUE TO AMENDED MASTER SERVICE AGREEME NT, ON THE BASIS OF THE CLAUSE-I TO REVISE THE AGREEMENT AFTER ONE YEAR. HAVING NOT UPDATED THE AGREEMENT FOR ALMOST TWO YEARS, TH E ACTION OF ASSESSEE IN REVISING THE AGREEMENT IN A SUBSEQUENT PERIOD DOES NOT INDICATE THAT IT IS A BONAFIDE ACTION. ON THAT REASON ALSO THE REVISED RETURN CANNOT BE ACCEPTED AS A VALIDLY FILED ONE. BE THAT AS IT MAY, WE ARE NOT CONCERNED WITH THE LEGALITY OF THE RE VISED RETURN AS ASSESSEE HAS ACCEPTED THE MAP PROCEDURE BASED ON THE ASSESSMENT ORDER IN WHICH ONLY THE ORIGINAL RETURN WA S TAKEN INTO CONSIDERATION. IN VIEW OF THAT, WE DO NOT FIND ANY MERI T IN ASSESSEES CONTENTIONS AND ALSO IN PURSUING THE APPEA L IN GROUND NO.1 ALONE. ACCORDINGLY, THE GROUND IS REJECTED AND THE APPEAL IS DISMISSED. 11. SIMILAR ARE THE FACTS IN OTHER THREE CASES ALSO, E XCEPT THE AMOUNTS INVOLVED. SINCE THEY ALSO HAVE UNDERGONE THE MAP PROCEDURE AND AO CONSIDERED THE ORIGINAL RETURN INTO CONSIDERATION AND FOR THE FACTS AND REASONS STATED ABOVE, WE ARE OF T HE OPINION I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 20 -: THAT THERE IS NO MERIT IN ASSESSEES APPEALS. ACCORDI NGLY, ALL THE REMAINING APPEALS ARE DISMISSED. 12. TO SUM-UP ALL THE APPEALS OF ASSESSEES ARE DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER, 2016 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMB ER HYDERABAD, DATED 28 TH OCTOBER, 2016 TNMM COPY TO : 1. M/S. DELOITTE SUPPORT SERVICES INDIA PVT. LTD., RMZ FUTURA, BLOCK B, 2 ND FLOOR, PLOT NO. 14 & 15, ROAD NO. 2, HITECH CITY LAYOUT, MADHAPUR, HYDERABAD. 2. M/S. DELOITTEE & TOUCHE ASSURANCE AND ENTERPRISE RISK SERVICES INDIA PVT. LTD., (FORMERLY KNOWN AS DELOIT TE & TOUCHE AUDIT SERVICES INDIA PVT. LTD), RMZ FUTURA, BLOCK A, 2 ND FLOOR, PLOT NO. 13, ROAD NO. 2, HITECH CITY LAYOUT , MADHAPUR, HYDERABAD. 3. M/S. DELOITTE FINANCIAL ADVISORY SERVICES INDIA PVT. LTD., RMZ FUTURA, BLOCK C, 3 RD FLOOR, PLOT NO. 14 & 15, ROAD NO. 2, HITECH CITY LAYOUT, MADHAPUR, HYDERABAD. 4. M/S. DELOITTE TAX SERVICES INDIA PVT. LTD., RMZ FUTURA, BLOCK A, 2 ND FLOOR, PLOT NO. 14 & 15, ROAD NO. 2, HITECH CITY LAYOUT, MADHAPUR, HYDERABAD. 5. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-1 (2), HYDERABAD. 6. THE DY. COMMISSIONER OF INCOME TAX, (I/C) CIRCLE - 1(2), HYDERABAD. I.T.A. NOS. 1476, 1477, 1478 & 1479/HYD/2010 :- 21 -: 7. DISPUTE RESOLUTION PANEL (DRP), HYDERABAD. 8. THE DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATI ON, INCOME TAX TOWERS, HYDERABAD. 9. THE ADDL. COMMISSIONER OF INCOME TAX (TRANSFER P RICING), HYDERABAD. 10. D.R. ITAT, HYDERABAD. 11. GUARD FILE.