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2016 (9) TMI 348

Head Note / Extract:
Allowability of proposal expenses - nature of Payments to third party service providers outside India for services in connection with expatriate movement to India in relation to the PO - Allowability of provisions made with respect to its obligation to pay a delay penalty (price reduction) - Held that:- The Head Office had not incurred any expenditure but some expenditure was incurred by one of the group concerns i.e. FWEL and as such, expenditure incurred by a third party cannot be allowed as a deduction, in computing the income of the project. The Revenue was asked by us to verify the genuineness of the expenditure. The Revenue in its report dated 20 November 2015 has after verification conceded that FWGB’s share of proposal costs [i.e. ₹ 4,79,33,690 (i.e. GBP 6,58,828)] has been charged to FWGB and FWGB has in fact paid the same to FWEL. This shows that FWEL had incurred such expenditure for the purpose of applicant’s projects in India. In view of this there is no reason to disallow such expenses as the same has been incurred for business purposes and we are of the opinion that such expenditures be allowed in the year in which it was incurred.

Payments to third party service providers outside India for services in connection with expatriate movement to India in relation to the PO - nature of Fees for Technical Services - whether such payments would be in the nature of travel costs - Held that:- As regards payments made to third parties other than FWEL, there is no dispute. In respect of FWEL, the applicant has filed an affidavit explaining the nature of services and according to this detailed affidavit services are not in the nature of Fees for Technical Services as they do not satisfy the ‘make available’ clause. The mention of ‘engineering services’ on the invoice has also been explained as above and if this is true the same cannot satisfy ‘make available’ clause as these are not providing services on the basis of which the recipient can be said to acquire skills of enduring benefit nature. Department’s reliance on the fact is also based on presumption that invoices have been prepared for the purpose of Services Tax Law and the description on the invoice is in the light of the definition of taxable service in Service Tax Act. However, the affidavit filed before us does not say so. We cannot go on presumption of the Department and therefore we rely on the affidavit and rule that services provided by FWEL and other third parties are not in the nature of Fees for Technical Services.

Allowability of provisions made with respect to its obligation to pay a delay penalty (price reduction) as a result of not meeting the project schedule - Held that:- The invoices show that the price reduction has been incurred in terms of clause 8.9 of the agreement. As such reduction was agreed by IOCL, the same has to be allowed to the applicant in the year in which it actually accrued. The Income Tax Authorities will allow the same after verification.The delay penalty (price reduction) will be deductable while computing profits on the basis of actual invoices raised, amount earned on these invoices and difference attributable to price reduction on year to year basis.


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