Case Law Details
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
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