GSS Infotech Limited, Hyderabad, Hyderabad v. DCIT, Circle-2(2), Hyderabad, Hyderabad

ITA 602/HYD/2017 | 2012-2013
Pronouncement Date: 30-11-2017 | Result: Partly Allowed

Appeal Details

RSA Number 60222514 RSA 2017
Assessee PAN AADCM6759Q
Bench Hyderabad
Appeal Number ITA 602/HYD/2017
Duration Of Justice 7 month(s) 26 day(s)
Appellant GSS Infotech Limited, Hyderabad, Hyderabad
Respondent DCIT, Circle-2(2), Hyderabad, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 30-11-2017
Assessment Year 2012-2013
Appeal Filed On 04-04-2017
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A HYDERABAD BEFORE SMT P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN ACCOUNTANT MEMBER ITA NO. 267/HYD/2014 & 329/HYD/2016 ASSESSMENT YEARS: 2009-10 & 2011-12 GSS INFOTECH LTD. HYDERABAD. PAN AADCM 6759Q VS. DY. COMMISSIONER OF INCOME- TAX CIRCLE 2(3) HYDERABAD. (APPELLANT) (RESPONDENT) DATE OF HEARING 18-09-2017 ITA NO. 602/HYD/2017 ASSESSMENT YEAR: 2012-13 GSS INFOTECH LTD. HYDERABAD. PAN AADCM 6759Q VS. DY. COMMISSIONER OF INCOME- TAX CIRCLE 2(3) HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P. MURALI MOHAN RAO REVENUE BY : SMT. S. MOURANA DATE OF HEARING 27/09/2017 DATE OF PRONOUNCEMENT 30-11-2017 O R D E R PER S. RIFAUR RAHMAN A.M.: THESE APPEALS PREFERRED BY THE ASSESSEE RELATE TO AYS 2009- 10 2011-12 & 2012-13. WE SHALL DEAL WITH THE ISSUE S GROUND WISE ALONG WITH ITA NO. 602/HYD/2017 WHICH WAS HEARD ON 27/09/2017. AS THE ISSUES IN ALL THESE APPEALS ARE IDENTICAL A CO MMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. 2 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. ITA NO. 267/HYD/2014 FOR AY 2009-10 2. THIS APPEAL IS DIRECTED AGAINST THE ORDER PASSED U/S 143(3) R.W.S. 92CA OF THE INCOME TAX ACT 1961 (IN SHORT ACT) DATED 13/03/2013 RELATING TO AY 2009-10. 3. BRIEF FACTS OF THE CASE ARE ASSESSEE COMPANY D ERIVING INCOME FROM SOFTWARE IT ENABLED SERVICES FILED ITS RETURN OF INCOME FOR THE AY 2009-10 ON 30/09/2009 DECLARING TOTAL INCOME OF RS. 2 78 31 168/- UNDER NORMAL PROVISIONS AND MAT INCOM E OF RS. 32 35 27 021/-. 3.1 AS THE CASE WAS COVERED BY THE PROVISIONS OF SE CTION 92CA WITH THE PRIOR APPROVAL OF THE CIT-II THE AO REFER RED THE CASE TO TPO FOR DETERMINING THE ARMS LENGTH PRICE. 3.2 ASSESSEES PROFILE: THE ASSESSEE IS AN INFORMATION TECHNOLOGY ENABLED S ERVICE PROVIDER SPECIALIZING IN HELP DESK SERVICES OFFSHORE SUPPOR T MAINTENANCE ETC. WEB BASED INTERNAL RESOURCE MANAGEMENT MODULE FOR H R SERVICES DESIGN AND DEPLOYMENT OF BACKUP SOLUTIONS ORACLE A PPLICATION ONGOING SUPPORT INFRASTRUCTURE AND MANAGED SERVICE S SUPPORT WHICH ARE IN THE NATURE OF IT ENABLED SERVICES/BACK OFFIC E SERVICES. ASSESSEE IS A 100% SUBSIDIARY OF GSS AMERICA INC. USA. 3.3 INTERNATIONAL TRANSACTIONS: AS PER 3CEB REPORT/TP DOCUMENT SUBMITTED BY THE ASS ESSEE THE INTERNATIONAL TRANSACTIONS ARE AS UNDER: AE NATURE OF TRANSACTION AMOUNT (RS.) GSS AMERICA INC. USA IT ENABLED SERVICES 34 85 06 258 -DO- -DO- 3 45 31 665 -DO- INTEREST FREE LOAN FOR DEVELOPMENT OF BUSINESS WITH A 18 71 52 000 3 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. CLAUSE FOR CONVERTING THE SAME INTO EQUITY. TOTAL 57 01 89 923 3.4 FINANCIAL RESULTS FOR FY 2008-09 ITEM AMOUNT IN RUPEES OPERATING REVENUE 54 69 69 370 OPERATING COST 25 12 24 031 OPERATING PROFIT 29 57 45 339 OP/OR 54.07% OP/OC 127.73% 3.5 EXAMINATION OF TP STUDY CONDUCTED BY ASSESSEE: THE ASSESSEE HAS CARRIED OUT THE ECONOMIC ANALYSIS AND HAS SUMMARIZED IT AS UNDER: NATURE OF INTERNATIONAL TRANSACTION MAM PLI MARGIN OF ASSESSEE MARGIN OF COMPARABLE PROVISION OF IT ENABLED BACK OFFICE SUPPORT SERVICES (RECEIVED) TNMM OP/OC 29.65% 19.59% THE TPO NOTED THAT THE ASSESSEE COMPANY HAD CONSIDE RED TNMM AS MAM FOR ALL THE INTERNATIONAL TRANSACTIONS OTHER TH AN INTEREST FREE LOAN. FURTHER THE TPO EXAMINED TP DOCUMENTATION A ND RELEVANT INFORMATION FURNISHED BY ASSESSEE. ON VERIFICATION IT WAS FOUND THAT THE PROFIT LEVEL INDICATOR (PLI) OF THE ASSESSEE (O P/OR) WAS AT 29.65% FOR THE FY ENDING 31/03/2009. AS THE SAME FA LLS ABOVE THE ARMS LENGTH PRICE DETERMINED BY THE TPO NO ADJUST MENT WAS PROPOSED IN RESPECT OF IT ENABLED SERVICES REPORTED IN 3CEB REPORT FOR THE FY 2008-09 RELEVANT TO THE AY 2009-10. 4 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. INTEREST FREE LOAN TO THE AE (RS. 18 71 52 000/- AN D RS. 29 04 15 000/-) 4. THE TPO OBSERVED THAT DURING FY 2008-09 ASSESSE E HAD ADVANCED A SUM OF RS. 18 71 52 000/- AND RS. 29 04 15 000/- TO ITS AE WITHOUT ANY INTEREST. THE ASSESSEE WAS ASKED TO EXPLAIN THE REASONS WHY INTEREST WAS NOT CHARGED ON THE LOAN AD VANCED BY THE ASSESSEE TO ITS AE. THE ASSESSEE WAS ALSO REQUESTED TO PRESENT AN ARMS LENGTH ANALYSIS IN ORDER TO SHOW THAT THE INT ERNATIONAL TRANSACTION PERTAINING TO THE LOAN IS WITHIN ARMS LENGTH RANGE. 4.1 THE ASSESSEE FILED ITS REPLY VIDE LETTER DATED 04/12/2012 WHEREIN IT WAS ARGUED THAT THE LOAN ADVANCED TO AE IS INTEREST FREE SINCE IT WAS OUT OF THE BUSINESS EXPEDIENCY OF THE ASSESSEE AND FURTHER SUBMITTED AS UNDER: 1) THE LOAN GIVEN IS OUT OF THE ASSESSEES FREE RES ERVES. THE ASSESSEE DOES NOT HAVE ANY BORROWED FUNDS AND HAS N IL COST OF FUNDS. 2) THE FUNDS GIVEN WERE OUT OF THE IPO AND ONE OF T HE OBJECTIVES MENTIONED IN THE IPO IS THAT THE ASSESSE E WANTS TO MAKE ACQUISITIONS IN USA IN ORDER TO GROW ITS BUSIN ESS. 3) LOAN GIVEN IS IN THE NATURE OF QUASI EQUITY. THE ADVANCE GIVEN WAS CONVERTED INTO EQUITY IN FY 2011-12. FURTHER ON 06/12/2012 THE ASSESSEE SUBMITTED THE DETAILS OF THE INTEREST FREE LOAN EXTENDED BY ITS BRANCH IN USA TO THE EXTENT OF RS. 29 04 15 000/- TO ITS AE I.E. GSS AMERICA INC. 4.2 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE THE TPO OBSERVED THAT THE CONTENTION THAT THE FUNDS WERE GI VEN OUT OF THE FREE RESERVES OF THE ASSESSEE COMPANY IS NOT MUCH RELEVA NCE AS IT IS IMPORTANT TO NOTE THAT NO INDEPENDENT BUSINESS ENT ITY OPERATING AT ARMS LENGTH WILL PART WITH ITS SUBSTANTIAL FUNDS WITHOUT ANY CONSIDERATION OR QUID PRO QUO WHATSOEVER. HE FURTHE R OBSERVED THAT THE ASSESSEE HAD FAILED TO SHOW THAT TANGIBLE AND D IRECT BENEFITS IT HAD RECEIVED FROM THE INTEREST FREE LOAN GIVEN TO I TS AE AS THE FUNDS WERE USED BY THE AE FOR ACQUISITION AND THEREFORE I T WAS THE AE WHICH 5 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. HAD DIRECTLY BENEFITTED FROM THE FUNDS AND NOT THE ASSESSEE. AS REGARDS THE ARGUMENT OF THE ASSESSEE THAT THE LOAN WAS IN THE NATURE OF QUASI EQUITY AND THE ADVANCE WAS CONVERTED INTO EQUITY IN FY 2011-12 THE TPO OBSERVED THAT THERE WAS A GAP OF A LMOST THREE YEARS BETWEEN GIVING LOAN AND ISSUANCE OF EQUITY AN D IF THE FUNDS WERE ACTUALLY GIVEN FOR THE PURPOSE OF EQUITY THEN THE ASSESSEE WOULD HAVE INSISTED FOR ISSUE OF SHARES AGAINST THE AMOUN T GIVEN. TPO OBSERVED THAT THE ASSESSEE HAD NEITHER RECEIVED ANY INTEREST NOR ANY DIVIDEND FOR THIS PERIOD. HE OPINED THAT IN AN ARM S LENGTH SCENARIO NO COMMERCIAL ENTERPRISE WILL PART WITH SUCH SUBSTA NTIAL AMOUNT OF FUNDS WITHOUT ANY CONSIDERATION AND FOREGO INTEREST AND/OR DIVIDEND. HE THEREFORE REJECTED THE SUBMISSIONS OF THE ASSE SSEE. ACCORDINGLY THE ARMS LENGTH PRICE OF THE INTEREST ON LOAN GIVE N BY THE ASSESSEE TO ITS AE WAS DETERMINED BY THE TPO ON THE BASIS OF 12 MONTHS US LIBOR PREVALENT DURING FY 2008-09 AS UNDER: PARTICULARS RATE OF INTEREST (%) DIFFERENCE IN %AGE POINTS FROM US LIBOR 12 MONTH US LIBOR RATE FOR FY 2008-09 2.71 AVERAGE INTEREST RATE ON US TREASURY SECURITIES FOR FU 2008- 09 4.12 1.41 AVERAGE RATE AT WHICH BANKS LEND TO PRIME CUSTOMERS (OFFICIAL SITE OF THE WORLD BANK) 4.63 1.92 PRIME LENDING RATE IN USA (WWW. TRADING ECONOMICS. COM) 4.35 1.64 THE TPO COMPUTED THE ARMS LENGTH INTEREST ON THE L OAN GIVEN BY THE ASSESSEE TO ITS AE BY TAKING US LIBOR PLUS 3 PERCEN T POINTS WHICH COMES TO 5.7% PER ANNUM AS UNDER: S. NO. AMOUNT OF LOAN (RS.) PERIOD (DAYS) ALP INTEREST @ 5.7% P.A. (IN RS.) INTEREST CHARGED BY TAXPAYER (IN RS.) SHORTFALL BEING ADJUSTMENT U/S 92CA (IN RS.) 6 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. 1 18 71 52 000 210 61 37 560 NIL 61 37 560 2 3 05 70 000 90 4 29 655 NIL 4 29 655 3 15 28 50 000 70 16 70 880 NIL 16 70 880 4 10 69 95 000 5 83 544 NIL 83 544 TOTAL 83 21 639 THUS THE SHORTFALL ON ACCOUNT OF INTEREST ON THE L OAN GIVEN BY THE ASSESSEE TO AE WORKED OUT TO RS. 83 21 639/- U/S 9 2CA(3) OF THE ACT AS ADJUSTMENT. 5. AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE THE DRP AND BEFORE THE DRP IT WAS INTER-ALIA CONTENDED THAT T HE ADVANCING OF AN INTEREST FREE LOAN IS AN ACTION TO BE JUDGED IN ISO LATION OF SUCH TRANSACTION. IT IS A BUSINESS EXIGENCY AND HAS TO B E VIEWED FROM THE POINT OF VIEW OF THE BUSINESS. IT WAS FURTHER CONTE NDED THAT IT IS ARBITRARY AND ILLEGAL TO INFER AND IMPOSE INTEREST ON THE ASSESSEE WITHOUT CONSIDERING ALL THE ISSUES INVOLVED LIKE BU SINESS MODEL OF THE ASSESSEE GROUP ACTIVITIES OVERALL BUSINESS MARGIN S INDIVIDUAL OPERATING PROFITS OF BOTH AES AND SIMILAR OTHER PAR AMETERS. HE RELIED ON THE DECISION IN THE CASE OF MASCON GLOBAL LTD VS . DCIT 2205 OF 2010 DATED 12/08/2011 WHEREIN THE TRIBUNAL OBSERVE D THAT INTEREST FREE ADVANCES ON ACCOUNT OF COMMERCIAL EXPEDIENCY I S AT ARMS LENGTH. 6. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E THE DRP REJECTED THE OBJECTION RAISED BY THE ASSESSEE BY HO LDING THAT THE ASSESSEE FAILED TO SHOW HOW THE ADVANCING OF LOAN H AS FURTHERED THE DEVELOPMENT OF BUSINESS OF THE ASSESSEE WITH ANY FA CTS AND FIGURES AND THE ARGUMENT IS GENERAL IN NATURE. 7. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US R AISING 9 GROUNDS OF APPEAL THE SUM AND SUBSTANCE OF WHICH A RE THE LD. AO/TPO/DRP ARE NOT JUSTIFIED IN LAW IN DETERMINING THE ARMS LENGTH PRICE AT RS. 83 21 639/- BEING THE INTEREST ON LOAN GIVEN TO AE AS AGAINST RS. NIL. 7 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. 8. LD. AR SUBMITTED THAT THE AES HAD ALREADY ALLOTT ED SHARES IN RESPECT OF ADVANCES MADE. HE SUBMITTED THAT INVESTM ENTS IN SHARE CAPITAL OF SUBSIDIARIES OUTSIDE INDIA ARE NOT IN NA TURE OF THE TRANSACTIONS REFERRED IN SECTION 92B. FOR THIS PROP OSITION HE RELIED ON THE FOLLOWING CASES: 1. PRITHVI INFORMATION SOLUTIONS LTD. ITA NO. 472 /HYD/2014. 2. VIJAY ELECTRICALS 842/H/2012 3. GSS INFOTECH LTD. 497/H/2015 9. LD. DR ON THE OTHER HAND RELIED ON THE ORDERS O F REVENUE AUTHORITIES. 10. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. IN THE CASE OF PRITHVI INFORMATION SOLUT IONS LTD. (SUPRA) THE COORDINATE BENCH HAS HELD AS UNDER: 9. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. AS CAN BE SEEN OUT OF THE TOTAL AMOUNT OF RS. 9 39 15 903 TREATED AS LOANS AN D ADVANCES TO THE OVERSEAS SUBSIDIARIES THE AMOUNT OF RS. 8 37 25 903 IS CLAI MED TO BE TOWARDS SHARE APPLICATION MONEY AND RS. 1 01 90 000 IS AN ADVANCE. THEREFORE ONCE THE AMOUNT OF RS. 8 37 25 903 IS ACCEPTED AS INVESTMENT IN SHARE APPL ICATION MONEY THE SAME CANNOT BE TREATED AS LOANS AND ADVANCES. HENCE ARMS LENGTH R ATE OF INTEREST EITHER @ 5% OR BY APPLYING LIBOR CANNOT BE CHARGED ON SUCH TRANSACTIO N. IN SO FAR AS THE ADVANCE OF RS. 1 01 90 000 IS CONCERNED IT IS THE CLAIM OF ASSESS EE THAT IT IS IN THE REGULAR COURSE OF BUSINESS. THIS ASPECT HAS NOT BEEN PROPERLY CONSIDE RED EITHER BY TPO OR BY DRP. WHILE CONSIDERING IDENTICAL ISSUE FOR THE PRECEDING AY I. E. AY 2008-09 IN ASSESSEES OWN CASE THE COORDINATE BENCH OF THIS TRIBUNAL IN ITA NO. 18 16/HYD/2012 DATED 08/08/2014 HELD AS UNDER: 12. THEREFORE CONSIDERING THE FACTS OF THE ASSESS EES CASE IN THE LIGHT OF THE ORDERS PASSED BY THE COORDINATE BENCHES REFERRED TO HEREINABOVE IT IS TO BE HELD THAT IF THE INVESTMENTS ARE IN THE NATURE OF EQUITY THEN THEY CANNOT BE TREATED AS LOANS AND ADVANCES. HOWEVER FOR COMING TO A DEFINITE CONCLUS ION IN THIS REGARD NECESSARY DETAILS NEED TO BE EXAMINED FROM THE BOOKS OF ACCOUNT AND O THER RELATED DOCUMENTS. SINCE THIS ASPECT HAS NOT BEEN PROPERLY EXAMINED EITHER B Y THE TPO OR BY THE DRP WE ARE INCLINED TO REMIT THE MATTER BACK TO THE TPO/AO TO EXAMINE AFRESH AND TAKE A DECISION IN THE MATTER. FURTHER WE MAY NOTE THAT WHILE DOI NG SO THE AO/TPO MUST ALSO CONSIDER ASSESSEES CLAIM THAT THE ENTIRE INVESTMEN T WAS OUT OF INTERNAL ACCRUALS AND NOT BORROWED FUNDS. ONLY IN THE EVENT THE ASSESSEE ADVANCED LOANS/ADVANCES THEN THE QUESTION OF T.P. ANALYSIS ON THE TRANSACTIONS MAY A RISE. IN THAT EVENT THE TPO/AO IS ALSO DIRECTED TO EXAMINE THE ISSUE AS PER THE EXIST ING ORDER OF DRP TO THE EXTENT OF ADOPTION OF LIBOR+2% RATE AND CALCULATE THE INTERES T FOR THE PERIOD OF LOAN BUT NOT EXCEEDING THE PERIOD OF 12 MONTHS. THE CALCULATION FOR MORE THAN 12 MONTHS BY AO HAS 8 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. TO BE DISAPPROVED. THIS GROUND OF THE ASSESSEE IS C ONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES. FACTS ARE MATERIALLY SAME IN THE PRESENT AY ALSO AS BOTH TPO AND DRP HAVE FOLLOWED THE ORDER OF THE DRP FOR THE AY 2008-09. HOWEVER IT WILL BE PERTINENT TO MENTION HERE THAT IN COURSE OF HEARING LEARNED DR SUBMITTED BEF ORE US THAT THE RATIO LAID DOWN IN CASE OF VIJAI ELECTRICALS VS. ACIT (SUPRA) CANNOT B E SAID TO BE LAYING DOWN THE CORRECT PROPOSITION OF LAW AS AMENDMENT BROUGHT TO SECTION 92B OF THE ACT BY THE FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT WAS NOT TAKEN NOTE O F BY THE TRIBUNAL. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES AND KEEPIN G IN VIEW THE DIRECTION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE IN THE PREC EDING AY 2008-09 WE REMIT THE MATTER BACK TO THE FILE OF THE AO FOR CONSIDERING A FRESH KEEPING IN VIEW THE DECISION OF THE TRIBUNAL IN CASE OF VIJAI ELECTRICALS VS. ACIT (SUPRA) AND ALSO THE AMENDED PROVISIONS OF SECTION 92B OF THE ACT. WE MAKE IT CL EAR THAT IF ULTIMATELY IT IS FOUND THAT ANY AMOUNT GIVEN TO THE OVERSEAS SUBSIDIARIES ARE I N THE NATURE OF LOANS AND ADVANCES AO/TPO MAY CONSIDER CHARGING INTEREST @ LIBOR +2% A S PER THE DIRECTION OF THE LEARNED DRP IN AY 2008-09. THUS GROUNDS RAISED BY ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 10.1 IN THE ABOVE CASE THE COORDINATE BENCH HAS A DJUDICATED CLEARLY THAT ONCE THE AMOUNT IS ACCEPTED AS INVESTM ENT IN SHARE APPLICATION MONEY THE SAME CANNOT BE TREATED AS LOA NS AND ADVANCES. BUT IN THE PRESENT CASE THE ASSESSEE HA S REMITTED THE FUNDS AS LOAN AND LATER ON DECIDED TO CONVERT THE S AME AS EQUITY. IT IS NOT CLEAR FROM THE RECORDS THAT THE PURPOSE FOR WHI CH THE LOAN WAS GIVEN. THE ASSESSEE CLAIMS THAT IT IS FOR THE BUSIN ESS EXIGENCIES (QUASI CAPITAL) AND THEN IT WAS CONVERTED AS EQUITY . THE ASSESSEE HAS SUBMITTED THAT THE PARENT COMPANY HAS ALLOTTED THE SHARES IN THE FY 2011-12 BUT IT IS NOT CLEAR WHEN THE DECISION WAS MADE TO CONVERT THE LOAN INTO EQUITY. CONSIDERING THE ABOVE FACTS AND I SSUES RELATING TO THIS TRANSACTION IN OUR CONSIDERED VIEW THIS MATT ER NEEDS FURTHER VERIFICATION AT THE AO/TPO LEVEL TO FIND OUT THE PU RPOSE OF LOAN WHETHER FOR BUSINESS EXIGENCIES. IF IT IS FOR THE B USINESS EXIGENCIES AND PARTICULARLY IT COMES UNDER DEFINITION OF INTER NATIONAL TRANSACTION THE SAME HAS TO BE CONSIDERED AS FINANCIAL TRANSACT ION. THIS TRANSACTION WILL ATTRACT INTEREST AS PER FOREIGN CU RRENCY LENDING. BEFORE THIS IT IS RELEVANT WHEN THE DECISION IS TAKEN TO CONVERT THE LOAN TRANSACTION INTO EQUITY ? THESE ARE PERTINENT QUEST IONS TO BE ANSWERED. THEREFORE WE REMIT THIS MATTER BACK TO A O/TPO TO CALL FOR THE RELEVANT RECORD/INFORMATION TO DETERMINE THE NA TURE OF TRANSACTION 9 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. AND DATE OF DECISION TO CONVERT THE LOAN INTO EQUIT Y. IF THE DECISION WAS MADE DURING THIS AY THEN THIS TRANSACTION WIL L NOT BE FINANCIAL TRANSACTION AND ACCORDINGLY INTEREST CANNOT BE CHA RGED. HENCE BY FOLLOWING THE DECISION OF PRITHVI INFORMATION (SUPR A) AND WITH THE ABOVE DIRECTION WE DIRECT AO/TPO ACCORDINGLY NEED LESS TO SAY A PROPER OPPORTUNITY OF BEING HEARD TO ASSESSEE AND A T THE SAME TIME DIRECT THE ASSESSEE ALSO TO SUBMIT THE RELEVANT INF ORMATION BEFORE AO/TPO. ACCORDINGLY WE ALLOW THE GROUNDS RAISED BY THE ASSESSEE FOR STATISTICAL PURPOSES. CORPORATE ISSUES 11. AS REGARDS THE ADDITION OF PROVISION FOR GRATUI TY OF RS. 19 97 433/- THE ASSESSEE HAS NOT PRESSED THIS GRO UND BEFORE THE DRP HOWEVER RAISED BEFORE US AS ADDITIONAL GROUND S AS UNDER: 11.1 PROVISION FOR GRATUITY IS ALLOWABLE UNDER NORM AL PROVISIONS. LD. AR SUBMITTED THAT PROVISION FOR GRATUITY IS AN ASCERTAINED LIABILITY AND HENCE IT IS AN ALLOWABLE DEDUCTION. H E RELIED ON THE FOLLOWING DECISION: 1. ATLAS DOCUMENTARY FACILITIES P. LTD. ITA NO. 65 63/MUM/09 11.2 PROVISION FOR GRATUITY ADDED TO PROFIT U/S 115 JB. LD. AR SUBMITTED THAT PROVISION FOR GRATUITY IS AN ASCERTAINED LIABILITY AND HENCE IT CANNOT BE ADDED TO BOOK PROF ITS. HE RELIED ON THE FOLLOWING DECISIONS: 1. DRESSER VALVE INDIA LTD. 30 SOT 495 2. EKLA APPLIANCES 45 SOT 7 3. KANCO ENTERPRISES LTD. 65 TAXMANN.COM 289 11.3 ANY DISALLOWANCE MADE TO THE TOTAL INCOME WILL INCREASE PROFITS U/S 10A. 10 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. 11.4 LD. AR SUBMITTED THAT IF ANY DISALLOWANCE IS M ADE THEN THERE WILL BE CORRESPONDING INCREASE IN THE DEDUCTION U/S 10A. HE RELIED ON THE FOLLOWING CASES: 1. PLANET ONLINE P. LTD. ITA NO. 1016/H/2007 2. INFORMED TECHNOLOGIES INDIA LTD. 75 TAXMANN.COM 128 3. CIRCLAR NO. 37/2016. 11.5 LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORI TIES. 12. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THE ASSESSEE HAS CLAIMED PROVISION FOR G RATUITY AS EXPENSE FOR THE YEAR BUT THE AO HAS OBSERVED THAT T HE ASSESSEE HAS CREATED PROVISION WITH ACTUARY VALUATION AND OPENED GRATUITY FUND ACCOUNT WHICH WAS NOT APPROVED BY CIT. TO AVAIL DED UCTION THE ASSESSEE HAS TO EVALUATE THE GRATUITY ON ACTUARIAL BASIS AND PART WITH THE FUND BY DEPOSITING THE SAME IN THE APPROPRIATE FUND ACCOUNT. THE APPROVAL OF THE FUND IS ONLY THE PROCEDURAL ASPECT WHICH CAN BE CURED. BUT IT IS NOT CLEAR FROM THE RECORD SUBMITTE D BEFORE US THAT THESE FUNDS WERE ACTUALLY DEPOSITED. WE REFUSE TO ENTERTAIN THE CLAIM OF THE ASSESSEE THAT THIS CAN BE CLAIMED AS EXPENDI TURE. THE SAME IS THE CASE WITH THE TREATMENT IN THE CALCULATION OF 1 15JB. IN CASE THE FUNDS ARE DEPOSITED IN THE SEPARATE FUND BASED ON A CTUARY VALUATION THIS CANNOT BE ADDED BACK IN THE CALCULATION OF 11 5JB TO DETERMINE THE BOOK PROFIT. THIS IS AS PER CASE LAW RELIED ON BY THE ASSESSEE IN THE CASE OF DRESSER VALVE INDIA LTD. (SUPRA) AND E KLA APPLIANCES (SUPRA). 12.1 COMING TO ALTERNATE CLAIM OF THE ASSESSEE THAT THE DISALLOWANCE WILL INCREASE THE PROFIT WHICH IS ELIGIBLE AS THE DEDUCTION U/S 10A. THE COORDINATE BENCHES OF MUMBAI HELD THAT THE CONSEQUE NCE OF DISALLOWANCE WILL INCREASE PROFIT ELIGIBLE TO GET D EDUCTION U/S 10A. THE RELEVANT FINDING IS GIVEN BELOW: 6.2 WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FA CTUAL POSITION SO AVERRED BY THE LD. A.R. BEFORE US AND FIND THAT THE CIT(A) HAD ABSOLUTELY FAILED TO DEAL WITH 11 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. AND ADJUDICATE THE AFORESAID SPECIFIC GROUND OF APP EAL RAISED BY THE ASSESSEE BEFORE HIM. THE LD. A.R HAD SUBMITTED BEFORE US THA T THE ASSESSEE COMPANY HAD BUSINESS INCOME ONLY FROM ONE SOURCE I.E SOFTWARE UNIT LOCATED IN SOFTWARE TECHNOLOGY PARK (FOR SHORT 'STP') WHICH PURSUANT TO ITS CORRESPONDING ENTITLEMENT TOWARDS CLAIM OF DEDUCTION U/S 10A THE REIN REDUCED THE TAXABLE INCOME TO RS. NIL. IT WAS THUS SUBMITTED BY THE LD. A.R THAT NOW WHEN ANY PART OF THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS DISALLO WED U/S 14A THEN AS A CONSEQUENCE THERETO THE PROFITS OF THE ASSESSEE ELI GIBLE FOR DEDUCTION U/S 10A WOULD WITNESS A CORRESPONDING INCREASE LEADING TO A CONSEQUENT INCREASE IN THE CLAIM OF DEDUCTION OF THE ASSESSEE U/S 10A OF THE ' ACT' PURSUANT WHERETO THE NET EFFECT WOULD REMAIN AT RS. NIL. WE FIND SUBSTANTIAL FORCE IN THE CONTENTION OF THE LD. A.R AND ARE PERSUADED TO BE IN AGREEMENT WITH H IM THAT PURSUANT TO DISALLOWANCE U/S 14A THE BUSINESS PROFITS ELIGIBLE FOR DEDUCTION U/S 10A TO THE SAID EXTENT WOULD STAND ENHANCED. WE FIND THAT THE ISSUE INVOLVED IS COVERED BY THE JUDGMENT OF THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF : CIT V. GEM PLUS JEWELLERY INDIA LTD. [2011] 330 ITR 175/[2010] 194 TAXMAN 192 (BOM.) WHEREIN THE HON'BLE HIGH COURT HELD AS UNDER:- 'THE DISALLOWANCE OF THE PF/ESIC PAYMENTS HAS BEEN MADE BECAUSE OF THE STATUTORY PROVISIONS - S. 43B IN THE CASE OF THE EM PLOYER'S CONTRIBUTION AND S. 36(V) R/W S. 2(24)(X) IN THE CASE OF THE EMPLOYEES CONTRIBUTION WHICH HAS BEEN DEEMED TO BE THE INCOME OF THE ASSESSEE. THE PLAIN CONSEQUENCE OF THE DISALLOWANCE AND THE ADD BACK THAT HAS BEEN MADE BY THE A.O IS AN INCREASE IN THE BUSINESS PROFITS OF THE ASSESSEE. THE CONTEN TION OF THE REVENUE THAT IN COMPUTING THE DEDUCTION UNDER S. 10A THE ADDITION M ADE ON ACCOUNT OF THE DISALLOWANCE OF THE PF/ESIC PAYMENTS OUGHT TO BE IG NORED CANNOT BE ACCEPTED. NO STATUTORY PROVISION TO THAT EFFECT HAV ING BEEN MADE THE PLAIN CONSEQUENCE OF THE DISALLOWANCE MADE BY THE AO MUST FOLLOW.' WE THUS IN LIGHT OF THE AFORESAID FACTS OF THE CASE R.W THE SETTLED POSITION OF LAW HEREIN DIRECT THE A.O THAT PURSUANT TO THE DISALLOW ANCE OF RS. 3 10 868/- SO MADE BY HIM U/S 14A A CONSEQUENT ENHANCEMENT OF THE ENT ITLEMENT OF THE ASSESSEE TOWARDS CLAIM OF DEDUCTION U/S 10A OF THE 'ACT' BE CARRIED OUT. THE GROUND OF APPEAL NO. 1 IS THUS ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE RATIO WE DIRECT T HE AO TO ALLOW THE INCREASE IN PROFIT CONSEQUENT TO DISALLOWANCE OF PR OVISION FOR GRATUITY AS DEDUCTION U/S 10A. ACCORDINGLY GROUND RAISED BY THE ASSESSEE IS ALLOWED IN THIS REGARD AND THE OTHER GROUNDS RELATI NG TO CLAIM OF GRATUITY AS EXPENDITURE ARE DISMISSED. ITA NO. 329/HYD/2016 FOR AY 2011-12 13. GROUND NO. 1 WAS NOT PRESSED BY THE ASSESSEE T HEREFORE THE SAME IS DISMISSED AS NOT PRESSED. 12 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. 14. AS REGARDS GROUND NO. 2 RELATING TO THE ADDITIO N OF RS. 3 65 81 330/- TOWARDS INTEREST ATTRIBUTED ON INVEST MENT MADE IN GSS AMERICA INC. USA OF USD 2 38 08 597/- DURING THE FY 2010-11 THE ASSESSEE HAD ADVANCED A SUM OF USD 7 821 517 AS AN INTEREST FREE LOAN TO ITS AE I.E. GSS AMERICAL INC WHEREAS THE OP ENING BALANCE AS ON 01/04/2010 WAS USD 15 987 080/-. 14.1 THE CONTENTION OF THE ASSESSEE THAT THE FUNDS WERE GIVEN OUT OF THE FREE RESERVES OF THE ASSESSEE WAS REJECTED B Y THE TPO BY OBSERVING THAT NO INDEPENDENT BUSINESS ENTITY OPERA TING AT ARMS LENGTH WILL PART WITH ITS SUBSTANTIAL FUNDS WITHOUT ANY CONSIDERATION OR QUID PRO QUO WHATSOEVER. HE FURTHER OBSERVED THAT T HE ASSESSEE HAD FAILED TO SHOW THE TANGIBLE AND DIRECT BENEFITS IT HAD RECEIVED FROM THE INTEREST FREE LOAN GIVEN TO ITS AE AND THE FUNDS WE RE USED BY THE AE FOR ACQUISITION AND THEREFORE IT WAS THE AE WHICH HAD DIRECTLY BENEFITTED FROM THE FUNDS AND NOT THE ASSESSEE. AS REGARDS THE ARGUMENT OF THE ASSESSEE THAT THE LOAN WAS IN THE N ATURE OF QUASI EQUITY AND THE ADVANCE WAS CONVERTED INTO EQUITY IN FY 2011-12 THE TPO NOTICED THAT THERE IS A GAP OF MORE THAN TWO YE ARS BETWEEN GIVING LOAN AND ISSUANCE OF EQUITY. HE OPINED THAT IF THE FUNDS WERE ACTUALLY GIVEN FOR THE PURPOSE OF EQUITY THEN THE A SSESSEE WOULD HAVE INSISTED FOR BEING ISSUED SHARES AGAINST THE AMOUNT GIVEN AND THE ASSESSEE HAD NEITHER RECEIVED ANY INTEREST NOR ANY DIVIDEND FOR THIS PERIOD. HE OBSERVED THAT IN AN ARMS LENGTH SCENARI O NO COMMERCIAL ENTERPRISE WILL PART WITH SUCH SUBSTANTIAL AMOUNT O F FUNDS WITHOUT ANY CONSIDERATION AND FOREGO INTEREST/DIVIDEND. 14.2 IN VIEW OF THE ABOVE OBSERVATIONS THE TPO HEL D THAT THE ARMS LENGTH PRICE OF THE INTEREST ON THE LOAN GIVEN BY T HE ASSESSEE TO AE IS 3.94% PER ANNUM AND SINCE THE ASSESSEE HAD NOT CHAR GED ANY INTEREST ON THE SAME THE INTERNATIONAL TRANSACTION IS NOT WITHIN THE ARMS LENGTH PRICE. ACCORDINGLY THE TPO COMPUTED T HE ADJUSTMENT U/S 92CA(3) ON ACCOUNT OF INTEREST WAS AT RS. 3 65 81 330/- AND THE TOTAL INCOME OF THE ASSESSEE WAS ADJUSTED ACCORDINGLY. 13 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. 14.3 WHEN THE ASSESSEE FILED OBJECTION BEFORE THE D RP THE DRP REJECTED THE OBJECTION AND CONFIRMED THE ALP ADJUST MENT OF RS. 3 65 81 330/-. 15. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 16. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT NO INTEREST CAN BE CHARGED ON THE INVESTMENTS MADE BY THE ASSES SEE IN ITS OWN AE AND INVESTMENT IN AE IS NOT AN INTERNATIONAL TRA NSACTION AS NO INCOME IS GENERATED. HE RELIED ON THE FOLLOWING CAS ES: 1. DCIT VS. CADILA HEALTHCARE LTD. 39 TAXMANN.COM 51 2. PRITHVI INFORMATION SOLUTIONS LTD. VS. DCIT 47 2/H/2014 3. M/S VIJAY ELECTRICALS LTD. VS. ADDL. CIT 842/H /12 4. HILL COUNTY PROPERTIES LTD. VS. ACIT 48 TAXMAN N.COM 94 5. VODAFONE INDIA SERVICES (P) LTD. VS. UNION OF IN DIA 50 TAXMANN.COM 300 6. DANA CORPORATION RE 321 ITR 178 7. AMIANTIT INTERNATIONAL HOLDING LTD. 322 ITR 67 8 8. GSS INFOTECH LTD. VS. ACIT HYD. 497/HYD/2015 17. LD. DR RELIED ON THE ORDER OF DRP. 18. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. SIMILAR ISSUE HAS BEEN DECIDED IN ITA NO . 267/HYD/2014 (SUPRA). FOLLOWING THE CONCLUSIONS DRAWN THEREIN T HIS GROUND IS ALLOWED. 19. GROUND NOS. 3 TO 6 RELATE TO DEDUCTION U/S 10A OF THE ACT. 20. DURING THE YEAR THE ASSESSEE COMPANY EARNED AN INCOME OF RS. 11 83 09 632/- FROM CARRYING OUT THE BUSINESS O F SOFTWARE EXPORTS. THE ASSESSEE COMPANY CLAIMED AN AMOUNT OF RS. 11 71 67 722 AS EXEMPTION U/S 10A. THE ASSESSEE HAD CLAIMED THAT DU RING THE YEAR IT RAISED EXPORT INVOICES TO AN EXTENT OF RS. 37 39 38 516/- FROM ITS HYDERABAD BRANCH. THE ASSESSEE REALIZED THE SALE PR OCEEDS OF RS. 37 39 38 516 AS GIVEN BELOW: 14 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. 20.1 THE ASSESSEE HAD BROUGHT RS. 9 96 73 705/- TO INDIA IN CONVERTIBLE FOREIGN EXCHANGE WITHIN THE STIPULATED PERIOD THAT IS WITHIN 6 MONTHS FROM THE END OF FY 2010-11 (I.E. BEFORE 30 /09/2011 AS PER SECTION 10A(3) OF THE ACT. S.NO. PARTICULARS AS TO WHEN THE SALE PROCEEDS WERE RECEIVED AMOUNT RECEIVED IN RS. DETAILS AS TO HOW DEDUCTION U/S 10A IS ALLOWABLE 1 WITHIN 6 MONTHS FROM THE END OF FY 2010-11 (I.E. BEFORE 30/09/2011) 9 96 73 705 AS PER SECTION 10A(3). 2 WITHIN ONE YEAR FROM THE DATE OF INVOICE AS PER RBI CIRCULAR 1 51 57 968 NOT ELIGIBLE FOR DEDUCTION 3 AFTER 30/11/2011 AND AFTER ONE YEAR FROM THE DATE OF INVOICE 17 61 37 767 -DO- 4 NOT RECEIVED TILL DATE 14 61 575 -DO- 5 ACCOUNTS RECEIVABLE INVESTED AS EQUITY INVESTMENT IN THE AE 8 15 07 501 -DO- TOTAL 37 39 38 516 ACCORDINGLY THE AO COMPUTED THE ELIGIBLE DEDUCTION U/S 10A OF THE ACT AT RS. 1 86 31 410/-. 21. AGGRIEVED BY THE ACTION OF AO THE ASSESSEE FIL ED OBJECTIONS BEFORE THE DRP AND SUBMITTED THAT THE AO SHOULD NOT HAVE RESTRICTED THE ALLOWANCE U/S 10A TO THE EXTENT OF FOREIGN EXCH ANGE RECEIVED UP TO 30/09/2011 ALONE IGNORING THE DIRECTIONS CONTAI NED IN VARIOUS CIRCULARS ISSUED BY RBI UNDER THE REGULATIONS OF FE MA. IT WAS FURTHER SUBMITTED THAT THE AO SHOULD HAVE CONSIDERED THE AM OUNTS REALIZED TO THE EXTENT OF RS. 1 51 57 968/- WITHIN THE PERIO D OF ONE YEAR FROM THE DATE OF INVOICED AS EXPORT TURNOVER ELIGIBLE FO R DEDUCTION U/S 10A OF THE ACT AS PER THE TIME ALLOWED BY THE APPROPRIA TE AUTHORITY I.E. RBI. 22. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE THE DRP HELD THAT IN VIEW OF THE GUIDELINES ISSUED BY THE R BI AND ALSO THE 15 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. DIRECTIONS CONTAINED IN THE ORDER OF THE DRP IN THE EARLIER YEAR DIRECTED THE AO TO PROVIDE THE BENEFIT OF SECTION 1 0A ON THE AMOUNTS REALIZED IN THE PERIOD OF ONE YEAR. 23. IN COMPLIANCE WITH THE DRP DIRECTIONS THE AO R ECOMPUTED THE EXPORT TURNOVER AT RS. 11 48 31 673/- (RS. 9 96 73 705 + 1 51 57 968). THE AO HELD THAT AS PER THE REVISED FORM 56F FURNISHED BY THE ASSESSEE THE EXPORT TURNOVER OF HYDERABAD U NIT IS RS. 37 24 76 941/- HOWEVER FOR THE PURPOSE OF COMPUTA TION OF DEDUCTION U/S 10A THE EXPORT TURNOVER IS RESTRICTED TO THE E XTENT OF REALIZATION OF SALE PROCEEDS I.E. RS. 11 48 31 673/-. 24. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 25. AS REGARDS GROUND NO. 3 TO 3A & 3B. REGARDING EXPORT RECEIVABLE RECEIVED AFTER 1 YEAR 2.5 MONTHS OF RS. 17 61 37 767/- THE LD. AR SUBMITTED THAT LETTER FROM AUTHORISED DEALER WITH REGARD TO THE REGULARIZATION OF EXPORT PROCEEDS IS ENTITLED TO EX EMPTION U/S 10A(3) OF THE ACT. HE RELIED ON THE DECISION IN THE CASE O F PRITHVI INFORMATION SOLUTIONS LTD. VS. ITO 225/HYD/2005 WHEREIN THE CO ORDINATE BENCH HAS HELD AS UNDER: 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS COULD BE NOTICED FROM THE LETTER DATED 05/10/2005 THE COMPANY WAS PE RMITTED TO UTILIZE 70% OF THE ONSITE EXPORT PROCEEDS FOR OVERS EAS BRANCH EXPENSES AND ALSO REGULARIZE THE NON-REPATRIATION A ND UTILIZATION OF THE BALANCE 30% OF THE REALISATIONS FOR ELIGIBLE CURRENT ACCOUNT TRANSACTIONS OF THE COMPANY OUTSIDE INDIA. IN THE LIGHT OF THE LETTER ADDRESSED BY UTI BANK LTD. WITH REGARD TO REGULARIZATION OF EXPORT PROCEEDS WE ADMIT THE ADD ITIONAL EVIDENCE AND HEREBY HOLD THAT THE ASSESSEE IS ENTIT LED TO EXEMPTION U/S 10A(3) OF THE ACT AND WE DIRECT THE A O ACCORDINGLY. 26. LD. DR RELIED ON THE ORDER OF DRP. 27. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. AS THE ISSUE UNDER DISPUTE IS SQUARELY C OVERED BY THE 16 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL I N THE CASE OF PRITHVI INFORMATION SOLUTIONS LTD. (SUPRA) THAT WHEN THE AS SESSEE SEEKS PERMISSION FROM THE RBI THROUGH THE AUTHORIZED DEAL ERS FOR THE DELAYED REMITTANCE AND THE SAME ARE RATIFIED BY RBI SUCH REALIZATIONS ARE ELIGIBLE TO CLAIM DEDUCTION U/S 10 A. AS PER PROVISION OF SECTION 10A(3) THE REALIZATION SHOULD BE BROUGH T TO INDIA WITHIN 6 MONTHS OR AS APPROVED BY PROPER AUTHORITY IN THE G IVEN CASE IT IS RBI WHICH IS THE APPROVED AUTHORITY. HENCE ASSES SEE IS ELIGIBLE TO CLAIM DEDUCTION U/S 10A. THEREFORE WE DIRECT THE A O TO ALLOW THE ASSESSEES CLAIM OF EXEMPTION U/S 10A. ACCORDINGLY THIS GROUND IS ALLOWED. 28. AS REGARDS GROUND NO. 4 TO 4 & 4B REGARDING EXPORT RECEIVABLE CONVERTED INTO EQUITY OF RS. 8 15 07 501 /- THE LD. AR SUBMITTED THAT WHEN REALIZATIONS WERE ACTUALLY TRA NSFERRED TO SUBSIDIARY AS AN INVESTMENT WITHIN THE EXTENDED TIM E BY RBI IT IS TO BE CONSIDERED FOR EXEMPTION U/S 10A. HE RELIED ON T HE DECISION OF THE COORDINATE BENCH IN THE CASE OF SANKHYA INFOTECH LT D. IN ITA NO. 316- 320/HYD/2010 WHEREIN THE COORDINATE BENCH HAS HELD AS UNDER: 6. SINCE THE CIT(A) HAS CALLED FOR REMAND REPORT ON RECEIPT OF THE ADDITIONAL EVIDENCE IN THE FORM OF EXTENSION OF TIME FOR RECEIPT OF MONIES BEYOND SIX MONTHS FROM RBI IT CA NNOT BE SAID THAT THERE IS A VIOLATION OF RULE 46A. THE CIT(A) A FTER CONSIDERING THE OBJECTION OF THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE DEFECTS POINTED BY THE ASSESSIN G OFFICER IS A PROCEDURAL NATURE AND IT CAN BE CURED BY PERMITTI NG APPROPRIATE RECTIFICATION AT THE FIRST APPELLATE ST AGE. BEING SO WE DO NOT FIND ANY INFIRMITY IN ADMITTING THE ADDIT IONAL EVIDENCE BY CIT(A) FOR ADJUDICATION. THE CIT(A) DURING THE F IRST APPELLATE STAGE CALLED FOR THE SUMMARY OF MONIES REMITTED AND RECEIVED THROUGH DIFFERENT MODES BY THE ASSESSEE. THE CIT(A) AFTER EXAMINATION OF DOCUMENTS CAME TO THE CONCLUSION THA T ALL THE REMITTANCE WERE SUPPORTED WITH FIRCS OR APPROVAL FR OM RBI FOR INVESTING IN WHOLLY OWNED SUBSIDIARY OR REMITTANCE INTO APPROVED BANK ACCOUNTS MAINTAINED IN ABROAD. THE AS SESSEE ALSO FURNISHED ALL THE REQUIRED STATEMENTS IN THE F ORM OF FIRCS OR RBI APPROVALS. THIS HAS BEEN CONSIDERED BY THE C IT(A) AFTER CONFRONTING THE SAME TO THE ASSESSING OFFICER. ALL THE MONIES RECEIVED BY THE ASSESSEE WERE SUPPORTED BY THE FIRC S. THE 17 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. ASSESSING OFFICER HAS REJECTED THE BENEFIT U/S 10A( 3) ON THE REASON THAT THE PROVISIONS OF SECTION 10A(3) ARE SP ECIFIC AND DOES NOT INCLUDE THE DEEMING PROVISIONS AS PER THE RBI (RELATING TO THE CAPITALIZED PROCEEDS/WORK IN PROGR ESS). IN OUR OPINION THE PROVISIONS OF EXPLANATION 2 TO SECTION 10A(3) IS APPLICABLE FOR A SITUATION WHERE SALE PROCEEDINGS A RE CREDITED TO A SEPARATE ACCOUNT MAINTAINED OUTSIDE INDIA WITH THE APPROVAL OF RBI. IN THE PRESENT CASE THE REMITTANC E IS WITHIN THE PRESCRIBED TIME LIMIT AND THE EXPLANATION 2 IS IRRELEVANT. FURTHER FIRCS BEING ISSUED BY THE APPROVED DEALER S OF THE FOREIGN EXCHANGE WHICH IS GOOD AND SUFFICIENT EVIDE NCE FOR REMITTANCE OF FOREIGN EXCHANGE INTO INDIA AND THE S AME HAS TO BE ACCEPTED. FURTHER THE APPROVAL FOR CAPITALIZATI ON GRANTED BY THE RBI THE ASSESSING OFFICER IN HIS REMAND REPORT HAS STATED THAT RECEIVABLE CANNOT BE DEEMED TO BE ADEQUATE FOR THE PURPOSE OF BENEFIT U/S 10A EVEN THOUGH THE SAME IS CONSIDERED FOR FOREIGN EXCHANGE LAWS. WE HAVE CAREFULLY GONE T HROUGH THE FACTS OF THE CASE. EXPLANATION 1 TO SECTION 10A(3) WHICH HAS DEFINED THE COMPETENT AUTHORITY AS RBI AND THE COMP ETENT AUTHORITY BEING RBI AUTHORIZE THE CAPITALIZATION AN D THEN SUCH AUTHORIZATION SHOULD AUTOMATICALLY GET VALIDATED AS THE SAID AUTHORITY SPECIFICALLY AUTHORIZED UNDER THE PROVISI ONS OF SECTION 10A(3) OF THE 1T ACT. FURTHER THE WHOLLY OWNED SUB SIDIARY HAS BEEN INCORPORATED IN FRANCE BY THE NAME 'SANKHYA SA RI' WITH THE APPROPRIATE APPROVAL FROM RBI THAT CERTAIN AMOU NT OF EUROS BE INVESTED INTO THIS COMPANY WITHIN ONE YEAR FROM THE DATE OF APPROVAL. THIS APPROVAL IS RELEVANT FOR THE ASSESSM ENT YEAR 2002-03 TO 2003-04 AND IN BOTH THE YEARS IT HAS BE EN PROVED BY THE ASSESSEE THAT THE SAID MONIES WERE INVESTED 'INTO THE WHOLLY OWNED SUBSIDIARY WITHIN THE PERIOD OF ONE YE AR FROM THE DATE OF RBI'S APPROVAL. HENCE THE CONDITIONS LAID D OWN IS COMPLIED WITH BY THE ASSESSEE AND THE DEPARTMENT HA S NOT BROUGHT ON RECORD THE THAT THE CONDITIONS LAID DOWN BY RBI HAS NOT COMPLIED WITH. BEING SO WE ARE IN AGREEMENT WI TH THE ORDER OF THE C1T(A). THE REVENUE IS HAVING ALSO OBJECTION REGARDING THAT THE C1T(A) HAS GRANTED DEDUCTION U/S 10A IN RE SPECT OF INVOICES WHICH HAS NOT FALLEN DUE AND ACCORDING TO THE DR THE RBI LETTER OF APPROVAL DATED 31.7.2003 IS APPLICABL E ONLY FOR THOSE INVOICES FOR WHICH EXTENSION OF TIME HAD BEEN GRANTED BUT NOT FOR WHICH HAS NOT FALLEN DUE AND IT CANNOT BE G IVEN EXEMPTION FOR FUTURE RECEIVABLES AND WORK IN PROGRE SS. ACCORDING TO LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THE PROCESS OF DEVELOPING AND DELIVERING SOFTWARE TO ITS CLIENTS INVOLVE VARIOUS STAGES. SOMETIMES EVEN WHEN THE SOFTWARE HAS BEEN INCIDENTAL THE SALE IS NOT COMPL ETE AS MANY OTHER JOBS SUCH AS TRAINING HAND HOLDING ETC. ARE YET TO BE COMPLETED. SUCH EVENTS WERE CONSIDERED AS WORK IN P ROGRESS AND ONLY AFTER THE COMPLETE JOBS ARE DONE SALE PRO CEEDS ARE REALIZED FROM SUCH INSTANCES. TILL SUCH TIME THE A MOUNTS SPENT 18 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. ON DEVELOPING THIS SOFTWARE HAVE BEEN SHOWN AS WORK IN PROGRESS AND THE SAME ON REALIZATION WERE TRANSFERR ED TO WHOLLY OWNED SUBSIDIARY AS INVESTMENT. IN OUR OPINION THE WORK IN PROGRESS/FUTURE RECEIVABLES CANNOT BE CONSIDERED FO R DEDUCTION U/ S 10A. HOWEVER WHEN THESE AMOUNTS ON REALIZATIO N WERE ACTUALLY TRANSFERRED TO WHOLLY OWNED SUBSIDIARY AS AN INVESTMENT WITHIN THE EXTENDED TIME BY RBI IT IS T O BE CONSIDERED FOR EXEMPTION U/S 10A IF THE OTHER CONDI TIONS ARE FULFILLED BY THE ASSESSEE AND SIMILAR IS THE POSITI ON IN CASE OF WORK IN PROGRESS. THE ASSESSING OFFICER HAS TO RE-C OMPUTE DEDUCTION U/S 10A CONSIDERING THE WORK IN PROGRESS/ FUTURE RECEIVABLES AS NOT ENTITLED FOR EXEMPTION U/S 10A. HOWEVER AS SOON AS IT IS REALIZED AND TRANSFERRED FROM WORK IN PROGRESS/FUTURE RECEIVABLE ACCOUNT TO WOS IT IS TO BE CONSIDERED AS ENTITLED FOR EXEMPTION U/S 10A IF IT IS WITHIN THE EXTENDED TIME BY RBI. THE ASSESSEE HAS TO RECONCILE WITH REFERENCE TO WORK IN PROGRESS REALIZED AND TRANSFER RED IT INTO INVESTMENT IN WOS TO AVAIL DEDUCTION U/S 10A AND TH E ASSESSING OFFICER IS TO GRANT THE DEDUCTION U/S 10A IF IT IS WITHIN THE EXTENDED TIME. 29. LD. DR RELIED ON THE ORDER OF DRP. 30. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. AS THE ISSUE UNDER DISPUTE IS SQUARELY C OVERED BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL I N THE CASE OF SANKHYA INFOTECH LTD. (SUPRA) AND THE ASSESSEE HAS RECEIVED APPROVAL FOR THE INVESTMENT SUCH INVESTMENTS WERE OUT OF SALE PROCEEDS. THE AUTHORIZED DEALER HAS ADJUSTED AGAINS T SUCH INVESTMENT AND ISSUES FIRCS TO THE ASSESSEE THEN IT AMOUNTS TO REALIZATION OF EXPORT PROCEEDS WITHIN THE MEANING O F ACTUAL RECEIPTS FOR THE PURPOSE OF SECTION 10A. SINCE THE ASSESSEE HAS NOT SUBMITTED ANY DOCUMENT IN SUPPORT OF APPROVAL GRANTED BY RBI AND FIRC CERTIFICATES WE REMIT THIS ISSUE TO THE FILE OF TH E AO TO EXAMINE THE FIRCS AND APPROVAL FROM RBI IN CASE IT IS IN ORDE R THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10A ON SUCH SUM. ACCORDI NGLY GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSE. 31. GROUND NO. 5 IS AS FOLLOWS: 19 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. 5. ERRED IN WRONGLY CONSIDERING THE PROFITS OF BUSI NESS AT RS. 8 15 07 501/- INSTEAD OF RS. 8 59 12 141/-WHILE CAL CULATING THE DEDUCTION U/S 10A. 31.1 IT IS GENERAL IN NATURE AND HAS ALREADY BEEN A DJUDICATED IN THE ABOVE PARAGRAPHS. 32 GROUND NO. 6 IS AS FOLLOWS: 6. ERRED IN NOT EXCLUDING THE INVOICE OF BANGLADESH BRANCH OF RS. 1 71 48 146/- FROM THE TOTAL TURNOVER WHILE CAL CULATING THE DEDUCTION U/S 10A OF THE ACT. 33. LD. AR OF THE ASSESSEE SUBMITTED THAT ONSITE SA LES SHOULD NOT BE EXCLUDED FROM EXPORT TURNOVER. HE SUBMITTED THA T BRANCH SALES SHOULD BE EXCLUDED FROM EXPORT TURNOVER AS WELL AS FROM TOTAL TURNOVER. FURTHER HE SUBMITTED THAT WHATEVER AMOUN T HAS BEEN EXCLUDED FROM THE EXPORT TURNOVER SHOULD ALSO BE EX CLUDED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF EX EMPTION U/S 10A OF THE ACT. HE RELIED ON VARIOUS CASES INCLUDING THE C ASE OF DCIT VS. SEVEN HILLS BUSINESS SOLUTIONS P. LTD. IN ITA NO. 8 2/HYD/2009 WHEREIN THE COORDINATE BENCH HAS HELD AS UNDER: 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR OPINION EXPORT TURNOVE R MEANS THE SALE PROCEEDS OF ANY GOODS OR MERCHANDISE EXPORTED OUT OF INDIA BUT DOES NOT INCLUDE FREIGHT OR INCIDENCE AT TRIBUTABLE TO THE TRANSPORT OF GOODS OR MERCHANDISE BEYOND THE CU STOMS STATIONS AS DEFINED IN THE CUSTOMS ACT. THE SEC. 10 B WAS BROUGHT INTO STATUTE BOOK WITH A OBJECT TO GRANT IN CENTIVE TO EXPORT ORIENTED UNDERTAKING ENGAGED IN EXPORT OF AR TICLE OF THINGS OR COMPUTER SOFTWARE. THE 'DEDUCTION IS MADE AVAILABLE ON EXPORT OF SOFTWARE TURNOVER THE PROCEEDS WHEREO F ARE RECEIVED IN FOREIGN EXCHANGE. IT IS NOT AVAILABLE O N OTHER EXPORT TURNOVER THE RECEIPTS WHEREOF ARE IN AN INDIAN CUR RENCY OR IN CURRENCY WHICH IS NOT A CONVERTIBLE FOREIGN EXCHANG E. THE OBJECT THEREFORE APPEARS TO BE TO ENCOURAGE MORE I NFLOW OF CONVERTIBLE EXCHANGE AND NOT THE MERE EXPORT OF GOO DS. MAKING IT AVAILABLE WITH REFERENCE TO THE REALIZATION IN C ONVERTIBLE EXCHANGE IS SUGGESTIVE OF THE FACT THAT IT WAS WITH A VIEW TO ENCOURAGE FOREIGN EXCHANGE INFLOW. UNDER THE PROVIS IONS OF S.10B TO AVAIL THE DEDUCTION UNDER THIS SEC. THE UN DERTAKING HAS TO BRING INTO INDIA THE SALE PROCEEDS IN CONVERTIBL E FOREIGN EXCHANGE WHICH SHALL BE PHYSICALLY BROUGHT TO INDI A.' 20 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. REPATRIATION OF THESE RECEIPTS IS THE MAIN CONDITIO N IN AVAILING OF SEC.10B. THE SALE PROCEEDS MUST BE RECEIVABLE IN CONVERTIBLE FOREIGN EXCHANGE. THEREFORE THE AVOWED OBJECT IS TO ENCOURAGE INFLOW OF CONVERTIBLE FOREIGN EXCHANGE . IF THAT OBJECT IS KEPT IN MIND AMOUNT RECEIVED BY BRANCHES IN US AS SALES CANNOT BE CONSIDERED RECEIVED IN THE FORM OF CONVERTIBLE FOREIGN EXCHANGE BY ASSESSEE IN INDIA. THE SALE PRO CEEDS RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE MEANS THE 'ACTUAL RECEIPT' NOT 'DEEMED RECEIPT'. THE ARGUMENT OF THE ASSESSEE'S COUNSEL IS THAT AS PER EXPLANATION (3) TO SEC.10B O F THE ACT THE BRANCH SALES IS TO BE CONSIDERED AS ON SITE DEVELOP MENT OF SOFTWARE AT ABROAD. THIS ARGUMENT OF THE ASSESSEE'S COUNSEL IS BEREFT OF ANY MERIT SINCE THE BRANCH SALES CANNOT B E EQUATED WITH ON SITE DEVELOPMENT OF SOFTWARE WHICH IS NOT I DENTICAL. IN OUR HUMBLE OPINION ASSESSEE IS NOT ENTITLED FOR BE NEFIT OF SEC. 10B ON THE BRANCH SALES AND IT IS TO BE EXCLUDED BO TH FROM EXPORT TURNOVER AS WELL AS FROM TOTAL TURNOVER. ACC ORDINGLY THIS GROUND RAISED BY THE REVENUE AND AS WELL AS BY THE ASSESSEE IS DISMISSED. 34. LD. DR RELIED ON THE ORDER OF DRP. 35. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. AS THE ISSUE UNDER DISPUTE IS SQUARELY C OVERED BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL I N THE CASE OF SEVEN HILLS BUSINESS SOLUTIONS P. LTD. (SUPRA) WE DIRECT THE AO TO ALLOW THE ASSESSEES CLAIM OF EXEMPTION U/S 10A BY EXCLUDING THE BRANCH TURNOVER FROM BOTH EXPORT TURNOVER AND TOTAL TURNOV ER. ACCORDINGLY THIS GROUND IS ALLOWED. 36. THE GROUNDS NOS. 7 TO 10 ARE ALTERNATIVE GROUND S TO THE ABOVE GROUNDS THEREFORE THE SAME IS NOT REQUIRED TO BE ADJUDICATED AS THE MAIN GROUNDS ARE ADJUDICATED IN FAVOUR OF THE ASSES SEE. ITA NO. 602/HYD/2017 FOR AY 2012-13 37. GROUND NOS. 1 & 2 REGARDING INVALID TRANSFER PR ICING PROCEEDINGS AND INVALID DRAFT ASSESSMENT ORDER WAS NOT PRESSED BY THE LD. AR OF THE ASSESSEE AT THE TIME OF HEARING THEREFORE THE SAME ARE DISMISSED AS NOT PRESSED. 21 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. 38. AS REGARDS GROUND NOS. 3 4 & 5 RELATING TO THE ADDITION OF RS. 9 36 79 227/- U/S 92CA(3) THE TPO AFTER REJECTING THE TP STUDY FILED BY THE ASSESSEE AND HAVING CONDUCTED A NEW SEARCH F OR COMPARABLES THE FOLLOWING COMPARABLES WERE SELECTE D AS FINAL COMPARABLES AFTER ANALYZING THE DATABASES THE ANNU AL REPORTS AND CONSIDERING THE OBJECTIONS FILED BY THE ASSESSE: S.NO. COMPANY NAME OP/OC% 1 ACCENTIA TECHNOLOGIES LTD. 11.16 2. DATAMATICS GLOBAL SERVICES LTD. 16.84 3. ECLERX SERVICES LTD. 61.37 4. E4E HEALTH CARE 13.73 5. INFORMED TECHNOLOGIES INDIA LTD. 7.10 6. INFOSYS BPO LTD. 34.68 7. JINDAL INTELLICOM LTD. 1.98 8. MICROGENETIC SYSTEMS LTD. 7.01 9. TCS E-SERVE LTD. (MERGED) 65.82 10 CROSS DOMAIN SOLUTIONS PVT. LTD. 29.88 TOTAL 249.59 24.96 AFTER APPLYING THE AVERAGE MARGINS OF THE COMPARABL ES TO THE FINANCIALS OF THE ASSESSEE THE RESULT IS AS UNDER: DESCRIPTION AMOUNT ARMS LENGTH MARGIN 24.96% LESS: WCA -2.51% ADJUSTED ARMS LENGTH MARGIN 27.47% OPERATING COST (OC) 65 82 78 605 ADJUSTED ARMS LENGTH MARGIN (%) AALM) 27.47% % OF AE SALES ON TOTAL REVENUE 13.31% PROPORTIONATE COST ON AE SALES 8 76 16 882 ARMS LENGTH PRICE = (100+AALM)*OC 11 16 85 239 PRICE RECEIVED (OR) 7 71 72 081 ADJUSTMENT U/S 92CA 3 45 13 158 THUS THE ARMS LENGTH PRICE OF THE ASSESSEE IS RS. 11 16 85 239/- AND THE SHORTFALL OF RS. 3 45 13 158/- WITH REGARD TO PROVISION OF ITES IS TREATED AS AN ADJUSTMENT U/S 92CA OF THE ACT BY THE TPO AND ACCORDINGLY ENHANCED THE INCOME OF THE ASSESSEE U/ S 92CA(3) OF THE ACT. 22 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. 39. THE ASSESSEE CARRIED THE MATTER BEFORE THE DRP AND RAISED GROUNDS RELATING TO ADOPTION OF MAM ADOPTION OF INCORRECT MARGIN CALCULATION AND RELATING TO SEARCH APPLIED FILTERS AND COMPARABLES. LD. DRP HAS CONFIRMED THE MAM ADOPTED BY TPO AND THE COMPARABLES SELECTED BY TPO. HOWEVER THEY AGREED T HE OBJECTION RAISED BY ASSESSEE AND FOR CONVENIENCE THE FINDING S OF ARE REPRODUCED BELOW: HAVING CONSIDERED THE SUBMISSIONS WE HAVE PERUSED THE RECORD TO OBSERVE THAT THE TPO VIDE PARA M PAGE 13 OF THE TPO ORDER DATED 30.01.2016 IN WHICH THE TPO REJECTED TH E REQUEST OF THE' ASSESSEE-ON THE REASON THAT THE ASSESSEE FA ILED TO ESTABLISH THE PECULIAR CIRCUMSTANCES EXISTING IN TH E CASE TO APPLY THE PBDIT. HOWEVER IT IS NOTICED BY US THAT IN THE DRAFT ASSESSMENT ORDER (DAO) THE AO HAS DISALLOWED THE DEPRECIATION ON THE COMPUTER SOFTWARE ON THE GROUND THAT THE TRANSACTION ITSELF HAS NOT BEEN ESTABLISHED BY THE ASSESSEE TO BE GENUINE IN SUCH CIRCUMSTANCES WHEN THERE IS A D ISPUTE WITH REGARD TO THE DEPRECIATION IN RESPECT OF A CERTAIN ASSET IT IS A FIT CASE FOR CONSIDERING THE PBDIT IN THE CASE OF THE A SSESSEE. THIS VIEW IS ALSO FINDS SUPPORT FROM THE DECISION O F THE HON'BLE AP & TELANGANA HIGH COURT IN THE CASE OF BA CONTIN UUM INDIA PVT LIMITED (ITTA 440 OF 2014) (SUPRA) AND ALSO BY OECD GUIDELINES ACCORDINGLY WE DIRECT THE ASSESSING OF FICER TO CONSIDER THE MARGIN IN THE CASE OF THE ASSESSEE AS WELL AS COMPARABLES AFTER EXCLUDING DEPRECIATION. 39.1 AS PER THE ABOVE DIRECTIONS OF THE DRP THE TP O DETERMINED THE ADJUSTMENT OF RS. 10 19 56 655/- AS AGAINST RS. 9 36 79 227/- MADE BY HIM WITHOUT CONSIDERING THE ABOVE DIRECTION TO ANALYSE THE OPERATING PROFIT BY ADOPTING PBDIT IN ALL COMPARABL E CASES. 40. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 41. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. IN OUR CONSIDERED VIEW THE TPO HAS NOT FOLLOWED THE DIRECTIONS OF DRP IN PIT & SUBSTANCE BY OVERLOOKING THE DIRECTIONS OF THE DRP TO CONSIDER THE MARGIN IN CASE OF ASSESSEE AS WELL AS COMPARABLES AFTER EXCLUDING DEPRECIATION. SINCE AO/ TPO HAS ARRIVED 23 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. ALP ADJUSTMENT WITHOUT EXCLUDING DEPRECIATION IN O UR CONSIDERED VIEW THE ALP ADJUSTMENT ARRIVED AT BY THE TPO IS NO T AS PER THE DIRECTIONS OF DRP. HENCE WE REMIT THIS ISSUE BACK TO THE AO/TPO TO CALCULATE THE TP ADJUSTMENT EXCLUDING DEPRECIATION. ACCORDINGLY THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED ON THIS AS PECT. HENCE WE ARE NOT INCLINED TO ADJUDICATE THE OTHER GROUNDS RA ISED BY THE ASSESSEE RELATING TO TP ADJUSTMENT. 42. AS REGARDS GROUND NO. 6 TO 6A & 6K REGARDING AD DITION OF RS. 4 87 31 761/- TOWARDS INTEREST ON ADVANCES TOWARDS INVESTMENT GIVEN TO AE THE TPO OBSERVED THAT DURING THE FY 2011-12 THE ASSESSEE HAD ADVANCED A SUM OF RS. 31 96 87 941/- AS AN INT EREST FREE LOAN TO ITS AE I.E. GSS AMERICA INC. WHEREAS THE OPENING B ALANCE AS ON 01/04/2011 WAS RS. 108 96 88 358/-. THUS THE LOAN OUTSTANDING AS ON 31/03/2012 IS RS. 140 93 76 299/-. THE EXPLANATI ON OF THE ASSESSEE IS THAT THE FUNDS WERE GIVEN OUT OF THE FR EE RESERVES OF THE ASSESSEE COMPANY WHICH WAS REJECTED BY THE TPO AND COMPUTED THE INTEREST AS UNDER: OPENING BALANCE AS ON 01/04/2012 RS. 108 96 88 3 58/- CLOSING BALANCE AS ON 31/03/2012 RS. 140 93 76 299/- TOTAL RS. 249 90 64 657/- =========== AVERAGE RS. 124 95 32 329/- INTEREST @ 3.90% PM ON RS. 124 95 32 329/- = 4 87 31 761/-. 43. WHEN THE ASSESSEE OBJECTED THE SAME BEFORE THE DRP THE DRP UPHELD THE ADDITION. 44. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. SIMILAR ISSUE AROSE IN AY 2009-10 IN ITA NO. 267/HYD/2014 (SUPRA). FOLLOWING THE CONCLUSIONS DRAWN THEREIN WI LL APPLY IN THIS YEAR ALSO BUT WE HAVE OBSERVED IN THE DRP ORDER THA T THE ASSESSEE 24 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. HAS LENT LOAN TO THE EXTENT OF RS. 31.96 CRORES DUR ING THIS YEAR AND ALSO TOOK LOAN FROM BANKS. HENCE THIS YEAR THE FIN ANCIAL EQUATIONS ARE CHANGED. CONSIDERING THE DIRECTIONS GIVEN IN IT A NO. 267/HYD/2014 IN CASE THE FINDINGS OF THE TPO ARE THAT THIS TRANSACTION IS IN THE NATURE OF FINANCIAL TRANSACTI ON THEN TPO CAN CHARGE INTEREST ON THE BASIS OF LIBOR + 200 BPS. IN CASE IT IS DETERMINED AS EQUITY THEN NO INTEREST CAN BE CHAR GED IN THIS TRANSACTION. ACCORDINGLY GROUND RAISED BY THE ASSE SSEE IS ALLOWED FOR STATISTICAL PURPOSES. 45. AS REGARDS GROUND NO. 7 & 7A TO 7K REGARDING AD DITION OF RS. 1 04 34 308/- TOWARDS INTEREST ON RECEIVABLES THE TPO OBSERVED THAT THERE ARE OUTSTANDING RECEIVABLES TO THE TUNE OF RS . 7 71 72 081/- WHICH WERE NOT REPORTED EITHER IN FORM 3CEB OR IN T HE TP DOCUMENT. FURTHER THE TPO OBSERVED THAT ON PERUSAL OF THE SC HEDULE OF RECEIVABLES IT WAS NOTICED THAT THE ENTIRE RECEIVA BLES HAD NOT BEEN RECEIVED DURING THE YEAR. WHEN ASKED FOR EXPLANATIO N THE ASSESSEE STATED THAT INTEREST SHOULD BE LEVIED AT LIBOR + 3% AS WAS DECIDED BY THE DRP IN ITS OWN CASE AS AGAINST PLR OF 14.75% PROPOSED BY TPO. HOWEVER THE TPO LEVIED INTEREST @ PLR I.E. @ 14.75% ON THE OUTSTANDING RECEIVABLES AMOUNTING TO RS. 7 71 72 08 1/- WHICH COMES TO RS. 1 04 34 308/-. 46. WHEN THE ASSESSEE OBJECTED THE SAME BEFORE THE DRP THE DRP DIRECTED THE ASSESSEE TO FURNISH THE NECESSARY DETAILS TO THE TPO WHICH IS NECESSARY FOR COMPUTATION OF INTEREST IN ACCORDANCE WITH THE DIRECTIONS WITHIN 15 DAYS OF RECEIPT OF TH IS ORDER ON RECEIPT OF WHICH THE AO WILL GIVE EFFECT TO THE DIRECTIONS. FU RTHER THE DRP DIRECTED IF THE ASSESSEE FAILS TO FURNISH SUCH INFO RMATION BEFORE THE AO WITHIN THE SPECIFIED TIME THE AO SHALL T REAT THE OBJECTION AS REJECTED. 47. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 25 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. 48. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THE ISSUE IS SQUARELY COVERED BY THE DEC ISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2010 -11 IN ITA NO. 497/HYD/2016 ORDER DATED 29 TH APRIL 2016 WHEREIN THE COORDINATE BENCH HAS HELD AS UNDER: 11. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE CONTENTIONS. AS SEEN FROM ASSESSEE'S CONTENTIONS A SSESSEE IS NEITHER CHARGING INTEREST ON ANY OF THE RECEIVABLES OUTSTANDING. THERE IS ALSO NO BASIS FOR ADOPTING ONLY TWO MONTHS AS CREDIT PERIOD. RBI ITSELF ALLOWS AN YEAR FOR THE AMOUNTS T O BE REALISED IF THEY ARE IN FOREIGN EXCHANGE. WHETHER IT IS AE O R NON-AE IT IS IN THE INTEREST OF BUSINESS THAT ASSESSEE RECEIVES THE FOREIGN EXCHANGE EARLY SO THAT IT CAN CLAIM DEDUCTION U/S 1 0A. THEREFORE IN OUR VIEW PUTTING A LIMIT OF TWO MONT HS OF CREDIT PERIOD ITSELF IS ARBITRARY. MOREOVER AS SEEN FROM THE CALCULATION PROVIDED IN PAGE 7 OF THE ASSESSMENT ORDER THE DAT E OF REALIZATION WAS SHOWN AS 0202-2011 AND INTEREST WAS LEVIED FROM 01-04-2010 TO 02-02-2011 WHICH IS NOT PERTAINI NG TO THE YEAR UNDER CONSIDERATION. AS FAR AS THIS YEAR IS CO NCERNED THE INVOICES RAISED ON 31-12-2009 WERE OUTSTANDING ONLY FOR A PERIOD OF THREE MONTHS BY THE END OF THE ACCOUNTING YEAR. WE ARE OF THE OPINION THAT THIS PERIOD IS REASONABLE A ND SO NO INTEREST CAN BE LEVIED JUST BECAUSE AMOUNTS ARE SH OWN AS 'OUTSTANDING'. ACCORDINGLY WE CANCEL THE INTEREST LEVIED AND ALLOW ASSESSEE'S CONTENTIONS. GROUNDS ARE CONSIDERE D ALLOWED. AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY IDEN TICAL TO AY 2010- 11 EXCEPT FOR THE REASON THAT ASSESSEE DOES NOT CH ARGE INTEREST TO BOTH AE AND NON AE BUT DURING THIS YEAR THE ENTIRE RECEIVABLES HAD NOT BEEN RECEIVED. IT IS NOT SUBMITTED BEFORE US T HE REASONABLE PERIOD OF OUTSTANDING ALLOWED TO THE DEBTORS IN THE NORMAL BUSINESS. CONSIDERING THE FACT THAT SECTION 10A ALLOWS ASSESS EE TO BRING THE FOREIGN EXCHANGE WITHIN 6 MONTHS TO CLAIM BENEFIT U NDER THIS SECTION. IN OUR CONSIDERED VIEW THE SAME CAN ALSO BE EXTEND ED TO ASSESSEE AS THE REASONABLE PERIOD OUTSTANDING. ACCORDINGLY WE DIRECT THE AO/TPO TO CHARGE INTEREST OF LIBOR + 200 BPS ON THE OUTSTANDING AMOUNT BEYOND 6 MONTHS. IN ORDER TO DETERMINE THE P ERIOD AND COMPUTATION OF INTEREST THE ISSUE IS REMITTED BACK TO AO/TPO. 26 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. ACCORDINGLY GROUND RAISED BY THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. 49. AS REGARDS THE GROUND NO. 8 & 8A TO 8K RELATING TO THE ADDITION OF RS. 14 62 50 000/- TOWARDS ASSET WRITTEN OFF AND RS. 4 87 57 000/- TOWARDS DEPRECIATION CLAIMED ON THE ABOVE ASSET IN THE COMPUTATION OF TOTAL INCOME THE AO OBSERVED THAT THE ASSESSEE CLAIMED RS. 14 62 50 000/- TOWARDS LOSS ON ASSET WRITTEN OFF. F URTHER FROM THE DEPRECIATION SCHEDULE AS PER IT ACT IT WAS OBSERVE D THAT THE ASSESSEE CLAIMED DEPRECIATION OF RS. 4 87 57 000/- IN ADDITION TO THE WRITE OFF OF RS. 14 62 50 000/- ON THE SAME BLOCK O F ASSET. WHEN THE ASSESSEE WAS ASKED TO FURNISH A NOTE ON ASSET WRITT EN OFF OF RS. 14 62 50 000/- AND JUSTIFY THE ALLOWABILITY OF THE SAME ALONG WITH EVIDENCE THE ASSESSEE SUBMITTED THAT IN THE YEAR 2 009 IT HAD DEVISED A PLAN TO TARGET SME TO MOVE INTO A SAS BASED ERP M ODEL AND AN ERP PACKAGE WAS CONSIDERED THAT COULD BE USED TO ME ET THIS REQUIREMENT ACCORDINGLY THE PRODUCT WAS BOUGHT A ND THE PLAN WAS TO INTRODUCE THIS IN ALL OF THE MARKET THAT GSS WAS DOING BUSINESS INCLUDING INDIA MIDDLE EAST AND US. FURTHER THE A SSESSEE SUBMITTED THAT THE SAID ERP PRODUCT WAS WRITTEN OFF AS THE CO MPANY WAS NOT TAKING ANY ASSIGNMENT BASED ON THE ABOVE ERP BASED SOFTWARE. WHEN ASKED TO FURNISH EVIDENCE/BILL IN SUPPORT OF T HE ERP PACKAGE WHICH WAS WRITTEN OFF DURING FY 2011-12 THE ASSESS EE FURNISHED A COPY OF THE INVOICE. 49.1 THE AO REFERRING TO THE PROVISIONS OF SECTION 37(1) AND SECTION 50 OF THE ACT OBSERVED THAT THE ASSETS WRITTEN OFF OF RS. 14 62 50 000/- AS CLAIMED BY THE ASSESSEE IS NOT AL LOWABLE U/S 32(1)(III) SECTION 37 AND SECTION 50 OF THE ACT AS THERE WERE INCONSISTENCIES IN THE SUBMISSION MADE BY THE ASSES SEE AND THE ASSESSEE FAILED TO SUBSTANTIATE THE ALLOWABILITY OF ITS CLAIM OF ASSETS WRITTEN OFF. THEREFORE THE AO DISALLOWED THE ASSES SEES CLAIM. 27 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. 49.2 AS REGARDS THE DISALLOWANCE OF DEPRECIATION ON THE ERP PACKAGE THE AO NOTICED FROM THE DEPRECIATION SCHE DULE FOR AY 2012- 13 THAT THE ASSESSEE CLAIMED A DEPRECIATION OF RS. 4 87 57 000/- ON THE ABOVE MENTIONED ASSET IN ADDITION TO THE CLAIM OF WRITTEN OFF OF RS. 14 62 50 000/-. THE AO OBSERVED THAT THE ASSESS EE FAILED TO PROVE THE FOLLOWING: 1. THE PURCHASE OF ERP PACKAGE WAS NOT PROVED 2. UTILISATION OF THE ERP PACKAGE FOR THE PURPOSE O F BUSINESS WAS NOT PROVED. 3. THE ERP PACKAGE WAS REALLY WRITTEN OFF IN ITS BO OKS OF ACCOUNT WAS NOT PROVED. IN VIEW OF THE ABOVE THE AO DISALLOWED THE DEPRECI ATION OF RS. 4 87 57 000/- AND RS. 14 62 50 000/- AND ADDED TO T HE INCOME OF THE ASSESSEE. 50. AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE THE DRP. THE DRP HAS CONFIRMED THE ADDITION BY RELYING ON THE RE MAND REPORT FROM AO BY OBSERVING AS UNDER: CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES . WE HAVE EXAMINED THIS ISSUE IN MINUTE DETAILS TO FIND THAT THE ASSESSEE AS AGAINST ITS REVENUE OF AROUND RS. 60 CRORES HAS CHOSEN TO PURCHASE THE SO CALLED ERP SOFTWARE AMOUNT INTO RS. 25.58 CRORES AS SECOND SALES FROM M/S BASANT MARKETING PV T. LTD. IN SPITE OF TRANSACTION BEING SUCH A BIG ONE AND THAT TOO A SECOND SALE THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE THE BASIC INFORMATION TO ESTABLISH THE GENUINENESS OF THE PUR CHASE. FURTHER ASSESSEE BEING A REASONABLY SMALL COMPANY CANNOT AFFORD TO BUY SUCH EXPENSIVE SOFTWARE WITHOUT A PRO PER BUSINESS PLAN AND WRITE OFF THE SAME WITHOUT GIVING ANY VALID JUSTIFICATION. WRITE OFF OF SUCH A VALUABLE ASSET T HAT TOO SOON AFTER ITS ACQUISITION WITHOUT THERE BEING ANY PROPE R BUSINESS RATIONALE SUPPORTS THE VIEW TAKEN BY THE AO. IT IS ALSO PERTINENT TO OBSERVE THAT THE ASSESSEE HAS CHOSEN TO WRITE OF F THE ASSET IN THIS TRANSACTION SOON AFTER ITS TAX HOLIDAY CAME TO AN END AND WAS TO PAY TAXES ON ITS PROFITS. IN VIEW OF THE ABOVE AND ALSO RELYING ON THE REASON ING GIVEN BY THE AO IN THE ORIGINAL DRAFT ASSESSMENT ORDER AND A LSO IN THE RR SUBMITTED TO US WE ARE OF THE VIEW THAT THE ASS ESSEE HAS FAILED TO PROVE THE GENUINENESS OF THE TRANSACTION. ACCORDINGLY 28 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. WE CONFIRM THE ACTION OF THE AO AND REJECT THE OBJE CTIONS OF THE ASSESSEE ON THIS GROUND. 51. LD. AR REITERATED THE SUBMISSIONS AS SUBMITTED BEFORE THE DRP WHILE LD. DR RELIED ON THE ORDER OF DRP. 52. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THE ABOVE SAID ERP SOFTWARE WAS PURCHASE D AND INSTALLED IN THE FY 2009-10 RELEVANT TO AY 2010-11. THE SAME WAS ACCEPTED BY THE DEPARTMENT AND ACCORDINGLY ASSESSMENTS U/S 143( 3) WERE COMPLETED. THE SAME ASSET WAS WRITTEN OFF BY THE AS SESSEE DUE TO CHANGE IN THE BUSINESS MODEL. IN THIS AY THE AO WA S NOT SATISFIED WITH THE SUBMISSION OF THE ASSESSEE FOR THE WRITTEN OFF AND CLAIM OF DEPRECIATION FOR THIS AY. AO HAS ASKED THE ASSESSEE TO SUBMIT THE RELEVANT PROOF OF PURCHASE AND PAYMENT ALONG WITH T HE DETAILS OF BUSINESS GENERATED. ASSESSEE FILED THE COPY OF THE INVOICE AND BANK CERTIFICATE IN THIS REGARD WHICH WAS NOT ACCEPTED B Y AO IS PROPER. LD. DRP ALSO EXPRESSED FLAW IN THE DECISION OF PURCHASI NG THIS SOFTWARE AND GENUINENESS OF THE TRANSACTION. IN OUR CONSIDER ED VIEW THE DEPARTMENT HAS ACCEPTED THE SOFTWARE PURCHASED AND ALLOWED THE DEPRECIATION IN THE SCRUTINY ASSESSMENT U/S 143(3) IN THE EARLIER AYS. NO DOUBT THE ASSESSEE HAS DISCHARGED THE DUTY OF CO MPLIANCE BUT THAT DOES NOT MEAN THE PRESENT AO CANNOT VERIFY THE RELEVANT VERIFICATION FILED IN EARLIER YEAR PARTICULARLY W HEN THE TRANSACTION IS OF HUGE VALUE. THE ASSESSEE IS EXPECTED TO RETAIN THE RELEVANT INFORMATION OF THIS TRANSACTION. CONSIDERING THE HU GE INVESTMENT ON THE SOFTWAREE IT SHOULD HAVE PASSED DUE PROCESS OF APPROVAL IN THE ORGANIZATION. IT IS THE DUTY OF THE ASSESSEE TO SUB MIT THE INFORMATION WHENEVER IT IS CALLED FOR UNTIL THE ASSET IS FULLY DEPRECIATED OR WRITTEN OFF. IN THE PRESENT CASE ASSESSEE HAS PURCHASED TH IS SOFTWARE TO IMPROVE THE BUSINESS BY LINKING THE TRANSACTION OF DIFFERENT COUNTRIES. IT IS NOT ALWAYS END UP WITH GOOD DECISION IT IS P ART OF BUSINESS DECISIONS. IT IS NOT ALWAYS RELEVANT HOW MUCH REVEN UE IT HAS GENERATED OR IMPROVED THE BUSINESS. IT IS NOT SOMET IMES QUANTIFIABLE. 29 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. IT IS ENOUGH TO PROVE THAT THE PURCHASE TRANSACTION AND RELEVANT PAYMENT IS PROPER. AO IS EXPECTED TO VERIFY ONLY TH E LEGALITY AND GENUINENESS OF THE TRANSACTION AND NOT THE RATIONAL E OF SUCH TRANSACTION IT SHOULD BE THE DOMAIN OF THE MANAGEM ENT. ACCORDINGLY WE DIRECT THE ASSESSEE TO SUBMIT THE RELEVANT INFOR MATION RELATING TO PURCHASE AND PAYMENT OF ERP SOFTWARE. THE ASSESSEE HAS TO SUBMIT THE COPY OF BILLS AND PAYMENT VOUCHERS WITH BANK ST ATEMENT IN WHICH SUCH PAYMENTS WERE CLEARED. WE NOTE THAT ASSESSEE H AS NOT SUBMITTED SUCH INFORMATION EVEN BEFORE AO/DRP EVEN THOUGH OPPORTUNITY WAS EXTENDED. NOW LD. AR HAS SUBMITTED THAT ALL THE INFORMATION IS AVAILABLE ACCORDINGLY WE REMIT THI S ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE TRANS ACTION AS PER DUE PROCEDURE ONLY FOR THE GENUINENESS OF PURCHASE AND PAYMENT. ASSESSEE MAY BE GIVEN PROPER OPPORTUNITY OF BEING H EARD. THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE S. 53. IN THE RESULT ALL THE THREE APPEALS UNDER CONS IDERATION ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD DATED: 30 TH NOVEMBER 2017 KV COPY TO:- 1) M/S GSS INFOTECH LTD. C/O P. MURALI & CO. CAS 6-3-655/2/3 1 ST FLOOR SOMAJIGUDA HYDERABAD 82 2) DCIT CIRCLE 2(2) HYD. 3) DRP BENGALURU 4) THE DEPARTMENTAL REPRESENTATIVE I.T.A.T. HYDE RABAD. 5) GUARD FILE 30 ITA NOS. 269 /HYD/2014 AND OTHERS GSS INFOTECH LTD. HYD. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER