M/s. Hinduja Group India Ltd. Vs ACIT (ITAT Mumbai)
We observe that in the case at hand, payment is made to the employees who are unrelated third parties and no payment has been made to the group companies or related parties, hence provisions of section 40A(2) are not applicable. Further even section 40A(2) provides for disallowance of excessive payments made to Group Companies and there is no provision in the Act for disallowance of under charging of fees. The observations of the AO and CIT(A) that no evidence were submitted as regards which employees were sent on deputation and to which companies, what services were rendered, who had reimbursed the salaries of these graduates and the respective amount of reimbursement and the terms and conditions agreed etc. is not correct as assessee had duly submitted the letter of appointment of these trainees, the Form 16 and the service agreement entered into with group entities and the recovery made before the lower authorities.
From the above we also found that the assessee was providing similar services and recovery was made in earlier year A.Y. 2006-07 and A.Y. 2007-08 but no disallowance of expenses was made in these years. While the services provided to group companies is the same in the current year, the only difference is that the assessee has hired management trainees in the current year. The AO has also accepted that the expenses were incurred by the assessee company and these are not bogus expenses. However, the AO has made disallowance only in respect of A.Y. 2008-09 only because taxable income has reduced in this year and assessee has net loss of `1.76 crores as per audited financials.
Further in A.Y. 2010-11, similar addition made by the AO was deleted by the CIT(A) after having detailed observation and findings in para 4.5 of his appellate order as reproduced hereinabove. Similarly no disallowance has been made for similar expenses incurred on management trainees in subsequent assessment years 2011-12. Copy of the assessment order passed for AY 2011-12 is also placed on record. The decision to hire the 15 Management graduates was a business decision taken by the management out of commercial expediency. It is a well settled principle that expenditure has to be adjudged from the point of view of businessman and not of the Revenue. It is also settled principle in law that expenditure need not immediately result in earning of profits but if wholly and exclusively laid out for business, it is a revenue expenditure. Therefore, the views of the AO for disallowing the employees‟ costs are not warranted on merits of the case, and AO has not taken a holistic view of the facts and ground realities of industry in which assessee operates.
FULL TEXT OF THE ITAT JUDGMENT
These are the appeals filed by assessee against the order of CIT(A)-12, Mumbai dated 30/05/2014 for A.Y. 2008-09 and A.Y. 2009-10 in the matter of order passed under Section 143(3) of the Income Tax Act (hereinafter “the Act”). In the A.Y. 2010-11, Revenue is in appeal before us with respect to disallowance of similar expenses.
2. Grievance of assessee and revenue in all the three years are common which pertains to disallowance made on account of management training expenses paid to MBA Graduates.
3. Rival contentions have been heard and record perused.
4. Facts in brief are that assessee is engaged in the profession of rendering management consultancy services to the Hinduja Group. In the A.Y.2010-11, the assessee company e-filed its return of income on 29.09.2010, declaring a gross total income of ` NIL, however, it had declared income u/s.115-JB(l) at ₹16,19,200/-. The assessee had computed its business income at ₹56,29,324/- & income from other sources at ₹10,93,793/-, which it had set off against unabsorbed business loss & depreciation of AYs 2008-09 & 2009-10 respectively. During the course of assessment he AO has made the following disallowances.
