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TMI Blog2018 (6) TMI 1267X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure is really incurred and is otherwise deductible, the deduction cannot be declined on the ground that it has not been debited in the books of account. Since in the instant case there is no dispute to the fact that the head office has incurred the expenditure for the Branch office, the genuineness of which has not been doubted and since the assessee has claimed the deduction u/s 44C of the I.T. Act in the computation statement, therefore, Assessing Officer is not justified in disallowing the claim merely for not debiting the same in the Profit & Loss Account - direct the Assessing Officer to allow the claim of expenditure u/s 44C and delete the addition on account of undisclosed mark up on the costs incurred by the HO in UK - Decided in favour of assessee - ITA Nos.6561 & 6562/Del/2016 - - - Dated:- 31-5-2018 - SHRI R. K. PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER For The Appellant : Shri Abhimanyu Jhamba, Adv. For The Respondent : Shri G. K. Dhall, CIT-DR ORDER PER R. K. PANDA, AM : The above two appeals filed by the assessee are directed against the separate orders passed u/s 144C(13) r.w.s. 143(3) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kingdom. It could be fairly concluded that no expenditure in the nature of Head Office Expenses was recorded in the books of Indian Branch. 3. Further, the computation of income as furnished by you along with submission dated 05.01.2016, it is observed that you have claimed a deduction u/s 44C of the Act amounting to ₹ 24,86,617/-. However, vide submission dated 10.02.2016 if has been submitted that the assessee is eligible to claim the same as deductible expenses within the permissible limit and purview of section 44C of the Act been though the same is not debited in the books of BO or are reimbursed by the Ho in view of the same, the assessee has claimed a deduction of ₹ 24,86,617/- during the AY 2012-13 being 5% of the adjusted total income as prescribed under section 44C of the Act. 4. It has been noted that the assessee is a cost plus entity wherein it receives a markup on all the costs incurred by it from the Head Office. Going by the revenue earning concept/model, you are required to show cause as to why the markup on the Head office expenses which have been incurred by the head office, be not taxed as income in the hands of Indian BO. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... markup applied on the costs incurred by the BO in India which is in accordance with the transfer pricing benchmarking study and has been accepted by the transfer pricing officer since last several years. Accordingly, the mark-up is applied only on expenditure incurred by the assessee in India and not on the allowance claimed by the assessee while computing the taxable income. It was argued that deduction under section 44C is in the nature of allowance (with a cap on allowable limit), the same cannot be considered as a cost incurred by the BO and therefore, cannot and should not be subjected to the mark-up as applied on other expenses recharged by the BO to the HO. It was submitted that the assessee's income has been computed on similar basis since last several years and there has been no disallowance by the assessing office or transfer pricing officer with respect to the claim for Head Office expenses under section 44C. Moreover, the assessee has also entered into Advance Pricing Agreement with the CBDT wherein also the same basis has been accepted. Thus, the non-debiting of the HO expenses in the Books of the Branch, since the same are not incurred by the Branch, is of no cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost base' while applying mark-up of 18% on costs incurred in India, and consequently in making an addition of ₹ 2,139,012/- to the returned income. 3. Based on the facts and circumstances of the case, the Hon'ble DRP has also erred on facts and in law in denying the allowance claimed under section 44C of the Act amounting to ₹ 2,486,617/- on the incorrect averment of the Ld. AO that 100% deduction for the expense has been allowed while adding the same to the cost base for computing mark-up, and while doing so, the Hon'ble DRP has failed to appreciate the fact that the general administrative expenses are incurred outside India by the head office of the Appellant and are not charged or debited by the BO in India. 4. Based on the facts and circumstances of the case, the Hon'ble DRP has erred on the facts in failing to appreciate that the appellant had duly submitted Form No. 3CEB before the Ld. AO on the basis of which the subject return of income was referred to the transfer pricing officer ( TPO') and the order of the TPO under section 92CA(3) of the Act was received on 29 December 2015. 5. Based on the facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 100% deduction for the expense when adding it to the cost base for computing mark-up and his action is approved. The taxpayer cannot claim a double deduction when the sum has been allowed @ 100% in its P L. 9. He submitted that although the assessee has not debited the amount to the Profit Loss Account, however, the same has been claimed as expenditure in the return of income and the expenditure is within the permissible limit as per the provisions of section 44C of the I.T. Act. Referring to the decision of the Delhi Bench of the Tribunal in the case of Education Australia Limited vs. DDIT vide ITA No.5124/Del/2010 order dated 18.05.2012 for assessment year 2007-08, he drew the attention of the Bench to the following observation at 8 of the order :- 8. We have considered the facts of the case and submissions made before us. The finding of the AO is that expenditure incurred by the head office will have to be allocated to the Indian offices. There has been no allocation made by the assessee. The income is being offered for tax on cost plus basis, therefore, the general and administrative expenditure incurred by the head office for running India offices has to be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. Income accrues when it become due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. 12. He accordingly submitted that the addition made by the Assessing Officer being not justified should be deleted. 13. The ld. DR on the other hand heavily relied on the order of the Assessing Officer/TPO/DRP. He submitted that since the expenditure has not been claimed by the assessee in the Profit Loss Account on account of Head Office Expenditure, therefore, nothing has to be allowed. Further, the Assessing Officer/TPO/DRP has rightly made addition on account of undisclosed mark up on the costs incurred by the HO. He accordingly submitted that since the order of the Assessing Officer is in accordance with law, therefore, the same should be uphel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant for allowability of the same in the light of the law laid down by the Hon ble Supreme Court in the case of Kedarnath Jute Mills Co. Ltd. (supra). It has been held that as long as the expenditure is really incurred and is otherwise deductible, the deduction cannot be declined on the ground that it has not been debited in the books of account. Since in the instant case there is no dispute to the fact that the head office has incurred the expenditure for the Branch office, the genuineness of which has not been doubted and since the assessee has claimed the deduction u/s 44C of the I.T. Act in the computation statement, therefore, in view of the decision of the Mumbai Bench of the Tribunal cited (supra), we hold that the Assessing Officer is not justified in disallowing the claim merely for not debiting the same in the Profit Loss Account. In this view of the matter, we set-aside the order of the Assessing Officer/DRP/TPO and direct the Assessing Officer to allow the claim of expenditure u/s 44C and delete the addition on account of undisclosed mark up on the costs incurred by the HO in UK. The grounds raised by the assessee are accordingly allowed. ITA No.6562/Del/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Based on the facts and circumstances of the case, the Ld. AO has erred in law in initiating penalty proceedings under section 271(1)(c) of the Act without appreciating the fact that the Appellant has not concealed any income or disclosed any incorrect particulars during the proceedings. The above grounds are mutually exclusive and without prejudice to each other. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. Any consequential relief, to which the Appellant may be entitled under the law in pursuance of the aforesaid grounds of appeal, or otherwise, may be thus granted. 19. After hearing both the sides, we find the grounds raised by the assessee are identical to the grounds raised in ITA No.6561/Del/2016 for assessment year 2012-13. We have already decided the issue and the grounds raised by the assessee have been allowed. Following similar reasoning, the grounds raised by the assessee are allowed. 20. In the result, both the appeals filed by the assessee are allowed. Order pronounced in the open Court on this 31st day of May, 2018. - - T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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