Income Tax Authorities Can’t Step Into Shoes Of Businessmen To Determine Expenditure For Business Purpose: ITAT
Mariya Paliwala
11 Nov 2023 2:30 PM IST
The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that income tax authorities cannot step into the shoes of businessmen to determine how much expenditure should have been incurred for the purpose of business.The bench of Astha Chandra (Judicial Member) and B. R. R. Kumar (Accountant Member) has observed that activities clearly demonstrate that the assessee had incurred expenses...
The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that income tax authorities cannot step into the shoes of businessmen to determine how much expenditure should have been incurred for the purpose of business.
The bench of Astha Chandra (Judicial Member) and B. R. R. Kumar (Accountant Member) has observed that activities clearly demonstrate that the assessee had incurred expenses for preparing technical and financial bids for obtaining contracts for the maintenance and operation of BRT buses in Indore. The assessee had also participated in the bid for maintenance and operation of Chennai Metro Rail. The assessee was successful in getting one contract during the year related to Indore BRT Bus Operations and Maintenance of 50 buses for an initial period of six years.
The appellant/assessee, Serco India Private Limited, was a subsidiary of Serco Group PLC, UK, incorporated in India on February 27, 2006. The company was established as a captive service center with the objective of providing IT and IT-enabled services to Serco Group.
The assessee company filed its return of income, declaring a loss, which was processed under § 143(1) of the Income Tax Act, 1961.
The CIT(A) has disallowed Rs. 4,85,98,973 out of personnel expenses, mainly observing that there was a marginal increase in salary and wages from Rs. 15,66,32,538/- in FY 2011–12 to Rs. 17,74,23,534/- in FY 2012–13. The proposal for maintenance and operations of BRT bus services in Indore was floated by the government authorities, and any such proposal of bidding does not require manpower or employees as claimed by the assessee, for which the assessee would have paid Rs. 4,85,98,973. There was no evidence of any such expenditure having been incurred on any other activity.
The marginal increase in salary and wages was non-operating and non-allocable personnel expenses of about 43% in FY 2010–11 and about 27% in FY 2011–12, respectively, whereas non-allocable personnel expenses were only 24%.
The CIT(A) observed that getting a contract for BRT bus services does not require manpower or employees, which is not tenable. The assessee has to prepare a technical bid and a financial bid to file a tender for obtaining a contract for BRT bus services in Indore, which were required to be competitive with other bidders or parties. Therefore, the assessee has to employ special manpower, and a lot of time and effort was involved in preparing the bids. The activities also required consulting services as well as travel and other expenses.
The Letter of Acceptance was dated September 5, 2012, and loans issued in favor of the assessee company were executed on November 26, 2012.
The court held that CIT (A) was not justified in disallowing total non-operating and non-allocable personnel expenses of Rs. 4,85,98,973.
Counsel For Appellant: Suraj Bhan Nain
Counsel For Respondent: T. James Singson
Case Title: Serco India Pvt. Ltd. Versus ACIT
Case No.: ITA No. 3392/Del/2019
