M/s Prithvi Information Solutions Limited, Hyderabad V. ACIT, Circle-16(3), Hyderabad

ITA 1816/HYD/2012

• Counselvise Citation: 181622514 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 14-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Transfer pricing; Share purchase agreement; Opportunity of being heard; International transaction; Corroborative evidences
• Section: 43B; 143(3); 92B; 133(6); 194C; 10B; 263; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1816/HYD/2012 ASSESSMENT YEAR : 2008-09 M/S PRITHVI INFORMATION SOLUTIONS LTD., HYDERABAD. PAN AACC P5281F ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 16(3), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI P. MURALI MOHAN RAO REVENUE BY SHRI P. SOMA SEKHAR REDDY DATE OF HEARING 10-06-2014 DATE OF PRONOUNCEMENT 08-08-2014 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL OF THE ASSESSEE IS AGAINST THE ASSESSME NT ORDER DATED 23/11/2012 PASSED U/S 143(3) READ WITH SECTIO N 144C OF THE INCOME TAX ACT, 1961 UNDER THE DIRECTION OF THE DIS PUTE RESOLUTION PANEL (DRP IN SHORT) PERTAINING TO THE ASSESSMENT Y EAR 2008-09. 2. ASSESSEE HAS RAISED AS MANY AS 29 MAIN GROUNDS A ND ONE ADDITIONAL GROUND. AT THE OUTSET, LEARNED AR EXPRES SED HIS INTENTION NOT TO CONTEST GROUND NOS. 15, 16 & 17. HENCE, THES E GROUNDS ARE DISMISSED AS NOT PRESSED. GROUND NO. 29 BEING GENER AL IN NATURE NEED NOT BE ADJUDICATED. OUT OF THE REMAINING GROUN D NOS. 1 TO 8 ARE IN RESPECT OF ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT BY COMPUTING THE ARMS LENGTH PRICE OF THE INTEREST TO BE CHARGED ON THE ADVANCES MADE TO OVERSEAS SUBSIDIARIES. 2 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. 3. BRIEFLY THE FACTS, AS EMANATE FROM RECORD ARE, A SSESSEE IS A GLOBAL PROVIDER OF CUSTOMIZED INFORMATION TECHNOLOG Y (IT) SOLUTIONS AND ENGINEERING SERVICES TO A NUMBER OF CLIENTS IN USA. ASSESSEE GENERALLY PROVIDES SERVICES IN KNOWLEDGE SOLUTIONS, IT AND SOFTWARE SOLUTIONS, TECHNOLOGY, ENGINEERING SERVICES ETC. AS SESSEE, DIRECTLY OR INDIRECTLY, OWNS A NUMBER OF SUBSIDIARY COMPANIES O VERSEAS. THE FINANCIAL RESULTS OF THE COMPANY AS PER ITS ANNUAL REPORT FOR THE ACCOUNTING PERIOD 2007-08 ARE AS UNDER: OPERATING REVENUE RS. 1112,79,06,165 OPERATING COST RS. 996,71,63,318 OPERATING PROFIT RS. 116,07,42,847 OP/OR 10.50% OP/OC 11.65% FOR THE IMPUGNED ASSESSMENT YEAR, ASSESSEE FILED IT S RETURN OF INCOME ON 29/09/2008 DECLARING TOTAL INCOME OF RS. 6,54,51,540/- UNDER THE NORMAL PROVISIONS AFTER CLAIMING EXEMPTIO N U/S 10A OF THE ACT OF RS. 112,03,84,129/-. ASSESSEE ALSO DECLARED BOOK PROFIT OF RS. 70,25,17,999/- U/S 115JB. 4. DURING THE SCRUTINY ASSESSMENT PROCEEDING, THE A O NOTICING THAT ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSA CTIONS WITH ITS ASSOCIATED ENTERPRISES DURING THE RELEVANT PREVIOUS YEAR EXCEEDING THE THRESHOLD LIMIT, MADE A REFERENCE TO THE ADDL. COMMISSIONER OF INCOME TAX, TRANSFER PRICING, HYDERABAD (TPO IN SHO RT) FOR DETERMINATION OF ALP. IN COURSE OF PROCEEDING BEFOR E HIM, THE TPO VIDE HIS LETTER DATED 25/08/2011 CALLED UPON THE AS SESSEE TO FURNISH VARIOUS DOCUMENTS AND INFORMATIONS. HOWEVER, AS NOT ED BY THE TPO IN HIS ORDER, NEITHER THE ASSESSEE RESPONDED TO THE AFORESAID LETTER NOR THE SUBSEQUENT REMINDER SENT THROUGH FAX ON 28/ 10/2011. THEREFORE, IN ABSENCE OF REQUIRED INFORMATION AND S UPPORTING EVIDENCE, THE TPO REJECTED THE TP STUDY FURNISHED B Y THE ASSESSEE AND PROCEEDED TO ANALYSE THE ALP OF INTERNATIONAL T RANSACTIONS 3 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. ENTERED INTO BY THE ASSESSEE. FROM THE MATERIALS ON RECORD, THE TPO NOTICED CERTAIN INVESTMENTS/LOANS/ADVANCES MADE BY THE ASSESSEE WITH ITS AES/SUBSIDIARIES. THE DETAILS OF WHICH ARE AS UNDER: S.NO. AE TRANSACTION AMOUNT (RS.) 1. PRITHVI SOLUTIONS INC., USA INVESTMENT IN EQUITY 2,02,10,000 2. PRITHVI SOLUTIONS INC., USA LOANS GIVEN 29,98,50,000 3. PRITHVI QATAR, UAE INVESTMENT IN EQUITY 12,26,960 4. PRITHVI QATAR, UAE LOAN GIVEN 5143,000 5. PRITHVI INFORMATION SOLUTIONS LLC ADVANCES GIVEN 2,79,39,130 TOTAL 35,43,69,090 HOWEVER, HE NOTICED THAT ASSESSEE HAS NOT CHARGED A NY INTEREST ON SUCH ADVANCES MADE TO SUBSIDIARIES. TPO BEING OF TH E VIEW THAT LOANS TO THE SUBSIDIARIES SHOULD CARRY INTEREST AT ARMS LENGTH PROCEEDED TO DETERMINE THE SAME. TPO OPINED THAT AS ASSESSEE IS THE TESTED PARTY, THE PREVALENT INTEREST THAT COULD HAVE BEEN EARNED BY THE ASSESSEE HAD THE LOAN BEEN ADVANCED TO AN UN RELATED PARTY IN INDIA WITH THE SAME WEAK FINANCIAL HEALTH AS THAT O F AE, SHOULD BE CONSIDERED AS ARMS LENGTH INTEREST UNDER CUP METHO D. FURTHER, TPO NOTED THAT THE LOANS ADVANCED TO THE SUBSIDIARIES A RE ALSO NOT SECURED. 5. TPO OBSERVED THAT WHILE ADVANCING LOANS FINANCIA L INSTITUTIONS GENERALLY CONSIDER FOUR RISK FACTORS, SUCH AS, FINA NCIAL RISK, CREDIT RISK, BUSINESS RISK AND STRUCTURAL RISK. HE NOTED THAT WH ILE GOVERNMENT BONDS ARE SUBJECTED TO ONLY INTEREST RATE RISK, BUT , CORPORATE BONDS ISSUED BY THE COMPANIES IN INDIA ARE SUBJECTED TO C REDIT RISK IN ADDITION TO INTEREST RATE RISK. AS PER THE CREDIT R ATING OF THE MOST REPUTED LOAN CREDIT RATING AGENCY CRISIL, THE RATIN GS SCALE VARY 4 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. BETWEEN AAA TO D. GOVERNMENT BONDS ARE CONSIDER ED TO BE IN ZERO RISK CATEGORY I.E. ABOVE AAA RATING WHEREA S D GRADE IS FOR DEBT ALREADY IN ARREARS AS PER THE RATINGS SCALE OF CRISIL. THE TPO HELD THAT THE ADVANCES MADE BY THE ASSESSEE FALLS B ETWEEN THE CATEGORY BB AND D RATINGS. FURTHER, REFERRING T O THE INFORMATION OBTAINED U/S 133(6) OF THE ACT FROM M/S CRISIL IN R ESPECT OF AVERAGE YIELD ON LONG TERM INVESTMENT DURING FY 2007-08, TP O NOTED THAT YIELD FROM BBB GRADE CORPORATE BOND WAS 14.39% FOR 5 YEAR PERIOD IN FY 2007-08. ASSUMING THE FACT THAT BBB RATED BONDS ARE CLEARLY CONSIDERED INVESTMENT GRADE BONDS WHEREAS THE ASSES SEE FALLS WITHIN THE RANGE BB TO D RATINGS, THE YIELD RATES FOR WHIC H IS NOT AVAILABLE AND SINCE BB TO D RATINGS ARE COMING WITHIN THE HIG HER RISK CATEGORY, THE INTEREST RATE WOULD ALSO BE HIGHER. CONSIDERING THE ABOVE ASPECT, TPO HELD THAT ALP OF INTEREST FOR THE LOANS ADVANCE D BY THE ASSESSEE TO AE ON THE MONTHLY CLOSING BALANCE FOR THE PERIOD 01/04/2007 TO 03/03/2008 WOULD BE AT 17.2%. APPLYING THE AFORESAI D INTEREST RATE TO THE LOAN ADVANCE OF RS. 35,43,69,090/-, THE TPO WOR KED OUT ARMS LENGTH INTEREST AT RS. 6,11,64,105/-, WHICH WAS SUG GESTED TOWARDS TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF INTEREST LOANS ON ADVANCED TO THE SUBSIDIARIES. AS A CONSEQUENCE OF THE ORDER OF THE TPO, THE AO PASSED DRAFT ASSESSMENT ORDER NOT ONLY MAKING THE A DDITION SUGGESTED BY THE TPO ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT BUT ALSO MADE VARIOUS OTHER ADDITIONS AS A RESULT OF W HICH, THE INCOME WAS DETERMINED AT RS. 353,19,10,828/-. THOUGH, THE AO ALSO MADE COMPUTATION UNDER THE MAT PROVISIONS, BUT, SINCE TH E TAX PAYABLE UNDER NORMAL PROVISIONS WAS MORE THAN THE TAX PAYAB LE UNDER THE MAT PROVISIONS, HE RAISED THE DEMAND AS PER COMPUTA TION MADE UNDER THE NORMAL PROVISIONS. BEING AGGRIEVED OF THE DRAFT ASSESSMENT ORDER, PROPOSED BY THE AO, ASSESSEE FILED OBJECTION S BEFORE THE DRP, HYDERABAD. 6. IN COURSE OF PROCEEDING BEFORE THE DRP, ASSESSEE AGAIN OBJECTED TO THE ARMS LENGTH PRICE OF INTEREST CHAR GED ON THE ALLEGED 5 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. LOANS AND ADVANCES TO THE SUBSIDIARIES. IT WAS SUBM ITTED BY THE ASSESSEE THAT SO-CALLED LOANS AND ADVANCES ARE ACTU ALLY EQUITY INVESTMENT MADE BY THE ASSESSEE IN ITS SUBSIDIARY A S PART OF ITS BUSINESS EXPANSION PROGRAMME, HENCE, TPO CANNOT CHA NGE THE NATURE AND CLASSIFICATION OF THE ASSET FROM EQUITY INVESTMENT TO LOANS AND ADVANCES. IT WAS FURTHER SUBMITTED THAT ASSESSE E HAD MADE INVESTMENT IN EQUITY OUT OF INTERNAL ACCRUALS AND NO BORROWED FUNDS WERE UTILIZED. IT WAS SUBMITTED THAT SUBSIDIARIES H AVE ALSO CONVERTED THE INVESTMENT MADE IN EQUITIES TO SHARES AND ISSUE D SHARE CERTIFICATES BY ALLOTTING SHARES. IT WAS, THEREFORE , SUBMITTED THAT SINCE THE INVESTMENTS ARE IN THE NATURE OF SHARE APPLICAT ION MONEY, IT CANNOT BE TREATED AS LOANS AND ADVANCES. ALTERNATIV ELY, IT WAS ALSO SUBMITTED BY THE ASSESSEE THAT EVEN IF THE INVESTME NTS ARE TREATED AS LOANS AND ADVANCES, THE RISK BASIS RATE ADOPTED BY THE TPO WOULD HAVE NO APPLICABILITY, ARMS LENGTH INTEREST HAS TO BE CONSIDERED BY APPLYING LIBOR +% POINT BASIS. 7. THE DRP AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE FACTS AND MATERIALS ON RECORD AS WELL AS THE RE PORT SUBMITTED BY THE AO NOTED THAT IN 3CEB REPORT FILED ALONG WITH T HE RETURN OF INCOME, THE AUDITORS HAVE STATED THAT OUT OF RS. 35 ,43,69,090/- TO THE SUBSIDIARIES, AN AMOUNT OF RS. 2,14,36,960/- WAS ON LY CLASSIFIED AS INVESTMENT IN EQUITY IN PRITHVI SOLUTIONS INC., USA AND PRITHVI QUATAR, UAE AND REST OF THE AMOUNTS (RS. 30,49,93,000) WERE MENTIONED AS LOANS GIVEN, THAT APART, AN AMOUNT OF RS. 2,79,39,1 30/- WAS SHOWN AS ADVANCES GIVEN FOR LEGAL EXPENSES (REIMBURSEMENT). THE DRP FURTHER NOTED THAT AS THE ASSESSEE DID NOT FURNISH ANY INFO RMATION BEFORE THE TPO, ON THE BASIS OF 3CEB REPORT, THE TPO COMPUTED THE ARMS LENGTH INTEREST. DRP NOTED THAT AS PER THE INFORMAT ION AVAILABLE, MAJOR PORTION OF PARKING OF FUNDS BY THE ASSESSEE W ITH ITS AE IS TOWARDS LOANS ONLY. HENCE, THE TPO HAS NOT COMMITTE D ANY WRONG IN COMPUTING ARMS LENGTH INTEREST ON THE LOANS ADVANC ED. FURTHER, THE DRP OBSERVED THAT WHILE IN FORM NO. 35A (OBJECTIONS BEFORE THE 6 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. DRP), THE ASSESSEE HAS STATED THAT THE ADVANCE TO P RITHVI SOLUTIONS INC., USA AMOUNTING TO RS. 29.985 CRORES WAS MADE O UT OF THE PROCEEDS OF FCCB AND THE SAID ADVANCE WAS PAID FOR THE PURPOSE OF ACQUISITIONS OUTSIDE INDIA AND ADVANCE TO PRITHVI I NFORMATION SOLUTIONS INTERNATIONAL LLC WAS MADE IN THE COURSE OF REGULAR BUSINESS ACTIVITY, WHEREAS ON 28/08/2012, THE ASSES SEE HAD FILED SHARE CERTIFICATES REGARDING ALLOTMENT OF SHARES MA DE BY PRITHVI SOLUTIONS INC., USA TOWARDS INVESTMENT MADE DURING THE FY 2007-08 FOR A SUM OF RS. 32,00,60,000/-. ON PERUSING THE SH ARE CERTIFICATES, THE DRP NOTED THAT THE ASSESSEE WAS ALLOTTED 100 SH ARES ON 28/06/2007 AND 900 SHARES ON 15/11/2007. THE DRP, T HEREFORE, WONDERED WHEN THE SHARES WERE ALLOTTED ON 28/06/200 7 AND ON 15/11/2007, THEN, WHY IN THE AUDITORS REPORT IN FOR M NO. 3CEB, IT WAS MENTIONED AS LOANS GIVEN. IT WAS FURTHER OBSERVED B Y THE DRP THAT THOUGH AS PER THE SHARE ALLOTMENT CERTIFICATES, ASS ESSEE WAS ALLOTTED SHARES OF PRITHVI SOLUTIONS INC, USA OF RS. 32,00,6 0,000/-, BUT, AS PER THE AUDITORS REPORT IN FORM NO. 3CEB, THE LOAN ADVA NCED WAS MENTIONED AT RS. 29.985 CRORES IN STEAD OF RS. 32,0 0,60,000/-. DRP, THEREFORE, HELD THAT THE LOANS STATED IN THE AUDITO RS REPORT IN FORM NO. 3CEB AND THE SHARES ALLOTTED ARE NOT ONE AND THE SA ME. FURTHER, THE DRP OBSERVED THAT AS PER THE CLARIFICATION IN RESPE CT OF INTERNATIONAL TRANSACTIONS INCLUDED IN THE UNION BUDGET FOR 2012- 13 EVEN INVESTMENT IN SHARES WOULD BE COMING WITHIN THE TER M INTERNATIONAL TRANSACTION. HAVING HELD SO, THE DRP PROCEEDED TO DETERMINE WHAT SHOULD BE THE REASONABLE ARMS LENGTH INTEREST ON T HE LOANS ADVANCED BY THE ASSESSEE. THE DRP AFTER FOLLOWING THE DECISI ON OF THE ITAT, HYDERABAD IN CASE OF MYLAN LABORATORIES LTD. HELD T HAT INTEREST RATE OF 17.26% ADOPTED BY THE TPO WAS NOT CORRECT AND DI RECTED THE TPO TO ADOPT RATE OF INTEREST AT LIBOR+2% INSTEAD OF DO MESTIC INTEREST RATE. AS A CONSEQUENCE OF THE ORDER PASSED BY THE D RP, AO FINALIZED THE ASSESSMENT VIDE ORDER DATED 23/11/2012 BY DETER MINING THE ARMS LENGTH RATE OF INTEREST AT RS. 1,67,08,838/- AND MA DE THE ADDITION OF THE SAID AMOUNT TO THE INCOME OF THE ASSESSEE. 7 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. 8. REITERATING THE SUBMISSIONS MADE BEFORE THE DRP, THE LEARNED AR SUBMITTED BEFORE US THAT THOUGH INITIALLY THE AM OUNT ADVANCED TO THE SUBSIDIARIES, WAS TREATED AS LOAN, BUT, SUBSEQU ENTLY, THE SUBSIDIARY HAS ALLOTTED SHARES TO THE ASSESSEE, WHI CH THE SUBSIDIARY COULD NOT INFORM ASSESSEE DUE TO OVERSIGHT. FOR THA T REASON ALONE, THE AMOUNT ADVANCED WAS WRONGLY MENTIONED AS LOAN I N THE AUDITORS REPORT IN FORM NO. 3CEB. HOWEVER, THAT DOES NOT ALT ER OR CHANGE THE NATURE AND CHARACTER OF THE INVESTMENT MADE BY THE ASSESSEE IN THE SUBSIDIARIES. IT WAS SUBMITTED THAT WHEN THERE IS N O DISPUTE TO THE FACT THAT THE SUBSIDIARY HAS ALLOTTED SHARES TO THE TUNE OF RS. 30,00,60,000/-, THE AMOUNT ADVANCED CANNOT BE CONSI DERED AS A LOAN. IN THIS CONTEXT, THE LEARNED AR PLACED STRONG RELIA NCE ON THE DECISION OF ITAT, HYDERABAD BENCH IN CASE OF M/S VIJAI ELECT RICALS LTD. VS. ACIT (ITA NO. 842/HYD/2012, DATED 31/05/2013 AND TH E ORDER OF THE ITAT, AHMEDABAD BENCH IN CASE OF MICRO INKS LTD., [2013] 36 TAXMANN.COM 50. FURTHER, IT WAS SUBMITTED BY THE LE ARNED AR THAT THE ENTIRE INVESTMENT MADE BY THE ASSESSEE WAS OUT OF T HE INTERNAL ACCRUALS AND NO BORROWED FUND WAS UTILIZED. IT WAS SUBMITTED, AS THE INVESTMENT MADE WAS FOR EXPANSION OF THE BUSINESS A ND THERE IS NO NEXUS BETWEEN BORROWED FUNDS AND THE INVESTMENT, NO INTEREST CAN BE CHARGED. IN SUPPORT OF SUCH CONTENTION, HE RELIED U PON THE DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS. SA BUILDER S, 288 ITR 1. IT WAS SUBMITTED THAT WHEN THE MISTAKE COMMITTED IN TH E AUDITORS REPORT IN FORM NO. 3CEB CAME TO THE NOTICE, THE SAME WAS C ORRECTED AND A REVISED AUDIT REPORT WAS SUBMITTED BEFORE THE AO. F URTHER, REFERRING TO THE COMPUTATION OF INTEREST MADE BY THE AO, THE LEARNED AR SUBMITTED THAT IN CERTAIN CASES, THE AO HAS COMPUTE D INTEREST FOR MORE THAN 12 MONTHS, WHICH COULD NOT HAVE BEEN DONE . IN THIS CONTEXT, HE REFERRED TO THE COMPUTATION OF INTEREST MADE IN TABULAR FORM BY THE AO AT PAGE 3 OF THE ASSESSMENT ORDER. 8 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. 9. THE LEARNED DR SUBMITTED BEFORE US THAT ALONG WI TH RETURN OF INCOME, ASSESSEE HAS FURNISHED AUDITED ACCOUNTS WIT H REPORT IN FORM 3CEB WHEREIN THE AUDITORS HAVE CLEARLY MENTIONED TH AT THE AMOUNT ADVANCED AS LOAN. FURTHER, REFERRING THE NOTES OF T HE AUDITOR AT PAGE 34 OF THE ASSESSEES PAPER BOOK AND SPECIFICALLY DR AWING OUR ATTENTION TO PARA 3 & PARA 8, THE LEARNED DR SUBMIT TED THAT AUDIT REPORT IS A QUALIFIED ONE. HE SUBMITTED THAT THOUGH SUBSEQUENTLY THE ASSESSEE HAS FURNISHED A REVISED AUDIT REPORT BUT N OWHERE HE HAS EXPLAINED WHY THE EARLIER REPORT WAS REVISED OR WHA T IS THE CAUSE OF MISTAKE. IT WAS SUBMITTED THAT AS THE AO/TPO HAS MA DE THE ASSESSMENT ON THE BASIS OF THE ORIGINAL AUDIT REPO RT SUBMITTED ALONG WITH THE RETURN AS WELL AS BOOKS OF ACCOUNT, ADDITI ON MADE HAS TO BE SUSTAINED. HOWEVER, SO FAR AS THE COMPUTATION OF IN TEREST FOR MORE THAN 12 MONTHS, LEARNED DR CONCEDED THAT THE SAME H AS TO BE RESTRICTED TO 12 MONTHS. SO FAR AS THE ASSESSEES C ONTENTION THAT NO BORROWED FUNDS WERE USED, THE LEANED DR COUNTERING THE SAME SUBMITTED THAT UTILIZATION OF BORROWED FUNDS MAY BE A RELEVANT CRITERIA FOR SECTION 14A, BUT, NOT FOR TP ADJUSTMENT. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE ORDERS OF TH E DRP AND OTHER STATUTORY AUTHORITIES. AS CAN BE SEEN FROM THE FACT S ON RECORD, ADMITTEDLY, ASSESSEE HAS NOT COMPLIED TO THE NOTICE ISSUED BY THE TPO CALLING FOR VARIOUS INFORMATIONS AND EVIDENCES, WHICH LED TO THE REJECTION OF THE TP STUDY AND ULTIMATE DETERMINATIO N OF ARMS LENGTH INTEREST BY APPLYING THE RATE OF 17.2%. HOWEVER, AS CAN BE SEEN FROM THE ORDER OF THE DRP, IN COURSE OF PROCEEDING BEFOR E THE DRP, ASSESSEE HAS NOT ONLY FURNISHED DETAILS WITH REGARD TO INVESTMENTS MADE IN THE SUBSIDIARIES BUT HAS TAKEN A SPECIFIC S TAND THAT THE INVESTMENTS ARE TOWARDS EQUITY. IT IS ALSO A FACT O N RECORD THAT BEFORE THE DRP ASSESSEE HAS PRODUCED SHARE ALLOTMENT CERTI FICATES TOWARDS ALLOTMENT OF SHARES TO THE TUNE OF RS. 30,60,50,000 /-. SIMILARLY, ASSESSEE CLAIMS TO HAVE SUBMITTED REVISED AUDITOR S REPORT BEFORE 9 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. THE DEPARTMENTAL AUTHORITIES. HOWEVER, THE REVISED AUDIT REPORT HAS NOT BEEN REFERRED TO EITHER BY THE DRP OR BY THE TP O/AO. FURTHER, ASSESSEES CLAIM THAT THE INVESTMENTS ARE TOWARDS E QUITY TO A GREAT EXTENT IS BORNE OUT FROM THE FACT THAT SHARES HAVE ACTUALLY BEEN ALLOTTED TO THE ASSESSEE. IF THAT IS THE CASE INVES TMENTS MADE BY THE ASSESSEE CANNOT BE TREATED AS LOAN. OF COURSE, IT I S A FACT ON RECORD THAT IN THE AUDITORS REPORT IN FORM NO. 3CEB SUBMI TTED ALONG WITH THE RETURN OF INCOME THE AMOUNT OF RS. 29.985 CRORES WAS SHOWN AS LOANS TO SUBSIDIARY. THEREFORE, IT IS THE DUTY OF T HE ASSESSEE TO EXPLAIN WHY INVESTMENT WAS SHOWN AS LOAN AND WHAT I S THE TRUE NATURE OF THE INVESTMENT. FURTHER, IT IS TO BE NOTE D THAT THE DRP HAS OBSERVED THAT LOANS STATED IN THE AUDITORS REPORT IN FORM NO. 3CEB AND SHARES OF RS. 30,60,50,000/- ALLOTTED TO THE ASSESSEE ARE NOT ONE AND THE SAME. WHAT IS THE BASIS FOR SUCH CONCLU SION IS NOT FORTHCOMING FROM THE ORDER OF THE DRP. UNLESS THERE ARE EVIDENCES AND MATERIAL TO SHOW THAT ASSESSEE HAS MADE INVESTM ENT OF RS. 30,60,50,000/- IN SHARES IN ADDITION TO THE AMOUNT MENTIONED AS LOAN IN FORM NO. 3CEB, IT CANNOT BE PRESUMED THAT LOANS STATED IN AUDITORS REPORT IN FORM NO. 3CEB AND SHARES ALLOTTED ARE DIF FERENT. UNLESS THIS FACT IS VERIFIED PROPERLY BY EXAMINING THE BOOKS OF ACCOUNT AND FINAL ACCOUNTS OF THE ASSESSEE, NO INFERENCE CAN BE DRAWN MERELY ON PRESUMPTION AND SURMISES. IF THE ASSESSEES CLAIM T HAT THE INVESTMENT WAS TOWARDS EQUITY IS CORRECT, THEN, IT CANNOT BE BROUGHT WITHIN THE PURVIEW OF INTERNATIONAL TRANSACTIONS AS DEFINED U/S 92B OF THE ACT. THE COORDINATE BENCH OF THIS TRIBUNAL IN C ASE OF M/S VIJAI ELECTRICALS LTD (SUPRA) WHILE CONSIDERING SIMILAR I SSUE HELD AS FOLLOWS: 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BEL OW AS WELL AS DECISIONS CITED. IN OUR OPINION, THE AMOUNT REPRESE NTING 2118.84 IS TOWARDS INVESTMENT IN SHARE CAPITAL OF THE SUBSIDIA RIES OUTSIDE INDIA AS THE TRANSACTIONS ARE NOT IN THE NATURE OF TRANSACTI ONS REFERRED TO SECTION 92-B OF THE IT ACT AND THE TRANSFER PRICING PROVISI ONS ARE NOT APPLICABLE AS THERE IS NO INCOME. ACCORDINGLY, WE SET ASIDE TH E ORDER PASSED BY THE CIT U/S 263 AND THAT OF THE AO IS RESTORED AND THE GROUNDS RAISED BY THE 10 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. ASSESSEE IN THIS REGARD ARE ALLOWED. 11. SIMILARLY, THE ITAT, AHMEDABAD BENCH IN CASE OF MICRO INKS LTD. (SUPRA) HELD AS FOLLOWS: 16. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT T HAT AT THE RELEVANT POINT OF TIME THE ASSESSEE COULD NOT HAVE INVESTED IN THE SHARE S OF THE STEP DOWN SUBSIDIARY, WITHOUT THE PERMISSION OF THE RESERVE BANK OF INDIA AS IS UNCONTROVERTED STAND OF THE ASSESSEE, AND, THEREFORE, THE ASSESSEE COULD NOT ALSO HAVE, WITHOUT THE PERMISSION OF THE RESERVE BANK OF INDIA, ENTERED INTO LOAN AGREEMENTS WITH A PROVISION OF CONVERSION OF S UCH LOANS EQUITY EITHER. IT IS ONLY ELEMENTARY LEGAL POSITION THAT WHAT COULD NO T HAVE BEEN DONE DIRECTLY COULD NOT HAVE DONE INDIRECTLY ALSO. THERE IS THUS NO T MUCH OF A MERIT IN THE STAND OF THE REVENUE AUTHORITIES THAT IN THE ABSENCE OF A SPECIFIC MENTION ABOUT CONVERSION OF LOAN INTO EQUITY, IT CANNOT BE PRESUMED THAT THE INTEREST FREE LOANS COULD NOT HAVE BEEN IN THE NATURE OF QUAS I CAPITAL. AS TO THE POSITION THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND MICRO US A WAS NOT OF A LENDER AND BORROWER SIMPLICITOR A RELATIONSHIP WHICH IS ESS ENCE OF A LOAN TRANSACTION, IT WILL BE CLEAR FROM THE FOLLOWING OBS ERVATIONS IN THE ANNUAL FINANCIAL STATEMENT OF MICRO USA : ....... AS OF MARCH 31, 2002, THE COMPANY HAD GENERATE D AN ACCUMULATED DEFICIT OF US $ 27.48 MILLION AND HAD A NET WORKING CAPITAL SURPLUS OF US $ 3.31 MILLION. NET CASH USED IN OPERATING ACTIVI TIES FOR THE YEAR ENDED MARCH 31, 2002 WAS US $ 39.49 MILLION. UNTIL THE MANAGEMENT IS ABLE TO ACHIEVE ITS PLAN FOR PROFITABLE FUTURE OPERATIONS, THE COMPANY CONTINUES TO BE DEPENDENT UP ON THE VAILABILITY OF FINANCIAL SUPPORT FROM HIRL, INCLUDIN G ASSISTANCE IN NEGOTIATING AND GUARANTEEING DEBT ARRANGEMENTS WITH COMPANYS BANKS. SUCH FINANCIAL SUPPORT MAY BE SUBJECT TO THE A PPROVAL OF RESERVE BANK OF INDIA. HIRL HAS PLEDGED ITS FINANCIAL SUPPORT TO THE COMPANY THROUGH MARCH 31, 2003. THE COMPANY HAS A US $ 3,170,000 NOTE PAYABLE TO HIRL AND HIRL EITHER GUARANTEED OR SEC URED ALL OF THE COMPANYS OUTSTANDING DEBTS AT MARCH 31,2002. HIRL IS COMPANYS PRINCIPAL SUPPLIER OF RAW MATERIALS. .............. DURING THE NEXT TWELVE MONTHS, ENDING MARCH 31, 2004, US $ 12.70 MILLION OF DEBT MUST BE PAID OR REFINANCED, AND US $ 29 MILLION IS PAYABLE TO THE PARENT. THE COMPANY EXPECTS TO MEET TH ESE OBLIGATIONS WITH THE CONTINUED SUPPORT AND GUARANTEES OF THE PARE NT ................ DURING THE NEXT TWELVE MONTHS, ENDING MARCH 31, 2005, US $ 19.42 1MILLION OF DEBT MUST BE PAID OR REFINANCED, AND US $ 12.48 MILLION IS PAYABLE TO THE PARENT. THE COMPANY EXPECTS TO MEE T THESE OBLIGATIONS WITH THE CONTINUED SUPPORT AND GUARANTEES OF THE PARENT 11 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. 17. AS IS EVIDENT FROM THE ABOVE DISCUSSIONS, THE REL ATIONSHIP BETWEEN THE ASSESSEE AND ITS STEP DOWN SUBSIDIARY MICRO USA WAS SIMPLY THAT OF A LENDER AND A BORROWER. NOT ONLY THE MICRO USA WAS A SIGNIFI CANT PART OF THE MARKETING APPARATUS OF THE ASSESSEE, AND THE ASSESSEE AND THE MICRO USA HAD SIGNIFICANT COMMERCIAL RELATIONSHIP ON THAT COUNT, T HE ASSESSEE WAS A DE FACTO AND DE JURE PROMOTER OF THE MICRO USA. IN THE LIGHT OF THIS UNDISPU TED POSITION, AND IN THE LIGHT OF THE ADMITTED POSITION THAT, EVEN AS PER REVENUE AUTHORITIES, THE TRANSACTION IS AT BEST FOR ADVANCE OF MONEY BY HOLDING TO STEP DOWN SUBSIDIARY, LET US EXAMINE THE CORRECTNESS OF T HE ARMS LENGTH PRICE ADJUSTMENT IN THIS CASE. IN SUCH A CASE, CUP METHOD CA N BE APPLIED AND THE LIBOR OR OTHER BANK RATE LINKED RATE IS GENERALLY TA KEN AS A RATE FOR COMPARABLE UNCONTROLLED TRANSACTION. AS HAS BEEN HELD IN A LARGE NUMBER OF CASES, INCLUDING IN VVF (SUPRA) AND PEROT SYSTEMS (SUPRA), IN THE CASES OF ARMS LENGTH PRICES OF LOANS AND ADVANCES, COSTS OF FUNDS HAVE NO RELEVANCE AND IT IS ONLY THE RATE APPLICABLE FOR COMPARABLE U NCONTROLLED TRANSACTION THAT IS TO BE TAKEN INTO ACCOUNT. HOWEVER, EVEN WHILE APPLYING CUP METHOD, ONE HAS TO BEAR IN MIND THE FACT THAT IN TERMS OF RULE 10B (1) COMPUTATION OF ALP UNDER THE CUP METHOD IS A THREE STEP PROCESS WHICH REQUIRES THAT (I) THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERR ED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED; (II) SUCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFERENCES , IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE U NCONTROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE PRI CE IN THE OPEN MARKET; (III) THE ADJUSTED PRICE ARRIVED AT UNDER SUB-CLAUSE (II) IS TAKEN TO BE AN ARMS LENGTH PRICE IN RESPECT OF THE PROPERTY TRANSFERRED O R SERVICES PROVIDED IN THE INTERNATIONAL TRANSACTION; (EMPHASIS BY UNDERLINING SUPPLIED BY US) 18. THEREFORE, EVEN WHEN WE TAKE LIBOR PLUS RATE AS T HE BASE RATE FOR AN ADVANCE IN STEP 1 OF THE ABOVE COMPUTATION PROCESS, SUCH BASE RATE WILL HAVE TO ADJUSTED INTER ALIA FOR THE DIFFERENCES.. (A) BETWEEN THE INTERNATIONA L TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACT ION, AND (B) BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE PRICE IN THE OPEN MARKET . ON BOTH OF THESE COUN TS, ADJUSTMENTS WILL HAVE TO BE NECESSARILY MADE IN THE LIBOR PLUS RATE. WHILE T HE INTERNATIONAL TRANSACTION BEFORE US IS THAT OF ADVANCING AN INTERE ST FREE UNSECURED LOAN FOR HELPING A ENTITY OVERCOME ITS TEETHING PROBLEMS AND P ENDING THE APPROVAL FOR CAPITAL SUBSCRIPTION IS RECEIVED FROM THE RESERVE BAN K OF INDIA, A TYPICAL LIBOR PLUS RATE TRANSACTION IS THE TRANSACTION IN WHIC H BANKS GIVES SECURE ADVANCES, FOR MAKING PROFITS OUT OF SO LENDING THE M ONEY, TO ITS CUSTOMERS. STRICTLY SPEAKING, THERE IS NO PARITY BETWEEN THESE TWO TYPES OF TRANSACTIONS. SECONDLY, WE ARE DEALING WITH A SITUATION IN WHICH THE TWO ENTERPRISES ARE MUTUALLY DEPENDENT FOR COMMERCIAL REASONS. WHILE MIC RO USA IS DEPENDENT ON THE ASSESSEE FOR ITS SHEER EXISTENCE, THE ASSESSEE IS DEPENDENT ON MICRO USA FOR ITS BUSINESS. LET US ASSUME FOR A WHILE THAT MICR O USA IS UNCONNECTED WITH 12 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. THE ASSESSEE SO FAR AS ITS MANAGEMENT, CAPITAL AND C ONTROL IS CONCERNED, BUT EVEN THEN AND WITHOUT THIS MANAGEMENT, CAPITAL AND CON TROL RELATIONSHIP, THE ASSESSEE, AS AN INDEPENDENT ENTERPRISES , WILL MAKE SENSE IN GIVING INTEREST FREE ADVANCES TO MICRO USA SO AS TO ENSURE ITS CONT INUED MARKET ACCESS IN USA AND FOR OTHER COMMERCIAL REASONS. THIS IS QUITE UNLIK E A TYPICAL TRANSACTION ON LIBOR PLUS RATE IN WHICH ONLY MOTIVATION FOR GIVING A DVANCE IS EARNING INTEREST. CLEARLY, THUS, LIBOR PLUS RATE CANNOT BE A DOPTED IN THIS SITUATION FOR TWO FUNDAMENTAL REASONS (I) FIRST, THAT IT IS NOT A SIMPLICTOR FINANCING TRANSACTION BETWEEN THE ASSESSEE AND MICRO USA, AS IT IS A TRANSACTION OF INVESTING IN A STEP DOWN SUBSIDIARY AS QUASI CAPITA L PENDING FORMAL CAPITAL SUBSCRIPTION WITH THE APPROVAL OF RESERVE BANK OF INDI A; AND (II) SECOND, THAT IT IS NOT A CASE OF GRANTING ADVANCE TO A BUSINESS CONCERN WITHOUT SIGNIFICANT AND DECISIVE COMMERCIAL CONSIDERATIONS, AS THE MONIE S ARE GIVEN FOR STRENGTHENING ASSESSEES MARKETING APPARATUS IN US A ND TO KEEP ALIVE ITS BIGGEST EXPORTS CUSTOMER. THERE IS A DIFFERENCE IN T HE NATURE OF TRANSACTION AND THERE IS ALSO A DIFFERENCE IN THE NATURE OF THE EN TERPRISES, INCLUDING THEIR INTER SE COMMERCIAL RELATIONSHIP, ENTERING INTO THIS TRANSACTI ON. THE DIFFERENCES ARE SO FUNDAMENTAL THAT THESE DIFFERENC ES, TO USE THE PHRASEOLOGY EMPLOYED IN RULE 10 B (1)(A)(II), COULD MATERIALLY AFFECT THE PRICE IN THE OPEN MARKET. ON ACCOUNT OF THESE PECULIAR FACTORS, THE AP PLICATION OF LIBOR PLUS RATE OR, FOR THAT PURPOSE, ANY BANK RATE WILL BE INA PPROPRIATE TO THIS CASE. 19. THE NEXT LOGICAL QUESTION, THEREFORE, IS AS TO WHA T WOULD BE THE PRICE AT WHICH SUCH INTEREST FREE ADVANCES COULD BE GIVEN IN CO MPARABLE UNCONTROLLED TRANSACTIONS. IN OTHER WORDS, IN CASE THE ASSESSEE AN D THE MICRO USA WERE NOT ASSOCIATED ENTERPRISES IN LEGAL SENSE OF THAT EXPRES SION, AT WHAT RATE THE ASSESSEE WOULD HAVE GRANTED ADVANCES PENDING APPROVA L FOR CAPITAL SUBSCRIPTION IN A COMPANY WHICH IS PLAYING SUCH A VITA L ROLE IN ITS BUSINESS PLANS. IT IS SO FOR THE REASON, AS WE BEGUN BY POINT ING OUT, THE WHOLE PURPOSE OF THE ARMS LENGTH PRICE ADJUSTMENT IS TO NULLIFY THE IMPACT OF MANAGEMENT, CAPITAL AND CONTROL INTERRELATIONSHIP BETWEEN THE ASS OCIATED PARTIES. IN OUR HUMBLE UNDERSTANDING, ON THE PURE COMMERCIAL FACTORS AND NOTWITHSTANDING THE MANAGEMENT, CAPITAL AND CONTROL RELATIONSHIP BETW EEN THE PARTIES, SUCH NON INTEREST BEARING ADVANCES WERE EQUALLY JUSTIFIE D EVEN IF THE ASSESSEE AND MICRO USA WERE INDEPENDENT ENTERPRISES. OF COURSE, WE ARE ALIVE TO THE FACT THAT BUT FOR THE MANAGEMENT, CAPITAL AND CONTROL INTE RRELATIONSHIP, MICRO USA COULD NOT HAVE PLAYED SUCH A STRATEGICALLY SIGNIF ICANT ROLE IN ASSESSEES BUS INESS BUT THEN RIGHT NOW WE ARE CONCERNED WITH A C OMPARABLE UNCONTROLLED TRANSACTION BETWEEN INDEPENDENT ENTERP RISES, IN WHICH ALL OTHER FACTORS, EXCEPT THE COMMONALITY OF MANAGEMENT, CONTR OL AND CAPITAL, REMAIN THE SAME. THE COMPARABLE UNCONTROLLED PRICE FOR INTER EST ON SUCH A TRANSACTION IN WHICH ADVANCES ARE MADE PENDING CAPIT AL SUBSCRIPTION IN A COMPANY WHICH PLAYS STRATEGICALLY SIGNIFICANT COMMER CIAL ROLE IN ASSESSEES BUSINESS , IN OUR CONSIDERED VIEW, WOULD BE NIL. THE LEVY OF INTEREST WOULD NOT COME INTO PLAY IN SUCH A CASE, EXCEPT TO THE EXTENT OF REFUND OF US $ 10,000 FOR WHICH NO SHARES WERE ALLOTTED. WHEN IT WAS SO POINTED O UT DURING THE HEARING, LEARNED COUNSEL FOR THE ASSESSEE VERY FAIRLY DID NOT PRESS HIS GRIEVANCE TO THE EXTENT OF THIS AMOUNT. IN THE LIGHT OF THESE DISCUSSIO NS, THE VARIATIONS IN THE 13 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. NATURE OF TRANSACTIONS BETWEEN THE ASSESSEE AND MIC RO USA AND VARIATIONS IN THE NATURE OF RELATIONSHIP BETWEEN THE ASSESSEE AND MI CRO USA ARE SO FUNDAMENTAL THAT THE ENTIRE LIBOR PLUS RATE, WHICH WAS THE STARTING POINT OF OUR COMPUTATION OF ALP OF THESE INTEREST FREE LOANS, IS TO BE REDUCED TO ZERO TO TAKE CARE OF THE DIFFERENCES IN TERMS OF RULE 10B(1) (A)(II) OF THE INCOME TAX RULES. THE IMPUGNED ALP ADJUSTMENT, TO THIS EXTENT AN D IN THE TERMS INDICATED ABOVE, IS UNSUSTAINABLE IN LAW AND WE DEL ETE THE SAME. 12. THEREFORE, CONSIDERING THE FACTS OF THE ASSESSE ES CASE, IN THE LIGHT OF THE ORDERS PASSED BY THE COORDINATE BENCHE S REFERRED TO HEREINABOVE, IT IS TO BE HELD THAT IF THE INVESTMEN TS ARE IN THE NATURE OF EQUITY, THEN, THEY CANNOT BE TREATED AS LOANS AN D ADVANCES. HOWEVER, FOR COMING TO A DEFINITE CONCLUSION IN THI S REGARD NECESSARY DETAILS NEED TO BE EXAMINED FROM THE BOOKS OF ACCOU NT AND OTHER RELATED DOCUMENTS. SINCE THIS ASPECT HAS NOT BEEN P ROPERLY EXAMINED EITHER BY THE TPO OR BY THE DRP, WE ARE INCLINED TO REMIT THE MATTER BACK TO THE TPO/AO TO EXAMINE AFRESH AND TAKE A DEC ISION IN THE MATTER. FURTHER, WE MAY NOTE THAT WHILE DOING SO, THE AO/TPO MUST ALSO CONSIDER ASSESSEES CLAIM THAT THE ENTIRE INVE STMENT WAS OUT OF INTERNAL ACCRUALS AND NOT BORROWED FUNDS. ONLY IN T HE EVENT THE ASSESSEE ADVANCED LOANS/ADVANCES THEN THE QUESTION OF T.P. ANALYSIS ON THE TRANSACTIONS MAY ARISE. IN THAT EVENT THE TP O/AO IS ALSO DIRECTED TO EXAMINE THE ISSUE AS PER THE EXISTING O RDER OF DRP TO THE EXTENT OF ADOPTION OF LIBOR+2% RATE AND CALCULATE T HE INTEREST FOR THE PERIOD OF LOAN BUT NOT EXCEEDING THE PERIOD OF 12 M ONTHS. THE CALCULATION FOR MORE THAN 12 MONTHS BY AO HAS TO BE DISAPPROVED. THIS GROUND OF THE ASSESSEE IS CONSIDERED TO BE ALL OWED FOR STATISTICAL PURPOSES. 13. THE NEXT ISSUE AS RAISED IN GROUND NOS. 9, 10 & 11 RELATES TO DISALLOWANCE OF AN AMOUNT OF RS. 25,16,90,008/- FOR NOT DEDUCTING TAX AT SOURCE. 14. BRIEFLY THE FACTS RELATING TO THE ISSUE ARE DUR ING THE ASSESSMENT PROCEEDING, THE AO NOTICED THAT THE AUDITORS IN THE IR REPORT IN FORM 14 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. 3CD HAVE QUALIFIED UNDER SL. NO. 17(F) THAT AN AMO UNT OF RS. 25,16,90,008/- IS INADMISSIBLE U/S 40(A). HOWEVER, IN THE COMPUTATION OF INCOME, ASSESSEE HAS NOT ADDED BACK THE SAME TO THE PROFIT AS PER P&L A/C. THE AO NOTICED THAT UNDER THE PROVISIONS O F SECTION 40(A) OF THE ACT, ANY INTEREST, ROYALTY, FEES FOR PROVISIONA L TECHNICAL SERVICES PAYABLE TO A CONTRACTOR FOR CARRYING OUT ANY WORK O N WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID IN TO GOVERNMENT ACCOUNT WITHIN THE PRESCRIBED TIME, THEN, SUCH AMOU NT SHALL NOT BE DEDUCTED WHILE COMPUTING INCOME UNDER THE HEAD PRO FIT AND GAINS OF BUSINESS OR PROFESSION. ACCORDINGLY, AO DISALLOWED THE AMOUNT OF RS. 25,16,90,008/- AND ADDED IT TO THE INCOME OF THE AS SESSEE. THE ASSESSEE OBJECTED TO SUCH DISALLOWANCE BEFORE THE D RP. 15. IN COURSE OF PROCEEDING BEFORE THE DRP, IT WAS CONTENDED BY THE ASSESSEE THAT IT HAS NOT INCURRED EXPENSES OF RS. 25,16,90,008/-, HENCE, THE QUESTION OF DEDUCTION OF TAX AT SOURCE D OES NOT ARISE. IT WAS CONTENDED BY THE ASSESSEE THAT IT HAS DEDUCTED TAX ON ALL EXPENSES WHEREVER TDS PROVISIONS ARE APPLICABLE. H ENCE, DISALLOWANCE MADE BY THE AO IS NOT CORRECT. ON THE BASIS OF SUBMISSIONS MADE BY THE ASSESSEE, AO WAS ASKED TO S UBMIT A REMAND REPORT. IN REMAND REPORT DATED 26/07/2012 AN D 13/09/2012, IT WAS STATED BY THE AO THAT THE ASSESSEE HAS ACCEPTED THAT TAX WAS NOT DEDUCTED AT SOURCE ON THE AMOUNT OF RS. 25,16,9 0,008/-. ON THE BASIS OF THE REPORT SUBMITTED BY THE AO, DRP CONFIR MED THE ADDITION OF RS. 25,16,90,008/-. 16. THE LEARNED AR SUBMITTED BEFORE US THAT SINCE T HERE WAS A MISTAKE IN THE ORIGINAL AUDIT REPORT, ASSESSEE HAD SUBMITTED A REVISED AUDIT REPORT. REFERRING TO P&L ACCOUNT AND BALANCE SHEET OF THE IMPUGNED ASSESSMENT ORDER, WHICH ARE AT PAGES 35 & 36 OF THE ASSESSEES PAPER BOOK, THE LEARNED AR AGAIN REITERA TED THAT NO SUCH EXPENDITURE OF RS. 25,16,90,008/- IS ROUTED THROUGH THE BOOKS OF 15 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. ACCOUNT, SO THAT THE ASSESSEE COULD BE PENALIZED FO R NOT DEDUCTING TAX AT SOURCE. 17. THE LEARNED DR, HOWEVER, CONTESTING THE CLAIM O F THE ASSESSEE SUBMITTED THAT THOUGH THE ASSESSEE HAS CLAIMED THAT THE SAID EXPENDITURE WAS NEITHER ROUTED THROUGH BOOKS OF ACC OUNT NOR EVER INCURRED BY THE ASSESSEE, IT HAS NOT BEEN ABLE TO E XPLAIN WHY IN THE ORIGINAL AUDIT REPORT, AUDITOR HAS GIVEN QUALIFICAT ION IN RESPECT OF THE SAME. 18. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AN D PERUSED THE MATERIALS ON RECORD AS WELL AS THE ORDERS OF THE RE VENUE AUTHORITIES. UNDISPUTEDLY, IN THE ORIGINAL AUDIT REPORT IN FORM 3CD AUDITORS DID GIVE A NOTE THAT THE AMOUNT OF RS. 25,16,90,008/- IS INADMISSIBLE U/S 40(A) OF THE ACT. HOWEVER, THE ASSESSEE HAS TAKEN A SPECIFIC STAND BEFORE THE DRP THAT NO SUCH EXPENDITURE WAS EITHER INCURRED BY THE ASSESSEE OR ROUTED THROUGH THE BOOKS OF ACCOUNT. IN REMAND REPORT DATED 26/07/2012 AND 13/09/2012 THE AO, HAS STATED THAT ASSESSEE DURING THE REMAND HAS ACCEPTED THE FACT THAT THE AF ORESAID EXPENDITURE WAS INCURRED WITHOUT DEDUCTING TAX AT S OURCE. IN VIEW OF THE CONFLICTING CLAIM OF THE ASSESSEE AND THE DEPAR TMENT IT NEEDS TO BE ESTABLISHED ON RECORD WHETHER THE ASSESSEE HAS IN FACT INCURRED THE EXPENDITURE OF RS. 25,16,90,008/- BY VERIFYING THE BOOKS OF ACCOUNT AND OTHER RELATED DOCUMENT. IN THIS VIEW OF THE MATTER, WE ARE INCLINED TO REMIT THIS ISSUE BACK TO THE FILE OF TH E AO FOR EXAMINING AFRESH AND TAKING A DECISION AFTER LOOKING INTO TH E BOOKS OF ACCOUNT AND OTHER EVIDENCES, WHICH MAY BE PRODUCED BY THE A SSESSEE. THE ASSESSEE MUST BE GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD IN THE MATTER. THESE GROUNDS ARE ALLOWED FOR STATISTIC AL PURPOSES. 19. THE NEXT ISSUE AS RAISED IN GROUND NO. 12 TO 14 IS IN RESPECT OF DISALLOWANCE OF RS. 66,77,993/- SUSTAINED BY THE DR P OUT OF THE TOTAL DISALLOWANCE OF RS. 5,03,24,607/- MADE BY THE AO. 16 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. 20. BRIEFLY THE FACTS ARE DURING THE ASSESSMENT PRO CEEDING WHILE EXAMINING ASSESSEES COMPLIANCE TO TDS PROVISIONS O N THE EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT, THE A O NOTICED THAT, THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE AS PER THE PROVISIONS OF SECTION 200 OF THE ACT, ON PAYMENTS MADE TO VARIOUS PERSONS UNDER THE HEAD ADVERTISING AND SALES, LEGAL AND PROFESS IONAL EXPENSES, PRINTING AND STATIONERY, RENT, REPAIRS AND MAINTENA NCE. THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE WITHOUT DEDUCT ING TAX AT SOURCE WAS FOUND TO BE RS. 5,03,24,607/-. AS NOTED BY THE AO, THOUGH THE ASSESSEE WAS GIVEN OPPORTUNITY TO FURNISH VOUCHERS AND SUBSTANTIATE ITS CLAIM WITH REGARD TO NON DEDUCTION OF TAX AT SO URCE, SINCE THE ASSESSEE FAILED TO FURNISH VOUCHERS FOR VERIFICATIO N THE AO DISALLOWED THE SAME U/S 40(A) OF THE ACT. THE ASSESSEE CHALLE NGED THE DISALLOWANCE BEFORE THE DRP. 21. IN COURSE OF PROCEEDING BEFORE THE DRP ASSESSEE PRODUCED VARIOUS DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CLAI M. ON THE BASIS OF SUBMISSIONS MADE BY THE ASSESSEE, THE DRP CALLED FO R A REMAND REPORT FROM AO. THE AO IN HIS REPORT DATED 13/09/20 12 ACCEPTED MOST OF THE CLAIMS OF ASSESSEE EXCEPT THE AMOUNTS OF RS. 48,00,000/- PAID TO M/S KEDIA SILK HOUSE FOR LOGO EXPENSES AND AMOUN T OF RS. 18,97,993/- AS RENT TO VAKSON REAL ESTATE ON DUBAI. AO COMMENTED THAT WHILE PAYMENT OF RS. 48 LAKHS ATTRACT SECTION 194C, THE RENT PAID TO THE PARTY IN DUBAI ATTRACTS SECTION 194I. THE DR P AFTER EXAMINING THE EVIDENCES FILED BY THE ASSESSEE BEFORE IT AND THE REMAND REPORT SUBMITTED BY THE AO SUSTAINED THE DISALLOWANCE OF R S. 66,97,993/- BY HOLDING THAT TDS PROVISIONS ARE ATTRACTED TO THEM. 22. THE LEARNED AR SUBMITTED BEFORE US THAT SO FAR AS LOGO EXPENSES OF RS. 48 LAKHS IS CONCERNED, PROVISIONS O F SECTION 194C IS NOT APPLICABLE AS THERE IS NO CONTRACT BETWEEN THE ASSESSEE AND THE PAYEE M/S KEDIA SILK. IN SUPPORT OF SUCH CONTENTION , HE RELIED UPON 17 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. THE DECISION OF THE ITAT, HYDERABAD IN CASE OF ZOR AC TECHNOLOGY 1031/H/2012 DATED 06/06/2012. IT WAS SUBMITTED THA T AS THE AGREEMENT WAS ON PRINCIPAL TO PRINCIPAL BASIS AND T HE ENTIRE MATERIAL ALONG WITH PRINTING WAS SUPPLIED BY THE PAYEE BY EX ECUTING THE WORK IN HIS OWN ESTABLISHMENT AND EMPLOYING HIS OWN WORK ERS, IT IS A TRANSACTION COVERED UNDER THE SALE OF GOODS ACT, A ND NOT WITHIN THE PURVIEW OF SECTION 194C OF THE ACT. IT WAS THEREFOR E CONTENDED THAT AS THE TDS PROVISION IS NOT ATTRACTED TO SUCH PROVISIO NS, THE DISALLOWANCE MADE IS NOT JUSTIFIED. SO FAR AS RENT PAID FOR DUBAI OFFICE AMOUNTING TO RS. 18,97,993 IS CONCERNED THE LEARNED AR SUBMITTED THAT AS THE EXPENDITURE IS INCURRED OUTSIDE INDIA P ROVISIONS OF SECTION 194I WILL NOT BE APPLICABLE. 23. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE DRP ON THIS ISSUE. 24. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIE S, WE ARE OF THE VIEW THAT IN RESPECT OF PAYMENT MADE TO M/S KEDIA S ILK HOUSE, THE MATTER NEEDS TO BE EXAMINED AFRESH BY THE AO. IF TH E AMOUNT PAID TO M/S KEDIA SILK TOWARDS LOGO EXPENSES IS ON PRINCIPA L TO PRINCIPAL BASIS THEN SECTION 194C WOULD NOT BE APPLICABLE. HO WEVER, FOR COMING TO SUCH CONCLUSION, THE CONTRACT ORDER BETWE EN THE ASSESSEE AND THE PARTY CONCERNED NEEDS TO BE EXAMINED. ACCOR DINGLY, WE REMIT THE MATTER BACK TO THE FILE OF THE AO FOR DECIDING THE ISSUE AFRESH AFTER EXTENDING AN OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. SO FAR AS PAYMENT OF RENT FOR DUBAI OFFICE IS CONCERNED, T HE AO HAS NOT DISPUTED THE FACT THAT IT WAS INCURRED OUTSIDE INDI A. HOWEVER, ALLEGING THAT IT WAS PAID THROUGH STANDARD CHARTERED BANK OF INDIA, AO HAS COMMENTED THAT SUCH PAYMENT ATTRACTS SECTION 194I. DRP HAS ALSO CONFIRMED SUCH VIEW. IN OUR VIEW, THE FINDING OF TH E DRP AND AO IS NOT ACCEPTABLE. WHEN THE PAYMENT HAS BEEN MADE TO A PARTY OUTSIDE INDIA AND WHO IS NOT A RESIDENT, THE PROVISIONS OF SECTION 194-I WILL NOT BE APPLICABLE UNLESS SUCH INCOME IS TAXABLE IN INDI A AND OTHER 18 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. PROVISIONS OF ACT WILL APPLY. NO SUCH FINDING WAS G IVEN BY AO. AND HENCE, WE DIRECT THE AO TO DELETE ADDITION OF RS. 1 8,97,993/-. 25. THE NEXT ISSUE AS RAISED IN GROUND NO. 18 IS IN RESPECT OF DISALLOWANCE OF AN AMOUNT OF RS. 99,86,33,523/- FRO M THE DEDUCTION CLAIMED U/S 10A OF THE ACT. 26. BRIEFLY THE FACTS ARE DURING THE ASSESSMENT PRO CEEDING, THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED EXEMPTION U/S 10A AN AMOUNT OF RS. 112,03,84,129/-. THE AO HOWEVER WHILE COMPLE TING THE DRAFT ASSESSMENT DISALLOWED THE DEDUCTION CLAIMED. THE AS SESSEE OBJECTED TO SUCH DISALLOWANCE BEFORE THE DRP. THE DRP ALLOWI NG ASSESSEES OBJECTION DIRECTED THE AO TO ALLOW EXEMPTION CLAIME D BY THE U/S 10A OF THE ACT. HOWEVER, WHILE COMPLETING THE ASSESSME NT IN PURSUANCE TO THE DIRECTION OF THE DRP, THE AO ALLOWED CLAIM O F EXEMPTION U/S 10A TO THE EXTENT OF RS. 12,17,50,606/- THEREBY DIS ALLOWING AN AMOUNT OF RS. 99,86,33,523/- AS EXCESS CLAIM MADE BY THE A SSESSEE U/S 10A. 27. WE HAVE HEARD THE PARTIES, PERUSED THE MATERIAL S ON RECORD AND GONE THROUGH THE ORDERS OF THE REVENUE AUTHORITIES. THE SOLE CONTENTION OF THE LEARNED AR BEFORE US IS IF AT AL L THE AMOUNT OF RS. 99,86,33,523/- IS EXCLUDED FROM THE EXPORT TURNOVER THE SAME IS ALSO TO BE EXCLUDED FROM THE TOTAL TURNOVER WHILE COMPUT ING DEDUCTION U/S 10A. UNDISPUTEDLY, THE DRP WHILE CONSIDERING ASSES SEES OBJECTION, HAS DIRECTED THE AO TO ALLOW ASSESSEES CLAIM OF EX EMPTION U/S 10A OF THE ACT FULLY. HOWEVER, IT IS SEEN FROM RECORD T HAT THOUGH THE AO WHILE COMPLETING THE FINAL ASSESSMENT DISALLOWED A N AMOUNT OF RS. 99,86,33,523/- AND ADDED IT TO THE INCOME OF THE AS SESSEE, BUT, IN AN ORDER PASSED U/S 154 OF THE ACT DATED 21/12/2012, A COPY OF WHICH IS PLACED ON RECORD, THE AO GRANTED RELIEF TO THE ASSE SSEE BY DELETING THE SAID ADDITION. THUS, THE ISSUE RAISED BY THE AS SESSEE IS OF MERE ACADEMIC INTEREST. 19 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. 28. THE ISSUE RAISED IN GROUND NO. 19 TO 23 IS IN R ESPECT OF DISALLOWANCE OF ADVANCES WRITTEN OFF AMOUNTING TO R S. 7,57,95,072/-. 29. DURING THE SCRUTINY ASSESSMENT PROCEEDING, THE AO NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 7,57,95,0 72/- TO THE P&L ACCOUNT TOWARDS ADVANCES WRITTEN OFF. THE AO, AS NO TED IN THE ASSESSMENT ORDER, ASKED THE ASSESSEE TO FURNISH TH E DETAILS AS TO WHEN THE AMOUNT BECAME IRRECOVERABLE, THE DETAILS O F PERIOD OF TIME WHEN THESE AMOUNTS WERE TAKEN INTO ACCOUNT IN COMPU TING INCOME WITH SUPPORTING EVIDENCE, THE EFFORTS MADE TO RECOV ER THE ADVANCES, ETC. AS ALLEGED BY THE AO, SINCE THE ASSESSEE FAILE D TO FURNISH THE INFORMATIONS CALLED FOR HE DISALLOWED THE DEDUCTION CLAIMED AND ADDED BACK TO THE INCOME RETURNED BY OBSERVING THAT MERE WRITING OFF ADVANCES AS IRRECOVERABLE IS NOT SUFFICIENT TO CLAI M DEDUCTION AS THE ASSESSEE HAS TO SUBSTANTIATE IT WITH NECESSARY PROO F. THE ASSESSEE OBJECTED TO SUCH DISALLOWANCE BEFORE THE DRP. THE D RP WAS ALSO SUSTAINED THE DISALLOWANCE BY UPHOLDING THE VIEW OF THE AO. 30. THE LEARNED AR SUBMITTED BEFORE US THAT THE ADV ANCES MADE TO THE PARTIES HAVE ACTUALLY BECOME IRRECOVERABLE, HEN CE, WERE WRITTEN OFF IN THE BOOKS OF ACCOUNT. IT WAS SUBMITTED THAT ALL THE DETAILS WITH REGARD TO THE PROJECT WISE ADVANCES MADE WERE FURNI SHED BEFORE THE AO AS WELL AS DRP. THE LEARNED AR SUBMITTED THAT WH EN THE DEPARTMENT IS NOT QUESTIONING THE FACT THAT THE AD VANCES WERE FOR THE PURPOSE OF BUSINESS, THE DEDUCTION CLAIMED BY THE A SSESSEE CANNOT BE DISALLOWED. IN SUPPORT OF SUCH CONTENTION, THE L EARNED AR RELIED UPON A DECISION IN CASE OF PADMALAYA TELEFILMS ITA 359/HYD/12. 31. THE LEARNED DR, ON THE OTHER HAND, JUSTIFYING T HE DISALLOWANCE MADE SUBMITTED THAT THE ASSESSEE NEITHER BEFORE THE AO NOR BEFORE THE DRP HAS SUBSTANTIATED ITS CLAIM WITH SUPPORTING EVIDENCE. THE ASSESSEE HAS ONLY SUBMITTED BREAK-UP OF THE ADVANCE S. THEREFORE, IN 20 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. ABSENCE OF SUPPORTING EVIDENCE, THE DEDUCTION CLAIM ED HAS BEEN CORRECTLY DISALLOWED. 32. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AN D PERUSED THE MATERIALS ON RECORD. AS CAN BE SEEN FROM THE FACTS AND MATERIALS ON RECORD, THE AO AS WELL AS DRP HAVE DISALLOWED THE D EDUCTION CLAIMED ALLEGING THAT THE ASSESSEE HAS FAILED TO SUBSTANTIA TE THE DEDUCTION CLAIMED WITH SUPPORTING EVIDENCE. HOWEVER, IT IS TH E CONTENTION OF THE ASSESSEE THAT ALL DETAILS WERE PRODUCED. IN THIS CO NTEXT, THE LEARNED AR HAS REFERRED TO THE DETAILS OF ADVANCES WRITTEN OFF AT PAGE 217 & 218 OF THE PAPER BOOK. IT IS THE SPECIFIC CLAIM OF THE ASSESSEE THAT IT HAS ENTERED INTO CONTRACTS WITH DIFFERENT PERSONS F OR VARIOUS PROJECTS FOR WHICH AMOUNTS WERE ADVANCED TO THEM. HOWEVER, AS THE CONTRACTS WERE CANCELLED DUE TO COST OVERRUN AND IN ABILITY OF OTHER PARTIES THE ADVANCE PAID TO THEM HAD TO BE WRITTEN OFF AS THE ASSESSEE WAS NOT ABLE TO RECOVER THEM. HOWEVER, AS IT APPEARS FROM THE FINDING OF THE DRP THE ASSESSEE HAS NOT PRODUCE D THE COPIES OF THE AGREEMENT ENTERED INTO WITH THE PARTIES IN RESP ECT OF THE PROJECTS OR RELATED EVIDENCE. UNLESS THE ASSESSEE FURNISHES SUPPORTING EVIDENCES TO SUBSTANTIATE ITS CLAIM THAT THE ADVANC ES WERE FOR THE PURPOSE OF BUSINESS, IT CANNOT BE ALLOWED. THEREFOR E, CONSIDERING THE FACTS OF THE CASE, WE ARE INCLINED TO REMIT THE MAT TER BACK TO THE FILE OF THE AO FOR ALLOWING ONE MORE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CLAIM OF DEDUCTION BY PRODUCING NE CESSARY SUPPORTING EVIDENCE. THIS GROUND IS ALLOWED FOR STATISTICAL PU RPOSES. 33. THE NEXT ISSUE AS RAISED IN GROUND NO. 24 TO 27 RELATES TO DISALLOWANCE OF OPERATING EXPENDITURE OF RS. 62,60, 000/-. 34. BRIEFLY THE FACTS ARE DURING THE ASSESSMENT PRO CEEDING, THE AO NOTICED THAT THE ASSESSEE HAS DEBITED OPERATING EXP ENSES OF RS. 62.60 LAKHS TO THE P&L ACCOUNT. BY OBSERVING THAT ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE CLAIM BY PRODUCING SUPPO RTING EVIDENCE IN 21 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. THE NATURE OF BILLS AND VOUCHERS ETC, THE AO DISALL OWED THE SAME. THE DRP ALSO SUSTAINED SUCH DISALLOWANCE. 35. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDER S OF THE REVENUE AUTHORITIES AS WELL AS OTHER MATERIAL ON RE CORD. THE LEARNED AR HAS CONTENDED BEFORE US THAT THE EXPENDITURE INC URRED WAS TOWARDS CASH PAYMENTS RELATING TO TRAVEL AND CONVEY ANCE DURING THE YEAR WHICH WAS SANCTIONED AND AUTHORIZED BY THE MAN AGING DIRECTOR. IT WAS SUBMITTED THAT SINCE THE EXPENDITURE ARE OF SMALL AMOUNTS, IT IS NOT ALWAYS POSSIBLE TO KEEP SUPPORTING EVIDENCE IN THE FORM OF BILLS AND VOUCHERS. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIES, WE ARE OF THE VIEW THAT THE AO AS WELL AS DRP WERE NOT JUSTIFIED IN DISALLOWING THE ENTIRE AMOUNT OF RS. 62.60 LAKHS IN CURRED TOWARDS TRAVELLING AND CONVEYANCE EXPENDITURE. IT CANNOT BE DENIED THAT ASSESSEE MUST HAVE INCURRED SOME EXPENDITURE ON ACC OUNT OF TRAVELLING AND CONVEYANCE. FURTHER, CONSIDERING THE TURNOVER OF ASSESSEE AT ABOUT RS. 1112 CRORES, THE EXPENDITURE CLAIMED IS NOT THAT UNREASONABLE. HOWEVER, CONSIDERING THE FACT TH AT THE ENTIRE EXPENDITURE WAS INCURRED IN CASH AND THE ASSESSEE M AY HAVE INFLATED THE EXPENDITURE TO SOME EXTENT, WE DISALLOW 10% OU T OF THE AMOUNT OF RS. 62.60 LAKHS CLAIMED TOWARDS TRAVELLING AND C ONVEYANCE EXPENDITURE. THIS GROUND IS PARTLY ALLOWED. 36. THE LAST ISSUE AS RAISED IN GROUND NO. 28 IS IN RESPECT OF DISALLOWANCE OF AN AMOUNT OF RS. 6,60,655/- U/S 36( 1)(VA) READ WITH SECTION 2(24)(X) OF THE ACT. 37. BRIEFLY THE FACTS ARE, DURING THE ASSESSMENT PR OCEEDING THE AO NOTICED THAT THE ASSESSEE HAS COLLECTED EMPLOYEES C ONTRIBUTION TOWARDS PROVIDENT FUND AMOUNTING TO RS. 22,42,444/- BUT HAS NOT REMITTED THE SHARE TO THE GOVT. ACCOUNT WITHIN THE STIPULATED TIME AVAILABLE UNDER THE RELEVANT STATUTE AS PER SECTION 36(1)(VA) READ WITH SECTION 2(24)(X). ACCORDINGLY, THE AO DISALLOWED TH E SAME AND ADDED 22 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. IT TO THE INCOME OF THE ASSESSEE. BEFORE THE DRP IT WAS CONTENDED BY THE ASSESSEE THAT THOUGH THE AMOUNT IN QUESTION WAS REMITTED BEYOND THE DUE DATE AS PROVIDED UNDER THE PF ACT, BUT, THE SAME WAS REMITTED BEFORE THE DUE DATE OF FILING OF THE RETUR N OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR. IT WAS THEREFORE SUBMITTE D THAT AS PER THE AMENDED PROVISION OF SECTION 43B OF THE ACT, NO DIS ALLOWANCE CAN BE MADE. ON THE BASIS OF SUBMISSIONS MADE BY THE ASSES SEE, THE DRP CALLED FOR A REMAND REPORT FROM THE AO WHEREIN THE AO AFTER EXAMINING THE DETAILS STATED THAT ONLY AN AMOUNT OF RS. 6,60,655/- HAVING BEEN PAID BEYOND THE GRACE PERIOD OF 5 DAYS AS PER THE RELEVANT STATUTE NEEDS TO BE DISALLOWED. ACCORDINGL Y, THE DRP SUSTAINED THE DISALLOWANCE OF RS. 6,60,655/-. 38. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. AS CAN BE SEEN THE DISALLO WANCE HAS BEEN MADE SOLELY ON THE GROUND THAT IT WAS NOT REMITTED WITHIN THE DUE DATE PRESCRIBED UNDER THE PF ACT. HOWEVER, IT IS THE CLA IM OF THE ASSESSEE THAT THE ENTIRE AMOUNT WAS PAID TO THE GOVT. ACCOUN T BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. AS PER PROVISO TO SECTION 43B OF THE ACT, IF THE EMPLOYEES CONTRIBUTION TOWARDS PROVIDEN T FUND IS PAID WITHIN THE DUE DATE OF FILING OF RETURN OF INCOME, THEN THE SAME HAS TO BE ALLOWED AS A DEDUCTION. WE, THEREFORE, DIRECT TH E AO TO VERIFY THIS ASPECT AND ALLOW THE DEDUCTION CLAIMED, IF IT IS FO UND THAT THE AMOUNT HAS BEEN REMITTED BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. ACCORDINGLY, THIS GROUND IS CONSIDERED TO BE ALLOWE D FOR STATISTICAL PURPOSES. 39. IN VIEW OF OUR DECISION ON THE MAIN GROUNDS, TH ERE IS NO NEED TO ADJUDICATE THE ADDITIONAL GROUND SEPARATELY. 23 ITA NO. 1816/H/12 M/S PRITHVI INFORMATION SOLUTIONS LTD. 40. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 08/08/2014. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED: 8 TH AUGUST, 2014 KV COPY TO:- 1) M/S PRITHVI INFORMATION SOLUTIONS LTD., C/O P. M URALI & CO., CAS., 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 500 082 2)AC IT, CIRCLE - 16(3), HYDERABAD. 3) DRP, HYDERABAD. 4) DIT,, HYDERABAD 5)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.