HP PPS SERVICES INDIA PRIVATE LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(1), BANGALORE

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ITTPA 1758/BANG/2024Status: DisposedITAT Bangalore27 January 2026AY 2020-2113 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the final assessment order was not in conformity with the DRP's directions, specifically concerning the addition of Rs. 1,44,38,804 for assets imported free of cost. The DRP had directed this to be treated as business income under section 28(iv), but the AO incorrectly sustained the addition under section 69C. The Tribunal found merit in the assessee's contention that the DRP's directions were not followed, and this violation of section 144C(13) rendered the assessment order invalid to that extent. Therefore, Ground No. 3 of the assessee was allowed, and the addition of Rs. 1,44,38,804 under section 69C was deleted. Regarding additions sustained under section 69C amounting to Rs. 7,41,309, the Tribunal noted that the assessee had substantiated the majority of imports and deleted the remaining addition, allowing Ground No. 5. For amounts of Rs. 11,86,627 and Rs. 16,76,434, where the DRP sustained additions under section 69C due to the assessee not following DRP Rules for additional evidence, the Tribunal, in the interest of natural justice, decided to give the assessee one more opportunity. The issue was remitted back to the AO to admit the additional evidence and allow the claim in accordance with law, with a reasonable opportunity of being heard, allowing Ground No. 4 for statistical purposes. Ground No. 6 concerning TP adjustment was dismissed as not pressed by the assessee. Grounds 1, 2, 7, and 8 were either general, consequential, or not pressed.

What were the facts?

The assessee, M/s. HP PPS Services India Pvt. Ltd., is an IT and ITeS company. The appeal is against the final assessment order passed by the Income Tax Assessment Unit (AO) for Assessment Year 2020-21 on July 26, 2024, under section 143(3) read with section 144C(13) of the Income Tax Act. The assessee's original return declared a total income of Rs. 58,69,58,240. The AO made a reference to the Transfer Pricing Officer (TPO) who proposed an adjustment of Rs. 15,40,57,305. The AO also made additions under section 69C for Rs. 11,16,24,686, representing the difference between purchases in the ITR and invoice value of imports. The assessee filed objections before the Dispute Resolution Panel (DRP). The DRP issued directions, and the AO passed the final assessment order. The assessee contends the final order is not in conformity with the DRP's directions and violates principles of natural justice.

What were the issues?

1. Whether the final assessment order passed by the AO under section 143(3) r.w.s. 144C(13) is bad in law for not conforming to the directions of the DRP, as mandated by section 144C(13) of the Act? - Assessee: Argued that the AO failed to follow the DRP's directions, particularly regarding additions under section 69C and section 28(iv), making the order bad in law. Relied on judicial precedents, including a Karnataka High Court decision. - Revenue: Argued that the AO followed the DRP's directions for the major part of the addition and that any deviation was an inadvertent error or a curable defect, not warranting quashing the entire order. Mentioned that mentioning the wrong section (69C instead of 28(iv)) is a curable defect. 2. Whether the addition of INR 18,043,547 under section 69C, upheld by the DRP, is erroneous and unwarranted? - Assessee: Contended that the DRP erred by relying on Insight portal/CBIC/TAS information and not considering the assessee's books of accounts, which are based on regularly followed accounting policies and standards. Argued that the value from customs law differs from accounting principles. - Revenue: No specific argument recorded for this issue. 3. Whether the addition of INR 14,438,804 towards loaned Free of Cost (FOC) imports, treated as addition under section 28(iv) by the DRP, is erroneous, especially when the AO made the addition under section 69C? - Assessee: Argued that the AO erred by making the addition under section 69C in the final assessment order despite the DRP's direction to treat it under section 28(iv), thus violating section 144C(13). Also argued that the assessable value under customs law should not be the basis for benefits under section 28(iv) and that depreciation deduction was wrongly denied. - Revenue: Argued that mentioning the wrong section (69C instead of 28(iv)) is an inadvertent error and a curable defect, and the mention of the wrong section cannot be the sole reason for quashing the assessment order. 4. Whether the additions of INR 11,86,627 and INR 16,76,434 under section 69C are erroneous, considering the assessee's submissions and the AO's rejection of additional evidence? - Assessee: Argued that the AO/DRP erred by not considering details and documents and by stating they were additional evidence without appreciating that import details were shared for the first time during DRP proceedings. Also argued that imports recorded in books but not in AO's listing cannot be unexplained under section 69C. - Revenue: Argued that the DRP correctly upheld the addition because the assessee did not follow the procedures under Rule 4 & 9 of the DRP Rules, 2009, for submitting additional evidence. 5. Whether the addition of INR 741,309 towards fixed assets is erroneous? - Assessee: Contended that the AO erred by making the addition without appreciating the reconciliation provided by the appellant. - Revenue: No specific argument recorded for this issue. 6. Whether the transfer pricing adjustment for interest on delayed trade receivables is erroneous?

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 69C,Section 28(iv),Section 274,Section 271AAC,Section 270A,Section 234A,Section 234B,Section 234D,Section 156

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE

Before: MS. PADMAVATHY S & SHRI RAHUL CHAUDHARY

For Appellant: Shri Suryanarayana, Advocate
For Respondent: Dr. Divya K.J, CIT-DR

PER PADMAVATHY S, ACCOUNTANT MEMBER

This appeal by the assessee is against the final assessment order passed by the Income Tax Assessment Unit (AO) u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act (“the Act”) on 26/07/2024 for A.Y. 2020-21. The assessee raised the following grounds: “General 1.1 The Assessment order passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 ('the Act') for the Assessment Year ('AY') 2020-21, is not in accordance with the law and are contrary to the facts and circumstances of the present case.

1.2 On the facts and circumstances of the case and in law, the Assessment Unit, Income Tax Department ('Ld. AO') has erred is law and on facts, in not passing the final assessment order ('FAO') dated 26 July 2024 in conformity with the directions issued by the Learned Dispute

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Resolution Panel ('Ld. DRP') as mandated by section 144C(13) of the Act and therefore, bad in law and ought to be quashed as per section 144C(13) of the Act read with judicial precedence including Karnataka High Court decision.

1.3 On the facts and circumstances of the case and in law, both the Ld. AO/ DRP has violated principles of equity and natural justice, by merely providing limited time of one working day and two working day during assessment and DRP proceedings respectively, to provide Appellant's response.

2.

Additions under section 69C is erroneous and unwarranted 2.1 The Ld. DRP has erred in law and on facts in upholding addition proposed by the AO under section 69C of the Act to the extent of INR 18,043,547, without considering the facts, documentation, submission and explanations furnished during the proceedings and merely relying on information available in the Insight portal / CBIC / TAS information.

2.2 The Ld. DRP has erred in law and on facts in upholding addition of INR 18,043,547, without appreciating Appellant submission that value of imports as per Insight portal / CBIC / TAS information, is determined under the Custom law and amount recorded in the books of accounts is based on accounting policies, principle and accounting standards regularly followed by the Appellant.

3.

Towards loaned Free of Cost ('FOC') Imports — INR 14,438,804 3.1 The Ld. DRP, after being satisfied with the details/ information and evidences furnished towards loaned/ FOC assets amounting to INR 14,069,841 in the context of section 69C of the Act (inadvertently mentioned as INR 14,438,804 in the order), has erred in law and facts, treating the same as addition under section 28(iv) of the Act without providing the Appellant an opportunity of being heard.

3.2 In continuation to ground 1.2 above, the Ld. AO has erred in law and facts, in making addition towards loaned/ FOC assets of INR 14,438,804 under section 69C of the Act in the FAO, in spite of direction of the Ld. DRP in para 2.7.11 of its direction for treating the same as addition under section 28(iv) of the Act. Thereby, requiring

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the subject order to be quashed as per section 144C(13) of the Act read with judicial precedence including Karnataka High Court decision.

3.3 On the facts and circumstances of the case and in law, the Ld. DRP has erred in considering the assessable value of FOC/ loaned imports as the amount of benefits arising under section 28(iv) of the Act without considering the fact that assessable value has been computed in accordance with Indian custom laws.

3.4 Without prejudice, on the facts and circumstances of the case and in law, the Ld. DRP/AO has erred in law and on facts, in not granting the deduction towards consequential depreciation in respect of loaned/ FOC imports treated as income under section 28(iv) of the Act.

4.

Towards other items - INR 2,863,061 4.1 The Ld. DRP/AO has erred in law and on facts by not considering the details/ documents/ reconciliation in respect of INR 2,863,434, and upholding the additions, merely stating that these details are in the nature of additional evidence, without appreciating the fact that import details were shared for the first time during the DRP proceedings.

4.2 Without prejudice, the Ld. DRP has erred in upholding the additions in respect of INR 1,676,434, representing imports recorded in the books of accounts of Appellant, but not appearing in import listing of AO, the question of the same being unexplained in the context of section 69C of the Act does not arise at all.

5.

Additions towards Fixed asset — INR 741,309 5.1 On the facts and circumstances of the case and in law, the Ld. AO has erred in making additions of INR 741,309 towards fixed asset without appreciating the reconciliation provided by the appellant vide submission dated 17 June 2024.

6.

Additions on account of transfer pricing adjustment of interest on delayed trade receivables —INR 311,156 6.1 The Ld. DRP/ Ld. AO/ Ld. TPO erred in imputing interest on delayed trade receivables from the Associated Enterprises ('AEs').

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6.2 The Ld. DRP/ Ld. AO / Ld. TPO erred in law and on facts in not accepting the weighted average as a methodology while computing the outstanding receivable.

6.3 The Ld. DRP / Ld. AO / Ld. TPO erred in law and on facts in not computing the notional interest on trade receivables by netting-off the advances received from the AEs and payables to the AEs against such trade receivables.

6.4 Without prejudice to the above grounds, Ld. DRP/ Ld. AO/ Ld. TPO have erred in calculating the rate of interest by using SBI short term deposit interest rate in computing the transfer pricing adjustment on account of interest on the delayed trade receivables as against the London Inter- Bank Offered Rate (LIBOR).

6.5 The Ld. DRP/ Ld. AO/ Ld. TPO erred in disregarding the fact that no separate adjustment is needed on overdue outstanding receivables as it is subsumed in the working capital adjustment sought by the Appellant.

6.6 Without prejudice to the above grounds, the Ld. DRP/ Ld. AO / Ld. TPO have erred on facts and in law in restricting the credit period to thirty (30) days for the purpose of computing the interest on trade receivables.

7.

Other Grounds 7.1 The Appellant submits that based on the facts and circumstances of the case, the Ld. AO erred in initiating penalty proceedings under section 274 read with section 271AAC of the Act.

7.2 The Appellant submits that based on the facts and circumstances of the case, the Ld. AO erred in initiating penalty proceedings under section 274 read with section 270A of the Act.

7.3 The Ld. AO erred in erroneous levy of interest under section 234A, 234B and 234D of the Act.

7.4 The Ld. AO has erred in law and on facts in determining the amount payable by the Appellant at INR 21,937,130 and thereby issuing a notice of demand under section 156 of the Act.

The Appellant craves leave to add, alter, vary, omit, substitute, or amend the above grounds, at any time

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before or at the time of hearing of the appeal. Each of the aforesaid grounds and sub-grounds are without prejudice to each other and are independent of each other.”

2.

The assessee is a company engaged in the business of software development and other IT enabled Services (ITeS). The assessee filed the original return of income for A.Y. 2020-21 on 11/01/2021 declaring a total income of Rs. 58,69,58,240/-. The case was selected for scrutiny and the notices were duly served on the assessee. The Assessing Officer (AO) made the reference to the transfer pricing officer to determine the arms length price of the international transactions the assessee is having with its AE. The transfer pricing officer proposed the TP adjustment to the tune of Rs. 15,40,57,305/- which included adjustment in software development segment, ITeS segment and interest on delayed receivables. The AO passed a draft assessment order including the transfer pricing adjustment. In the draft assessment order the AO also made additions u/s. 69C of the Act towards difference in the purchases shown in ITR and the invoice value of imports shown in the Import & Export data to the tune of Rs. 11,16,24,686/-. The assessee filed these objects before the DRP who gave partial relief to the assessee. The DRP directed the TPO to rework the TP adjustment considering certain inclusions and exclusions. The TPO passed the order giving effect in which TP adjustment towards interest on receivable amounting to Rs.3,11,156/- alone was sustained. With regard to the addition u/s.69C the DRP considered the breakup of imports furnished by the assessee and gave direction to the AO to (i) to examine the invoices submitted by the assessee to the tune of Rs.4,74,70,216 and delete the additions to the extend the invoices match (ii) to make addition u/s.28(iv) instead of u/s.69C towards assets imported free of cost amounting to Rs.1,44,38,804 (iii) to sustain the addition u/s.69C to the tune of Rs.28,63,434 towards which the assessee has not followed the process of submission of additional evidence before the DRP

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The AO passed the final assessment order pursuant to the directions of the DRP whereby as per the direction in (i) above addition u/s.69C was reduced to Rs.7,41,309. The AO while incorporating the direction in (ii) and (iii) had sustained the addition u/s.69C with respect to both the directions.The assessee is in appeal against the final order of assessment passed by the AO pursuant to the directions of the DRP.

3.

The Ld.AR at the outset raised legal contention (Ground no. 1.1 and 1.2) stating that the final order of assessment passed by the AO is not in accordance with the directions of the DRP. The Ld.AR in this regard drew our attention to the directions of the DRP with regard to the addition u/s. 69C of the Act. “2.7.10 It is seen that the dates and the amounts mentioned in the fixed asset schedule of the tax audit report vis-a-vis the information provided by the AO as per Annexure B and the invoice raised matched. The AO is directed to match the addition to the fixed assets as demonstrated by the Panel above and delete the addition made on account of import/purchase of fixed assets to the extent the AO can match the imports in Annexure B with the details submitted by the Assessee vide its submissions dated 27.09.2023 and also further submissions dated 25.06.2024 uploaded on the portal by the Assessee for the benefit of the AO. The grounds are adjudicated accordingly.

2.7.11 As regards the assets claimed amounting to Rs.1,44,38,804/- which were said to be in the nature of loan/free of cost imports, the Panel is of the opinion that such imports are in the nature of 'the value of any benefit, or perquisite, whether convertible into money or not, arising from business or exercise of a profession and are chargeable to income tax under the head profits and gains of business or profession u/s. 28(iv)1. Hence these amounts are to be included in the income of the Assessee. Accordingly, the Panel confirms the disallowance of Rs.1,44,38,804/- on account of import/purchase of assets on free of cost/ loan basis.

2.7.12 As regards the balance amount out of the total invoice value of imports pegged at Rs.6,71,74,692/-, the Assessee's contention is that some of the items of the

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imports are revenue items and are recorded either in FY imports are revenue items and are recorded either in FY imports are revenue items and are recorded either in FY 2020-21 due to timing difference or recorded in the books 21 due to timing difference or recorded in the books 21 due to timing difference or recorded in the books but not appearing Annexure B. but not appearing Annexure B. The Assessee, vide its The Assessee, vide its submission dated 25.06.2024, furnished reconciliation submission dated 25.06.2024, furnished reconciliation submission dated 25.06.2024, furnished reconciliation (Enclosure 2) which is produced as under: (Enclosure 2) which is produced as under:

2.7.13 However, it is seen that such details were not filed 13 However, it is seen that such details were not filed 13 However, it is seen that such details were not filed before the AO and they constitute additional evidences before the AO and they constitute additional evidences before the AO and they constitute additional evidences and since the and since the Assessee has not followed the due Assessee has not followed the due procedure as laid down under Rule 4 & 9 of the DRP procedure as laid down under Rule 4 & 9 of the DRP procedure as laid down under Rule 4 & 9 of the DRP Rules, 2009, no cognizance can be taken of the same. The Rules, 2009, no cognizance can be taken of the same. The Rules, 2009, no cognizance can be taken of the same. The AO is directed to disallow the amounts of Rs.11,86,627/ AO is directed to disallow the amounts of Rs.11,86,627/ AO is directed to disallow the amounts of Rs.11,86,627/- and Rs,16.76,434/ and Rs,16.76,434/- as they remained unsubstantiated. In as they remained unsubstantiated. In view of this discussion, the grounds related to objection iew of this discussion, the grounds related to objection iew of this discussion, the grounds related to objection raised vide ground of objection no. 10 and sub grounds are raised vide ground of objection no. 10 and sub grounds are raised vide ground of objection no. 10 and sub grounds are disposed off.

3.

The directions of this Panel, as per the discussions 3. The directions of this Panel, as per the discussions 3. The directions of this Panel, as per the discussions above, are hereby issued as per the provisions of section above, are hereby issued as per the provisions of section above, are hereby issued as per the provisions of section 144C(5) of Income Tax Act. The same is also being Income Tax Act. The same is also being Income Tax Act. The same is also being communicated to the assessee and to the Assessing communicated to the assessee and to the Assessing communicated to the assessee and to the Assessing Officer in terms of Rule 11 of the INCOME Officer in terms of Rule 11 of the INCOME-TAX (DISPUTE TAX (DISPUTE RESOLUTION PANEL) RULES, 2009. It may also be noted RESOLUTION PANEL) RULES, 2009. It may also be noted RESOLUTION PANEL) RULES, 2009. It may also be noted that the DIN being allotted to these directions upon that the DIN being allotted to these directions upon that the DIN being allotted to these directions upon uploading the same to the ITBA portal Is being mentioned ng the same to the ITBA portal Is being mentioned ng the same to the ITBA portal Is being mentioned at the first page and the communication of the Directions to at the first page and the communication of the Directions to at the first page and the communication of the Directions to the assessee is as per the ITBA generated Intimation Letter the assessee is as per the ITBA generated Intimation Letter the assessee is as per the ITBA generated Intimation Letter which is separately attached herewith.” ately attached herewith.”

4.

The Ld.AR submitted that the DRP with reg The Ld.AR submitted that the DRP with regard to the second item of ard to the second item of assets received free of cost assets received free of cost given a direction that the same cannot be added given a direction that the same cannot be added u/s. 69C of the Act, but u/s. 28(iv) ut u/s. 28(iv). The Ld.AR further drew our attention to he Ld.AR further drew our attention to the final order of assessment passed by the AO the final order of assessment passed by the AO where the AO has made the the AO has made the addition u/s. 69C. Accordingly, the Ld.AR submitted that the order passed addition u/s. 69C. Accordingly, the Ld.AR submitted that the order passed addition u/s. 69C. Accordingly, the Ld.AR submitted that the order passed

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by the AO is not in accordance with the section 144(13) of the Act. The Ld.AR in this regard placed reliance on the decision of Coordinate Bench of this Tribunal in the case of Flextronics Technologies (India) Pvt. Ltd. vs. ACIT in IT(TP)A No. 832/Bang/2017 vide order dated 31/12/2018 where it has been held that “7. The assessee preferred objections before the DRP against the draft order of assessment and the DRP gave its directions vide order 28.12.2016. It was pointed out that as per the provisions of section 144C(5) of the Act, the directions given by the DRP are binding on the AO and in terms of section 144C(13) of the Act, the AO was obliged to pass a final order of assessment in accordance with the directions of the DRP. The ld. Counsel for the assessee pointed out that in the present case, the final order of assessment does not incorporate the directions of the DRP and was a verbatim repetition of the draft order of assessment dated 29.3.2016. It was submitted that as per the provisions of section 144C of the Act, a final order of assessment in conformity with the directions of the IT(TP)A No.832/Bang/2017 DRP has to be passed within one month from the end of month in which the directions are issued by the DRP. Since the impugned order is not in conformity with the provisions of section 144C of the Act, the same is to be held as bad in law. The ld. Counsel for the assessee placed reliance on the decision of the ITAT Bangalore Bench in the case of Software Paradigms Infotech (P.) Ltd. v. ACIT [2018] 89 taxmann.com 339 (Bang. Trib.) wherein on an identical objection, the Tribunal quashed the final order of assessment. 8. The ld. DR, however, while not disputing the factual position as pointed out by the ld. Counsel for the assessee, submitted that fair order of assessment cannot be quashed, but at best it can be set aside directing the AO to pass the final order of assessment in conformity with the DRP's directions. In this regard the learned DR relied on a decision of the ITAT Delhi in the case of H & M Hennes & Mauritz India (P) Ltd. Vs. ACIT (2012) 25 Taxmann.com 510 (Del) wherein the Hon'ble Delhi Bench of ITAT remanded the issue back to AO to reconsider issue of transfer pricing in accordance with law. 9. We have considered the rival submissions. We find that on identical facts, this Tribunal in the case of Software Paradigms Infotech (P.) Ltd. (supra) has quashed the final order of assessment observing as follows:- "3.3.1 We have heard the rival contention of both parties in the matter and perused and carefully considered the

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material on record. The undisputed facts on record, as brought out by the discussions above, is that the AO, as per law, was required to pass the final order of assessment dated 17/1/2014 for asst. year 2009- 10 u/s 143(3) r.w.s 144C of the Act in conformity with the directions issued by the DRP u/s 144C(5) of the Act, which are binding on him as per section 144C(10) thereof and within the time prescribed u/s 144C(13) of the Act. We find that instead of passing the final order of assessment as required by law, the AO passed the IT(TP)A No.832/Bang/2017 impugned final order of assessment dated 17/1/2014 u/s 143(3) r.w.s 92CA of the Act; which, as contended by the id AR, is identical to the draft order of assessment passed on 14/3/2013 by only incorporating this TPO's proposals and , thereby evidently giving the DRP's mandatory directions issued u/s 144C(5) of the Act a complete go- by. In our view, it is factually established that the AO in the final order of assessment dated 17/1/2014 has not given effect to or carried out the binding directions of the DRP as required u/s 144C(10) within the time specified u/s 144C(13) of the Act; which is a clear violation of the binding provisions of sec. 144C(10) and (13) of the Act. Therefore, in our considered opinion, the conduct of the AO/TPO in passing the impugned final order of assessment dated 17/1/2014 is a clear case of defiance and disregard to the binding directions of the higher authorities, i.e, the DRP in the case on hand. In fact, in the impugned order dated 17/1/2014 there is not even a single reference to the DRP's directions issued us/ 144C(5) of the Act vide order dated 30/12/2013. 3.3.2 In the factual and legal matrix of the case on hand, as discussed above, we are of the considered view that the impugned final order of assessment for asst. year 2008-09 passed u/s 143(3) r.w.s 92CA of the Act by the AO, in violation of the express mandatory provisions of sec. 144C(10) and (13) of the Act by not passing the impugned order in pursuance of and in conformity with the binding directions of the DRP issued u/s 144C(5) of the Act, within the time specified for this purpose, has rendered the said impugned final order of assessment unsustainable in law. We, therefore, quash the impugned final order of assessment for asst. year 2009-10 passed by the AO u/s 143(3) r.w.s 92CA of the Act dated 17/1/2014 in the case on hand. W hold and direct accordingly.

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Consequently, ground No. 17 of assessee's appeal is allowed." 10. Respectfully following the aforesaid view of the Tribunal, we quash the impugned order of assessment. Since the impugned order of assessment is quashed on the ground that the same is not in conformity with the provisions of section 144C of the Act and further on the ground that the time for passing the final order of assessment is barred by time, we IT(TP)A No.832/Bang/2017 are of the view that the other issues raised by the assessee in its grounds of appeal and the grounds raised by the revenue in its appeal does not require any consideration. As far as the decision cited by the learned DR in the case of H & M Hennes & Mauritz India (P) Ltd. (supra) is concerned, we find that in the said decision, the counsel for the Assessee has in para 3.8 of the said order prayed for setting aside the final order of assessment of AO to pass orders in accordance with the directions of the DRP. Thus, it is a case of concession by the Assessee and not on the basis of arguments advanced by the parties. The law is well settled that a decision on concession of the counsel cannot be regarded as a precedent. Therefore, the decision cited by the learned DR does not support the case of the revenue.”

5.

The Ld.AR further submitted that the above decision of the Coordinate Bench is affirmed by the Hon’ble Karnataka High Court in the case of PCIT vs. Flextronics Technologies (India) (P.) Ltd. reported in (2023) 148 taxmann.com 123 (Karnataka). With regard to the addition to the tune of Rs. 7,41,309/- retained by the AO, the Ld.AR submitted that the assessee has provided evidences pertaining to substantial amount and prayed to one more opportunity to submit evidences in support of the balance amount. With regard to the third item of whereby the DRP has upheld the addition u/s. 69C, the Ld.AR submitted that the DRP did not accept any additional evidences submitted stating that the assessee has not followed the procedures of the DRP rules. The Ld.AR prayed for one more opportunity in this regard also to submit the details before the AO.

6.

The Ld. DR, on the other hand, vehemently argued that the AO has followed directions of the DRP with regard to major part of the addition and

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has given substantial relief to the assessee towards the same. The Ld.DR further argued that from the perusal of the final order of assessment, it is clear that the AO has applied his mind to verify the reconciliation submitted by the assessee to give relief and therefore the addition sustained u/s. 69C is an inadvertent error on the part of the AO. The Ld. DR also argued that by oversight the AO has mentioned the wrong section as 69C instead of 28(iv) and mentioning the wrong section cannot be the sole reason for quashing the assessment order. The Ld. DR submitted that this is a curable defect and therefore prayed that the final assessment order may not be quashed on this ground.

7.

We have heard the parties and perused the materials available on record. The AO while passing the draft assessment order considered the difference in the fixed assets import as unexplained u/s.69C of the Act. The DRP gave direction to the AO to consider the reconciliation and documentary evidences submitted by the assessee and give relief to the assessee. The DRP while doing so had given a specific direction with regard to the sum of Rs. Rs.1,44,38,804/- stating that the assets imported free of cost can be added only as business income of the assessee u/s.28(iv) of the Act and directed the AO accordingly (refer DRP direction as extracted in the earlier part of this order. From the perusal of the final assessment order passed by the AO, (page 58 of AO's order) we notice that the AO while giving effect to the DRP directions extracted the specific direction to make addition u/s.28(iv) but has held that the imports to the tune of Rs.1,44,38,804 are treated as unexplained u/s.69C of the Act. Accordingly we see merit in the contention of ld AR that the DRP directions have not been followed by the AO while passing the final assessment order as mandated u/s.144C(13). Having held so, we are conscious of the argument of the ld DR that the AO has followed the directions except those with respect to assets imported free of cost that cannot invalidate the entire assessment order. The ld AR to this contention fairly submitted that at least to the extent of addition sustained u/s.69C towards assets imported free of cost, the final assessment order not

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being in accordance with the directions of the DRP should be deleted. It is a settled legal position that final assessment order should mandatorily be passed in accordance with the directions of the DRP as per the provisions of section 144C(13) of the Act, and if not the assessment order which is not in conformity is invalid. We are unable to agree with the argument of the ld DR that the action of the AO is an inadvertent error for the reason that the AO in the final order has specifically mentioned that the impugned import is to be treated as unexplained expenditure u/s.69C. Accordingly we have no hesitation to hold that the addition sustained by the AO u/s.69C towards assets imported free of cost to the tune of Rs.1,44,38,804 without following the direction of the DRP to make the said addition u/s.28(iv) cannot be sustained. Ground No.3 of the assessee in this regard is allowed

8.

With regard to the additions sustained u/s.69C amounting to Rs.7,41,309 we notice that the assessee has submitted evidences and the AO has deleted the addition to the tune of Rs.4,67,28,907 out of Rs.4,74,70,216 which is 98.43%. Considering the materiality, volume of details and the fact that the assessee has substantiated the majority of the imports, we delete the addition u/s.69C for remaining amount of Rs.7,41,309. Ground No.5 of the assessee in this regard is allowed

9.

With regard the amounts of Rs.11,86,627/- and Rs,16.76,434/- the DRP sustained the addition made by the AO u/s.69C of the Act on the ground that the assessee has not followed the due procedure as laid down under Rule 4 & 9 of the DRP Rules, 2009 for submission of additional evidence. Accordingly the DRP held that no cognizance can be taken of the additional evidences. In the natural justice and fair play we are inclined to give one more opportunity to the assessee to submit the evidences substantiating the impugned additions. Accordingly, we remit the issue back to the AO with the direction to admit the additional evidences furnished by the assessee with regard to the impugned additions and allow the claim in accordance with law. Needless to say that the assessee be given a

Page 13 IT(TP)A No. 1758/Bang/2024 M/s. HP PPS Services India Pvt. Ltd.

reasonable opportunity of being heard. It is ordered accordingly. Ground No.4 of the assessee in this regard is allowed for statistical purposes.

10.

Ground No.1 & 2 are general and do not warrant any specific adjudication. Ground No.6 pertain to TP adjustment towards interest on receivables. The ld AR did not press for the said ground considering the quantum of the addition. Accordingly the said ground is dismissed as not pressed. Ground No.7 is with regard to interest and penalty and the same being consequential not warranting any adjudication.

11.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Order pronounced in the open court on 27th January, 2026.

Sd/- Sd/- (RAHUL CHAUDHARY) (PADMAVATHY S) Judicial Member Accountant Member

Bangalore, Dated, the 27th January, 2026. /MS /

Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file

By order

Assistant Registrar, ITAT, Bangalore

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