TPF Getinsa Euroestudios S.L. Vs ACIT (ITAT Delhi)
The assessee is a Project Office of a foreign company set up in India to provide engineering consultancy services and incurred expenses like rent, professional fee, travelling and conveyance etc during the course of business. During the course of assessment proceedings, the AO raised queries with respect to details of aforesaid various expenses. The assessee had duly furnished the ledger account of all the expenses during the course of assessment proceedings. During the course of assessment proceedings, no specific query raised by AO to furnish vouchers. After receipt of the draft Assessment Order disallowing 10% of the expenses on ad-hoc basis, the evidences of expenses have been furnished before the ld. DRP under Rule 4 of the DRP Rules, 2009. The ld. DRP after calling the remand report confirmed the action of the AO.
With regard to the expenses on account rent, we find that the revenue argued that the premises were shared with other concerns and the cost was recovered in proportion to turnover of the concern, however, such allocation was not backed by any documentary evidence. It is submitted that the Foreign Head office of the assessee had a fully owned Indian Subsidiary Company by the name of Euroestudios India Pvt. Ltd. The Subsidiary shared the same office address along with assessee and had much lesser business compared to the Foreign Branch office, and there were no employees of the subsidiary. Since this address was used for communication purpose and at times for meetings by the Indian Subsidiary, the management had decided to share rent and maintenance cost vide Internal Memorandum of understanding (IMOU) and this sharing of rent was based on turnover and was recovered from the subsidiary each month through issuances of debit notes. The amount of rent recovered from subsidiary is verifiable from the audited financials at note no. 14 under “Other Income”. During the year under consideration, the assessee recovered a total amount of Rs. 3,78,691/- from rent, maintenance and ancillary expenses from its Indian Subsidiary and returned the same as Other Income.
With regard to other expenses, the revenue held that there was no name of the assessee on the invoices furnished by the assessee. The assessee furnished the summary of “Other expenses” incurred during the year along with sample supporting invoices and the name of the assessee clearly mentioned in the invoices as ‘Euroestudios SL’, also in the Tax invoice furnished by the assessee PAN of the assessee was also mentioned along with GSTIN. The name ‘Euroestudios S.L.’ appearing on the invoice, it is submitted that TPF Getinsa Euroestudios S.L., formerly known as Getinsa-Payma S.L. incorporated in Spain having place of business in India. The company, Getinsa-Payma S.L. was merged in April 2016 (FY 2016-17) with Euroestudios S.L. and the new name of the company was TPF Getinsa Euroestudios S.L., therefore, in few invoices submitted by the assessee before the AO, name appearing on the invoices was as ‘Euroestudios S.L.
ITAT hold that no disallowance of expenses on ad-hoc basis is called for. Reliance is placed on the decision of the Co-ordinate Bench of ITAT in the case of M/s. Cheminova India Ltd. versus ACIT 10(1) in ITA no. 5282/Mum/2014 wherein the ITAT categorically held that without pointing out specific defects in the documents furnished by the assessee, disallowance on ad-hoc basis on the ground that the assessee failed to furnish all the documentary evidence is not acceptable.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the assessee against the order dated 23.08.2022 passed by the AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961.
2. Following grounds have been raised by the assessee:
“1. That the assessment order passed by the Ld. AO u/s 143(3) r.w.s 144C (13) of the IT Act, 1961 which is ex-facie illegal, perverse, and bad in law.
2. That the Ld. AO grossly erred on facts and in law in assessing income at Rs. 7,76,53,434/- against the returned income of Rs. 28,07,203/-.
3. That the Ld. AO/DRP grossly erred on facts and in law in making disallowance of Rs. 96,89,231/- on ad hoc basis being 10% of certain expenses by holding that the appellant failed to substantiate its claim and the expenses remain unsubstantiated without appreciating the fact that all the documents/evidence were duly filed before the Ld. AO/DRP.
4. The Ld. AO grossly erred on facts and in law in making disallowance of Rs. 6,51,57,000/- (detailed below) u/s 40(a)(i) on account of the payments made to AEs by exceeding jurisdiction and not following the directions given by the Ld. DRP.
