TaxTMI 
TaxTMI 
2012 (6) TMI 622
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the assessee of Rs. 11,95,79,294/-. (2) The Ld CIT(A) has further erred in upholding disallowance of provisions of Rs. 51,53,103 towards leave encashment. (3) That interest u/s 234D of the Act is chargeable for the period beginning from 1.6.2003. 2. Briefly stated relevant facts of the case for the AY 2001-02 are that the assessee formerly called Tata Honeywell Ltd and being a listed company, has been jointly promoted by Honeywell Inc., USA and Tata group in India, each of whom held 40% of the paid-up share capital of the company in the relevant financial year and the balance 20% was held by the public. Assessee has multiple segments of the business. One segment of the business carried on by the assessee is of designing, supply/erection of automation equipments mainly to the customers in India. The revenues derived from this segment are not eligible for exemption/deduction under Section 10A. The other segment of business is provision of engineering/designing services relating to industrial/business automation systems to overseas customers (substantially to Honeywell associates) from set-up in Software Technology Parks (STP) in Pune and in Chennai. The reve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies and wages for both Chennai and Pune units are Rs. 465 lacs. As explained to you during the course of our hearings, in this financial year, in order to ensure a greater synergy and sharing of best business practices, etc., the domestic engineering group was also physically sitting along with export engineering group. The intention was to share the best practices between domestic and global engineering services. However, we were not very successful in this experiment, resulting in a large customer dissatisfaction issue, due to which this group was de-merged from F.Y.2001-02 onwards. In the financial accounting system for Salary, this group was given one common department code. In order to cope the expenses attributable for the export of services, we have identified the total man-hours that were billed by this group for both domestic and export services. The salary expenses pertaining to STP1 wee taken in this ratio. We have a primavera software package which is basically used for project scheduling and time tracking. Based on the primavera data, the man-hours attributable to STP1 were computed. The details are attached in Annexure VII. While doing this, supervisory and idle ti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....STP units and not for the domestic business of the assessee in response, vide letter dt.10-3-2004, the assessee admitted the mistake and stated as under. "In the salary and wages grouping, the total High Specs salary cost is Rs. 31.57 lacs. Erroneously, this amount has also got apportioned at 45.7% only to the STP unit. The entire amount needs to be charged to the STP unit and as such, the different of Rs. 17.14 lacs needs to be further debited to the STP profit and Loss account." It is thus admitted by the assessee that the STP profits are over stated by Rs. 17.14 lacs. 2.6 Wrong claim of exemption u/s 10A for profit on reimbursement of travel expenses. Vide letter dt.26-2-2004, the assessee has submitted detailed revenue breakup of the STP units for A.Y.2001-02. In this it is noticed that the revenue of Rs. 17.10 crores includes a sum of Rs. 54 lacs by way of "Debit Note". Vide order sheet entry dt.4-3-2004, it was explained by Shri Sowani that this represented the discount given by the travel agent on the foreign travel undertaken by the employees of the company, which was fully reimbursed by Honeywell Inc. At the original bill price of the travel agent. However, by let....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e order sheet entry dt.11-3-2004, it was stated by Shri Sowani that approximate learning and development costs allocable to the STP units would be Rs. 6.52 lacs out of Rs. 56.57 lacs of learning and development expenses incurred for the entire company. This allocation is in the ratio of manpower employed in the STP units to the total man power employed in the company, which is 98 out of 850. Thus, the STP profits would come down further by Rs. 6.52 lacs. 2.8. No allocation of manpower costs towards "Sale Through Physical". In the detailed revenue breakup submitted by the assessee vide letter dt.26-2-2004, it is seen that out of the total revenue of Rs. 17.10 crores, revenue of Rs. 27 lacs is due to "Sale through Physical". Against this sale no manpower costs have been allocated as the number of hours taken for allocation were based on the offshore and on-site work only. Vide order sheet entry dt.11-3-2004, Shri Sowani accepted that some salary/manpower cost should further be allocated to the STP Units against the "Sale through Physical", the quantification of which was not possible at this stage. It is similarly seen that the manpower costs relating to the NODCO sales of Rs. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is Business Unit Code have been considered by the Chartered Accountant for the STP1 return. The mistake in the return has been that salary costs towards domestic engineering should have been excluded which was not done. As such, there is a difference between the Profit and Loss account and the STP1 return as in the former, only salary costs for export engineering has been taken into account." 2.9.5. It is thus claimed that the wage bill or the manpower costs of the STP units has been wrongly reported to the Software Technology Park of India in the annual Returns submitted by the assessee company. 2.10. Allocation of manpower costs and no DTA Sales: It is also noticed that the total Salaries and Wages shown in the Annexure II to the Profit and Loss account of the STP units, come to Rs. 4.65 cr. Out of this only 45.7% has been allocated o the SATP units and remaining salary expenses have been allocated to the domestic business of he assessee company. It was stated by Shri Sowani that such an allocation has never been done n the past nor in future, after the A.Y.2001-02. In this connection, it is also seen that the STP units are required to be Custom Bonded and he sales made ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the AO examined the books of accounts and made enquiries and found certain mistakes in the accounts of the assessee which led to the incorrect results of the profits of the STP units. These mistakes revolve around: (i) non allocation of idle time/supervisory cost; (ii) wrong adoption of billable man hours; (iii) wrong allocation Hi Spec salaries; (iv) Learning & Development costs; (v) allocation of manpower costs towards sale through physical (vi) non consideration of the reimbursement of the expenses to the extent of Rs. 54 lakhs etc. Thus, as per the AO, failure to make proper debit of the correct expenditure, the profits of the STP units are inflated. In response to the same, the assessee admitted the same and submitted that these mistakes are inadvertent and due to software deficiencies. Assessee made written submission in this regard as detailed in para 4.18 and 4.19 of the impugned order. These are extracted as under for completeness of the order. They are: "4.18 Pursuant to the enquiry made by me regarding the manner in which the assessing officer came to ascertain the exact amounts of mistakes in the allocation of expenses and the causative factors....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncial accounts the salaries of employees working for STP unit and non-STP unit came to be clubbed together. During the year under consideration, the Company had also provided high end services to its customers through Hi Spec division. The employees for this division were identified separately and their salary of Rs. 31.57 lacs was considered in total salary correctly. However, while applying the proportion of 45.7%, the same was erroneously applied to the Hi Spec division's salaries of Rs. 31.57 which resulted into understatement of Hi Spec salaries by 54.3% (i.e. 100% less 45.7%) which resulted into lower cost allocation off Rs. 17.14 lacs (i.e.311.57 lacs x 54.3%) d. Learning & Development costs (page 8 of the assessment order, para 2.7) Total learning and development costs during the year under consideration were Rs. 556.57 lacs, which comprises of (i) Foreign Trainings Expenses Rs.3.39 lacs (ii) Inland Training Expenses Rs.53.18 lacs As all training facilities/programs area arranged by one of the support departments, i.e. Human Resources and Administration, the accounting for the same does not happen separately for each busine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aking in A Y 2001-02 though the same pertained to A Y 2000-01; (c) There were errors in the returns filed with the STP authorities, as stated by the AO; (d) The profit/costs percentage in the compensation revision proposal for F Y 2001-02 relevant to A Y 2002-03 was 40% as against profit ratio of 232.49% in A Y 2001-02. Finally, the AO invoked the provisions of section 145 of the Act. Aggrieved with the above, the assessee raised this issue before the CIT(A) and made various submissions. The case of the assessee in their own words on this issue are enlisted as under: (Para 4.18 Page 11/17, Para 4.19/Pg 13 of CIT(A) order are relevant. (1) The errors were caused due to inadvertent errors due to sheer human fallibilities in applying the allocation principles. (2) Regarding travel costs reimbursement of Rs. 54 lacs, it was urged that there was no dispute about the eligibility of exemption thereof; the only issue was that the though the claim was increased to that extent in A Y 2001-02, there was corresponding understatement of claim in A Y 2000-01. In other words, it was timing difference only. (3) Regarding the returns filed with the STP authorities, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... clarifications dated 7th July, 2011 have been filed and placed on the records. (4) The nature and extent of errors are overwhelmingly suggestive of human fallibilities and the probability of inadvertence combined with the absence of allegation of fudging of accounts by the lower authorities should extricate the case of the assessee from the provisions of Section 145(3) of the Act. (5) The lower authorities have not refuted the correctness of the clarifications submitted in respect of STP returns and other related issues. (6) The AO did not find any flaw, in the course of remand proceedings, regarding the clarifications, explanations and reconciliation provided with reference to the alleged dichotomy between the profits/costs percentage as calculated in the compensation revision proposal for F Y 2001-02 vis-a-vis actual numbers for that year relevant to A Y 2002-03, as noted by the CIT (A). (7) The appellant is a public limited company quoted on the stock exchange whose accounts are audited by statutory auditors. The company has drawn up its accounts by adopting well recognised method of accounting and the accounting standards notified. In wor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter the sales invoices of just 19 nineteen days led to the rejection of the books of account. Therefore, the plea of the assessee that the extent and effect of the errors were trivial which did not warrant rejection of the books of account was not acceptable; 5) The details (of reimbursements) were never filed before the A.O. during the course of assessment proceedings for A.Y. 2001-02 which is the lead year of investigation on the issue; 6) In the remand report (page 29 to 36 of the paper book filed by the assessee), the A.O submitted that the same cannot be treated as profit derived by the undertaking on which exemption/deduction u/s 10A of I.T.; 7) It is inconceivable that such a proposal was prepared and sent by the marketing department without the concurrence of account department in a reputed organization; 8) The learned CIT(A) has accepted the details filed before him on the issue but does not seem to have verified and adjudicated upon the issue; 9) The learned counsel of the assessee has also stated that since learned A.O. has not commented adversely in respect of reconciliation during the course of reassessment proceedings for A.Y. 1999-2000, it can be said ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h were intended to artificially inflate the exempted profit of the undertaking u/s 10A of the Act. * The assessee had no option but to accept the defects. * Once the defects in allocation to the tune of Rs. 1.20 crores were noticed and admitted by the assessee the books of accounts automatically lost its sanctity. * The learned counsel of the assessee states that the defects represented only 6% of total expenses and therefore, there was no reason for rejection of the books of accounts. He further submitted that the errors were unintended and it was not the case of the A.O that accounts were fudged or manipulated. He also submitted that these were arithmetical mistakes being of inadvertent nature. * The submissions of the learned counsel are bereft of merit. The books of accounts of the assessee were audited and despite resource crunch and paucity of time the A.O was able to detect a number of defects in allocation of various expenses. * The argument that the defect represented only 6 % of total amount and therefore trivial in nature is also needs to be rejected. In fact the defects are not trivial but horrible in nature. The learned coun....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... days in a year. The Hon'ble Apex court also awarded cost against the assessee. In fact the above quoted decision supports the case of the department. Therefore, It is submitted that the there is no merit in the ground taken by the assessee. Strong reliance is also placed upon the order of A.O/CIT(A). Submitted ....... " 11. Further, during the time of rebuttal, Ld assessee's counsel filed the following issues wise replies to the issues raised by the DR in his arguments and the same are produced as under. 1. The errors of allocation of expenses were not trivial; rather, they were horrible. Replies : The nature and effect of the errors should lead any authority to a fair and reasonable conclusion that they were caused by human fallibilities. Preponderance of probability weighs in favour of this conclusion rather than the proposition canvassed by the learned DR. It is submitted that the appellant is a public limited company quoted on the stock exchange whose accounts are audited by statutory auditors. The company has drawn up its accounts by adopting well recognised method of accounting and the accounting standards notified. In working out the claim for dedu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee that the extent and effect of the errors were trivial which did not warrant rejection of the books of account was not acceptable. Replies a. In the case decided by the Supreme Court, the flying squad of the sales tax department inspected the business premises of the assessee and found that sales invoices for a period of 19 days were not entered in the books of account. b. The assessee, in that case, initially protested that the bill books did not belong to him but later admitted that that the sale invoices contained in the said bill books were not entered in the accounts. c. Based on above, the authorities reached an uncontroverted finding that the assessee in that case had dealings outside the accounts and therefore, the accounts were rejected and finally, the Supreme Court confirmed this finding. d. It is respectfully submitted that the facts of the case decided by the Supreme Court are materially distinct from the facts of the case before the Honourable Tribunal. By no stretch of imagination, the assessee could have contended, in that case, that the omissions in the accounts were unintended or unimportant. Admission of dealings outside....
X X X X Extracts X X X X
X X X X Extracts X X X X
....engineering services. c. Without prejudice, the reimbursement of expenses is not of income character at all since it represents the recoupment of actual costs which reduce the expenses that are charged to the profit and loss account. The effect on the profits will be neutral in either case. Reliance in this behalf is placed on the decision of the Delhi High Court in the case of Perot Systems- 2010-TIOL- 672-HC-DEL-IT, a copy of which is enclosed herewith. (7) It is inconceivable that such a proposal was prepared and sent by the marketing department without the concurrence of account department in a reputed organization. Replies At the very initial stage before the AO the then CFO of the assessee company had made submission in writing that the compensation revision proposal was not validated or confirmed by the accounts department. Please see para 2.12.2 on page 11 of the assessment order. (8) The learned CIT(A) has accepted the details filed before him on the issue but does not seem to have verified and adjudicated upon the issue. Replies Here again, the submission of the learned DR is not as per the finding on the records. In para 4.42 on page 22 of the app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ussing comparable cases and arriving at the profit of cost plus 50% in the Assessment Order. The concluding remark of the Ld. CIT(A) (last line on page 27) is worth mentioning which reads as under: "It is vitally important to consider that the Assessing officer has already given sufficient set off for reasons of high profit by restricting the profits @ 50% as against 20-25% in other comparable cases which is more than enough to take care of any reason given by assessee in general for earning higher profits. Such a heavy discount having already allowed by the Assessing Officer, in my opinion no further relief is deserved by the Appellant on this score. Therefore, while deciding the issue besides examining the issue of reimbursable expenses finding on the issue of two comparable cases which also happen to be the basis for arriving at the profit margin of cost plus 50% by the AO and also approved by the learned CIT(A) is a must. Replies (a) First, the concluding part of the contentions advanced by the learned DR need to be dealt with. It is respectfully submitted that the AO did not base his estimate on the profits of the alleged comparable cases. Rather, it needs specific....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sidering the triviality of the errors etc. Thus, from the assessee's point of view, the AO invalidly assumed jurisdiction u/s 145 of the Act and CIT(A) erred in confirming the same. On the other hand, the case of the revenue is that the books are not only incomplete but also inaccurate and thus the correct profits of the assessee/undertaking cannot be computed arrived at with the help of the books, which are full of mistakes. Therefore, it is a fit case for rejection u/s 145 of the Act. We need to sort out this deadlock and for this purpose, we have travelled to elucidate the scope of the provisions of section 145 of the Act. The amended provisions apply to this case and the said amended provisions read as under: 13. Section 145 relating to "Method of accounting'. Section 145 as applicable to AY 91-92 reads as under : (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall be subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gaze....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of books of accounts as the present dispute in our opinion, relates to only on the completeness or correctness aspects. Therefore, we restrict the present discussion only on the meanings of expressions 'correctness' and "completeness" of assessee's accounts. C. Regarding the "completeness" of accounts, in our opinion, it not only refers to the list of the books of accounts to be maintained by the assessee as per the statute, but also to all the accounting entries for all the transaction done during the previous year. In other words, the failure of the assessee to maintain relevant registers or any other books described in the list "with all the transactions properly recorded in accordance with the set principles of accounting, makes the accounts of the assessee incomplete. Regarding the "correctness" of the accounts, in our opinion, it refers to the quality or accuracy or reliability of the accounts maintained by the assessee and it covers the reconcilable mistakes or errors in accounts. Thus, the completeness refers to list of books of accounts and entries therein and the accuracy refers to the quality/accuracy/reliability of the accounts of the assessee. Regarding ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ive, if the present falls in the category of compulsory scrutiny, the assessee still guilty of not maintaining the books accurately. It is the law that the books can be rejected either for default of incomplete books or for inaccurate books. In our opinion, the triviality of the default is no excuse as per the amended provisions of section 145 of the Act. Further, the default, which is quantified to be around Rs. 1.24 cr in our opinion, cannot described trivial in this case as it is the case of exemption u/s 10A of the Act and the assessee is expected to be extremely responsible in matters of maintenance of the books of such exempt undertakings. Without going into the reasons, whether bona fide or otherwise, we are of the considered opinion, the AO has rightly rejected the books as per the provisions of section 145(3) of the Act. Accordingly the relevant grounds of the appeal are dismissed. Issue of Estimation of Profits of the STP Units 15. In the preceding paragraphs, we have upheld the AO's decision in rejecting the books of the accounts for the detailed reasons mentioned therein. That leaves the issue of the 'best judgment' assessment in the manner prescribed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... justify the above claims of the assessee and proposal to adopt the profit margins as per the CRP. In response, assessee contended that that the (i) the figures of CRP are supplied by the Marketing Department unconfirmed by the Finance& Accounts Department and therefore, they are not correct and credible figures; and (ii) CRP is meant for FY 2001-02 and not for the year under consideration. Further, the AO asked the assessee to confirm the cost analysis leading to 232.49% margin of the STP units. In response, the assessee filed the following response, i.e. "we confirm and reiterate that, as stated vide our submission dt 26.2.2004, the estimation given by our Marking Dept was incorrect and should not be treated as the base for financial year 2000-01". Thus, the AO came to the conclusion that the said book results of the assessee are not credible and assessee has explanation to justify the same. Further, he came to the conclusion that the figures in the CRP are actual and not mere estimates as contended by the assessee. AO reasoned that the assessee, the alliance partner of such repute shall not submit the CRP in casual manner too. Further, the AO collected the book results of the co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ind any specific conceptual defects in the method adopted by the assessee in computing the profits of the STP units. Assessee further mentioned that the mistakes if any in allocation of expenditure amounts to only Rs. 1.24 crores which is negligible. Further, the assessee found fault with the AO decision to rely on the so called comparable i.e. Wipro and Geometric Software companies and attempted to demonstrate that they are incomparable Para 4.44 to 4.48 of the impugned order are relevant. 19. Attempting to bridge the gap between the figures of CRP and the book results, the assessee submitted for factoring the same and mentioned that the AO failed to consider the amounts involved in the 'reimbursement of expenditure'. Assessee got reimbursement of the expenditure amounting Rs. 2.29 cr incurred on their employees' travel abroad. Of course, the said figure should be Rs. 54 lakhs for the AY under consideration as per the AO vide discussion on page 7 of the AO's order. Actually, the assessee submitted additional evidence relating the said 'debit notes' relating to the said reimbursement of expenditure before the CIT(A) and the AO opposed the admission of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....produced as under: Estimation of Income Exempt Under Section 10a 1) ** ** ** (2) The submissions, in this behalf, are as under: (a) The profit ratio of 40% of F Y 2001-02 stated in the compensation revision proposal is reconciled with the actual profits at 195% of costs for that year as per the finding of the CIT(A) in paras 4.31 to 4.39 on pages 17 to 21 of the appellate order and in para 4.42 on page 22 of the appellate order read with the working of reconciliation at page 28 of the paper book. (b) Therefore, the very basis of the estimate made by the AO has been revised consequent upon the remand report of the AO and the finding thereon by the CIT (A). (c) Though the AO did not base the estimate on the profit ratios of the alleged comparable cases, out of abundant caution, the dissimilarities with the STP undertakings of the assessee with regard to functions, risks and resources employed have been brought on record as per pages 51 to 54 of the paper book. In particular, reference is invited to pages 53 and 54 of the paper book where the variegated activity profiles of the alleged comparable cases of WIPRO and Geometric So....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ok may be referred to where the profits/costs ratio of 40%, as per the compensation revision proposal, has been reconciled to the actual ratio of 195% (pre-correction ratio), relating to A Y 2002-03, after considering the reimbursement of expenses and the actual billing rate. However, it bears notice that the costs considered in the said reconciliation are before the correction of allocation of expenses considered in the accounts of STP units in A Y 2002-03, as clearly mentioned in column 4 of the chart at page 28 of the paper book. (c) Post correction, the profits/costs ratio stands revised downwards to 153%- from 195% -as stated by the AO in para 3.2.3 on page 5 of the assessment order for A Y 2002-03. (d) In the premise, therefore, the revised estimate of profits will work to 163% (153%+10%) of costs in A Y 2001-02 as against 232% claimed in return of income and 50% allowed by AO. From the arguments of the assessee, profits at 40% over the cost works out to STP profits @ 153% for the AY 2002-03. Similarly, for the AY 2001-02, the revised profits will work out to 163% including the 10% allowed by the AO for this year. 22. Per contra, Ld DR for the revenue ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pted the computation submitted by the assessee in respect of profit margin. Since CIT (A) has dismissed the appeal on merit too, it can be safely concluded that the Learned CIT (A) has rejected the reconciliation in respect of Profit Margin submitted by the assessee. * The learned counsel of the assessee has also stated that since learned A.O has not commented adversely in respect of reconciliation during the course of reassessment proceedings for A.Y 1999-2000, it can be said that the A.O has accepted the reconciliation in respect of debit notes. This argument has no basis as stand of the A.O is always clear that debit notes do not represent income of the undertaking which can be said to be derived by the undertaking from export of articles or thing or computer software. Merely because the A.O at any given point of time that too in a different assessment year has not commented adversely does not lead to the conclusion that he has accepted the reconciliation. The issue needs to be examined in totality and not on the basis of alleged silence of the AO in a different Assessment year. * Proposal made by the assessee to Honeywell Inc, USA for revision of the terms of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... @195% plus cost as claimed by the assessee on page 28 of paper book filed by the assessee and which is being requested to be considered by the learned counsel of the assessee is too high to be adopted in assessee's case in view of comparative cases discussed by the A.O as well as revision proposal sent by the assessee itself. * Strong reliance is placed on the order of A.O as well as CIT (A) on the issue. * Therefore, in view of the above submissions and totality of facts it is submitted that the appeal of the assessee be dismissed for both the years. Submitted" 23. We have heard the parties and perused the orders of the revenue, papers available before us and the written submissions of the parties in the dispute. From the data tabulated in the preceding paragraphs for the AY 2001-02, we find that the turnover is 17.09 cr and profits works out to Rs. 11.95 cr i.e. works out to 69.92%. Considering the cost as per the assessee, the % of profit of the STP units on Cost works out to 232.49%. Whereas the assessee's data of the % of profit of the STP units on Cost work as per the CRP is only 40%. Further, the assessee's rejected books advocates for 69.96....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not met various arguments of the assessee. Even during the proceedings before us, the parties have failed to demonstrate various aspect relating to the said reimbursements and its impact on the profit margin of Rs. 232.49%. Thus, so far as the 'reimbursed expenditure' is concerned, we find there is lack of factual clarity. It is not clear why only Rs. 54 lakhs were mentioned n the books initially, which was subsequently revised to Rs. 2.29 crores. Why the 'debit notes' were available for only Rs. 2.09 cr against the claim of Rs. 2.29 cr? What exactly is the nature of these reimbursements and whether they are discounts allocated by the principle company to the STP units of the assessee or otherwise?. If they are not discounts which is in the nature of the profit, how they are profits, derived from the assessee's eligible undertakings and eligible for exemption? CIT(A) has not attended to this part of the arguments raised before him despite the matter remanded by him to the assessing officer during the first appellate proceedings. What are the facts of these reimbursed expenditure, whether these reimbursements of the travel expenditure of the employee of the com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ries. Whether the principles of best judgment permit the AO grant such unjustified reliefs ignoring the principles of consistency? In that case, why the figures of the comparable cases ei Wipro and Geometric Software companies, were not considered after making reasonable adjustments based on the sound logic? Therefore, in our opinion, the AO and the CIT(A) have not done the best judgment in the manner provided in section 144 of the Act. There are large number of judicial precedents in operation on the issue of 'best judgment' referred to in section 144 of the Act. In principle, the best judgment does not mean wild and unreasonable estimations. The very expression 'best judgment assessment' imply the judgment of the AO and the said judgment must be supported by the material or data gathered by him for this purpose both from internal as well as the external sources. Thus, we can not approve the 'best judgment assessment' made by the AO and sustained by the CIT(A) in the present form. Therefore, we are of the considered opinion, the AO must make 'best judgment assessment' as per the manner provided in section 144 of the Act and for this we have decided ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....shment' and upheld the case of the assessee and the following held portion is extracted as under. "The law is settled. If the business liability has definitely arisen during the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a later date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty although the actual quantification may not be possible. If these requirements are satisfied, the liability is not a contingent one. The liability in presenti though it will be discharged at a future date. It does not made any difference, if the future date, the liability shall have to be discharged, is not certain." 29. From the above, it is self-explanatory that the incurring of liability should be certain during the year and such liability should be capable of estimation with reasonable certainty. Actual method of estimation was accepted by the Apex Court as the capable one. Therefore, we find no reason to interfere with the claim of the assessee. Consequently, the decisions of the revenue authorities on this disallownce are reversed. Accord....