ADDL CIT -- 10(1), MUMBAI V. AGC NETWORK LTD ( FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD), MUMBAI

ITA 5157/MUM/2012

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2801 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 13-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D G PANSARI
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Commercial expediency; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 145; 144; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER IT A NO. 5157/MUM./2012 ( ASSESSMENT YEAR : 20 08 09 ) DY. COMMISSIONER OF INCOME TAX CIRCLE 10(1), MUMBAI . APP ELL ANT V/S AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) EQUINOX BUSINESS PARK, TOWER 1 (PENINSULA TECHNO PARK) OFF. BANDRA KURLA COMPLEX LBS MARG, KURLA (WEST) MUMBAI 400 070 PAN AAACT3992M . RESPONDENT ITA NO.5434/MUM./2012 ( ASSESSMENT YEAR : 2008 09 ) AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) EQUINOX BUSINESS PARK, TOWER 1 (PENINSULA TECHNO PARK) OFF. BANDRA KURLA COMPLEX LBS MARG, KURLA (WEST) MUMBAI 400 070 PAN AAACT3992M . APPELLANT V/S ADDL . COMMISSIONER OF INCOME TAX RANGE 10(1), MUMBAI . RESPONDENT 2 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) ITA NO.7833/MUM./2011 ( ASSESSMENT YEAR : 2005 06 ) ADDL. COMMISSIONER OF INCOME TAX CIRCLE 10(1), MUMBAI . APPELLANT V/S AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) EQUINOX BUSINESS PARK, TOWER 1 (PENINSULA TECHNO PARK) OFF. BANDRA KURLA COMPLEX LBS MARG, KURLA (WEST) MUMBAI 400 070 PAN AAACT3992M . RESPONDENT ITA NO.8674/MUM./2011 ( ASSESSMENT YEAR : 2005 06 ) AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) EQUINOX BUSINESS PARK, TOWER 1 (PENINSULA TECHNO PARK) OFF. BANDRA KURLA COMPLEX LBS MARG, KURLA (WEST) MUMBAI 400 070 PAN AAACT3992M . APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX RANGE 10(1), MUMBAI . RESPONDENT 3 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) ITA NO.7834/MUM./2011 ( ASSESSMENT YEAR : 2006 07 ) ADDL. COMMISSIONER OF INCOME TAX RANGE 10(1), MUMBAI . APPELLANT V/S AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) EQUINOX BUSINESS PARK, TOWER 1 (PENINSULA TECHNO PARK) OFF. BANDRA KURLA COMPLEX LBS MARG, KURLA (WEST) MUMBAI 400 070 PAN AAACT3992M . RESPONDENT ITA NO.8675/MUM./2011 ( ASSESSMENT YEAR : 2006 07 ) AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) EQUINOX BUSINESS PARK, TOWER 1 (PENINSULA TECHNO PARK) OFF. BANDRA KURLA COMPLEX LBS MARG, KURLA (WEST) MUMBAI 400 070 PAN AAACT3992M . APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX RANGE 10(1), MUMBAI . RESPONDENT 4 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) ITA NO.8676/MUM./2011 ( ASSESSMENT YEAR : 2007 08 ) AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) EQUINOX BUSINESS PARK, TOWER 1 (PENINSULA TECHNO PARK) OFF. BANDRA KURLA COMPLEX LBS MARG, KURLA (WEST) MUMBAI 400 070 PAN AAACT3992M . APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX RANGE 10(1), MUMBAI . RESPONDENT ITA NO.7835/MUM./2011 ( ASSESSMENT YEAR : 2007 08 ) ADDL . COMMISSIONER OF INCOME TAX RANGE 10(1), MUMBAI . APPELLANT V/S AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) EQUINOX BUSINESS PARK, TOWER 1 (PENINSULA TECHNO PARK) OFF. BANDRA KURLA COMPLEX LBS MARG, KURLA (WEST) MUMBAI 400 070 PAN AAACT3992M . RESPONDENT 5 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) ITA NO.5607/MUM./2014 ( ASSESSMENT YEAR : 2009 10 ) DY. COMMISSIONER OF INCOME TAX RANGE 10(1), MUMBAI . APPELLANT V/S AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) EQUINOX BUSINESS PARK, TOWER 1 (PENINSULA TECHNO PARK) OFF. BANDRA KURLA COMPLEX LBS MARG, KURLA (WEST) MUMBAI 400 070 PAN AAACT3992M . RESPONDENT ITA NO.5362/MUM./2014 ( ASSESSMENT YEAR : 2009 10 ) AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) EQUINOX BUSINESS PARK, TOWER 1 (PENINSULA TECHNO PARK) OFF. BANDRA KURLA COMPLEX LBS MARG, KURLA (WEST) MUMBAI 400 070 PAN AAACT3992M . APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX RANGE 10(1), MUMBAI . RESPONDENT REVENUE BY : SHRI ANADI VERMA A/W SHRI S.K. JAIN , SHRI SOMNATH WAJALE AND SHRI D.G.PANSARI ASSESSEE BY : SHRI NITESH JOSHI DATE OF HEARING 19.07 .2019 DATE OF ORDER 30.08.2019 6 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) O R D E R PER BENCH THESE ARE FIVE SETS OF CROSS APPEALS ARISING OUT OF SEPARATE ORDERS PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 21, MUMBAI, PERTAINING TO THE ASSESSMENT YEAR S 2005 06, 2006 07, 2007 08, 2008 09 AND 2009 10. 2 . SINCE ALL THESE APPEALS PERTAIN TO THE SAME ASSESSEE INVOLVING COMMON ISSUES ARISING OUT OF IDENTICAL SET OF FACTS AND CIRCUMSTANCES, THEREFORE, AS A MATTER OF CONVENIENCE, THESE APPEALS WERE HEARD TOG ETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. ITA NO.8674/MUM./2011 ASSESSEES APPEAL A.Y. 2005 06 3 . IN GROUND NO.1, THE ASSESSEE HAS CHALLENGE D THE DISALLOWANCE OF PROVISION FOR EXPENDITURE AMOUNTING TO ` 2,07,06,990. 4 . BRIEF FACTS ARE, THE ASSESSEE IS A RESIDENT COMPANY. AS STATED BY THE ASSESSING OFFICER, IT IS ENGAGED IN THE BUSINESS OF PROVI DING TELECOMMUNICATION EQUIPMENT, SERVICE AND SOLUTIONS. BROADLY, THE ASSESSEE PROVIDES ELECTRONIC PRIVATE AUTOMATED BRANCH EXCHANGES, CALL CENTRE, DATA PRODUCTS, VOICE PROCESSING SYSTEMS, LOW END EPABX, SETTING UP OF B ACKBONE NETWORK FOR CELLULAR OPERATOR S, TELECONFERENCING, ETC. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE 7 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) ASSESSEE FILED ITS RETURN OF INCOME ON 27 TH OCTOBER 2005, DECLARING TOTAL INCOME OF ` 45,32,59,427. IN THE COURSE OF ASSESSMENT PROCEEDINGS, WHILE VERIFYING THE ANNUAL REPORT OF THE ASSES SEE, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS MADE A PROVISION FOR VARIOUS EXPENDITURES INCURRED IN RESPECT OF WHICH BILLS WERE NOT RECEIVED FROM THE VENDORS AS ON 31 ST MARCH 2005. THE TOTAL OF SUCH EXPENDITURES WORKED OUT TO ` 3,53,96,636. THE ASSESSING OFFICER OBSE RVED, IN SUCH SITUATIONS WHERE THE BILLS ARE RECEIVED AFTER 31 ST MARCH, BUT BEFORE FILING OF THE RETURN OF INCOME, THE EXCESS PROVISION MADE IS REVERSED AND ONLY THE ACTUAL EXPENDITURES ARE DEBITED TO TH E PROFIT & LO SS ACCOUNT. HOWEVER, IN ASSESSEES CASE, THE EXCESS PROVISION IS R EVERSED IN THE SUBSEQUENT YEAR . A S A RESULT, THE ENTIRE EXPENDITURE IN THE NATURE OF PROVISION IS CLAIMED AS DEDUCTION IN CURRENT YEAR. BEING OF THE VIEW THAT THE METHOD FOLLOWED BY THE ASSE SSEE DOES NOT GIVE A TRUE AND FAIR VIEW OF THE PROFIT OF THE COMPANY, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS OF ACTUAL EXPENDITURE I NCURRED VIS A VIS THE PROVISION MADE IN THE BOOKS OF ACCOUNT. AFTER PERUSING THE DETAILS FURN ISHED BY THE ASSESSEE, THE FOLLOWING FACTS EMERGED: 1 . PROVISION FOR UNPAID EXPENDITURE ` 10,15,97,058 EXPENDITURE ACTUALLY INCURRED ` 9,84,95,535 EXCESS PROVISION MADE ` 31,01,523 8 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) 2 . PROVISION MADE FOR SUNDRY CREDITORS RELATING TO SALES COMMISSION, PROMOTION, ADVERTISEMENT, ETC. ` 13,54,61,007 EXPENDITURE ACTUALLY INCURRED ` 10,43,22,197 EXCESS PROVISION MADE ` 3,11,38,810 3 . PROVISION FOR LEGAL AND PROFESSIONAL FEES ` 1,10,20,000 EXPENDITURE ACTUALLY INCURRED ` 98,63,697 EXCESS PROVISIONS MADE ` 11,56,303 5 . BEING OF THE VIEW THAT THE EXCESS PROVISION MADE IS IN THE NATURE OF CONTINGENT LIABILITY, THE ASSESSING OFFICER DISALLOWED THE SAME AND ADDED BACK TO THE INCOME OF THE ASSESSEE. BEING AGGRIEVED WITH SUCH DISALLOWANCE, THE ASSESSEE PREF ERRED APPEAL BEFORE LEARNED COMMISSIONER (APPEALS). 6 . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, LEARNED COMMISSIONER (APPEALS) , THOUGH , AGREED THAT IN RESPECT OF GOODS AND SERVICES RECEIVED TOWARDS THE END OF THE MONTH OF MARCH, THE ASSESSEE MAY NO T HAVE RECEIV ED INVOICES/ BILLS OF THE VENDORS FOR WHICH THE ASSESSEE HAS TO MAKE ESTIMATION OF PROVISION FOR SUCH EXPENDITURE ON A REASONABLE AND SCIENTIFIC BASIS. HOWEVER, HE OBSERVED , SUCH ESTIMATION OF PROVISION FOR EXPENDITURE SHOULD BE VERY NEAR TO TH E ACTUAL EXPENDITURE INCURRED FOR WHICH THE BILLS MAY NOT HAVE BEEN RECEIVED. HE OBSERVED , SINCE THE PROVISION MADE BY THE ASSESSEE IS FAR 9 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) MORE THAN THE ACTUAL EXPENDITURE, IT CA NNOT BE SAID THAT THE PROVISION MADE IS ON REASO NABLE OR SCIENTIFIC BASIS. L EA RNED COMMISSIONER (APPEALS) OBSERVED , IF THE PROVISION MADE IS WITHIN THE RANGE OF 5 TO 10% OF THE ACTUAL EXPENDITURE INCURRED FOR WHICH THE BILLS WERE RECEIVED AFTER THE END OF FIN ANCIAL YEAR, THEN THE PROVISION MADE CAN BE ACCEPTED AS REAS ONABLE. APPLYI NG THE SAID BENCHMARK, LEARNED COMMISSIONER (A PPEALS) HELD THAT THE PROVISION MADE FOR UNPAID EXPENDITURE AND L EGAL AND PROFESSIONAL FEES SINCE FALLS WITHIN THE RANGE OF 10% OF THE ACTUAL EXPENDITURE INCURRED , THEY CAN BE ALLOWED. H OWEVER, HE OBSERVED, PRO VISION MADE FOR SUNDRY CREDITOR RELATING TO SALE COMMISSION, PROMOTION , ADVERTISEMENT, EXCEED S THE RANGE OF 10% OF THE ACT UAL EXPENDITURE INCURRED. THUS, HE HELD THAT THE SAID PROVISION IN EXCESS OF 10% OF THE ACTUAL EXPENDITURE CANNOT BE ALLOWED AS BUSINE SS EXPENDITURE. ACCORDINGLY, HE SUSTAINED THE DISALLOWANCE TO THE EXTENT OF ` 2,07,06,990. FURTHER, LEARNED COMMISSIONER (APPEALS) DIRECTED THE ASSESSING OFFICER TO GRANT CONSEQUENTIAL RELIEF TO THE ASSESS EE IN RESPECT OF SUCH PROVISION OFFERED AS INCOME I N ASSESSMENT YEAR 2013 14. 7 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , SINCE THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF AC COUNTING, IT HAS TO BOOK ALL EXPENDITURES WHICH HAVE CRYSTALLIZED DURING THE YEAR. HE SUBMITTED , AS 10 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) PER ACCOUNTING STANDARD (AS) 1 NOTIFIED UNDER SECTION 145(2) OF THE ACT, WHICH THE ASSESSEE IS REQUIRED TO FOLLOW , PROVISION HAS TO BE MADE FOR ALL LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH CERTAINTY A ND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF THE AVAILABLE INFORMATION. HE SUBMITTED , FOLLOWI NG THE GUIDELINES OF AS - 1, THE ASSESSEE HAS TO PROVIDE FOR ALL EXPENDITURE S INCURRED DURING THE YEAR INCLUDING THE EXPENDITURE IN RESPECT OF WHICH INVOICES WER E NOT RECEIVED. REFERRING TO NOTE 13 TO THE NO TES TO ACCOUNT, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE PROVISION MADE WAS ON THE BASIS OF ESTIMATE MADE BY THE COMPANY CONSIDERING THE FACTS AND CIRCUMSTANCES OF EACH CASE . THUS, HE SUBMITTED , THE PROVISION MADE BY THE ASSES SEE ON A BEST ESTI MATE BASIS IS IN T ERMS OF AS - 1 AND SECTION 145(2) OF THE ACT, HENCE, IN ACCORDANCE WITH LAW. HE SUBMITTED , IN SU CH CIRCUMSTANCES, THE PROVISION FOR EXPENDITURE CANNOT BE TREATED AS CONTINGENT LIABILITY. IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE FOL LOWING DECISIONS: I ) BHARAT EARTH MOVERS V/S CIT, [2000] 245 ITR 428 (SC); II ) METAL BOX OF INDIA LTD. V/S THEIR WORKMEN, [1972] 73 ITR 53 (SC); III ) CALCUTTA CO. LTD. V/S CIT, [1959] 37 ITR 001 (SC) ; AND IV ) ROTORK CONTROLS (INDIA) PVT. LTD. V/S CIT, [2009] 314 ITR 62 (SC). 8 . DRAWING OUR ATTENTION TO THE DETAILS FURNISHED IN THE PAPER BOOK, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THERE ARE SEVERAL 11 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) HEADS OF EXPENDITURE UNDER THE PROVISION FO R SUNDRY CREDITOR AND PROVISION FOR UNPAID EXPENDITURE WHERE THE ACTUAL E XPENDITURE IS EITHER MATCHING WITH OR EXCEEDED THE PROVISION MADE. THEREFORE, HE SUBMITTED , THE AFORESAID FACTS SHOW THAT THE PROVISION MADE BY THE ASSESSEE WAS AFTE R DUE APPLICATION OF MIND AND ON SCIENTIFIC BASIS. HE SUBMITTED , SINCE THE ASSESSEE FOLLOWS THE SAME METHOD OF ACCOUNTING CONSISTENTL Y EVEN WITH REGARD TO PROVISION FOR EXPENDITURE AND IT HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE PRECEDING ASSESSMENT YEAR S , IT SHOULD NOT BE DISALLOWED IN THE IMPUGNED ASSESSMENT YEAR. 9 . THE LEARNED AUTHORISED RE PRESENTATIVE SUBMITTED , THE REASONING OF THE ASSESSING OFFICER THAT THE ASSESSEE SHOULD HAVE MAD E THE REVERSAL OF THE PROVISION IN THE CURRENT YEAR IS UNACCEPTABLE, BECAUSE THE ASS ESSEE BEING A LISTED COMPANY, COULD NOT HAVE KEPT ITS BOOKS OF ACCOUNT OPEN TILL THE DATE OF FILING OF RETURN OF INCOME. FURTHER, HE SUBMITTED , THE THRES HOLD LIMIT OF 10% APPLIED BY LEARNED COMMISSIONER (APPEALS) TO DIS ALLOW A PART OF THE PROVISION HAS NO BASIS AT ALL, AS NEITHER IS IT IN ACCORDANCE WITH ACCOUNTING STANDARD NOTIFI ED UNDER THE ACT NOR ANY OTHER ACCOUNTING PRINCIPLE OR LAW. THUS, HE SUBMITTED , THE ADDITION SUSTAINED BY LEARNED COMMISSIONER (APPEALS) BEING PURELY ON AD HOC BASIS CANNOT BE SUSTAINED. 12 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) 10 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , THOUGH , THE ASSES SEE HAS STRENU OUSLY ARGUED THAT THE PROVISION MADE IS IN ACCORDANCE WITH COMMERCIAL EXPEDIENCY AND PRUDENT BUSINESS POLICY, HOWEVER, NEITHER BEFORE THE DEPARTMENTAL AUTHORITIES NOR EVEN BEFORE THE TRIBUNAL, THE ASSESSEE HAS FURNISHED ANY MATERIAL TO DEMONS TRATE THAT THE PROVISION MADE IS ON BEST ESTIMATE AND ON SCIENTIFIC BASIS. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , SINCE THERE WAS CONSIDERABLE D IFFERENCE BETWEEN THE PROVISION MADE AND ACTUAL EXPENDITURE INCURRED, IT CA NNOT BE SAID THAT THE PROVISION MADE WAS ON REASONABLE AND SCIENTIFIC BASIS. IN THIS CONTEXT HE REFERRED TO AS - 29. HE SUBMITTED , THOUGH , THE RANGE OF 10% APPLIED BY LEARNED COMMISSIONER (APPEALS) MAY NOT HAVE BEEN PROVIDED IN THE ACCOUNTING STANDARD OR ANYWHERE ELSE, BUT IT IS ONLY FOR THE PURPOSE OF DETERMINING THE BEST ESTIMATE QUA THE ACTUAL EXPENDITURE INCURRED. HE SUBMITTED , MERELY BECAUSE THE PROVISION MADE IN THE EARLIER ASSESSMENT YEARS WERE ACCEPTED DUE TO LACK OF ENQUIRY, IT CANNOT BE ACCEPTED IN EVERY YEAR. HE SUBMITT ED , THE ESTIMATE OF PROVISION BY THE ASSESSEE SINCE IS NOT ON THE BA SIS OF ANY SCIENTIFIC DATA, THE ALLOWANCE OF SUCH EXPENDITURE IN PAST YEARS WILL NOT ACT AS RES JUDICATA FOR DECIDING THE ISSUE IN THE IMPUGNED ASSESSMENT YEAR. THUS, HE SUBMITTED , THERE I S NO REASON TO IN TERFERE WITH THE DECISION OF LEARNED COMMISSIONER (APPEALS). 13 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) 11 . IN REJOINDER, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , RELIANCE PLACED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE ON AS - 29 RELATING TO THE PROVISIONS, CONTINGENT LIABILI TY AND CONTINGENT ASSETS DOES NOT MAKE ASSESSEES CASE WEAKER , RATHER , IT SUPPORTS AS SESSEES CASE. HE SUBMITTED, AS - 29 MANDATES THAT THE PROVISION SHOULD BE MADE IN THE ACCOUNTS FOR EXPENDITURE INCURRED DURING THE YEAR BASED ON REASONABLE ESTIMATE. HE SUB MITTED , REFERRING TO AS IN NOTE 13 OF SC HEDULE 21 OF THE ANNUAL ACCOUNT IT HAS BEEN SPECIFI CALLY STATED THAT THE PROVISION FOR EXPENDITURE IS BASED ON THE ESTIMATE MADE BY THE COMPANY CONSIDERING THE PAST EXPERIENCE . WITHOUT PREJUDICE, THE LEARNED AUTHORIS ED REPRESENTATIVE SUBMITTED , SINCE THE EXCESS PROVISION MADE WAS REVERSED BY THE ASSESSEE IN THE SUBS EQUENT ASSESSMENT YEAR AND OFFERED AS INCOME, NO PREJUDICE IS CAUSED TO THE DEPARTMENT AS THE DEPARTM ENT IS NOT DEPRIVED OF LEGITIMATE TAX DUES AND THERE I S ONLY A TIMING DIFFERENCE. THEREFORE, NO DISALLOWANCE SHOULD BE MADE IN THE IMPUGNED ASSESSMENT YEAR. IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN CIT V/S EXCEL INDUSTRIES LTD., [2013] 358 ITR 295 (SC). 12 . WE HA VE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON BY THE PARTIES. THERE IS NO DISPUTE BETWEEN THE PARTIES WITH REGARD TO 14 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) THE BASIC FACTS RELATING TO THE DISPUTED ADDITION. THE COR E ISSUE, WHICH IS REQUIRED TO BE EXA MINED IS, WHETHER THE PROVISION FOR EXPENDITURE MADE BY THE AS SESSEE IS IN ACCORDANCE WITH ACCOUNTING STANDARD S AND LEGAL PROVISIONS. IT IS A FACT ON RECOR D THAT IN RESPECT OF SOME GOODS/SERVICES RECEIVED/ AVAILED BY THE ASSESSEE TOWARDS THE END O F THE FINANCIAL YEAR, THE BILLS/ INVOICES WERE NOT RAISED BY THE CONCERNED PARTIES WITHIN THE FINANCIAL YEAR BUT WERE RAISED IN THE SUBSEQUENT YEAR. HOWEVER, SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT, THE EXPENDI TURE S INCURRED DURING THE YEAR HAVE TO BE ACCOUN TED FOR IN THE BOOKS OF ACCOUNT. THEREFORE, IN ABSENCE OF BILLS/ INVOICES RAISED BY THE VENDORS, THE ASS ESSEE MADE PROVISION FOR SUCH EXPENDITURE IN ITS BOOKS OF ACCOUNT. THERE I S NO DISPUTE THAT THE PROVISION MADE BY THE ASSESSEE IS ON ESTIMATE BASIS. THEREFORE , IT HAS TO BE SEEN WHETHER SUCH ESTIMATE OF PROVISION MADE BY THE ASSESSEE IS ON REASONABLE AND SCIENTIFIC BASIS AND IN ACCORDANCE WITH BUSINESS PRUDENCE. AS COULD BE SEEN FROM THE FACTS DISCUSSED EARLI ER, THE ASSESSEE HAD MADE PROVISION FOR EXPENDITURE UNDER THREE DISTINCT HEADS. WHILE THE ASSESSING OFFICER HAS ADDED BACK THE DIFFERENCE BETWE EN THE PROVISION MADE AN D ACTUAL EXPENDITURE INCURRED UNDER ALL THE THREE HEADS, LEARNED COMMISSIONER (APPEALS) H AS RESTRICTED SUCH DISALLOWAN CE ONLY IN RESPECT OF PROVISION MADE FOR SUNDRY CREDITORS RELATING TO SALES COMMISSION, PROMOTION, ADVERTISEMENT, ETC. 15 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) THEREFORE, IT REQUIRES CONS IDERATION WHETHER THE PROVISION MADE CAN BE STA TED TO BE IN ACCORDANCE WITH AS - 1 R/W SECTION 145(2) OF THE ACT. IN THIS CONTEXT, LEARNED AUTHORISED REPRESENTATIVE HAS SPECIFICALLY R EFERRED TO PARA 16 AND 17 OF AS - 1. FOR EASE OF REFERENCE, WE REPRODUCE THE AFORESAID PARAGRAPH HEREIN BELOW: CONSIDERATIONS IN THE SELECTION OF ACCOUNT ING POLICIES 16. THE PRIMARY CONSIDERATION IN THE SELECTION OF ACCOUNTING POLICIES BY AN ENTERPRISE IS THAT THE FINANCIAL STATEMENTS PREPARED AND PRESENTED ON THE BASIS OF SUCH ACCOUNTING POLICIES SHOULD REPRESENT A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS OF THE ENT ERPRISE AS AT THE BALANCE SHEET DATE AND OF THE PROFIT OR LOSS FOR THE PERIOD ENDED ON THAT DATE. 17. FOR THIS PURPOSE, THE MAJOR CONSIDERATIONS GOVERNING THE SELECTION AND APPLICATION OF ACCOUNTING POLICIES ARE: A. PRUDENCE IN VIEW OF THE UNCERTAIN TY ATTACHED TO FUTURE EVENTS, PROFITS ARE NOT ANTICIPATED BUT RECOGNISED ONLY WHEN REALISED THOUGH NOT NECESSARILY IN CASH. PROVISION IS MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH CERTAINTY AND REPRESENTS ONL Y A BEST ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION. B. SUBSTANCE OVER FORM THE ACCOUNTING TREATMENT AND PRESENTATION IN FINANCIAL STATEMENTS OF TRANSACTIONS AND EVENTS SHOULD BE GOVERNED BY THEIR SUBSTANCE AND NOT MERELY BY THE LEGAL FORM. C. MATE RIALITY FINANCIAL STATEMENTS SHOULD DISCLOSE ALL MATERIAL ITEMS, I.E. ITEMS THE KNOWLEDGE OF WHICH MIGHT INFLUENCE THE DECISIONS OF THE USER OF THE FINANCIAL STATEMENTS. 16 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) 13 . A CAREFUL READING OF THE AFORESAID PARAGRAPH S WOULD R EVEAL THAT AS PER PARA 16 OF AS - 1, THE ACCOUNTING POLICY TO B E SELECTED BY THE ENTERPRISE SHOULD REPRESENT A TRUE AND FAIR VIEW OF THE STATE OF AFFAIR OF THE ENTERPRISE AS AT THE BALANCE SHEET DATE AND OF THE PROFIT. PARA 17(A) PROVIDES THAT FOR ALL KNOWN LIABILITIES AND LOSSES , WHICH CANNOT BE DETERMINED OR QUANTIFIED WITH CERTAINTY, THE ENTERPRISE BY USING BUSIN ESS PRUDENCE CAN MAKE PROVISION IN THE LIGHT OF AVAILABLE INFORMATION ON THE BASIS OF A BEST ESTIMATE. THUS, A READING OF AS - 1 MAK ES IT CLEAR THAT THE LIABILITY FOR EXPEN DITURE INCURRED DURING THE YEAR IF CANNOT BE DETERMINED WITH CERTAINTY, TH E ASSESSEE CAN MAKE A PROVISION FOR SUCH LIABILITY ON BEST ESTIMATE ON THE BASIS OF AVAILABLE INFORMATION. THUS, THOUGH , THERE CANNOT BE ANY DOUBT THAT FOR EXPEN DITURE INCURRED DURIN G THE YEAR WHICH CANNOT BE DETERMINED WITH CERTAINTY , SINCE TH E VENDORS HAVE NOT RAISED BILLS/ INVOICES, THE ASSESSEE IS ENTITLED TO MA KE PROVISION ON ESTIMATE BASIS, H OWEVER, SUCH ESTIMATE HAS TO BE A BEST ESTIMATE. IT TRANSPIRES FROM RECORD, THE ASSESSEE IS FOLLOWING THE AFORESAID METHOD OF ACCOUNTING IN RESPECT OF UNBILLED EXPENDITURE FROM PAST YEARS AND IT HAS NEVER BEEN DISPUTED BY THE DEPARTMENT. ADDITIONALLY, AS - 1 PROVIDES FOR CREATING PROVISION FOR EXPENDITURE ON ESTIMATE BASIS KEEPING IN VIEW BUSINE SS PRUDENCE AND INFORMATION AVAILABLE. IN FACT, LEARNED COMMISSIONER (APPEALS) ALSO NOT ONLY RECOGNIZES THE NECESSITY OF MAKING PROVISION FOR UNBILLED 17 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) EXPENDITURE BUT HAS ALSO ALLOWED PROVISION FOR EXPENDITURE NOT EXCEEDING 10% OF THE ACTUAL EXPENDITURE. I N OUR VIEW, THERE IS NO SUCH THUMB RULE EITHER IN ACCOUNTING STANDARDS OR ELSEWHE RE TO RESTRICT THE PROVISION TO WITHIN THE RANGE OF 10% OF THE ACTUAL EXPENDITURE. IT IS WORTH MENTIONING; THE ASSESSEE HAS REVERSED THE PROVISION IN THE SUBSEQUENT YEAR AND O FFERED TO TAX. THIS FACT HAS NOT BEEN DISPUTED BY THE DEPARTMENT. THEREFORE, THE RATIO LAID DOWN IN CASE OF CIT V/S EXCEL INDUSTRIES LTD. WOULD APPLY. MORE SO, WHEN THE ASSESSEE IS CONSISTENTLY FOLLOWING THIS ACCOUNTING METHOD FROM PAST YEARS. IN VIEW OF T HE AFORESAID, WE HOLD THAT THE PART DISALLOWANCE SUSTAINED BY LEARNED COMMISSIONER (APPEALS) ALSO DESERVES TO BE DELETED. THEREFORE, LEARNED COMMISSIONER (APPEALS) DIRECTION TO GRANT CONSEQUENTIAL RELIEF IN SUBSEQUENT ASSESSMENT YEAR BECOMES INFRUCTUOUS. T HIS GROUND IS ALLOWED. 14 . IN GROUND NO,.2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RENOVATION EXPENDITURE AMOUNTING TO ` 36,56,133. 15 . BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 50,14,955, TOWARDS EXPENDITURE ON REPAIRS AND MAINTENANCE OF OFFICE PREMISES CALLED UPON THE ASSESSEE TO FURNISH THE BREAK UP OF SUCH EXPENDITURE AND EXPLAIN ITS ALLOWABILITY. IN RESPONSE, THE ASSESSEE 18 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) FURNISHED THE DETAILS AND SUBMITTED THAT S INCE SUCH EXPENDITURE WAS INCURRED TOWARDS REGULAR AND ROUTINE REPAIR AND MAINTENANCE OF PREMISES TAKEN ON LEASE FOR ASSESSEES OFFICE, IT IS ALLOWABLE AS EXPENDITURE. THE ASSESSING OFFI CER, HOWEVER, DID NOT ACCEPT ASSESSEES CLAIM. HE OBSERVED , LEASED PREMISES HAVE BEEN TAKEN BY THE ASSESSEE ON LONG TERM BASIS. T HEREFORE, ANY EXPENDITURE INCURRED GIVES AN ENDURING BENEFIT TO THE ASSESSEE. FURTHER, HE OBSERVED , IN THE OFFICE PREMISES NEWLY TAKEN ON LEASE AT HYDERABAD AND BANGALORE, THE ASSESSEE HA S INCURRED HUGE EXPENDITURE FOR FURNITURE, FITTINGS AND FIXTURE WHICH CANNOT BE CONSIDERED AS ROUTINE REPAIR AND MAINTENANCE. THUS, HE HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE CAPITALIZED. ACCORDINGLY, BY DISALLOWING THE CLAIM OF THE AS SESSEE, THE ASSESSING OFFICER CAPITALIZED THE EXPENDITURE CLAIMED TOWARDS REPAIR AND MAINTENANCE AND ALLOWED DEPRECIATION @ 10%. THE ASSESSEE CHALLENGED THE AFORESAID DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY. 16 . L EARNED COMMISSIONER (APPEALS), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIAL ON RECORD, FOUND THAT REPAIR AND MAINTENANCE EXPENDITURES WERE MAINLY INCURRED ON SANITARY WORK, INTERIOR DESIGNING AND FLOORING, ETC. LOO KING AT THE NATURE AND QUANTUM OF EXPENDITURE, HE OBSERVED THAT BY 19 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) INCURRING SUCH EXPENDITURE, THE ASSESSEE HAS NOT BROUGHT INTO EXISTENCE ANY ASSET OF ENDURING NATURE. HOWEVER, IN RESPECT OF OFFICE PREMISES TAKEN ON LEASE AT HYDERABAD AND BANGALORE, WHICH WERE NEWLY TAKEN ON LEASE, THE ASSESSEE HAS INCURRED EXPENDITURE ON FURNITURE, FITTINGS AND FIXTURES, ETC. THUS, HE WAS OF THE VIEW THAT THE EXPENDITURE INCURRED FOR FIRST TIME ON NEW PREMISES TAKEN ON LEASE IS CAPITAL IN NATURE, HENCE, HAS TO BE CAPITALI ZED. ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO THE EXPENDITURE INCURRED IN RESPECT OF LEASED PREM ISES AT HYDERABAD AND BANGALORE. 17 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , ASSESSEE HAS T AKEN PREMISES ON LEASE AT VARIOUS PLACES IN INDIA FOR OFFICE PURPOSE. HE SUBMITTED , FOR MAKING THE PREMISES SUITABLE FOR USE AS SESSEE HAD CARR I ED OUT CERTAIN RENOVATION WORK . HE SUBMITTED , SUCH RENOVATION WORK UNDERTAKEN IS SOLELY FOR THE PURPOSE OF PROVIDING A GOOD WORKING ENVIRO NMENT TO ITS STAFF. HE SUBMITTED , THE OFFICE HAS TO BE KEPT IN A GOOD CO NDITION AS VARIOUS MEETINGS ARE HELD THEREIN WITH THE SUPPLIERS, CUSTOMERS AND THEIR REPRESENTATIVE S . THUS, HE SUBMITTED , SINCE THE EXPENDITURE INCURRED IS PURELY FOR THE PURPOSE OF BU SINESS , IT HAS TO BE ALLOWED AS REVENUE EXPENDITURE. FURTHER , DRAWING OUR ATTENTION TO THE DETAILS OF EXPENDITURE AS FURNISHED IN THE PAPER BOOK, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE NATURE OF EXPENDITURE WOULD 20 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) CLEARLY REVEAL THAT THEY ARE NOT FOR DERIVING ANY ENDURING BENEFIT. HE SUBMITTED , MERELY BECAUSE THE PREMISES AT HYDERABAD AND BANGALORE WERE NEWLY TAKEN ON LEASE IT CANNOT BE SAID THAT ANY EXPENDITURE INCURRED IN RESPECT OF THESE PREMISES IS CAPITAL IN NATURE. HE SUBMITTED , THOUGH EX PLANATION 1 TO SECTION 32(1)(II) OF THE ACT PROVIDES FOR DEPRECIATION IN RESPECT OF ANY ADDI TION, RENOVATION OR EXTENSION TO A BUILDI NG NOT OWNED BY THE ASSESSEE BUT HOLDS LEASE HOLD RIGHTS , HOWEVER, IT WILL ONLY APPLY IF THE EXPENDITURE IS CAPITAL IN NAT URE. IN SUPPORT OF HIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: I ) CIT V/S HEDE CONSULTANCY PVT. LTD., [2002] 258 ITR 380 (BOM.); II ) CIT V/S TALATHI AND PANTHAKY ASSOCIATED PVT. LTD., [2012] 343 ITR 309 (BOM.); AN D III ) URBAN INFRASTRUCTURE VENTURE CAPITAL LTD. V/S DCIT, [2014] 150 ITD 502 (MUM.). 18 . HE SUBMITTED , THE DECISION OF THE TRIBUNAL IN URBAN INFRASTRUCTURE VENTURE CAPITAL LTD. (SUPRA) WAS UPHELD BY THE HON'BLE JURISDICTIONAL HIGH COURT WHILE DISMISSING REVENUES APPEAL IN ITA NO.65/2015, DATED 17 TH JULY 2017. THUS, HE SUBMITTED , THE DEDUCTION CLAIMED BY THE ASSESSEE HAS TO BE ALLOWED IN FULL. 21 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) 19 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , THE EXPENDITURE INC URRED BY THE ASSESSEE ON REPAIR/ RENOVATIO N OF LEASED PREMISE CANNOT BE CONSIDERED TO BE OF REVENUE NATURE AS BY INCURRING SUCH EXPENDITURE, THE ASSESSEE HAS DERIVED ENDURING BENEFIT. HE SUBMITTED , THE VERY FACT THAT THE ASSESSEE HAS INCURRED HUGE EXPENDITURE TOWARDS FURNITURE, FITTINGS, FIXTURE, ETC. IN THE NEWLY LEASED PREMISES INDICATE THAT THEY ARE NOT REGULAR REPAIR AND MAINTENANCE EXPENDITURE BUT INCURRED FO R CREATING ASSETS OF ENDURING NA TURE. THUS, HE SUBMITTED LEARNED COMMISSIONER (APPEALS) SHOULD NOT HAVE GRANTED EVEN PARTIAL RELIEF TO TH E ASSESSEE. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER SHOULD BE RESTORED. IN SUPPORT OF HIS CONTENTION, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: I ) RPG ENTERPRISES LTD. V/S DCIT, [2016] 386 ITR 401 (BOM.); II ) VARDHMAN DEVELOPERS LTD. V/S ITO, [2015] 68 SOT 107 (MUM.) (URO); AND III ) ITO V/S PRITAM JUICE, [2010] 124 ITD 237 (MUM.). 20 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. THE ISSUE BEFORE US IS, WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS REPAIR/ RENOVATION OF LEASED PRE MISE IS OF CAPITAL OR REVENUE NATURE. ON A PERUSAL OF THE DETAILS OF EXPENDITURE INCURRED, AS 22 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) SUBMITTED IN THE PAPER BOOK, WE ARE OF THE VIEW TH AT BY INCURRING SUCH EXPENDITURE, THE ASSESSEE HAS NOT BROUGHT INTO EXISTENCE ANY CAPITAL ASSET OF ENDURING NATURE. A REFERENCE TO EXPLANATION 1 TO SECTION 32(1) OF THE ACT, WOULD REVEAL THAT IT SPEAKS OF CAPITAL EXPENDITURE INCURRED TOWARDS CONSTRUCTION O F ANY STRUCTURE OR RENOVATION OR EXTENSION OR IMPROVEMENT TO THE BUILDING. THUS, ON A READING OF THE AFORESAID PROVISIONS, IT BECOMES CLEAR THAT IF ANY EXPENDITURE IS INCURRED FOR CONSTRUCTION OF ANY STRUCTURE OR EXTENSION OR IMPROVEMENT OF THE BUILDING TA KEN ON LEASE WOULD BE TREATED AS CAPITAL EXPENDITURE. THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF THE LEASED PREMISES AND MORE PARTICULARLY THE PREMISES AT HYDERABAD AND BANGALORE ARE NOT OF THE NATURE OF CONSTRUCTING NEW STRUCTURE , EX TENSION OR IMPROVEMENT OF BUILDING. THEREFORE, EXPLANATION 1 TO SECTION 32(1) OF TH E ACT WOULD NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE . T HOUGH , THERE CANNOT BE ANY QUARREL WITH REGARD TO THE PROPOSITION LAID DOWN IN THE DECISIONS CITED BEFORE US , HOWEVER, THE NATURE OF EXPENDI TURE INCURRED BY THE ASSESSEE WITH REFERENCE TO FACTS OF EACH CASE WOULD DECIDE WHETHER IT IS CAPITAL OR REVENUE IN NATURE. IN THE FACT S OF THE PRESENT CASE, AFTER EXAMINING THE DETAILS OF EXPENDITURE INCURRED BY THE ASSESSE E, WE ARE OF THE VIEW THAT IT IS OF REVENUE NATURE, HENCE , HAS TO BE ALLOWED . ACCORDINGL Y, WE DO SO. THE 23 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) DECISION OF LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE IS, THEREFORE, SET ASIDE. GROUND RAISED IS ALLOWED. 21 . IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF WRITE OFF OF SECURITY DEPOSIT AMOUNTING TO ` 59,26,246, IN RESPECT OF LEASE HOLD PREMISES. 22 . BRIEF FACTS ARE, WHILE EXAMINING THE AFORESAID CLAIM OF THE ASSESSEE IN THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD TAKEN ON LEASE OFFICE PREMISES AT NARIMAN POINT FOR A PERIOD OF THREE YEARS WITH PROVISION FOR FURTHER RENEWAL ON MUTUAL CONSENT. AS PER THE TERMS OF THE AGREEMENT, THE ASSESSEE WAS TO FURNISH A SECURITY DEPOSIT OF ` 67,20,000 TO THE LANDLORD. THE LEASE AGREEMENT WAS TERMINATED ON 8 TH NOVEMBER 1999. HOWEVER, UPON TERMINATION OF LEASE AGREEMENT, THE SECURITY DEPOSIT WAS NOT REFUNDED TO THE ASSESSEE. DUE TO NON REFUND OF SECURITY DEPOSIT, THE ASSE SSEE KEPT POSSESSION OF THE PREMISES AND ALSO FILED A LAWSUIT AGAINST THE LANDLORD FOR RECOVERY OF THE SECURITY DEPOSIT. HOWEVER, IN THE YEAR UNDER CONSIDERATION THE ASSESSEE WROTE OFF THE SECURITY DEPOSIT OF ` 59,26,246, IN ITS BOOKS AFTER MAKING ADJUSTME NT TOWARDS UNPAID RENT AND CLAIMED IT AS DEDUCTION. CONSIDERING THE FACT THAT THE ASSESSEE FILED A LAWSUIT FOR RECOVERY OF THE SECURITY DEPOSIT, THE ASSESSING OFFICER HELD THAT SINCE THE ASSESSEE WAS UNABLE TO PROVE 24 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) THAT THE SECURITY DEPOSIT HAS BECOME IRR ECOVERABLE, IT CANNOT BE WRITTEN OFF. ACCORDINGLY, HE DISALLOWED ASSESSEES CLAIM OF DEDUCTION. BEING AGGRIEVED WITH SUCH DISALLOWANCE, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 23 . LEARNED COMMISSIONER (APPEALS), AFTER CONSIDERING T HE SUBMISSIONS OF THE ASSESSEE AND ON PERUSAL OF MATERIAL ON RECORD, OBSERVED THAT NON RECOVERY OF SECURITY DEPOSIT CANNOT BE CONSIDERED AS A BUSINESS LOSS SINCE THE ASSESSEE WAS STILL IN POSSESSION OF THE PREMISES. THEREFORE, HE DISALLOWED ASSESSEES CLAI M. 24 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, THOUGH, THE ASSESSEE WAS IN POSSESSION OF THE PREMISES, HOWEVER, IT WAS NOT USING IT FOR THE PURPOSE OF BUSINESS. HE SUBMITTED, THOUGH, THE ASSESSEE WAS PURSUING THE LANDLORD FOR REFUND OF SECURITY DEPOS IT AND HAS EVEN FILED A LAWSUIT, HOWEVER, IT WAS NOT HOPEFUL OF RECOVERY OF SECURITY DEPOSIT. THEREFORE, IT CLAIMED THE SECURITY DEPOSIT AS BUSINESS LOSS. COUNTERING THE OBSERVATIONS OF LEARNED COMMISSIONER (APPEALS), HE SUBMITTED, MERELY BECAUSE THE ASSES SEE WAS IN POSSESSION OF THE PREMISES BY KEEPING THE KEYS, IT CANNOT BE SAID THAT THE ASSESSEE WAS IN OCCUPATION OF PREMISES AND USING IT FOR THE PURPOSE OF BUSINESS. THUS, HE SUBMITTED, ASSESSEES CLAIM OF DEDUCTION SHOULD BE ALLOWED. IN SUPPORT OF HIS CO NTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: 25 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) I ) IBM WORLD TRADE CORPORATION V/S CIT, [1990] 186 ITR 412 (BOM.); II ) ACIT V/S BLUE DART EXPRESS LTD., ITA NO.6614/MUM./2007, DATED 18.11.2009; III ) UNITED MOTORS INDIA LTD. V/S ITO, [2010] 6 TAXMANN.COM 32 (MUM.); AND IV ) JETHABHAI JIRJI JETHABHAI RAMDAS V/S CIT, [1979] 120 ITR 792 (BOM.). 25 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELYING UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED COMMISSIONER (APPEALS) SUBMITTED, SINCE THERE IS NO DISP UTE TO THE FACT THAT THE ASSESSEE WAS IN POSSESSION OF THE PREMISES, IT CANNOT BE SAID THAT IT HAS LOST HOPE OF RECOVERY OF THE SECURITY DEPOSIT. MORE SO, WHEN THE LITIGATION FOR RECOVERY OF SECURITY DEPOSIT WAS GOING ON IN THE COURT OF LAW. THUS, HE SUBMI TTED, ASSESSEES CLAIM HAS BEEN RIGHTLY REJECTED BY THE DEPARTMENTAL AUTHORITIES. 26 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. THERE IS NO DISPUTE WITH REGARD TO THE P RIMARY FACTS THAT THE ASSESSEE HAS TAKEN ON LEASE THE SUBJECT PREMISE ON FURNISHING SECURITY DEPOSIT OF ` 59,26,246. SUBSEQUENTLY, THOUGH, THE LEASE AGREEMENT WAS TERMINATED, HOWEVER, THE SECURITY DEPOSIT WAS NOT REFUNDED TO THE ASSESSEE. IT IS ALSO A FACT THAT DUE TO NON REFUND OF THE SECURITY 26 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) DEPOSITS THE ASSESSEE HAS NOT ONLY KEPT THE PREMISES UNDER ITS POSSESSION BUT HAS ALSO TAKEN LEGAL STEPS FOR RECOVERY OF THE SECURITY DEPOSIT BY FILING A LAWSUIT. THUS, THE CONTENTION OF THE ASSESSEE THAT IT WAS NOT HOPEFUL OF RECOVERY OF THE SECURITY DEPOSIT APPEARS TO BE FARFETCHED, MORE SO, WHEN HE IS HAVING POSSESSION OF A FAR MORE VALUABLE ASSET THAN THE SECURITY DEPOSIT. FURTHER, WHEN THE ASSESSEE HAS FILED A LAWSUIT FOR RECOVERY OF SECURITY DEPOSIT, IT CANNOT B E SAID THAT HE HAS LOST ALL ITS HOPE OF RECOVERY OF THE SECURITY DEPOSIT. 27 . HOWEVER, THERE IS ANOTHER ANGLE TO THE ISSUE. IT NEEDS TO BE MENTIONED, ON A QUERY FROM THE BENCH REGARDING THE STATUS OF THE LAWSUIT FILED BY THE ASSESSEE FOR RECOVERY OF THE SECURITY DEPOSIT, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, SUBSEQUENTLY , A SETTLEMENT WAS REACHED WITH THE LANDLORD AND AS PER THE TERMS OF SETTLEMENT, THE ASSESSEE RECEIVED AN AMOUNT OF ` 1,12,00,000, FROM THE LANDLORD AND VACATED THE PREMISES. HE SUBMITTED, THE AMOUNT WAS RECEIVED IN JUNE 2015 AND OFFERED AS INCOME IN THE ASSESSMENT YEAR 2016 17. THUS, HE SUBMITTED , SINCE THE AMOUNT HAS ALREADY BEEN OFFERED AS INCOME, IT SHOULD NOT BE TAXED IN THE IMPUGNED ASSESSMENT YEAR. THUS, FROM THE AFORESAID FACTS, IT BECOMES CLEAR THAT THE CONTENTION OF THE ASSESSEE THAT HE WAS NOT HOPEFUL OF RECOVERING THE SECURITY DEPOSIT IS NOT TRUE. RATHER, BY OCCUPYING THE PREMISES UNDER 27 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) HIS POSSESSION, THE ASSESSEE WAS IN A MORE A DVANTAGEOUS POSITION TO RECOVER THE SEC URITY DEPOSIT. AT THE SAME TIME, ASSESSEES CONTENTION THAT THE SECURITY DEPOSIT WAS OFFERED TO TAX IN ASSESSMENT YEAR 2016 17 CANNOT ALSO BE IGNORED. HOWEVE R, CONSIDERING THE FACT THAT THE SE ARE COMPLETELY NEW FACTS BROUGHT TO THE NOTICE OF THE TRIBUNAL I N COURSE OF HEARING, WE ARE INCLINED TO RESTORE THE ISSUE TO ASSESSING OFFICER TO VERIFY THE RELEVANT FACTS AND ALLOW CONSEQUENTIAL BENEFIT TO THE ASSESSEE . THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 28 . IN GROUND NO.4, THE ASSESSEE HAS CHAL LENGED THE DISALLOWANCE OF WRITE OFF OF TAX DEDUCTED AT SOURCE (TDS) AMOUNTING TO ` 1,21,66,248. 29 . BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAS CLAIMED DEDU CTION ON ACCOUNT OF TDS WRITTEN OFF OF ` 1,21,66,248, CALLED UPON THE ASSESSEE TO JUSTIFY THE CLAIM. IN RESPONSE, IT WAS SUBMITTED BY THE ASSESSEE THAT SINCE TDS CERT IFICATES FOR THE AMOUNT WRITTEN OFF COULD NOT BE OBTAINED FROM THE DEDUCTOR EVEN AFTER CONTINUOUS EFFORT , THE ASSESSEE HAS CLAIMED IT AS REVENUE EXPENDITURE AS IT AMOUNTS TO LOSS ARISING DURING THE NORMAL COURSE OF BUSINESS. FROM THE DETAILS AVAILABLE BEFORE HIM, THE ASSESSING OFFICER NOTICED THAT THE CLAIM OR WRITE OFF OF TDS PERTAINS TO SEVEN ASSESSMENT YEARS STARTING FROM THE YEAR 1998 99 TO 2003 04. HE OBSERVED , THE ASSESSEE HAD CLAIMED CREDIT FOR TDS NOT ONLY IN THE 28 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) RETURN OF INCOME FILED FOR THE RESPECTIVE ASSESSMENT YEARS BUT ALSO BY FILING RECTIFICATION APPLICATION S UNDER SECTION 154 OF THE ACT. HE OBSERVED , NO DETAILS COULD B E FURNISHED BY THE ASSESSEE TO DEMONSTRATE THAT CREDIT FOR TDS WAS REFUSED BY THE ASSESSING OFFICER. THUS, HE OBSERVED , IN ABSENCE OF NECESSARY EVIDENCES TO PROVE THAT THE TDS WAS NOT ALL OWED TO THE ASSESSEE, THE WRITE OFF OF TDS CANNOT BE ALLOWED TO THE A SSESSEE. FURTHER, HE OBSERVED , NON FURNISHING OF TDS CE RTIFICATE CANNOT BE TREATED AS DEBT DUE TO THE ASSESSEE FROM THE PERSONS WHO HAVE DEDUCTED TAX AT SOURCE. THEREFORE, PROVISION OF SECTION 36(1)(VII) OF THE ACT CANNOT BE APPLIED. ACCORDINGLY, HE DISALL OWED ASSESSEES C LAIM OF WRITE OFF. BEING AGGRIEVED WITH THE AFORESAID DECISION OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 30 . THE LEARNED COMMISSIONER (APPEALS) AGREED THAT WITHHOLDING OF TAX BY THE DEDUCTOR AMOUNTS TO DEBT OWED BY HIM TO THE DEDUCTEE AND IN THE EVENT OF NON RECEIPT OF SUCH DEBT, DEDUCTION WOULD BE ELIGIBLE TO THE AS SESSEE UNDER SECTION 36(1)(VII) OF THE ACT, AS THE CONDITIONS P RESCRIBED THEREIN ARE FULFILLED. H OWEVER, HE HELD THAT ASSESSEES CLAIM CANNOT BE ALLOWED IN VIEW OF THE PROVISIONS OF SECTION 155(14) OF THE ACT. HE OBSERVED , AS PER THE SAID PROVISION THE CLAIM OF TDS CAN BE ENTERTAINED ONLY WITHIN TWO YEARS FROM THE ASSESSMENT YEAR IN WHICH 29 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) SUCH INCOME WAS ASSESSABLE. HE HELD THAT SI NCE THE ASSESSEE HAS NOT CLAIMED THE DEDUCTION IN THE COMPUTATION OF INCOME FILED ALONG WITH THE RETURN OF INC OME, IT CANNOT BE ALLOWED TO THE ASSESSEE. FURTHER, HE HELD THAT IF THE ASSESSING OFFICER WOULD HAVE ALLOWED ASSESSEES CLAIM WHICH IS NOT PART OF THE COMPUTATION OF INCOME, IT WOULD HAVE RESULTED IN ASSESSING THE INCOME BELOW THE RETURNED INCOME WHICH COULD NOT HAVE BEEN DONE. ACCORDINGLY, HE DISALLOWED ASSESSEES CLAIM. 31 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE GROSS INCOME SHOWN BY TH E A SSESSEE INCLUDES THE TDS AMOUNT. HENCE , GROSS INCOME CREDITED TO THE PROFIT & LOSS ACCOUNT HAS ALREADY BEEN OFFERED TO TAX IN THE EARLIER YEARS. THEREFORE, HE SUBMITTED , NON RECEIPT OF TDS AMOUNTS TO BUSINESS LOSS AS IT WAS DEDUCTED FROM THE INCOME OF T HE ASSESSEE. THUS, IT PARTAKES THE CHARACTER OF NON RECOVERY OF DEBT FROM CUSTOMERS AS PER SECTION 36(1)(VII) R/W SECTION 36(2) OF THE ACT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , ALL EVIDENCES RELATING TO THE TDS WRITE OFF WERE FURNISH ED BEFORE T HE ASSESSING OFFICER. THEREFORE , IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT FURNISHED THE NECESSARY DETAILS. AS REGARDS THE REASONING OF LEARNED COMMISSIONER (APPEALS) THAT ASSESSEES CLAIM CANNOT BE ALLOWED IN VIEW OF SECTION 155(14) OF THE ACT, THE LEAR NED AUTHORISED REPRESENTATIVE SUBMITTED , EVEN AFTER TAKING NOTE OF SUCH PROVISION IN 30 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004 05, THE TRIBUNAL HAS AL LOWED ASSESSEES CLAIM OF WRITE OFF. FURTHER, HE SUBMITTED , THE REASONING O F LEARNED CO MMISSIONER ( APPEALS) THAT WRITE OFF IS NOT ALLOWABLE AS THE ASSESSEE HAS NOT CLAIMED IT IN THE COMPUTATION OF INCOME , WILL NOT HOLD GOOD IN VIEW OF THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 1997 98. FURTHER, IN SU PPORT OF HIS CONTENTION HE RELIED UPON THE DECISION OF THE HONBLE P&H HIGH COURT IN CIT V/S SHREYANS INDUSTRIES LTD., [2008] 303 ITR 393 (P&H). 32 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER ( APPEALS). FURTHER, HE SUBMITTED , THE DECISION OF THE HONBLE P & H HIGH COURT IN SHREYANS INDUSTRIES LTD. (SUPRA) WAS REVERSED BY THE HON'BLE SUPREME COURT . 33 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIN D TO THE DECISIONS RELIED UPON. AS COULD BE SEEN FROM THE FACTS EMANATING FROM RECORD , THOUGH , TAX WAS DEDUCTED AT SOURCE IN EARLIER ASSESSMENT YEARS, HOWEVER, THE ASSESSEE COULD NOT GET CREDIT OF SUCH TDS AMOUNT DUE TO NON FURNISHING OF TDS CERTIFICATE BY DEDUCTORS. UNDISPUTEDLY, THE TDS AMOUNT IS NOTHING BUT A PART OF INCOME ACCRUING TO THE ASSESSEE. IT IS ALSO A FACT THAT THE ASSESSEE HAS OFFERED THE GROSS INCOME INCLUDING TDS IN THE RESPECTIVE 31 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) ASSESSMENT YEARS. THEREFORE , TO THAT EXTEN T, NON ALLOWANCE O F TDS CREDIT TO THE ASSESSEE DUE TO NON RECEIPT OF TDS CERTIFICATE S AMOUNTS TO LOSS OF INCOME. FURTHER, IT HAS BEEN HELD IN THE DECISION CITED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT NON FURNISHING OF TDS CERTIFICATE AMOUNTS TO A DEBT DUE TO DEDUCTEE WHICH CAN BE ALLOWED UNDER SECTION 36( 1)(VII) OF THE ACT. IN FACT, LEARNED COMMISSIONER (APPEALS) HAS ALSO ACCEPTED THE AFORESAID LEGAL POSITION. THE GROUNDS ON WHICH HE HAS REJECTED ASSESSEES CLAIM ARE, FIRSTLY, IT IS NOT WITHIN THE TIME PRESCRIBED UNDE R SECTION 155(14) OF THE ACT AND SECONDLY, THE ASSESSEE HAS NOT CLAIMED SUCH DEDUCTION IN THE COMPUTATION OF INCOME. IN OUR VIEW, THE AFORESAID REASONING OF LEARNED COMMISSIONER (APPEALS) IS NOT SUSTA INABLE. ONCE IT IS HELD THAT ASSESSEES CLAIM OF WRITE O FF IS ALLOWABLE UNDER SECTION 36(1)(VII) OF THE ACT, THEN THE PROVISIONS OF SECTION 155(14) OF THE ACT WOULD NOT APPLY. IN FACT , IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2004 05, THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. SIMILARLY, WHI LE DECIDING ASSESSEES APPEAL IN ITA NO.6782/MUM./2004, DATED 14 TH JULY 2015, IN ASSESSMENT YEAR 1997 98, THE TRIBUNAL HAS AL LOWED ASSESSEES CLAIM OF WRITE OFF OF TDS NOT RECEIVED. WHILE DOING SO, THE TRIBUNAL HAS OBSERVED THAT THE ASSESSEE CAN RAISE SUCH CLAIM SUBS EQUENTLY. FURTHER, THE HONBLE P & H HIGH COURT IN SHREYANS INDUSTRIES LTD., (SUPRA) HA S HELD THAT THE WRITE OFF OF TDS IS ALLOWABLE. THE DECISION OF 32 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) THE HONBLE P & H HIGH COURT IN THE AFOR ESAID CASE WITH REGARD TO WRITE OFF OF TDS WAS NOT A SU BJECT MATTER OF DISPUTE BEFORE THE HON'BLE SUPREME COURT, THEREFORE, THE CONTENTION OF THE LEARNED D EPARTMENTAL REPRESENTATIVE THAT THE DECISION OF HONBLE P & H HIGH COURT, HAS BEEN REVERSED BY THE HON'BLE SUPREME COURT , IS NOT CORRECT INTERPRETATION OF T HE LEGAL POSITION, AS THE SUBJECT MATTER OF DISPUTE BEFORE THE HON'BLE SUPREME COURT WAS ON A DIFFERENT ISSUE. IN VIEW OF THE AFORESAID, WE DIRECT THE ASSESSING OFFICER TO ALLOW ASSESSEES CLAIM OF WRITE OFF OF TDS. GROUND IS ALLOWED. 34 . IN GROUND NO.5, THE ASSESSEE HAS CHALLENGED THE ADDITION OF ` 22.83 CRORE, MADE TO ITS INCOME ON ACCOUNT OF CHANGE IN REVENUE RECOGNITION POLICY. 35 . BRIEF FACTS ARE, AS PER THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE, IT WAS RECOGNISING REVENUE ON THE BASIS OF INVOICES RAISED WH ICH WAS CONSIDERED AS ITS SALES/ TURNOVER. HOWEVER, IN THE YEAR UNDER CONSIDERATION, TH E ASSESSEE CHANGED ITS METHOD OF REVENUE RECOGNITION BY RECOGNISING REVENUE ON THE BASIS OF COMPLETION OF PROJECT. ON VERIFYING THE FACTS AND MATERIAL ON RECORD, THE ASSESSING OFFICER FOUND THAT THOUGH THE ASSESSEE WAS RAISING THE INVOICE S IN THE SAME MA NNER AS WAS DONE EARLIER, BUT IT IS ACCOUNTING THE SALES/ TURNOVER ONLY THOSE INVOICES WHERE THE PROJECT IS COMPLETE. THE 33 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) RES T OF THE INVOICES ARE ACCOUNTED UNDER T HE HEAD UNEARNED REVENUE AND SHOWN AS LIABILITY IN THE BALANCE SHEET. AS A RESULT OF THE AFORESAID REVENUE RECOGNITION METHOD ADOPTED BY THE ASSESSEE, THE GROSS REVENUE/ INCOME FROM OPERATIONS WAS REDUCED BY ` 91.37 CRORE RESULTING IN REPORTING OF LOWER PRO FIT TO THE TUNE OF ` 22.83 CRORE. THEREFORE, HE CALLED UPON THE ASSESSEE TO JUSTIFY THE CHANGE IN REVENUE RECOGNITION POLICY. IN RESPONSE, IT WAS SUBMITTED BY THE ASSESSEE THAT THERE IS NO CHANGE IN THE METHOD OF ACCOUNTING VIS A VIS THE PRECEDING ASSESSME NT YEAR S EXCEPT CHANGE IN REVE NUE RECOGNITION POLICY. FURTHER EXPLAINING, IT WAS SUBMITTED THAT THE CHANGE IN REVENUE RECOGNITION POLICY WAS DUE TO THE FACT THAT THE ASSESSEE HAS SHIFTED HIS FOCUS FROM PROVIDING SPECIFIC VOICE EQUIPMEN T SOLUTIONS TO PROVID ING CONVERG ED COMMUNICATION SOLUTIONS TO THE CLIENT S AS PART OF THE BUSINESS STRATEGY IN ORDER TO INCREASE PROFITABILITY AND SERVE THEM BETTER AND CATER TO THEIR NEEDS. IT WAS SUBMITTED , CONVERG ED COMMUNICATION SOLUTIONS MEANS PROVIDING INTEGRATED SERVICE TO THE CLIENT S BASED ON THEIR NEEDS IN ORDER TO PROVIDE COMPLETE COMMUNICATION SOLUTIONS WHICH INCLUDES INTEGRATION OF VOICE, DATA AND MESSAGING AND CATERING TO INDUSTRY SPECIFIC SOLUTION. IT WAS SUBMITTED , W.E.F. 1 ST APRIL 2004, INCOME FROM SALE OF GOODS/ INSTALL ATION AND COMMISSIONING CHARGES/ SOFTWARE ACTIVATION IS ACCOUN TED ON COMPLETION OF SALE/INSTALLATION AND COMMISSION ON RECEIPT OF SOFTWARE INSTALLATION 34 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) CERTIFICATE. THE ASSESSING OFFICER, HOWEVER, WAS NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSE E. HE OBSERVED , WHENEVER INVOICES WERE RAISED ON THE CUSTOMERS T HEY WERE CONSIDERED AS SALE S IN THE BOOKS OF THE ASSESSEE AS PER THE PROVISIONS OF SALES TAX ACT. SIMILARLY, WHEN THE IN VOICE IS RAISED FOR RENDERING SERVICES, SERVICE TAX IS PAID ON SUCH TRAN SACTIONS. HE OBSERVED , ONLY FOR THE PURPOSE OF INCOME TAX, THE ASSESSEE TRANSFERS PART OF THE REVENUE TO A SEPARATE ACCOUNT NAMED AS UNEARNED REVENUE WHICH IS SHOWN IN THE LIABILITY SIDE OF THE BALANCE SHEET AND NOT OFFERED TO TAX. THUS, HE OBSERVED , THE ASSESSEE IS FOLLOWING DIFFERENT ACCOUNTING METHODS FOR SALES TAX/ SERVICE TAX AND INCOME TAX. COUNTERING THE CONTENTION OF THE ASSESSEE THAT THE CH ANGE IN REVENUE RECOGNITION WAS DUE TO GLOBAL STANDARD AND MAKING IT UNIFORM WITH SIMILAR REVENUE RECOGNITION POLICY ADOPTED BY THE HEAD OFFICE AND OTHER GROUP COMPANIES, THE ASSESSING OFFICER OBSERVED , THE ASSESSEE HAS NOT PRODUCED ANY DOCUMENTARY EVIDENCE TO DEMONSTRATE THE NATURE OF G LOBAL STANDARD BEING FOLLOWED . THE ASSESSING OFFICER OBSERVED , THE ASSESSEE C ANNOT ADOPT A REVENUE RECOGNITION POLICY FOLLOWING GLOBAL STANDARD WHICH WILL RESULT IN DEFERMENT/ POSTPONING THE PROFIT CHARGEABLE TO TAX. HE OBSERVED , ONCE THE ASSESSEE RAISES THE INVOICE IN RESPECT OF A PARTICULAR GOOD OR SERVICE, THE SALE IS COMPLETE. REFERRING TO THE PROVISIONS OF SECTION 145 OF THE ACT, THE ASSESSING OFFICER OBSERVED , THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE 35 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) MUST PROVIDE T H E TRUE AND FAIR VIEW OF PROFIT/ GAINS EARNED BY THE ASSESSEE. HE OBSERVED , THOUGH THE ASSESSEE IS FOLLOWING THE SAME MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY IT EARLIER, HOWEVER, THERE IS NO JUSTIFIABLE REASON TO CHANGE THE REVENUE RECOGNITION POLICY IN THE IMPUGNED ASSESSMENT YEAR. HE OBSERVED , AS A RESULT OF SUCH CHANGE IN THE REVENUE RECOGNITION POLICY, THE ANNUAL PROFITS ARE NOT PROPERLY DEDUCED. AS A RESULT, THE ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT COMPLETE AS SIGNIFICANT AMOUNT OF REVENUE WHI CH SHOULD HAVE BEEN OFFERED TO TAX IN THE IMPUGNED ASSESSMENT YEAR HAS BEEN OMITTE D. THUS, INVOKING THE PROVISION OF SECTION 145(2) OF THE ACT, THE ASSESSING OFFICER BROUGHT TO TAX AN AMOUNT OF ` 22.83 CRORE TOWARDS NET PROFIT SALES OFFERED DURING THE YEAR . BEING AGGRIEVED WITH THE AFORESAID ADDITION, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 36 . A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE LEARNED COMMISSIONER (APPEALS) AGREED WITH THE DECISION OF THE ASSESSING OFFICER AND SUSTA INED THE ADDITION. HOWEVER, HE DIRECTED THE ASSESSING OFFICER TO REDUCE THE INCOME OF THE ASSESSEE TO THAT EXTENT IN THE SUBSEQUENT ASSESSMENT YEAR IF THE ASSESSEE OFFERS IT OR HAS OFFERED IT ON THE BASIS OF PROJECT COMPLETION METHOD. 36 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) 37 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE ASSESSEE IS IN THE BUSINESS OF PROVIDING TELECOMMUNICATION EQUIPMENT, SERVICE AND SOLUTION INCLUDING E LECTRONIC P RIVATE A UTOMATIC B RANCH E XCHANGES , C ALL C ENTRE, DATA PRODUCTS, VOICE PROCESSING, LOW END EPABX, SET UP OF BACKBONE NETWORK FOR CELLULAR OPERATOR S , TELECONFERENCING SOLUTIONS, ETC. HE SUBMITTED , AS PER THE RE VENUE RECOGNITION FOLLOWED BY ASSESSE E EARLIER, ALL THESE ACTIVITIES/ SOLUTIONS WERE CONSIDERED ON STANDALONE BASIS WHICH IN TRADE PARLANCE IS KNOWN AS VOICE EQUIPMENT SOLUTIONS. HOWEVER, W.E.F. 1 ST APRIL 2004, THE ASSESSEE CHANGED ITS FOCUS FROM VOICE EQUIPMEN T SOLUTIONS TO PROVIDING CONVERGED COMMUNICATION SOLUTIONS A S PER THE BUSINESS STRATEGY ADOPTED BY ITS H EAD OFFICE IN USA. HE SUBMITTED , AS PER THE NEW BUSINESS STRATEGY ADOPTED BY THE ASSESSEE , IT IS PROVIDING INTEGRATED SERVICES COMPRISING OF INTEGRATION VOICE, DATA AND MESSAGING AND CATERING TO INDUSTRY SPECIFIC SOLUTIONS. HE SUBMITTED , SINCE IT BECAME IN TEGRATED SERVICES FROM PROVIDING EQUIPMENT, INSTALLATION, COMMISSION ING , SOFTWARE ACTIVATION , ONLY ON COMPLETION OF THE PROJECT AND ON RECEIVING COMPLETION CERTIFICATE OF THE PROJECT FROM THE CUSTOMER, THE ASSESSEE RECOGNIZES REVENUE THOUGH INVOICES ARE RA ISED ON THE BASIS OF SUPPLY OF GOODS OR SERVICE RENDERED. TO FURTHER EXPLAIN THE REVENUE RECOGNITION POLICY ADOPTED BY THE ASSESSEE AND THE ACCOUNTING ENTRIES MADE IN THE BOOKS OF ACCOUNT IN THIS REGARD, THE LEARNED AUTHORISED 37 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) REPRESENTATIVE TOOK US THROUG H THE FINANCIAL STATEMENTS AND OTHER DOCUMENTS PLACED IN THE PAPER BOOK. HE SUBMITTED , THE CHANGE IN REVENUE RECOGNITION POLICY IS AS PER THE GLOBAL ACC OUNTING STANDARD FOLLOWED BY VERY REPUTED COMPANIES. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , EV EN THE ASSESSING OFFICER HAS ADMITTED THAT THE ASSESSEE HAS NOT CHANGED ITS METHOD OF ACCOUNTING BUT HAS ONLY CHANGED THE REVENUE RECOGNITION POLICY. HE SUBMITTED , UNDER SECTION 145(2) OF THE ACT, ACCOUNTING STANDARD II RELATING TO DISCLOSURE OF PRIOR PERI OD AND EXTRA ORDINARY ITEMS AND CHANGES IN ACCOUNTING POLICIES HAVE BEEN NOTIFIED. HE SUBMITTED , AS PER THE SAID A CCOUNTING STANDARD, A CHANGE IN ACCOUNTING POLICY CAN BE MADE ONLY IF ADOPTION OF DIFFERENT ACCOUNTING POLICY WAS REQUIRED BY THE STATUTE OR I F IT IS CONSIDERED THAT THE CHANGE WOULD RESULT IN A MORE APPROPRIATE PREPARATION OR PRESENTATION OF FINANCIAL STATEMENTS OF THE ASSESSEE. REFERRING TO THE ACCOUNTING STANDARD 9, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , IT PROVIDES FOR PROPORTIONAT E COMPLETION METHOD OR COMPLETED SERVICE CONT RACT METHOD AS THE METHOD FOR RECOGNISING REVENUE IN RESPECT OF RENDERING OF SERVICES. HE SUBMITTED , THE CHANGE IN REVENUE RECOGNITION POLICY WAS NECESSITATED DUE TO SHIFT IN THE BUSINESS STRATEG Y BY SHIFTING TH E FOCUS FROM VOICE BASED SOLUTIONS T O CONVERG ED COMMUNICATION SOLUTIONS. HE SUBMITTED , THE CHANGE IN REVENUE RECOGNITION POLICY WAS ALSO APPROVED BY BOARD OF 38 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) DIRECTOR S WHO CONSIDERED THE PROJECT COMPLETION METHOD A PRUDENT POLICY TO FOLLOW WHICH WAS ALSO A CCEPTED BY THE AUDITOR. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE MEASURE OF TAXATION UNDER SALES TAX, SERVICE TAX AND INCOME TAX ARE DIFFERENT, AS THE LEVY OF TAX DEPENDS UPON THE SPECIFIC CRITERIA SPECIFI ED UNDER THE CHARGING PROVISION OF THE PARTICULAR STATUTE. THEREFORE, MERELY BECAUSE THE ASSESSEE HAS RECOGNIZED SALES UNDER THE SALES TAX ACT OR H AS PAID SERVICE TAX WOU LD NOT NECESSARILY MEAN THAT INCOME HAS ALSO ACCRUED UNDER THE INCOME TAX ACT. THEREFORE, THE TAXABILITY UNDER THE SALES TAX ACT OR SERVICE TAX ACT CANNOT BE A REASON TO TAX A PARTICULAR ITEM OF INCOME. IN SUPPORT, HE RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN CIT V/S VENKATESHWARA HATCHERIES PVT. LTD., 103 ITR 503 (SC). THE LEARNED AUTHORISED REPRESENTATIVE SUBMIT TED , MERELY BECAUSE THERE WAS A LOSS OF REVENUE IN THE YEAR OF CHANGE IN REVEN UE RECOGNITION POLICY, ADDITION CANNOT BE MADE , IF THE CHANGE WAS OTHERWISE BONA FIDE AND THE NEW METHOD ADOPTED IS ONE OF THE RECOGNIZED METHODS AND FOLLOWED CONSISTENTLY. IN SUPPORT OF THIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: I ) CIT V/S DELTA PLANTATI ON LTD., 114 CTR 271 (CAL.); II ) CIT V/S ATUL PRODUCTS LTD., 225 ITR 85 (DEL.); 39 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) III ) CIT V/S KESORAM INDUSTRIES & COTTON MILLS LTD., 204 ITR 154 (CAL.); AND IV ) CIT V/S WEST COST PAPER MILLS LTD., 193 ITR 349 (BOM.). 38 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , T HE ASSESSEE HAS ADOPTED PROJECT COMPLETION METHOD WHICH HAS BEEN ACCEPTED AS VALID METHOD FOR RECOGNISING REVENUE. HE SUBMITTED , THE SAM E REVENUE RECOGNITION POLICY IS ALSO FOLLOWED BY OTHER REPUTED COMPANIES LIKE IBM LTD. AND CISCO LTD. HAVING SIMILAR BUS INESS OPERATION LIKE THE ASSESSEE. TO SUPPORT HIS CONTENTION THAT PROJECT COMPLETION METHOD IS A RECOGNIZED METHOD FOR REVENUE RECOGNITION, HE RELIED UPON THE FOLLOWING DECISIONS: I ) CIT V/S BILAHARI INVESTMENTS PVT. LTD., 299 ITR 001 (SC); AND II ) CIT V/S NATHPAJHAKRI JOINT VENTURE, 808 ITR 15 (BOM.). 39 . HE SUBMITTED , OUT OF UNEARNED REVENUE OF ` 91.37 CRORE SHOWN IN THE BALANCE SHEET, THE ASSESSEE HAD ACTUALLY RECEIVED AN AMOUNT OF ` 33.59 CRORE FROM THE CUSTOMERS. HE SUBMITTED , ONCE THE CHANGE IN REVENUE RE COGNITION POLICY IS FOR BONA FIDE REASONS, IT CANNOT BE REJECTED. IN THIS CONTEXT, HE RELIED UPON THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN TOYO ENGINEERING CORPORATION V/S DCIT, ITA NO.6600/MUM./2002 AN D THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN CIT V/S MAPIN PUBLISHING PVT. LTD., 42 TAXMANN.COM 191. THE 40 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE UNEARNED REVENUE RELATING TO THE PROJECT S NOT COMPLETED AS ON 31 ST MARCH 2005, WAS RECOGNIZED ON COMPLETION OF PROJECT S AND OFFERED TO TAX IN T HE SUBSEQUENT YEARS. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , SINCE THE DISPUTED INCOME WAS SUBSEQUENTLY OFFERED TO TAX, THERE IS NO LOSS TO THE REVENUE AS THERE IS ONLY A TIMING DIFFERENCE. IN THIS CONTEXT, HE RELIED UPON THE DECISION OF THE HON'B LE SUPREME COURT IN EXCEL INDUSTRIES LTD. (SUPRA). ON A QUERY FROM THE BENCH AS REGARDS THE PROVISION OF EXPENDITURE IF RELATES TO ANY PROJECT FOR WHICH THE REVENUE IS BEING DEFERRED, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT NO SUCH EXPENDITURE WAS CLAIMED IN RESPECT OF REVENUE DEFERRED ON ACCOUNT OF NON COMPLETION OF PROJECT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , MERELY BECAUSE THE ASSESSEE HAS RAISED THE INVOICE S , IT CANNOT BE SAID THAT INCOME HAS ACCRUED UNTIL THE PROJECT IS COMPLE TE. HE SUBMITTED , INVOICE S RAISED CAN BE CONSIDERE D AS A MODE OF RECEIVING PROGRESSIVE PAYMENT WHICH MAY NOT HAVE INCOME ELEMENT EMBEDDED THEREIN. REBUTTING THE ALLEGA TION OF LEARNED COMMISSIONER (APPEALS) THAT THE ASSESSEE FAILED TO JUSTIFY THE CHANGE IN REVENUE RECOGNITION POLICY FOLLOWED EARLIER, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , SINCE THE A SSESSEE SHIFTED ITS FOCUS FROM VOICE EQUIPMENT PROVI DER TO COMPLETE C OMMUNICATION SOLUTIONS PROVIDER, IT NECESSITATED A CHANGE IN REVENUE RECOGNITION POLICY AS THE 41 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) SAME RESULTED IN A MORE APPROPRIATE PREPARATION OR PRESENTATION OF THE FINANCIAL STATEMENTS BY THE ASSESSEE AS PER ACCOUNTING STANDARD II. 40 . THE LEARNED DEPARTME NTAL REPRESENTATIVE STRONGLY RELYING UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED COMMISSIONER (APPEALS) SUBMITTED , THERE IS NO REASON FOR THE ASSESSEE TO ONLY CHANGE THE REVENUE RECOGNITION POLICY IN THIS YEAR THOU GH IT HAS NOT CHANGED THE M ETHOD OF ACCOUNTING. HE SUBMITTED , THERE SHOULD BE CONSISTENCY IN THE APPROACH OF THE ASSESSEE IN THE METHOD OF REVENUE RECOGNITION OTHERWISE IT WILL RESULT IN LOSS OF REVENUE , WHICH HAS HAPPENED IN THIS CASE. HE SUBMITTED , EARLIER THE ASSESSEE WAS RECOGNI SING REVENUE ON THE BASIS OF INVOICE S RAISED. IT HAS DISCARDED THE METHOD IN THE IMPUGNED ASSESSMENT YEAR AND RECOGNISING REVENUE ON THE BASIS OF COMPLETION OF PROJECT THAT TOO DEPENDING ON THE COMPLETION CERTIFICATE TO BE ISSUED BY THE CUSTOMER . HE SUBMIT TED , UNTIL CUSTOMER ISSUES COMPLETION CERTIFICATE, THE ASSESSEE WOULD NOT RECOGNIZE REVENUE EVEN THOUGH HE MIGHT HAVE COMPLETED THE PROJECT. HE SUBMITTED , THE AFORESAID METH OD OF REVENUE RECOGNITION IS ABSURD AND CANNOT BE CONSIDERED TO BE A MORE APPROPRIA TE PREPARATION OR PRESENTATION OF THE FINANCIAL STATEMENTS OF THE ASSESSEE NECESSITATING CHANGE IN THE ACCOUNT ING POLICY. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , MERELY BECAUSE THE HEAD OFFICE HAS 42 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) CHANGED ITS ACCOUNTING POLICY DOES NOT NECESSARI LY MEAN THAT THE ASSESSEE SHOULD ALSO CHANGE ITS REVENUE RECOGNITION POLICY THEREBY DEFERRING A SUBSTANTIAL PART OF THE PROFIT WHICH OTHERWISE IS TAXABLE IN THE IMPUGNED ASSESSMENT YEAR. HE SUBMITTED , WHEN THE ASSESSEE IS RECOGNISING SALES EFFECTED AND SER VICE S RENDERED WHILE COMPLYING TO THE PROVISIONS OF SALES TAX ACT AND SERVICE TAX ACT, IT CANNOT SAY THAT INCOME HAS NOT ACCRUED IN RESPECT OF SUCH SALES AND SERVICE WHEN IT COMES TO TAXABILITY UNDER THE INCOME TAX ACT. THE LEARNED DEPARTMENTAL REPRESENTAT IVE SUBMITTED , IN ANY CASE OF THE MATTER , THERE IS NO LOSS TO THE ASSESSEE AS LEARNED COMMISSIONER (APPEALS) HAS DIRECTED THE ASSESSING OFFICER NOT TO TAX SUCH INCOME IN THE SUBSEQUENT ASSESSMENT YEAR S IF IT IS OFFERED BY THE ASSESSEE ON COMPLETION OF PROJ ECT. THUS, HE SUBMITTED , ADDITION MADE BY THE ASSESSING OFFICER WAS JUSTIFIED. IN SUPPORT OF HIS CONTENTION, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: I ) LAXMIPAT SINGHANIA V/S CIT, [1969] 72 ITR 291 (SC); II ) CIT V/S P. MARIAPPA GOUNDER , [1984] 147 ITR 676 (MAD.); & III ) CIT V/S KERALA FINANCIAL CORPORATION , [1985] 155 ITR 246 (KER.) 41 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO CAREFULLY APPLIED OUR MIND TO THE DECISIONS 43 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) RELIED UPON BEFORE US BY BOTH THE PARTIES. THE FACTUAL MATRIX CLEARLY REVEALS THAT THE ASSESSEE HAS NOT CHANGED MERCANTILE SYSTEM OF ACCOUNTING CONSISTENTLY FOLLOWED BY IT FROM THE PAST YEAR S . HOWEVER, IT HAS CHANGED ITS REVENUE RECOGNITION POLICY IN THE I MPUGNED ASSESSMENT YEAR. IT IS EVIDENT, IN THE P AST YEAR S , THE ASSESSEE WAS RECOGNISING REVENUE ON THE BASIS OF INVOICE S RAISED FOR SALES EFFECTED AND SERVICE RENDERED. HOWEVER, IN THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAS ADOPTED A NEW SYSTEM UNDER W HICH IT RECOGNIZES REVENUE ON THE BASIS OF COMPLETION OF PROJECT AND ON RECEIVING COMPLETION CERTIFICATE FROM THE CUSTOMERS. UNDISPUTEDLY, DUE TO THE CHANGE IN REVENUE RECOGNITION POLICY AS AFORESAID, QUITE A SUBSTANTIAL PART OF THE REVENUE, WHICH OTHERWIS E W OULD HAVE BEEN SHOWN IN THE IMPUGNED ASSESSMENT YEAR AS PER THE REVENUE RECOGNITION POLICY CONSISTENTLY FOLLOWED , HAS BEEN DEFERRED TO SUBSEQUENT ASSESSMENT YEARS WHICH RESULTED IN LESS PROFIT SHOWN OF ` 22.83 CRORE . T O JUSTIFY THE CHANGE IN REVENUE REC OGNITION POLICY, IT IS THE CONTENTION OF THE ASSESSEE THAT IN THE YEAR UNDER CONSIDERATION IT HAS SHIFTED ITS FOCUS FROM PROVIDING SPECIFIC VOIC E EQUIPMENT SOLUTIONS TO CONVERG ED COMMUNICATION SOLUTIONS AS PER THE BUSINESS STRATEGY ADOPTED BY ITS HEAD OFFI CE IN USA. IT IS ALSO SUBMITTED THAT THE NEW REVENUE RECOGNITION POLICY ADOPTED BY THE ASSESSEE IS IN TUNE WITH SIMILAR POLICY ADOPTED BY THE HEAD OFFICE AND WHICH IS ALSO FOLLOWED BY VARI OUS OTHER REPUTED 44 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) ORGANIZATIONS/ ENTITIES. AS PER SECTION 145(1) OF T HE ACT, INCOME CHARGEABLE UNDER THE HEAD PROFITS AND G AINS OF BUSINESS AND PROFESSION HAS TO BE COMPUTED BY EMPLOYING EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULAR LY EMPLOYED BY THE ASSESSEE. OF COURSE, SUB SECTION (2) OF SECTION 145 OF THE ACT PR ESCRIBES THE ACCOUNTING STANDARD S TO BE FOLLOWED BY ANY CLASS OF ASSESSEE OR ANY CLASS OF INCOME HAS TO BE NOTIFIED BY THE CENTR AL GOVERNMENT. W HEREAS, SUB SECTION (3) OF SECTION 145 OF THE ACT PRESCRIBES THAT IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB SECTION (1) HAS NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE OR INCOME HAS NOT BEEN COMPUTED IN ACCORDANCE WITH ACCOUNTING STANDARD NOTIFIED U NDER SUB SECTION (2) , HE MAY PROCEED TO MAKE AN ASSESSMENT TO THE BEST OF HIS JUDGMENT AS PROVIDED UNDER SECTION 144 OF THE ACT. 42 . IT IS EVIDENT , AFTER EXAMINING THE FACTUAL ASPECT AND THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER HAS OBSERVED IN T HE ASSESSMENT ORDER, THOUGH , THE ASSESSEE TO JUSTIFY WITH VALID REASONS THE CHANGE IN REVENUE RECOGNITION POLICY, HOWEVER, IT W AS NOT ABLE TO FURNISH ANY SATISFACTORY REASON FOR SUCH CHANGE EXCEPT STATING THAT ACCOUNTS ARE TO BE PREPARED AS PER GLOBAL STAN DARD. FURTHER, HE HAS 45 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) OBSERVED THAT THE ASSESSEE HAS NOT PRODUCED ANY DOCUMENTARY EVIDENCE REGARDING THE GLOBAL STANDARDS ALLEGEDLY FOLLOWED BY IT AND HOW IT IS RELEVANT IN THE CONTEXT OF INDIAN A CCOUNTING STANDARD. IT IS ALSO CRUCIAL TO BEAR IN MIND, AS R EGARDS S ALES TAX AND SERVICE TAX THE ASSESSEE IS COMPLYING TO THE STATUTORY REQUIREMENT IN TERMS WITH THE EARLIER PRACTICE FOLLOWED BY IT. IN OTHER WORDS, IT IS PAYING SALES TAX AND SERVICE TAX ON THE BASIS OF INVOICE S RAISED TOWARDS SALES AND SERVICES. 43 . IN THE AFORESAID FACTUAL BACKGROUND, IT REQUIRES TO BE EXAMINED WHETHER THE REVENUE RECOGNITION POLICY FOLLOWED BY THE ASSESSEE IS ACCEPTABLE. NO DOUBT, THE ASSESSEE HAS CONTENDED THAT THE CHANGE IN REVENUE RECOGNITION POLICY IS DUE TO SHIFT IN BUSINESS ST RATEGY AND AS PER GLOBAL STANDARDS FOLLOWED BY THE HEAD OFFICE. HOWEVER, THIS CANNOT SIMPLY BE A REASON TO CHANGE THE REVENUE RECOGNITION POLICY CONSISTENTLY FOLLOWED OVER THE YEARS. THE ASSESSEE MUST FURNISH COGENT MATERIAL AND EXPLANATION TO JUSTIFY THE CHANGE IN REVENUE RECOGNITION POLICY. MORE SO, WHEN SUCH REVENUE RECOGNITION POLICY HAS SUBSTANTIAL LY REDUCED THE PROFIT SHOWN BY THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR. THE ASSESSEE MUST ESTABLISH ON RECORD WHY THE CHANGE IN REVENUE RECOGNITION POLICY , CLAIMED TO BE IN ACCORDANCE WITH THE ALLEGED GLOBAL STANDARDS , IS RELEVANT FOR 46 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) CHARGEABILITY OF A SSESSEES INCOME TO TAX IN INDIA, AS , SUCH INCOME HAS TO BE COMPUTED IN TERMS WITH THE PROVISIONS OF THE INDIAN INCOME TAX ACT AND ACCOUNTING STANDARDS NOTIFIED THEREIN. FURTHER, AS PER THE NEW REVENUE RECOGNITION POLICY REVENUE IS TO BE RECOGNIZED ON COMP LETION OF PROJECT AND THAT TOO ON RECEIPT OF COMPLETION CERTIFICATE FROM THE CUSTOMER. IT IS RELEVANT TO OBSERVE , THE AS SESSEE CONTINUES TO RAISE BILLS/INVOICES ON CUSTOMERS ON STAND ALONE BASIS AS IT WAS CONSISTENTLY DOING IN THE PRECEDING ASSESSMENT YEARS . HOWEVER, IT IS RECOGNISING REVENUE ONLY IN RESPECT OF COMPLETED PROJECTS , WHEREAS , SHOWING THE REST OF THE REVENUE IN THE BALANCE SHEET AS UNEARNED REVENUE. IN THIS PROCESS, THE ASSESSEE THOUGH IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING BUT IT IS EFFEC TI VELY DEFERRING SUBSTANTIAL PART OF ITS REVENUE AND PROFIT TO FUTURE ASSESSMENT YEARS. THEREFORE, THE ONUS IS ALL THE MORE ON THE ASSESSEE TO JUSTIFY THE CHANGE IN REVENUE RECOGNITION POLICY THROUGH COGENT MATERIAL AND EXPLANATION. THOUGH, THE ASSESSEE MA Y BE CORRECT IN SAYING THAT PROVISIONS O F SALES TAX AND SERVICE TAX LAWS CANNOT BE IMPORTED TO DETERMINE ASSESSEES TAX LIABILITY UNDER THE INCOME TAX ACT, HOWEVER, IT IS ALSO EQUAL LY TRUE THAT IN THE PRECEDING ASSESSMENT YEARS, THE ASSESSEE WAS RECOGNISIN G REVENUE FOR INCOME TAX PURPOSE ON THE BASIS INVOICE S RAISED TOWARDS SALES AND SERVICES. THEREFORE, WHEN THE ASSESSEE WAS FOLLOWING A CONSISTENT METHOD OVER YEARS, IT HAS TO DEMONSTRATE THE COMPELLING CIRCUMSTANCES WHICH 47 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) NECESSITATED CHANGE IN REVENUE REC OGNITION POLICY. THEREFORE, THE DECISION S RELIED UPON BY LEARNED AUTHORISED REPRESENTATIVE CANNOT BE APPLIED UNIFORMLY TO ASSESSEES CASE WITHOUT EXAMINING THE FACTUAL ASPECT. SIMILARLY, THOUGH , PROJECT COMPLETION METHOD HAS BEEN ACCEPTED AS A RECOGNIZED M ETHOD FOR REVENUE RECOGNITION , HOWEVER, THE ASSESSEE MUST ESTABLISH ON RECORD THAT THE CHANGE IN REVENUE RECOGNITION POLICY FROM INVOICE BASED TO PROJECT COMPLETION METHOD IS FOR BONA FIDE REASON S . 44 . AS REGARDS ASSESSEES CONTENTION THAT THERE IS ONLY A TI MING DIFFERENCE RELATING TO THE INCOME OFFERED DUE TO CHANGE IN REVENUE RECOGNITION POLICY, WE MUST OBSERVE , THOUGH IT MAY BE A FACT THAT THE ASSESSEE MIGHT HAVE OFFERED OR MAY BE OFFERING THE INCOME ON COMPLETION OF PROJECT S IN FUTURE YEARS, HOWEVER, AS P ER ASSESSEES OWN CONTEN TION, IT IS COMPLETELY DEPENDENT UPON THE COMPLETION CERTIFICATE TO BE ISSUED BY THE CUSTOMERS. AS REGARDS THE DECISION OF THE HON'BLE SUPREME COURT IN EXCEL INDUSTRIES LTD. (SUPRA), AS COULD BE SEEN FROM THE FACTS INVOLVED IN THE A FORESAID DECISION , THE INCOME WHICH THE REVENUE WANTED TO ASSESSEE IS BENEFIT OF DUTY ENTITLEMENT TO BE RECEIVED BY THE ASSESSEE ON CERTAIN IMPORTS WHICH HAS NOT TAKEN PLACE IN THE RELEVANT ASSESSMENT YEAR BUT TOOK PLACE IN THE SUBSEQUENT 48 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) ASSESSMENT YEARS. THE HON'BLE SUPREME COURT WHILE DEALING WITH THE ISSUE OF ACCRUAL INCOME LAID DOWN THE FOLLOWING THREE TESTS: I ) WHETHER THE INCOME ACCRUED TO THE ASSESSEE IS REAL OR HYPOTHETICAL ; II ) WHETHER THERE IS A CORRESPONDING LIABILITY OF THE OTHER PARTY TO PASS ON T HE BENEFITS OF DUTY FREE IMPORT TO THE ASSESSEE EVEN WITHOUT ANY IMPORTS HAVING BEEN MADE; AND III ) THE PROBABILITY OR IMPROBABILITY OF REALIZATION OF THE BENEFITS BY THE ASSESSEE CONSIDERED FROM A REALISTIC AND PRACTICAL POINT OF VIEW. 45 . IN THE FACTS OF THE SAID CASE, ADMITTEDLY, THE ASSESSEE HAD NOT IMPORTED THE GOODS IN THE RELEVANT ASSESSMENT YEAR. THEREFORE , THE QUESTION OF AVAILING BENEFITS RELATING TO DUTY ENTITLEMENT DID NOT ARISE. WHEREAS, IN THE FACTS OF ASSESSEES CASE, THE ASSES SEE HAS NOT ONLY RAISED INVOICE S RELATING TO SALES AND SERVICES RENDERED BUT IT HAS ALSO PAID SALES TAX/SERVICE TAX ON SUCH SALES/ SERVICES. THEREFORE, THE FACTS IN ASSESSEES CASE CANNOT BE EQUATED WITH THE FACTS INVOLVED IN EXCEL INDUSTRIES LTD. (SUPRA). SINCE , THE OTHER DECISIONS CITED BEFORE US DO NOT SQUARELY FIT IN TO THE FACTS OF ASSESSEES CASE, WE DO NOT INTEND TO 49 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) DELIBERATE MUCH ON SUCH DECISIONS. THEREFORE, ON OVER ALL CONSIDERATION OF FACTS AND MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THE ISSU E REQUIRES FURTHER EXAMINATION BY THE ASSESSING OFFICER AS THE ASSESSEE NEEDS TO ESTABLISH WITH COGENT MATERIAL AND EVIDENCE THAT THE CHANGE IN REVENUE RECOGNITION POLICY IS FOR BONA FIDE REASONS AND NECESSARY FOR CARRYING ON ITS BUSINESS ACTIVITIES IN A M ORE EFFICIENT MANNER. FURTHER, THE ASSESSEE HAS TO ESTABLISH THAT THE CHANGE IN REVENUE RECOGNITION POLICY IS IN CONFORMITY WITH THE PROVISIONS CONTAINED UNDER SECTION 145(1) AND (2) OF THE ACT. WITH THE AFORESAID OBSERVATIONS, WE ARE INCLINED TO RESTORE T HE ISSUE TO THE ASSESSING OFFICER FOR DE NOVO ADJUDICATION AFTER DUE AND SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IT IS MADE CLEAR, THE ASSESSING OFFICER MUST DECIDE THE ISSUE INDEPENDENTLY AND STRICTLY IN ACCORDANCE WITH LAW AND JUDICIAL PRE CEDENTS TO BE CITED BEFORE HIM WITHOUT BEING INFLUENCED BY ANY OF THE OBSERVATIONS MADE BY LEARNED COMMISSIONER (APPEALS). IF THE ASSESSEE CAN ESTABLISH THAT THE CHANGE IN REVENUE RECOGNITION POLICY IS FOR BONAFIDE AND VALID REASONS, OCCASION FOR ANY ADDIT ION ON THIS COUNT WOULD NOT ARISE. THE GROUND RAISED IS ALLOWED FOR STATISTICAL PURPOSES. 46 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. 50 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) ITA NO.7833/MUM./2011 REVENUES APPEAL A.Y. 2005 06 47 . THE ISSUE RAISED BY THE REVENUE IN GROUNDS NO.1 AND 2, IS CORRESPONDING TO THE ISSUE RAISED IN GROUND NO.1 OF ASSESSEES APPEAL IN ITA NO.8674/MUM./2011. IN VIEW OF OUR DECISION THEREIN, NO SEPARATE ADJUDICATION IN RESPECT OF THESE GROUNDS IS NECESSARY. THE GROUNDS HAVING INFRUCTUOUS IS DISMISSED. 48 . GROUND N O.3 RAISED BY THE REVENUE IS CORRESPONDING TO GROUND NO.2 OF ASSESSEES APPEAL IN ITA NO.8674/MUM./2011. IN VIEW OF OUR DECISION THEREIN, THIS GROUND HAS BECOME INFRUCTUOUS, HENCE, DISMISSED. 49 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. ITA NO.8675/MUM. /2011 ASSESSEES APPEAL A.Y. 200 6 07 50 . GROUND NO.1, OF THIS APPEAL IS IDENTICAL TO GROUND NO.1 OF ASSESSEES APPEAL BEING ITA NO.8674/MUM./2011. FOLLOWING OUR DECISION THEREIN, GROUND RAISED IS ALLOWED . 51 . IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RENOVATION EXPENDITURE. 52 . THIS GROUND IS SIMILAR TO GROUND NO.2 OF ASSESSEES APPEAL IN ITA NO.8674/MUM./2011. FOLLOWING OUR DECISION THEREIN, THIS GROUND IS ALLOWED. 51 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) 53 . THE ISSUE RAISED IN GROUND NO.3, IS IDENTICAL TO GROUND NO.5 OF ITA NO.8674/MUM./2011. FOLLOWING OUR DECISION THEREIN, WE RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR DE NOVO ADJUDICATION WITH SIMILAR DIRECTION. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 54 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ITA NO .7834/MUM./2011 REVENUES APPEAL A.Y. 200 6 07 55 . THE GROUNDS RAISED IN THIS APPEAL ARE IDENTICAL TO THE GROUNDS RAISED IN ITA NO.7834/MUM./2011. FOLLOWING OUR DECISION THEREIN, THESE GROUNDS ARE DISMISSED. 56 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. ITA NO.8676/MUM./2011 ASSESSEES APPEAL A.Y. 20 07 08 57 . GROUND NO.1, OF THIS APPEAL IS IDENTICAL TO GROUND NO.1 OF ASSESSEES APPEAL BEING ITA NO.8674/MUM./2011. FOLLOWING OUR DECISION THEREIN, GROUND RAISED IS ALLOWED . 58 . IN GROUND NO.2, THE ASSESSEE HAS CH ALLENGED THE DISALLOWANCE OF RENOVATION EXPENDITURE. 52 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) 59 . THIS GROUND IS SIMILAR TO GROUND NO.2 OF ASSESSEES APPEAL IN ITA NO.8674/MUM./2011. FOLLOWING OUR DECISION THEREIN, THIS GROUND IS ALLOWED . 60 . THE ISSUE RAISED IN GROUND NO.3, IS IDENTICAL TO GROUND NO.5 OF ITA NO.8674/MUM./2011. FOLLOWING OUR DECISION THEREIN, WE RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR DE NOVO ADJUDICATION WITH SIMILAR DIRECTION. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 61 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ITA NO.7835/MUM./2011 REVENUES APPEAL A.Y. 20 07 08 62 . GROUNDS RAISED IN THIS APPEAL BY THE REVENUE ARE IDENTICAL TO THE GROUNDS RAISED IN ITA NO.7833/MUM./2011. FOLLOWING OUR DECISION THEREIN, THESE GROUNDS ARE DISMISSED. 63 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. ITA NO.5434/MUM./2012 ASSESSEES APPEAL A.Y. 20 08 09 64 . THE ISSUE RAISED IN GROUND NO.1, IS WITH REGA RD TO DISALLOWANCE OF PROVISION FOR EXPENDITURE. 53 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) 65 . THIS GROUND IS IDENTICAL TO GROUND NO.1 OF ITA NO.8674/MUM./ 2011. FOLLOWING OUR D ECISION THEREIN, THIS GROUND IS ALLOWED. THE ADDITIONAL GROUND HAVING BECOME INFRUCTUOUS IS DISMISSED. 66 . IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RENOVATION EXPENDITURE. 67 . THIS GROUND IS IDENTICAL TO GROUND NO.2 OF ITA NO.8674/MUM./ 2011. FOLLOWING OUR DECISION THEREIN, THIS GROUND IS ALLOWED. 68 . IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE ADDITION MADE ON ACCOUNT OF CHANGE IN REVENUE RECOGNITION POLICY. 69 . THIS GROUND IS IDENTICAL TO GROUND NO.5 OF ITA NO.8674/MUM./ 2011. FOLLOWING O UR DECISION THEREIN, THE ISSUE IS RESTORED TO THE ASSESSING OFFICER FOR DE NOVO ADJUDICATION WITH SIMILAR DIRECTION. THIS GROUND IS ALLOWED FOR STATISTICAL. 70 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ITA NO.5157/MUM./2012 REVENUES APPEAL A.Y. 20 08 09 71 . GROUNDS RAISED IN THIS APPEAL BY THE REVENUE ARE IDENTICAL TO THE GROUNDS RAISED IN ITA NO.7833/MUM./2011. FOLLOWING OUR DECISION THEREIN, THESE GROUNDS ARE DISMISSED. 54 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) 72 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. ITA NO.5362/MUM./2014 REVENUES APPEAL A.Y. 20 09 10 73 . THE ISSUE RAISED IN GROUND NO.1, IS WITH REGA RD TO DISALLOWANCE OF PROVISION FOR EXPENDITURE. 74 . THIS GROUND IS IDENTICAL TO GROUND NO.1, RAISE D BY THE ASSESSEE IN ITA NO.8674/MUM./2011 . FOLLOWING OUR DECISION THEREIN, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALLOWED. 75 . IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RENOVATION EXPENDITURE. 76 . THIS GROUND IS IDENTICAL TO GROUND NO.2 OF ITA NO.8674/MUM./ 2011. FOLLOWING OUR DECISION THEREIN, THIS GROUND IS ALLOWED. 77 . IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE ADDITION MADE ON ACCOUNT OF CHANGE IN REVENUE RECOGNITION POLICY. 78 . THIS GROUND IS IDENTICAL TO GROUND NO.5 OF ITA NO.8674/MUM./ 2011. FOLLOWING OUR DECISION THEREIN, THE ISSUE IS RESTORED TO THE ASSESSING OFF ICER FOR DE NOVO ADJUDICATION WITH SIMILAR DIRECTION. THIS GROUND IS ALLOWED FOR STATISTICAL. 79 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. 55 AGC NETWORK LTD. (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.) ITA NO.5607/MUM./2014 REVENUES APPEAL A.Y. 20 09 10 80 . GROUNDS RAISED IN THIS APPEAL BY THE REVENUE ARE IDENT ICAL TO THE GROUNDS RAISED IN ITA NO.7833/MUM./2011. FOLLOWING OUR DECISION THEREIN, THESE GROUNDS ARE DISMISSED. 81 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. 82 . TO SUM UP, ASSESSEES APPEALS ARE PARTLY ALLOWED AND REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.08.2019 SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 30.08.2019 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI