Genuine expense claims and section 44C limits: third-party payments, attribution to Indian operations, and write-off verification.

Third-party service payments supported by invoices, ledgers, bank records, PAN details and other evidence were treated as genuine, and the absence of replies to earlier notices was not enough to disallow the entire claim under section 37 when the remand report raised no adverse finding and the books were not rejected. Head office overheads and business development expenses were noted as outside section 44C where they are exclusively attributable to the Indian project or PE, so verification of the factual attribution was required; the separate disallowance under section 40(a)(i) remained undisturbed because it was not specifically challenged. A write-off for short receipt from NHAI also required verification of prior recognition and tax treatment of the related income before it could be allowed as bad debt or business loss.

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Issues: (i) Whether the disallowance of payments made to third-party service providers under section 37 of the Income-tax Act, 1961 was justified; (ii) Whether the expenditure claimed as head office overheads and business development and marketing expenses was liable to restriction under section 44C of the Income-tax Act, 1961, and whether the related disallowance under section 40(a)(i) of the Income-tax Act, 1961 could be disturbed in the absence of a specific challenge; (iii) Whether the amount written off on account of short receipt from NHAI was allowable as a bad debt or business loss.

Issue (i): Whether the disallowance of payments made to third-party service providers under section 37 of the Income-tax Act, 1961 was justified.

Analysis: The assessee produced invoices, ledgers, payment details, bank records, PAN details and other supporting material, and further furnished additional evidence before the DRP. The remand report did not record any adverse finding on the agreements or the genuineness of the transactions, and the books were not rejected. The absence of responses to earlier notices under section 133(6) was not treated as sufficient to disallow the entire expenditure when the subsequent material supported the claim.

Conclusion: The disallowance under section 37 was not sustainable and the addition was deleted in favour of the assessee.

Issue (ii): Whether the expenditure claimed as head office overheads and business development and marketing expenses was liable to restriction under section 44C of the Income-tax Act, 1961, and whether the related disallowance under section 40(a)(i) of the Income-tax Act, 1961 could be disturbed in the absence of a specific challenge.

Analysis: Section 44C applies to head office expenditure of a common or general nature and does not extend to expenditure shown to be exclusively attributable to the Indian project or PE. The record indicated that the claim required verification of the particulars to determine whether the expenditure was directly connected with the Indian operations, and that verification was directed to be undertaken by the Assessing Officer. Separately, no ground had been raised against the disallowance under section 40(a)(i), and the absence of a challenge to that component meant that the disallowance on that count remained unassailed.

Conclusion: The matter was remitted for verification to the extent it related to exclusive attribution and section 44C could not be applied to such expenditure, but the disallowance under section 40(a)(i) was sustained, resulting in a mixed outcome.

Issue (iii): Whether the amount written off on account of short receipt from NHAI was allowable as a bad debt or business loss.

Analysis: The claim turned on whether the corresponding revenue had earlier been recognised and offered to tax, and whether the short receipt represented an irrecoverable business-related amount rather than a penal or prohibited outgo. As the factual foundation required confirmation, the matter was restored to the Assessing Officer for verification with an opportunity to the assessee to establish the earlier tax treatment of the corresponding income.

Conclusion: The issue was restored for verification and was allowed for statistical purposes.

Final Conclusion: The assessee succeeded on the third-party expenditure issue, obtained partial relief on the head office expenditure issue subject to verification, and the bad-debt claim was sent back for examination, while the unchallenged disallowance under section 40(a)(i) continued to remain in force.

Ratio Decidendi: Expenditure exclusively attributable to the Indian project or PE is not confined by the ceiling on head office expenditure under section 44C, whereas a claim not specifically challenged in appeal cannot be interfered with, and a write-off requires factual verification of prior tax recognition before allowance.

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