2017 (2) TMI 462 - HC - Income Tax

Addition in respect of reimbursement of expenses to head office - addition in respect of reimbursement of expenses like sundry expenses, rent, travelling expenses, car hiring expenses, etc. to sub-contractor - ITAT deleted addition - Held that - Tribunal while coming to the conclusion has rightly relied upon its own decision and has deleted the whole addition. Furthermore, for execution of Dahej project, expatriates were working, as also the sub-contract was also given to the Indian company which is subsidiary of parent company and the expenses were to be borne by the parties as per the agreement. Even, some technical persons were required to be employed and their expenses were debited and the Tribunal has rightly appreciated this aspect of the matter that the said expenses which were debited, are for the project in India. As quoted earlier, the Tribunal in its order at paragraph Nos. 13, 14, 16 and 18 has rightly come to the conclusion and in our view the same is just and proper. This court is of the opinion that no error can be said to have been committed while passing the impugned orders by the Commissioner of Income-tax (Appeals) and the Tribunal. We are in complete agreement with the view taken by the Commissioner of Income-tax (Appeals) and the Tribunal. It is also required to be noted here that the additions made by the Assessing Officer in its order are not part of the show-cause notice and no fresh notice is issued for initiating the penalty proceedings, but it was made on the basis of remand of the earlier proceedings. Accordingly, we answer the issues raised in these appeals in favour of the assessee

Summary

Issues Involved:
1. Deletion of the addition of ?1,22,94,128 in respect of reimbursement of expenses to head office.
2. Deletion of the addition of ?87,47,333 made in respect of reimbursement of expenses like sundry expenses, rent, travelling expenses, car hiring expenses, etc., to sub-contractor.

Issue-wise Detailed Analysis:

1. Deletion of the addition of ?1,22,94,128 in respect of reimbursement of expenses to head office:

The appellant-Department challenged the deletion of ?1,22,94,128 by the Income-tax Appellate Tribunal (ITAT), arguing that head office expenditure for non-residents is allowable subject to 5% of the adjusted total income. Since the assessee had a loss, the entire head office expenditure should be disallowed under section 44C of the Income-tax Act, 1961. The Department contended that the Tribunal erred by not considering the lack of bills and vouchers for the expenses claimed.

The Tribunal, however, found that the expenses were incurred for supervisory personnel deputed to oversee the project in India and were not general administrative expenses. Therefore, these expenses did not fall under the definition of head office expenditure under section 44C. The Tribunal relied on its own decision and other judicial precedents, concluding that the provisions of section 44C did not apply in this case.

The High Court agreed with the Tribunal's reasoning, noting that the expenses were specifically for the Dahej Project in India and were not common overheads. Thus, the Tribunal's decision to delete the addition was upheld.

2. Deletion of the addition of ?87,47,333 made in respect of reimbursement of expenses like sundry expenses, rent, travelling expenses, car hiring expenses, etc., to sub-contractor:

The Department argued that the expenses incurred by the sub-contractor were the responsibility of the sub-contractor and not the assessee. They contended that the expenses were voluntary and not allowable as business expenditure for the assessee.

The Tribunal found that the expenses were incurred by the assessee-company wholly and exclusively for the purpose of executing the contract. The genuineness of the expenses was not disputed, and there was no duplication of claims. The Tribunal concluded that the expenses were justified and incurred for the Dahej Project in India.

The High Court upheld the Tribunal's decision, noting that the expenses were necessary for the completion of the project and were debited as per the agreement. The Tribunal had rightly appreciated that the expenses were for the project in India and not voluntary.

Conclusion:

The High Court found no error in the Tribunal's decision to delete the entire addition of ?1,22,94,128 and ?87,47,333. The Tribunal had correctly interpreted the provisions of section 44C and the nature of the expenses incurred. The appeals were dismissed, and the questions were answered in favor of the assessee and against the Department.