2021 (10) TMI 1140 - AT - Income Tax

Claims of amount paid for employees taken on Secondment - Revenue attribution - As submitted assessee was rendering management consultancy services to the group entities of K.K. Modi Group by availing services of seconded employees for which it was setup - HELD THAT - AR has pointed out that in A.Y. 2011-12, assessee had taken on seconded employees who were originally employee in the flagship group company i.e. Godfrey Philips India (P) Ltd. and then seconded to the assessee on cost to company basis, without any mark-up. It has been further pointed by the Learned AR that no disallowance of secondment cost to employees was disallowed by the AO in earlier years. The aforesaid contention of the Learned AR has not controverted by the Revenue. We find that AO on one hand had held the secondment agreement to be not a genuine agreement but on the other hand had disallowed only 50% of the expenditure which according to us appear to be contrary. We further find that CIT(A) for the reasons stated in the order has deleted the addition. Before us, Revenue has not pointed any fallacy in the findings of CIT(A). In such a situation, we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed.

Summary

Issues:
Appeals filed by Revenue against CIT(A) order for AY 2013-14 & 2014-15 regarding addition made on account of claims of amount paid for employees taken on secondment.

Analysis:
The appeals by Revenue were directed against the CIT(A) order for AY 2013-14 & 2014-15. The issue was whether the addition of ?7.16 crore made by AO but deleted by CIT(A) was justified. The AO noted high percentage of salary expenses attributed to secondment costs and questioned the genuineness of the agreement. The AO disallowed 50% of the secondment cost, considering the employees not working exclusively for the assessee. However, CIT(A) deleted the addition citing that the seconded employees were originally employed by another company and seconded to the assessee without any mark-up. The assessee earned revenue from management services provided to group entities. The Revenue contended that the employees were not working wholly for the assessee, but the CIT(A) found no fault in the arrangement.

The AR argued that the seconded employees were taken on cost-to-company basis without any mark-up and pointed out that no disallowance was made in earlier years. The Revenue did not counter this argument. The Tribunal observed the inconsistency in AO's stance of disallowing only 50% despite questioning the genuineness of the agreement. The Tribunal found no fault in the CIT(A)'s decision and dismissed the Revenue's appeal for AY 2013-14.

For AY 2014-15, both parties agreed that the issue was identical to AY 2013-14. The Tribunal, based on the reasoning for AY 2013-14, dismissed the Revenue's appeal for AY 2014-15 as well. Consequently, both appeals by the Revenue were dismissed by the Tribunal.