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Income Tax Appellate Tribunal, DELHI BENCH “G” NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
The aforesaid appeal has been filed by the Revenue against the impugned order dated 11.08.2014, passed by ld. CIT (Appeals)-XI, New Delhi for the quantum of assessment passed u/s.144 for the Assessment Year 2010-11. The Revenue is aggrieved by deletion of disallowance of Rs.69,35,027/- made by the Assessing Officer out of travelling expenses.
The facts in brief are that the assessee company is providing consultancy services to associated companies, viz. Sherpalo Mauritius LLC and Murugun Capital. The assessee company operates under a cost plus markup arrangement with its AEs for the services rendered to them. As per the agreement, the assessee charges Cost Plus 17% mark up to Sharepalo Mauritius LLC and Cost Plus 15% to Murugun Capital. The learned Assessing Officer during the course of the assessment proceedings required the assessee to furnish bills regarding tours and travels of Rs.1 lac and above. In response, assessee filed an entire detail which has been tabulated by the Assessing Officer from pages 2 to 3 of the assessment order which aggregated to Rs.69,35,027/-. The Assessing Officer further asked the assessee to furnish the evidence regarding investors’ meet and purpose of the expenses above Rs.1 lac as identified. However as per the Assessing Officer, the assessee did not respond. He concluded that the tours undertaken were performed to meet new prospects and companies for expanding its business of investing companies. Thus, this shows that these expenses did not lead to any revenue generation during the year and therefore, they are disallowable. Accordingly, he added the entire expenses incurred over Rs.1 lac which aggregated to Rs.69,35,027/-.
The assessee’s main contention before the ld. CIT (A) was that entire bills and vouchers relating to each and every expense were submitted before the Assessing Officer and it was explained that the assessee company incurs expenditure on behalf of its associated investor company and is being compensated for its services on the cost plus markup model. Thus, the company has a reciprocal and corresponding revenue and profit for every cost which are incurred on behalf of the associated investor company, irrespective of whether the expenditure incurred on money spent resulted into an investment for the investing company or not. As far as assessee is concerned, the revenue generated is realized immediately based on the cost incurred and agreed mark up, because there is immediate and corresponding revenue for such expenditure. Thus, the disallowance made by the Assessing Officer is wholly erroneous.
Ld. CIT (A), duly appreciated the assessee’s contention and deleted the said contention after observing and holding as under: “8.2. I have considered the facts of the case as well as the arguments forwarded by the appellant before the AO as well as during the appellate proceedings. It is observed that the appellant claimed Rs.76,09,809/- as travelling expenses. The AO has not commented upon the allowability or its disallowbility regarding the travelling expenses below Rs.1 lac but focused his attention on the travelling expenses exceeding Rs.1 lac only. It is observed that the appellant company was providing services to the investing companies which were interested in channelizing their investments in various companies (clients) working in India. The appellant company and its main person Mr. Sandeep Murti was arranging meetings of the investing companies with the prospective clientage of investing companies for which the appellant company was charging 17% and 15% over and above the total expenditure
incurred by it in respect of providing their services. Thus, the appellant company was incurring expenditure on behalf of its associated investing companies and not only the entire cost of services was being reimbursed, the appellant company was getting immediate and corresponding revenue for each expenditure it was incurring for its investor companies. Therefore, the conclusion drawn by the AO that travelling expenses did not lead any revenue generation is factually incorrect. So far as the evidence/proof regarding the meeting of investors is concerned, it is observed that although the mentioning of purpose and satisfaction of the investing company was sufficient for its allowability, the appellant produced the vouchers as well as the various e-mail communications which were exchanged before the occurrence of such meeting of the investing company with its prospective clients. Even without the production of such vouchers and e-mail communication, the appellant has clearly established that its incurrence of expenditure is an integral part of profit earning process. The Hon'ble Courts have held that if an expenditure is an integral part of profit earning process and not for acquisition of an asset or a right of a permanent character, the expenditure should be regarded as revenue expenditure [Empire Jute Company Ltd. vs. CIT (supra)]. In view of the above, there remains no reason for making the disallowance out of travelling expenses. The disallowance of Rs. 69,35,027/- made by the AO is, therefore, not justified and the addition on this account is directed to be deleted. Ground No. 2 of the appeal is allowed.”
After hearing both the parties and on perusal of the relevant findings given in the impugned orders, we find that it is not in dispute that assessee is providing consultancy services to its AEs who are the investing companies and are interested in channelizing their investments in various companies working in India. The assessee company is remunerated at cost plus mark up of 17% or 15%, i.e., the mark up is earned over and above the total expenditure incurred by it in respect of providing the services. Thus, the assessee was incurring expenditure only on behalf of its associate investing companies and not only the entire cost of services were reimbursed but it was also getting immediate and corresponding revenue for each expenditure for its investing companies. The entire purposes of evidence/ proof regarding meeting of investors is only for the investing company and if they are satisfied that such an expenditure is incurred which is to be reimbursed by them, then so far as assessee is concerned it is not further burdened to prove that whether these expenditure were actually incurred for occurrence of any such meeting with the prospective clients or not. Thus, observations and the findings of the ld. CIT (A) as reproduced above is absolutely correct and the same is affirmed.
In the result, the appeal of the Revenue is dismissed.