FACTS OF THE CASE

  • The assessee entered into a Secondment Agreement dated 30.05.2011 with Godfrey Philips India Ltd. (GPI).
  • Payments of ₹14.33 crore were made to GPI on a cost-to-company basis without markup.
  • The assessee earned ₹22.74 crore as professional fees, including substantial revenue from GPI.
  • Seconded employees provided consultancy services to group companies including GPI.
  • The AO held the agreement to be non-genuine and disallowed 50% of expenses.
  • CIT(A) and ITAT ruled in favor of the assessee, allowing deduction.

ISSUES INVOLVED

  1. Whether expenditure on seconded employees is allowable as business expenditure under Section 37(1)?
  2. Whether the Assessing Officer was justified in treating the secondment agreement as non-genuine?
  3. Whether the High Court can interfere under Section 260A in presence of concurrent factual findings?
  4. Applicability of the principle of consistency in income tax proceedings.

PETITIONER’S ARGUMENTS (REVENUE)

  • The AO rightly disallowed 50% of the cost, as services were rendered to multiple group entities.
  • The secondment agreement lacked genuineness.
  • Orders of CIT(A) and ITAT required reversal for incorrect appreciation of facts.

RESPONDENT’S ARGUMENTS (ASSESSEE)

  • The agreement was genuine and operational since AY 2011-12.
  • Expenses were incurred wholly and exclusively for business purposes.
  • Income earned from such services was duly offered to tax.
  • Concurrent findings of fact by CIT(A) and ITAT should not be disturbed.

COURT FINDINGS / ORDER

  • No substantial question of law arose under Section 260A.
  • The secondment arrangement was long-standing and accepted in earlier years.
  • The Revenue had not raised objections in prior years, weakening its case.
  • Findings of CIT(A) and ITAT were pure findings of fact and not perverse.
  • Appeal of Revenue was dismissed.

IMPORTANT CLARIFICATION

  • Though res judicata does not apply in income tax proceedings, the principle of consistency must be followed.
  • Reliance placed on:
    Radhasoami Satsang vs Commissioner of Income Tax (1992) 193 ITR 321
  • Established business arrangements should not be disturbed without material change.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/RAS29032023ITA1932023_150508.pdf

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