Freight Systems (India) Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 2067/CHNY/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0959 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 16-01-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 06-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T N BETGIRI JT
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Transfer pricing; Principle of natural justice; International transaction; Earning of tax free income; Capital expenditure
• Section: 92C; 43B; 14A; 133(6); 37(1); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER] I.T.A.NO.2067/MDS/2010 ASSESSMENT YEAR : 2006-07 M/S FREIGHT SYSTEMS (INDIA) PVT. LTD NEW NO.2567, OLD NO.125/2 ANGAPPA NAICKEN STREET CHENNAI 600 001 [PAN: AAACF0677K] VS THE DY. CIT COMPANY CIRCLE II(1) CHENNAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE RESPONDENT BY : SHRI T.N.BETGIRI, JT. CIT DATE OF HEARING : 16-01-2013 DATE OF PRONOUNCEMENT : 24-01-2013 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE A GAINST THE ORDER OF THE DISPUTE RESOLUTION PANEL (DRP)-I, MUMBAI, DATED 17. 9.2010, BY RAISING THE FOLLOWING GROUNDS OF APPEAL: GENERAL BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE DISPUTE RESOLUTION PANEL (DRP) HAS ERRED IN LAW AND IN FAC T IN NOT ISSUING A SPEAKING ORDER AS IT FAILED TO GIVE DIRECTIONS ON M OST OF THE OBJECTIONS (OBJECTION NO. 5 TO OBJECTION 21) RAISED BY THE ASS ESSEE IN THE APPLICATION / ADDITIONAL GROUNDS OF OBJECTIONS FIL ED BEFORE DRP ON 28 JANUARY 2010 AND 15 SEPTEMBER 2010 RESPECTIVELY. HE NCE, THE ORDER PASSED BY THE LEARNED AO IS BAD IN LAW AND VO ID. I.T.A.NO.2067/10 :- 2 -: TRANSFER PRICING MATTERS - FREIGHT FORWARDING SEGMENT 2. THE LEARNED TPO HAS ERRED IN LAW AND IN FACTS B Y PASSING AN ORDER UNDER SECTION 92CA(3) OF THE ACT WHICH IS BASED ON INCONSISTENT APPLICATION OF TRANSFER PRICING GUIDELINES. INCORRE CT ASSUMPTIONS AND CONJECTURES AND USE OF INFORMATION WHICH IS NOT AVA ILABLE IN PUBLIC DOMAIN WITH THE SOLE OBJECTIVE OF MAKING AN ADJUSTMENT. THIS APPROACH ADOPTED BY THE LEARNED TPO IS AGAINST THE PRINCIPLE S OF NATURAL JUSTICE AND INDIAN TRANSFER PRICING PROVISIONS AND HENCE TH E ORDER PASSED BY THE LEARNED TPO IS ERRONEOUS AND VOID. 3. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED, IN LAW AND FACTS, IN MAKING AN ADJUSTMENT TO THE ENTIRE FREIGHT SERVICES INCOME OF THE ASSESSEE RATHER THAN RESTRICTING THE ADJUSTMENT TO THE VALUE OF INTERNATIONAL TRANSACTIONS WITH THE ASSOCIATED ENTE RPRISES. 4. THE LEARNED TPO AND THE LEARNED AO OUGHT TO HAV E APPRECIATED THAT ADJUSTMENT TO THE VALUE OF INTERNATIONAL TRANSACTIO NS MADE BY THE TPO WILL RESULT IN AN ANOMALOUS SITUATION OF OFFERING AN INCOME OF AN AMOUNT IN EXCESS OF THE AMOUNT THAT HAS BEEN ACTUALLY RECEIVE D FROM THE THIRD PARTIES BY THE ASSOCIATED ENTERPRISES. 5. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND FACTS IN COMPARING THE OPERATING MARGINS OF THE ASSESSEE AT AN ENTITY LEVEL RATHER THAN ADOPTING THE OPERATING MARGINS EARNED FROM TRANSACTIONS WITH THE ASSOCIATED ENTERPRISES. 6. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED, IN LAW AND IN FACTS, BY REJECTING THE INTERNAL TNMM ANALYSIS UNDERTAKEN BY THE ASSESSEE TO JUSTIFY THE ARM'S LENGTH NATURE OF INTERNATIONAL TRANSACTIONS UNDER THE FREIGHT FORWARDING SEGMENT. 7. FILE LEARNED TPO AND THE LEARNED AO HAVE ERRED, IN LAW AND IN FACTS BY REJECTING THE MULTIPLE YEAR DATA ADOPTED BY THE ASSESSEE FOR COMPUTATION OF ARM'S LENGTH PRICE. 8. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACTS, BY NOT COMPUTING THE CORRECT OPERATING PROFIT MARGI N OF ALL CARGO GLOBAL LOGISTICS LIMITED. 9. WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF OBJEC TIONS THE LEARNED TPO AND THE LEARNED AO HAVE ERRED, IN LAW AND FACTS , BY NOT CONSIDERING THAT THE ADJUSTMENT TO THE ARMS LENGTH PRICE, IF ANY, SHOULD BE LIMITED TO THE LOWER END OF THE 5 PERCENT RANGE AS THE ASSESSEE HAS THE RIGHT TO EXERCISE THIS OPTION UNDER THE PROV ISO TO SECTION 92C OF THE ACT. I.T.A.NO.2067/10 :- 3 -: 10. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND FACTS BY NOT CARRYING OUT AN ADJUSTMENT FOR THE MATERIAL DIFFERENCE IN WORKING CAPITAL POSITIONS OF COMPARABLE COMPANIES AND THE A SSESSEE UNDER SUB-RULE 3 OF RULE 10B OF THE RULES. TRANSFER PRICING MATTERS - BPO SEGMENT 11. THE LEARNED TPO HAS ERRED IN LAW BY EXERCISING HIS POWERS UNDER SECTION 133(6) OF THE ACT TO OBTAIN INFORMATION WHI CH WERE NOT AVAILABLE IN PUBLIC DOMAIN AND RELYING ON THE SAME FOR COMPAR ABILITY PURPOSES. 12. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED, IN LAW AND IN FACTS BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF TILE ACT READ WITH THE RULES AND BY CONDUCTING A FRESH ECONOMIC ANALYSIS F OR THE DETERMINATION OF THE ARMS LENGTH PRICE IN CONNECT ION WITH THE IMPUGNED INTERNATIONAL TRANSACTION AND HOLDING THAT THE ASSESSEE'S INTERNATIONAL TRANSACTION IS NOT AT ARM'S LENGTH. 13. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED, IN LAV AND IN FACTS BY DETERMINING THE ARMS LENGTH MARGIN/PRICE USING ONLY FINANCIAL YEAR 2005-2006 DATA ALONE AS AGAINST MULTIPLE YEAR DATA ADOPTED BY THE ASSESSEE WHICH WAS NOT AVAILABLE TO THE ASSESSE E IN RELATION TO MOST OF THE COMPARABLE COMPANIES AT THE TIME OF COM PLYING WITH THE TRANSFER PRICING DOCUMENTATION REQUIREMENTS. 14. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED, IN LAW AND IN FACTS BY REJECTING CERTAIN COMPARABLE COMPAN IES IDENTIFIED BY THE ASSESSEE WHERE CONSOLIDATED RESULTS HAD BEEN USED F OR ANALYSIS THE ASSESSEE HAD CONSIDERED THE CONSOLIDATED RESULTS IN ONLY THOSE CASES WHERE THE INCOME OF THE INDIAN COMPANY CONSTITUTED MORE THAN 75% OF THE CONSOLIDATED COMPANY-WIDE/SEGMENTAL REVENUES. 15. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACTS BY REJECTING TWO COMPARABLE COMPANIES (GENESYS INTERNATIONAL CORPORATION LIMITED AND MERCURY OUTSOURCING MANAGEMENT LIMITED) IDENTIFIED BY THE ASSESSEE USING TURNOVER < RS. I CRORE AS A COMPARABILITY CRITERION. 16. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACTS BY REJECTING TWO COMPANIES VIZ. C.S SOFTWARE ENTERPRISES LIMITED AND PENTASOFT TECHNOLOGIES LIMITED IDENTIFIED BY TH E ASSESSEE ON THE REASONING THAT THESE COMPANIES RENDER NON-COMPARABL E SERVICES. 17. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACTS BY INCLUDING ADDITIONAL COMPARABLE COMPANIES WHICH ARE NOT COMPARABLE TO THE FUNCTIONS PERFORMED BY THE ASSESS EE. I.T.A.NO.2067/10 :- 4 -: ` 18. THE LEARNED TPO AND THE LEARNED AO HAVE ERRE D, IN LAW AND IN FACTS BY NOT TAKING INTO CONSIDERATION FOREIGN EXC HANGE FLUCTUATION GAIN/LOSS IN COMPUTING THE OPERATING MARGINS OF THE COMPARABLE COMPANIES. 19. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED, IN LAW AND FACTS, BY NOT MAKING SUITABLE ADJUSTMENT TO ACCOUNT FOR DI FFERENCES IN THE RISK PROFILE OR THE ASSESSEE VIS-A-VIS THE COMPARABLES U NDER SUB-RULE (3) OF RULE 10B. 20. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND FACTS. BY NOT CONSIDERING THAT THE ADJUSTMENT TO THE ARMS LENGTH PRICE, IF ANY, SHOULD BE LIMITED TO THE LOWER END OF THE 5 PERCENT RANGE AS THE ASSESSEE HAS THE RIGHT TO EXERCISE THIS OPTION UNDE R THE PROVISO TO SECTION 92C OF THE ACT. CORPORATE TAX MATTERS 21. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CAS E. THE LEARNED AO HAS ERRED IN LAW AND IN FACT, BY INVOKING THE PROVISIONS OR SECTION 14A SUB-CLAUSE 2 READ WITH RULE 8D OR THE ACT AND MAKING ALL ARBITRARY DISALLOWANCE OF RS. 74,674 IN RELATION TO DIVIDEND INCOME OF RS. 4.000. 22. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LEARNED AO HAS ERRED IN LAW AND IN FACT BY DISALLOWING PAYMENTS OF RS. 502,612 TO PROVIDENT FUND AND EMPLOYEES STATE INSURANCE CORPORATION UNDER SECTION 36( 1 )(VA) READ WITH SECTION 43B OF THE AC T ON ACCOUNT OF DELAYED REMITTANCE. HE OUGHT TO HAVE APPRECIATED TH AT THE AMOUNTS HAVE BEEN REMITTED BEFORE ' THE DUE DATE FOR FILING OF THE RETURN AND HENCE CANNOT BE DISALLOWED U/S 43B. 23. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LEARNED AO HAS ERRED IN LAW AND IN FACT IN TREATING THE LEGAL AND PROFESSIONAL FEES OF RS 2,192.463/- AS A CAPITAL EXPENDITURE AND THEREBY DISALLOWING THE SAME UNDER SECTION 37(1) OF THE ACT. 2. GROUND NO.1 OF THE APPEAL IS GENERAL IN NATURE AND HENCE, REQUIRES NO SEPARATE ADJUDICATION BY US. I.T.A.NO.2067/10 :- 5 -: 3. GROUND NOS. 2 TO 20 OF THE APPEAL ARE DIRECTED AGAI NST THE ORDER OF THE DRP CONFIRMING THE TRANSFER PRICING AD JUSTMENT PROPOSED BY THE TRANSFER PRICING OFFICER (TPO) U/S 92CA(3) OF THE ACT. 4. THE A.R OF THE ASSESSEE, BY REFERRING TO PAGE 140 OF THE PAPER BOOK, SUBMITTED THAT IT WILL BE SEEN FROM PA RA 5.4 OF THE ORDER OF THE TPO, THAT AFTER DISCUSSING THE ISSUE REGARDI NG TRANSFER PRICING ADJUSTMENT WITH FREIGHT FORWARDING SEGMENT, HE HAS MADE AN ADDITION OF ` 8,06,50,795/-. HE ALSO REFERRED TO PAGE 145 OF T HE PAPER BOOK WHEREIN A SET OF 13 COMPARABLES USED BY THE TPO ARE STATED. HE THEN REFERRED TO PAGE 160 OF THE PAPER BOOK AND SUBMITTED THAT IN PARA 6.2 OF HIS ORDER, THE TPO HAS MADE AN ADDITION OF ` 14,58,547/- WITH RESPECT TO BPO SEGMENT. BEING AGG RIEVED BY THE ORDER OF THE TPO, THE ASSESSEE PREFERRED APPEAL B EFORE THE DRP. 5. HE REFERRED TO PAGE 11 OF THE PAPER BOOK AND SUBMI TTED THAT THE DRP HAS OBSERVED AS UNDER: THE FOURTH GROUND OF OBJECTION RELATES TO TRANSFER PRICING ADJU S TMENT PROPOSED BY THE TPO U/S.92CA(3) . THE MAIN GROUND OF OBJECTION IS THAT THE AO HAS REJ ECTED THE INTERNAL TNMM AND APPLIED CUP METHOD WHICH ACCORDING TO THE ASSESSEE IS INCONSISTENT APPLICATI ON OF THE OECD GUIDELIN E S . THE OBJECTION RAISED BY THE ASSESSEE HAS BEEN CONSIDERED AND IT IS SEEN THAT TH E TPO HAS ON THE BASIS OF DETAILED SEARCH, ARRIVED AT A SET OF 13 COMPARABLE S FROM WHICH AVERAGE MARGIN HAS BEEN WORKED OUT AT 13% AGAINST THE ACTUA L PROFIT MARGIN OF 12.25%. THE LIST OF COMPARABLES INDICATE THAT THE C ASE OF I.T.A.NO.2067/10 :- 6 -: VISHAL INFORMATION TECHNOLOGIES HAS BEEN INCLUDED B Y THE TPO WHICH PRIMA-FACIE DOES NOT APPEAR TO BE AN ADEQUATE COMPARABLE . THEREFORE, IT IS DIRE C TED THAT THE COMPARABLE, VISHAL INFORMATION TECHNOLOGIES APPEARI NG AT S . NO.13 ON PAGE 17 OF THE TPO'S ORDER SHOULD BE EXCLUDED AND THEREAFTER, ARITHMET IC MEANS SHOULD BE DETERMINED AND ACCORDINGLY TRANSFER PRICING ADJUSTM ENT SHOULD BE CARRIED AT THIS STAGE . THIS GROUND OF OBJECTION IS D I SPOSED OF F ACCORDINGLY. 6. HE SUBMITTED THAT AS WILL BE OBSERVED FROM THE ABOV E ORDER OF THE DRP THAT THE DRP DISPOSED OF THE GROUND OF A PPEAL OF THE ASSESSEE DIRECTING THE TPO TO EXCLUDE THE COMPARABL ES IN RESPECT OF VISHAL INFORMATION TECHNOLOGIES APPEARING AT SL.NO. 13 AND DETERMINE THE TRANSFER PRICING ADJUSTMENTS. HE SUBMITTED THA T THE DRP HAS ADJUDICATED THE ISSUE OF BPO CASES WHEREBY ADDITION OF ` 14,58,547/- WAS MADE BY THE TPO. HOWEVER, THE DRP HAS NOT ADJU DICATED UPON THE ISSUE OF ADDITION WITH REGARD TO THE FREIGHT F ORWARDING SEGMENT WHERE ADDITION OF `8,06,50,795/- WAS MADE. HE SUBMITTED THAT IT WAS HIS INSTRUCTION FROM THE ASSESSEE THAT REGARDI NG THE ISSUE OF ADDITION OF ` 14,58,547/- IN RESPECT OF BPO SEGMENT THE ASSESSE E IS NOT PRESSING THAT PART OF THE GROUND. 7. HE SUBMITTED THAT AS REGARDS THE ISSUE OF ADDITION OF ` 8,06,50,795/- WITH RESPECT TO FREIGHT FORWARDING SE GMENT, THE MATTER SHOULD BE RESTORED BACK TO THE DRP FOR ADJUDICATING THE SAME. I.T.A.NO.2067/10 :- 7 -: 8. THE DR CONCURRED WITH THE ABOVE SUBMISSION OF THE A.R OF THE ASSESSEE. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSIN G THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAI LABLE ON RECORD, WE FIND THAT IN THE PRESENT CASE, THE TPO HAS MADE ADD ITION U/S 92CA(3) OF THE ACT OF ` 14,58,547/- WITH RESPECT TO BPO SEGMENT AND ` 8,06,50,795/- WITH RESPECT TO FREIGHT FORWARDING SE GMENT BUSINESS OF THE ASSESSEE. ON APPEAL FILED BY THE ASSESSEE, T HE DRP HAS ADJUDICATED UPON THE ISSUE OF ADDITION OF ` 14,58,547/- WITH REGARD TO THE ADDITION IN RESPECT OF BPO SEGMENT BUT HAS NOT ADJUDICATED THE ISSUE OF ADDITION OF ` 8,06,50,795/- IN RESPECT OF FREIGHT FORWARDING SEGMENT BUSINESS. THIS IS ALSO AGREED BY THE DR. THE A.R OF THE ASSESSEE HAS SUBMITTED THAT HE IS NOT PRESSING THE GROUND OF APPEAL IN RESPECT OF THE ADDITION OF ` 14,58,547/- MADE WITH RESPECT TO THE BPO SEGMENT. HENCE, THIS PART OF THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. WITH REGARD TO THE ADDITION OF ` 8,06,50,795/- WITH RESPECT TO FREIGHT FORWARDING SEGMENT, IT WAS AGREED BY BOT H THE PARTIES BEFORE US THAT THIS ISSUE RAISED BEFORE THE DRP HAS NOT BEEN ADJUDICATED UPON BY THE DRP. WE, THEREFORE, REMAND THIS PART OF THE GROUND OF APPEAL OF THE ASSESSEE TO THE DRP FOR AD JUDICATING THE SAME. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. I.T.A.NO.2067/10 :- 8 -: 10. GROUND NO.21 OF THE APPEAL OF THE ASSESSEE IS DIRE CTED AGAINST THE ORDER OF THE DRP IN SUSTAINING THE DISA LLOWANCE OF ` 74,674/- U/S 14A IN RELATION TO DIVIDEND INCOME OF ` 4,000/-. 11. THE A.R OF THE ASSESSEE SUBMITTED THAT THE DISALL OWANCE IN RESPECT OF EXPENDITURE IN CONNECTION WITH EXEMPT IN COME ON ACCOUNT OF DIVIDEND SHOULD BE RESTRICTED TO 2% OF THE EXEMP T INCOME FOLLOWING THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN TH E CASE OF M/S SIMPSON & CO. LTD VS DCIT IN TCA NO.2621 OF 2006, O RDER DATED 15.10.2012. 12. THE DR ALSO CONCURRED WITH THE ABOVE SUBMISSION OF THE A.R. 13. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE QUOTED DECISION OF THE HON'BLE MADRAS HIGH COURT, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DIRECT THE ASSESSING OFFICER TO RE STRICT THE DISALLOWANCE IN RESPECT OF EXPENDITURE IN CONNECTION WITH EXEMPT INCOME TO 2% OF THE EXEMPT DIVIDEND INCOME OF ` 4,000/-. THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 14. GROUND NO.22 OF THE APPEAL OF THE ASSESSEE IS DIRE CTED AGAINST THE ORDER OF THE DRP CONFIRMING THE DISALLO WANCE OF ` 5,02,612/- BEING EMPLOYEES CONTRIBUTION TO PROVIDE NT FUND AND I.T.A.NO.2067/10 :- 9 -: EMPLOYEES STATE INSURANCE U/S 36(1)(VA) R.W SECTI ON 43B OF THE ACT ON ACCOUNT OF DELAYED REMITTANCE. 15. THE A.R OF THE ASSESSEE SUBMITTED THAT THE ISSUE S TANDS COVERED BY THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD, 319 ITR 306, WHEREIN TH E HON'BLE SUPREME COURT HAS HELD THAT WHERE THE ASSESSEE HAS DEPOSITED THE EMPLOYERS CONTRIBUTION AS WELL AS EMPLOYEES CONTR IBUTION TOWARDS PF AND ESI AFTER THE DUE DATE AS PRESCRIBED IN THE EMP LOYEES PROVIDENT FUND AND MISCELLANEOUS PROVISIONS ACT, 1952 AS WELL AS THE EMPLOYEES STATE INSURANCE ACT, 1948, BUT BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME UNDER THE INCOME-TAX ACT, 1961, NO DISALL OWANCE CAN BE MADE IN VIEW OF THE PROVISIONS OF SECTION 43B AS A MENDED BY THE FINANCE ACT, 2003. 16. THE DR ALSO AGREED WITH THE ABOVE SUBMISSION OF THE A.R OF THE ASSESSEE. 17. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSIN G THE ORDERS OF AUTHORITIES BELOW, WE FIND THAT THE UNDIS PUTED FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER HAS DISALLOWED DEDUCTION OF ` 5,02,612/- BEING PAYMENT OF EMPLOYEES CONTRIBUTIO N TO PF AND ESI MADE BY THE ASSESSEE BEYOND THE DUE DATE UNDER TH E RELEVANT ACTS I.T.A.NO.2067/10 :- 10 -: BUT BEFORE THE DUE DATE OF FILING OF RETURN OF INCO ME U/S 139(1) OF THE ACT. WE FIND THAT THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD (SUPRA) HAS HELD THAT IF THE E MPLOYERS CONTRIBUTION AND EMPLOYEES CONTRIBUTION TOWARDS PF AND ESI WAS DEPOSITED BY THE ASSESSEE AFTER THE DUE DATE AS PR ESCRIBED UNDER THE RELEVANT ACTS, BUT BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME UNDER THE INCOME-TAX ACT, 1961 THEN NO DISALLOWANCE OF THE SAME CAN BE MADE U/S 43B OF THE ACT. RESPECTFULLY FOLLOWIN G THE SAME, WE SET ASIDE THE ORDER OF THE DRP AND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION OF ` 5,02,612/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF EMPLOYEES CONTRIBUTION TO PF & ESI DEPOSITED BY TH E ASSESSEE BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 18. GROUND NO.23 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE DRP IN CONFIRMING THE ORDER OF THE TPO IN TREAT ING THE LEGAL AND PROFESSIONAL FEES OF ` 21,92,463/- AS CAPITAL EXPENDITURE AND THEREBY DISALLOWING THE SAME U/S 37(1) OF THE ACT. 19. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED LEGAL AND PROFESSIONAL FEES OF ` 21,92,463/-/- PAID TO M/S AVIGO CAPITAL PARTNERS PVT. LTD. WHICH WAS CLAIMED BY THE ASSESS EE AS AN I.T.A.NO.2067/10 :- 11 -: EXPENDITURE IN THE RETURN OF INCOME FILED. ON A QU ERY BY THE TPO, IT WAS EXPLAINED THAT THE EXPENDITURE WAS INCURRED TOW ARDS DEVISING STRATEGIC ALTERNATIVES FOR THE COMPANY, RAISING OF FINANCE DEBT AND PRIVATE EQUITY FOR THE COMPANY, AND ONGOING ASSISTA NCE IN THE CORPORATIZATION OF THE COMPANY. THE ASSESSING OFFI CER DISALLOWED THE SAME ON THE GROUND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS FINANCIAL ADVISORY SERVICES WITH RESPECT TO CAPITAL STRUCTURE, FINANCIAL ANALYSIS, IPO AND OTHER RELATED MATTERS WAS NOT ALLOWABLE U/S 35D OF THE ACT. 20. ON APPEAL BEFORE THE DRP, THE ASSESSEE SUBMITTED THAT THE EXPENDITURE WAS TOWARDS SERVICES IN RELATION TO DEV ISING STRATEGIC ALTERNATIVE, RAISING OF FINANCE AND ONGOING ASSISTA NCE IN THE CORPORATIZATION OF THE ASSESSEE. THE ASSESSING OF FICER, ON THE BASIS OF HIS FINDING THAT NO BENEFIT HAS ACCRUED TO THE ASSESSEE, TREATED THE SAME AS CAPITAL EXPENDITURE AS THE BENEFIT ACCRUED TO THE ASSESSEE IN SUBSEQUENT YEARS. 21. THE DRP, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, RESTORED THE MATTER TO THE FILE OF THE AS SESSING OFFICER DIRECTING HIM TO EXAMINE THE DETAILS OF THE EXPENDI TURE AND ALLOW I.T.A.NO.2067/10 :- 12 -: DEDUCTION AS PER THE PROVISIONS OF SECTION 35D OF T HE ACT IN RESPECT OF EXPENSES WHICH ARE COVERED UNDER SUB-SECTION(2) OF SECTION 35D. 22. THE A.R OF THE ASSESSEE, BEFORE US, SUBMITTED THAT IT WAS NECESSARY FOR THE BUSINESS TO UPDATE ITS KNOWLEDGE AND ADOPT BETTER WAY OF ORGANIZING ITS BUSINESS. MERELY OBTAINING A REPORT FOR BUSINESS RESTRUCTURING AND THE FACT THAT NO NEW LINE OF BUS INESS WAS STARTED CANNOT BE TREATED AS CAPITAL EXPENDITURE. HE PLACE D RELIANCE ON THE DECISION IN THE CASE CIT VS UNITED BREWERIES LTD, 321 ITR 546 (KAR). 23. THE DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 24. WE FIND THAT THE DRP HAS RESTORED THE ISSUE BACK T O THE FILE OF THE TPO TO VERIFY WHETHER THE SAME IS ALLOWABLE U/S 35D(2) OF THE ACT. UNDER SECTION 35D(2) OF THE ACT, THE EXPENSE S COVERED ARE PREPARATION OF FEASIBILITY REPORT, PREPARATION OF P ROJECT REPORT, CONDUCTING MARKET SURVEY OR ANY OTHER SURVEY NECESS ARY FOR THE BUSINESS OF THE ASSESSEE, ENGINEERING SERVICES REL ATING TO THE BUSINESS OF THE ASSESSEE, LEGAL CHARGES FOR DRAFTING ANY AG REEMENT BETWEEN THE ASSESSEE AND ANY OTHER PERSON FOR ANY PURPOSE RELATING TO THE SETTING UP OR CONDUCT OF THE BUSINESS OF THE ASSES SEE, LEGAL EXPENDITURE FOR DRAFTING THE MEMORANDUM AND ARTICLE S OF ASSOCIATION, I.T.A.NO.2067/10 :- 13 -: EXPENDITURE FOR PRINTING OF MEMORANDUM AND ARTICLES OF ASSOCIATION, FEES FOR REGISTERING THE COMPANY UNDER THE COMPANIE S ACT AND EXPENDITURE IN CONNECTION WITH THE ISSUE, FOR PUBLI C SUBSCRIPTION, OF SHARES IN OR DEBENTURES OF THE COMPANY, BEING UNDER WRITING COMMISSION, BROKERAGE AND CHARGES FOR DRAFTING, TYP ING, PRINTING AND ADVERTISEMENT OF THE PROSPECTUS, ANY OTHER EXPENDIT URE AS MAY BE PRESCRIBED. IN THE INSTANT CASE, THE EXPENDITURE C LAIMED AS DEDUCTION BY THE ASSESSEE ARE FOR LEGAL AND PROFESSIONAL CHA RGES FOR DEVISING STRATEGIC ALTERNATIVES FOR THE COMPANY, RAISING OF FINANCE DEBT AND PRIVATE EQUITY FOR THE COMPANY, AND ONGOING ASSISTA NCE IN THE CORPORATIZATION OF THE COMPANY. THESE EXPENSES AR E NOT COVERED U/S 35D(2) OF THE ACT. FURTHER BY INCURRING THE SAID E XPENDITURE THE ASSESSEE HAS NOT ACQUIRED ANY CAPITAL ASSET. THE E XPENDITURE IS INCURRED FOR THE BUSINESS PURPOSES OF THE ASSESSEE AND THEREFORE, DEDUCTION IS ALLOWABLE U/S 37(1) OF THE ACT. WE , THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION OF THE EXPENSES OF ` 21,92,463/- TO THE ASSESSEE. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. I.T.A.NO.2067/10 :- 14 -: 25. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THURSDAY, THE 24 TH OF JANUARY, 2013, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 24 TH JANUARY, 2013 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR