Indian Kanoon - Search engine for Indian Law

DESCRIPTION OF WORK                      NAME OF SUBCONTRACTOR
  A. Engineering Consultant              M/s. Soros Associates Inc. (USA)
   i)    Civil Work.
   ii)   Top sides (Piping,              M/s. Soros Associates Inc. (USA)
         Mechanical, Electrical
         & instrumentation)
  B. Construction activities             M/s.       Trafalgar        House
  i)     Fabrication-        Civil       Construction (India) Ltd.



            works
    ii)     Installation   -   Civil
            works
    a) Bund & RCC Approach                 M/s.       Trafalgar        House
        Testle                             Construction (India) Ltd.
    b) Steel approach Trestle &
        jetty head                         M/s. Antara KOH (Ssingapore)
    iii) Installation - Top sides
    (Piping,             Mechanical,
    Electrical & Instrumentation           M/s. Aban Constructions

4.3.12 However looking into terms of contract and sub contract, I am of the view that as project managers, engineers, these expatriates did perform to some extent the supervision role which is inherent in such large project in terms of attending meetings and filing reports and interacting with the owner. But what % of their work formed supervision was for appellant to justify and substantiate and in the absence of verifiable details the alternative course is to assess the supervision content of the project based on available information. 4.3.13 In respect of plea of the appellant that it is contractor responsibility to complete the work as per agreement, I am of the view that stipulations in contract and subcontract agreements are one thing and how in substance the agreements are really operated is another aspect. Under the Income Tax Act what is to be seen is that in real sense and substantively how was the contract agreement actually implemented and what tasks were actually performed by appellant in terms of such contracts and whether such functions were within designated ambit of the contracts. Mere assertions and stipulations in contract agreements do not dictate allowability of expenses but the real implementation of the contract agreement in terms of the appellant's business imperatives would be the guiding factor in considering allowability of incurred expenses. 4.3.14 Next plea is that these personnel attended review weekly / monthly meetings filed various reports to the owner and this was part of the supervision assignment. It is observed that as per Clause-4 (1), of the subcontract titled 'provisions of documents and information' the "subcontractor shall submit to the contractor all documents and information relating to performance of the sub contract including drawings other documents requiring approval of engineers, all returns, accounts, notices, programmes, staff schedules, statement of construction method etc. to enable the contractor to comply with its obligation under the contract. In other words all the documents and information regarding the progress of work is to be supplied by subcontractor. Further as per 6th schedule to the subcontract providing of office accommodation at site including necessary secretarial services, consumables, photocopying facilities, fax, etc. is the responsibility of subcontractor. In other words in terms of compilation of reports and coordinating the matter with the owner majority of the tasks are in the realm of subcontractor.

6) Access to the site and all other locations necessary for the contractor to carry out the contract works.

Part 2 of the sixth schedule reads as under;

"SIXTH SCHEDULE: SUBCONTRACTOR'S FACILITIES The following facilities and services will be provided by the Contractor at its own cost, however the administration of such facilities and services, shall be undertaken by the Subcontractor at no cost to the Contractor.

a) Suitable furnished air - conditioned living accommodation located in the general vicinity of Gujarat, for the Contractor's staff, both resident and visiting as may be required in connection with the Contract Works, including all necessary maintenance, power, water, utilities, consumables and foodstuff to a standard commensurate with that normally provided for. such staff employed by KCIL on overseas postings.

15. In the facts and circumstances of the case, we find that the disallowances made by the authorities below are not justified. We, therefore, set aside the orders of authorities below and entire addition is deleted. As a result, appeal of the assessee on these grounds is allowed and the departmental appeal is dismissed.

16. Now we take up ground No.5 in the departmental appeal and ground No.3 in the appeal of the assessee. Regarding disallowance of the expenditure of Rs.87,47,333/- made by the A O on account of sundry expenses, rent, traveling expenses, car hiring expenses, telephone expenses, equipment hire charges, electricity charges, house maintenance, food charges, salary and hire charges of computers. The learned C IT (A) however, allowed the claim of the assessee in a sum of Rs.13,97,050/- and restricted the addition to Rs.73,50,283/-. The Revenue as well as assessee are in appeal. Briefly, the facts on this issue are that during the year under consideration, the assessee had reimbursed SCIL(sub contractor) , a sum of Rs.87,47,333/- in respect of the expenditure incurred by the latter on the assessee's behalf. The said expenditure inter alia includes reimbursement of expenditure on account of accommodation of expatriate personnel of the assessee, traveling expenses of the expatriates, telephone, food expenses of the expatriates etc. The A O has disallowed reimbursements amounting to Rs.87,47,333/-. In making the disallowance the A O has held that since the entire contract has been subcontracted, it is the responsibility of the subcontractor to incur all the expense in connection with the execution of the project and hence the expenditure pertains to the business of the subcontractor and not to that of the assessee. Further, the A O has also held that the expenses are voluntary in nature and hence are not allowable in the hands of the assessee. The assessee challenged the addition before learned C I T (A) and it was submitted that employees had been deputed to supervise the execution of the contract to safeguard its own interest under the contract. Genuineness of the expenses are not disputed. The assessee laid out and expended the expenditure wholly and exclusively for the purpose of the business. The said expenses reimbursed to the sub contractor should not be disallowed. It was submitted that the A O overlooked the fact that the expenses relating to personnel of the assessee had been specifically provided in part 2 of Schedule 6 to the sub contract agreement and the assessee had contractually agreed to bear the same with the sub contractor. The learned C I T (A) reproduced 6th Schedule in the impugned order. The learned C I T(A) considering the fact that the expenditure are to be borne by sub contractor confirmed the disallowance of Rs.73,50,283/-. However, for electricity charges, house maintenance, mess food charges and wages to the staff amounting to Rs.13,97,050/- were found to be covered by part 2 of 6th Schedule and accordingly addition was deleted.