Delhi HC quashes Denial of Deductions Claimed for Payment of Salary to Expatriate Employees [Read Order]

In a significant ruling , the Delhi High Court has quashed the denial of deductions claimed for the payment of salaries to expatriate employees The writ petitioner impugns the order framed by the Assessing Officer1 dated 13 May 2022 to the extent that it denies a deduction of INR 9,62,39,916/-. The said order has come to be framed in order to give effect to the decision rendered by the Income Tax Appellate Tribunal for Assessment Year 1998-1999.

The CIT (Appeals) erred in confirming the action of the Assessing Officer in rejecting the claim of the appellant for being allowed deduction with respect to salaries paid by the appellant in foreign currency and outside India, to the expatriates of the appellant working in India, and the taxes paid by (be appellant (on lax on tax basis) with respect to such salaries, where the said salaries and taxes aggregated to Rs.9, 62, 39,916/-.
In the case of Goetze (India) Ltd. vs. Commissioner of Income Tax, the bench considered the Supreme Court's stance regarding the statutory prohibition on claiming deductions outside the Return of Income. The Court noted an important exception to this rule, applicable when a Tribunal or Court issues a directive.
In this particular case, the Supreme Court addressed whether the appellant assessee could claim a deduction without submitting a revised return. The assessment year under consideration was 1995-96. The appellant filed their return on November 30, 1995. Subsequently, on January 12, 1998, the appellant attempted to claim a deduction through a letter directed to the Assessing Officer. However, the Assessing Officer denied this claim, citing the lack of provision within the Income-tax Act that would allow for amendments to a return of income at the assessment stage without the filing of a revised return.
This ruling underscores the importance of adhering to procedural requirements when claiming deductions and highlights the limited scope for exceptions in the context of statutory provisions governing tax returns.
The court was not impressed by this argument, as the observations in the decision of Goetze (India) Ltd. clearly indicate that such limitations apply to the "assessing authority" and do not affect the plenary powers of the Income-tax Appellate Tribunal granted under Section 254 of the Act; therefore, this decision is of no benefit to the Department.

Thus the division bench of Justice Yaswannth varma and Justice Ravinder Dudeja observed that the writ petition was accordingly allowed. Further quash the order dated 13 May 2022 insofar as it denied relief to the petitioner in respect of the deductions which were liable to be made pursuant to the order of the Tribunal dated 03 June 2019. The AO shall frame and grant consequential relief and the writ petition stands disposed.

To Read the full text of the Order CLICK HERE

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