TMI Blog2012 (11) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... by the head office for running India offices has to be considered for working out the cost base. The fact of the matter is that the Indian offices have not incurred any expenditure. If any income accrues on account of expenditure incurred by the head office, it will be the income of the head office and not Indian offices. At the same time, if any expenditure is attributed to Indian offices deduction of the expenditure will have to be allowed. Thus seen from any angle the revenue does not have any case in this matter. - Decided in favor of assessee. - IT APPEAL NO. 5124 (DELHI) OF 2010 - - - Dated:- 18-5-2012 - K.G. BANSAL AND C.M. GARG, JJ. K. M. Gupta for the Appellant. J.S. Ahlawat for the Respondent. ORDER K.G. Bansal, Accountant Member - The facts of the case, as mentioned in the asstt. order, are that the assessee filed its return on 31.10.2007 declaring NIL income. Thereafter, another return was filed on 21.8.2008 declaring NIL income. It may be mentioned here that the revised return in Form No. ITR-V showed NIL income, but the "statement of income" accompanying it showed total income of Rs. 2,04,20,327/-. The statement also shows that tax payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure incurred by the LO and profit was computed accordingly. The second issue is in respect of head office expenses. It has been held that the assessee is offering income for taxation on cost plus basis, therefore, general and administrative cost incurred by head office for running the LO has to be worked out. By taking analogy from section 44C, this expenditure was computed at Rs. 10,21,016/-. This expenditure was also included in expenditure for the purpose of computing the profit. 1.1 The additional cost as aforesaid has been worked out at Rs. 4,89,46,691/-. 15% on this cost, amounting to Rs. 73,42,003/- has thus been added to the total income, thereby computing it at Rs. 2,77,62,330/- 1.2 The assessee objected to the draft order. Therefore, the matter was referred to Dispute Resolution Panel (DRP), DRP found the objections of the assessee to be untenable. Consequently, the total income of the assessee has been computed at Rs. 2,77,62,330/-. 2. Aggrieved by this order, the assessee has filed appeal before us. It has taken up 3 grounds. 2.1 Ground No. 3 is against initiation of penalty proceedings u/s 271(1)(c) of the Act. This ground is not appealable before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e borne by the universities themselves. This finding was arrived at after obtaining the remand report of the AO. It is argued that in view of this decision, no addition can be made in the hands of the assessee on this account by attributing the expenditure to the assessee. For the sake of ready reference, paragraph No. 7 of the order of the Ld. CIT(A) is reproduced below :- 7. "I have considered the submissions of the appellant as well as that the Ld. AO. As mentioned above, the AO has stated in its remand report that he has no objection in admitting the additional evidence furnished by the appellant, i.e. certificates furnished by Australian University to certify that cost of boarding and lodging of their representatives were borne by themselves and not by the appellant. Moreover, no specific request was made by the AO during the assessment proceedings to produce such evidence. Therefore, the additional evidence furnished by the appellant during the course of appellate proceedings is admitted. On the basis of such certificates by the appellant, it is evident that the cost of boarding and lodging of representatives of Australian University was borne by the Universities themselves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Institutions. The decision for asstt. Year 2006-07 was rendered by the Ld. CIT(A) on the basis of crucial evidence filed in that year to the effect that the expenditure was borne by Australian Institutional Institutions. Assessee has also not furnished copies of agreement entered into between it on one side and Australian Educational Institutions on the other. Therefore, in view of complete lack of evidence in the matter, the AO made a reasonable estimate of the expenditure incurred and income arising therefrom on the basis of cost plus method. 5. We have considered the facts of the case and submissions made before us. The facts are that the assessee maintains offices in India which are known as LO under Foreign Exchange Management Act. These offices are not permitted to carry out any business activity leading to earning of income. There is no evidence on record that the assessee violated the terms and conditions on which the LO were permitted to be operated by the RBI. This issue whether the LO constitute Permanent Establishment (PE) or not has comes to an end when It has been admitted by the assessee that its income may be computed on cost plus basis. Representatives of Austral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of its activities in India. Moreover, the appellant can only be taxed in India in respect of the income derived by it for its activities in India and not for the services rendered by its Head Office, if any, in Australia. Therefore, I am inclined to agree with the appellant in this regard, i.e. it is held that the Ld. AO was not justified in including the amount of Rs. 13,30,954.- on notional basis in the total cost incurred by the appellant in India to arrive at the income at the net margin rate of 15% of such total cost. Therefore, the Ld. AO is directed to exclude the amount of Rs. 13,30,954/- from the total cost base to arrive at the income of the appellant." 7. Ld. Counsel for the assessee submitted that the assessee has not claimed any deduction in respect of alleged head office expenditure. Even if it is assumed that such expenditure has been incurred, deduction will have to be allowed for the same u/s 44C. However, he strongly relied on the findings of the Ld. CIT(A) that expenditure incurred by the head office cannot form the basis for computing income derived from activities in India. 7.1 In reply, Ld. DR relied on the finding of the AO. 8. We have considered t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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