TMI Blog2017 (2) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... f the opinion that no error can be said to have been committed while passing the impugned orders by the Commissioner of Income-tax (Appeals) and the Tribunal. We are in complete agreement with the view taken by the Commissioner of Income-tax (Appeals) and the Tribunal. It is also required to be noted here that the additions made by the Assessing Officer in its order are not part of the show-cause notice and no fresh notice is issued for initiating the penalty proceedings, but it was made on the basis of remand of the earlier proceedings. Accordingly, we answer the issues raised in these appeals in favour of the assessee - Tax Appeal Nos. 2130 with 2145 of 2010 - - - Dated:- 28-7-2016 - K. S. Jhaveri And G. R. Udhwani, JJ. For the Appellant : Nitin K. Mehta, Advocate For the Respondent : Saurabh Soparkar, Senior Advocate with Bandish Soparkar for Ms. Swati Soparkar, Advocate JUDGMENT K. S. Jhaveri, J. 1. By way of these appeals, the appellant-Department has challenged the order dated March 5, 2010 passed by the Income-tax Appellate Tribunal in I. T. A. No. 46/Ahd/2007 for the assessment year 1998-99, whereby the appeal of the appellant-Department came t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,97,443 being sundry expenses and hire charges considering it as expenses being the responsibility of the sub-contractor. (II) Treated the expenses 'reimbursed to head office' as head office expenditure' under section 44C of the Act. (III) Confirmed the disallowance of ₹ 73,50,283 being expenses out of ₹ 87,47,333 that have been reimbursed to Kvaerner Cementation India Limited by holding that these expenses are the responsibility of the sub-contractor. 2.4 Aggrieved by aforesaid order of the Commissioner of Income-tax (Appeals), the Department preferred an appeal before the Tribunal whereas cross appeal was also filed by the assessee against the said decision of the Commissioner of Income-tax (Appeals) and the Tribunal vide its common order has dismissed the appeal of the Revenue while allowing the appeal of the assessee which has given rise to the present appeal. 3. While admitting these appeals, following substantial questions of law are posed for our consideration : (A) Whether the Appellate Tribunal is right in law and on facts in deleting the addition of ₹ 1,22,94,128 in respect of reimbursement of expenses to head office ? ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 of the said decision which reads thus (page 598) : For the aforestated reasons, question No. 1 is answered in the affirmative, i.e., in favour of the Department and against the assessee. In this case, we have held that the adjusted total income for the assessment year in question was nil and, therefore, the Income-tax Officer was right in allowing nil expense as the least of the three parameters mentioned in clauses (a), (b) and (c) of section 44C. This finding is based on facts of this case. Consequently, question No. 2 need not be answered. 4.4 Learned counsel Mr. Mehta also relied upon the decision in case of L. H. Sugar Factory and Oil Mills P. Ltd. v. CIT [1980] 125 ITR 293 (SC) and paragraph No. 2 of the said decision reads thus (page 296) : Now an expenditure incurred by an assessee can qualify for deduction under section 10(2)(xv) only if it is incurred wholly and exclusively for the purpose of his business, but even if it fulfils this requirement, it is not enough ; it must further be of revenue as distinct from capital nature. Two questions therefore arise for consideration in the present appeal : one is whether the sums of ₹ 22,332 and ₹ 50,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itute information, computations and statements. In the circumstances, we are of the view that all the three conditions of section 32A(2)(b)(iii) are satisfied. Our view is supported by the judgment of the Madras High Court in the case of CIT v. Comp-Help Services P. Ltd. [2000] 246 ITR 722 (Mad) as also by the judgment of the Kerala High Court in the case of CIT v. Computerised Accounting and Management Service Pvt. Ltd. [1999] 235 ITR 502 (Ker). We do not find any merit in the argument of the Department that these two judgments do not apply because, in those cases, the assessee was in the business of data processing. The nature of the services rendered by the bank to its customers does involve the work of data processing. It is on the basis of this data processing that the information is provided to its customers by the bank. It is on the basis of this data processing that the balance-sheets are prepared. It is on the basis of this data processing done by the computers that the management information reports come out. Answer : In the circumstances, we answer the above question No. III in the affirmative, i.e., in favour of the assessee and against the Department. 'Qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax (Appeals) as well as the Tribunal and contended that both the authorities below have rightly come to the conclusion. 5.1 In support of his arguments, learned senior counsel Mr. Soparkar, for the assessee has relied upon the paragraphs Nos. 13, 14, 16 and 18 of the order passed by the Tribunal, which read thus : 13. The learned Commissioner of Income-tax (Appeals) considering submission of the assessee rightly noted that the Assessing Officer ought not to have assumed that no such expenditure is allow able as per earlier order of the Tribunal. This finding of learned Commissioner of Income-tax (Appeals) has not been challenged in the grounds of appeal. The Assessing Officer did not verify any expenditure as per order of the Tribunal and merely rejected the claim of the assessee that it was the responsibility of the sub-contractor to incur the expenditure. The genuineness of the expenditure have not been disputed in the first round proceedings as well as in the present proceedings by the Assessing Officer. The Assessing Officer did not dispute the expenses incurred for completion of the project by the assessee. All the disallowed expenses agitated in these appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee for deduction of the expenditure has been disallowed with aid of section 44C or the Income-tax Act by observing that the expenses pertain to the head office and the assessee being nonresident company, the deduction could be allowed under section 44C of the Income-tax Act. Since the assessee has shown loss income. Therefore, deduction under section 44C of the Income-tax Act was taken at nil, it may be noted that in order to qualify as the head office expenditure under section 44C of the Act, the essential condition is that the expenditure must be in the nature of executing and general administration expenses i.e. common overheads incurred at the head office level outside India and allocated to the projects in India. However, in the case of the assessee we find that the expenditure has been incurred by the head office for supervisory personnel deputed to oversee the project executed in India and in respect of guarantees, sundry expenses, insurance, fare, travelling and legal expenses, etc., that was required to be incurred as per the project terms and hence the expenditure was incurred specifically for the Dahej Project in India. Therefore, such expenditure would not fall und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted 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 Assessing Officer 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 Commissioner of Income-tax (Appeals) reproduced 6th Schedule in the impugned order. The learned Commissioner of Income-tax (Appeals) considering the fact that the expenditure are to be borne by sub-contractor confirmed the disallowance of ₹ 73,50,283. However, for electricity charges, house maintenance, mess food charges and wages to the staff amounting to ₹ 13,97,050 were found to be covered by part 2 of 6th Schedule and accordingly addition was deleted. 18. We have considered rival submissions and material available on record and find that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to deduct the TDS. With respect to ₹ 76,00,509, the Commissioner of Income-tax (Appeals) observed that the said amount was towards the reimbursement of the expenses to the consignment agent, which was in fact incurred on behalf of the assessee and there was no profit element. The Commissioner of Income-tax (Appeals) held that the assessee was not required to deduct the TDS on such reimbursement and, therefore, the Assessing Officer was not justified in making the above disallowance and accordingly directed to delete the same. Being aggrieved and dissatisfied with the order passed by the Commissioner of Income-tax (Appeals) in holding the above, the appellant-Revenue preferred appeal before the Income-tax Appellate Tribunal and by the impugned order the Income-tax Appellate Tribunal has confirmed the order passed the Commissioner of Income-tax (Appeals). It is required to be noted that while con firming the order passed by the Commissioner of Income-tax (Appeals) and deleting the disallowance, it has been specifically observed by the Tribunal that in fact the expenses were incurred by the agent on behalf of the assessee for transportation and other charges, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties as per the agreement. Even, some technical persons were required to be employed and their expenses were debited and the Tribunal has rightly appreciated this aspect of the matter that the said expenses which were debited, are for the project in India. 8. As quoted earlier, the Tribunal in its order at paragraph Nos. 13, 14, 16 and 18 has rightly come to the conclusion and in our view the same is just and proper. This court is of the opinion that no error can be said to have been committed while passing the impugned orders by the Commissioner of Income-tax (Appeals) and the Tribunal. We are in complete agreement with the view taken by the Commissioner of Income-tax (Appeals) and the Tribunal. 9. It is also required to be noted here that the additions made by the Assessing Officer in its order are not part of the show-cause notice and no fresh notice is issued for initiating the penalty proceedings, but it was made on the basis of remand of the earlier proceedings. The relevant observations at paragraph Nos. 50 and 51 read thus : 50. We have considered the rival submissions and bestowed our careful consideration and do not find any justification to interfere with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income-tax (Appeals) passed the order on February 23, 2004, i.e., much after the date of June 1, 2003 mentioned in the proviso for passing of the order by the learned Commissioner of Income-tax (Appeals). In this view of the matter, the order levying the penalty under section 271(1)(c) should have been passed on or before March 31, 2005 considering that the order of the learned Commissioner of Income-tax (Appeals) passed on February 23, 2004 and was received by the Chief Commissioner of Income-tax on February 27, 2004 as mentioned in the impugned order. The Assessing Officer has however, passed the penalty order on May 31, 2007 which is clearly time barred and void ab initio. It appears that the Assessing Officer considered the subsequent order of the learned Commissioner of Income-tax (Appeals) dated October 31, 2006 for the purpose of determining the time limit of 6 months referred to in section 275(1A) of the Income-tax Act but such is not the correct matter because the order of the learned Commissioner of Income-tax (Appeals) has nothing to do with the initiation of the penalty. We may also note that the provisions of section 275(1A) of the Income-tax Act have been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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