TMI Blog2010 (3) TMI 1199X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax (Appeals) has erred in law in allowing 5% of total salary of ₹ 82,07,238/- and 5% of expenses on air fares, visa charges and medical expenses aggregating to ₹ 15,98,366/- on the basis of guesswork, when the assessee has failed to establish the veracity of the claim 2. The Learned Commissioner of Income Tax (Appeals) has erred in law in ignoring the well-established tenet that the onus of providing primary facts and primary evidence with regard to the expenses claimed in Profit Loss account rests entirely on the assessee. 3. On the facts and in the circumstances of the case the C I T(A) has erred in allowing 5% of salary ofRs.82,07,238/-, i.e. ₹ 4,10,362, on guess-work, disregarding the fact that this expenditure was incurred by the sub-contractor and not by the assessee. 4. On the facts and in the circumstances of the case the CIT(A) has erred in allowing 5% of expenses towards air fare , visa charges and medical expenses of ₹ 15,98,366, i.e. ₹ 79,918, on guess-work, disregarding the fact that this expenditure was incurred by the sub-contractor and not by the assessee. 5. The CIT(A) has erred on the facts and in the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Contract, the C I TA has still not allowed the entire deductions claimed by the Appellants. 5. The C I T A has in passing the Impugned Order reinvented the entire case of the Department. In the original proceedings the case of determination was that the Appellants do not undertake any of the activities under the Principal Contract and are therefore not entitled to claim deductions of the aforesaid expenses. The C I T A has in the present proceedings found that the Appellants undertook activities under the Contract but has now swung to the other extreme by claiming that the Appellants in fact undertook some part of the role and activities of the sub-contractors under the Sub- Contract viz. the Appellant and Kvaerner Cementation India Limited. It is impermissible in law for the C I T- A to: a. traverse beyond the scope of the remand order and b. to re-invent the case of the Department in the course of the remand proceedings. 6. Ground Nos. 1 to 4 in departmental appeal and ground Nos. 1, 2, 4 and 5 in the appeal of the assessee are on the common issue for disallowance of the several expenditures like salary, air fares, visa charges and medical expenses. The facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd estimating income at the rate of 6% of gross receipts. The said total income was ₹ 9,57,330. The assessee filed an appeal before the C I T(A) , Baroda against the said order of the A O. The learned C I T(A) upheld the rejection of books of account by the A O. However, the C I T(A) directed not to estimate the profit and deleted the additions made by the Assessing Officer and directed the AO to make lump sum disallowance of ₹ 10 lakhs. Aggrieved by the above order of the learned C I T(A), the department preferred an appeal before the ITAT. The appeal NO.ITA 2955/Ahd/2002 filed by the department and the appeal ITA No.2924/Ahd/2002 filed by the assessee for the A Y 1998-99 were disposed off by the Hon'ble ITAT in its consolidated order dated 25-8- 2005, partly setting aside the orders for A Y 1998-99 to 2000-01 to the file of the Assessing Officer. The A O completed the assessment proceedings vide order dated 27-12-2005. It was noticed by the A O that the USD 319329 (equivalent to ₹ 1,22,94,128) expenses were debited for Dahej Project under the head salary, visa charges, computer charges, sundry expenses, bonds/insurance, legal and professional fees, air fares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown loss in the return of income, therefore, deduction u/s 44 C of the I.T Act will be nil. The A. O. accordingly made the addition of ₹ 1,22,94,128/-. 6.1. The addition was challenged before the learned C I T(A) and the assessee referred to various observations of earlier orders of ITAT in which the matter was restored to the A O for proper examination of the issue and it was submitted that the A O has misconstrued the general observations of the Tribunal. It was submitted that the issue was to be decided by the A O on merits on the basis of the material and submission of the assessee. It was further submitted that above expenses have been incurred wholly and exclusively for the purpose of assessee s business. The assessee relied upon decisions in the case of Sassoon J. David Co. Pvt. Ltd. Vs C I T 118 ITR 261 and C I T Vs Malayalam Plantations Ltd. 53 ITR 140. It was submitted that in order that the expenditure qualifies as expenditure incurred wholly and exclusively for the purpose of business, it is not required to conclusively demonstrate that the expenditure was incurred out of compelling necessity, but was incurred for the purpose of assessee s business. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Installation Top sides (Piping, Mechanical, Electrical Instrumentation M/s. Trafalgar House Construction (India) Ltd. M/s. Antara KOH (Ssingapore) M/s. Aban Constructions By referring to the clauses of the agreement it was stated that work shall be sub contracted without prejudice to the contractor s responsibilities to execute the work as per the specification and the time schedule and in the event of any failure on the part of any of the sub contractors engaged by the contractor, the contractor shall do all the needful as may be required so as to ensure completion of the total works within the contracted time schedule. It was emphasized in the agreement that the contractor was fully responsible for the work to be performed under the contract. The assessee bore significant risk under the contract for completion of the contract. It was, therefore, imperative for the assessee to supervise the performance of the execution of the work by the sub contractors. For this purpose, the assessee had deputed its expatriate technicians primarily for supervising and superintending the activities carried out by the sub contractors, to ensure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 It was further submitted that provisions of Section 44C of the IT Act are not applicable in this case, because assessee is tax resident in UK and is entitled to the benefit, if any, under the India UK tax treaty. Reliance was placed on the decision of ITAT, Mumbai Bench in the case of Metchem Canada Inc Vs DCIT ( 5 SOT 121) wherein ITAT has held that limitation on deduction of the head office expenditure as stipulated by Section 44C would be hit by the nondiscrimination clause in the India Canada tax treaty and that on a plain reading of the provisions of Article 24(2) of India-Canada tax treaty, the restriction on admissibility of administrative overheads of a PE of a Canadian company constitutes discrimination against such a PE vis- -vis a domestic Indian entity because no such restriction is applicable for deduction of head office or controlling office overheads of an Indian entity. Asserting that articles relating to nondiscrimination in India-UK tax treaty and those in India-Canada tax treaty read with Article 24(3) of OECD Model are similarly the ratio of the decision in the case of Metchem would therefore apply in pari material to the assessee. As an alternate plea it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to interfere with those findings. Hence, Section 44C has no application. (ii) British Bank of Middle East Vs JCIT ( 4 SOT 122) ITAT, Mumbai) In this case, following the decision of the Mumbai High Court in Emirates Commercial Bank s case (supra), the Mumbai ITAT has observed that Section 44 C is not applicable where India specific expenses are involved. (iii) American Bureau of Shipping Vs Income Tax Officer (19 ITD 793) (ITAT, Mumbai) In this case the ITAT, Mumbai Bench has held that the traveling expenses which were specifically incurred on account of Indian branch could not be in the nature of Head Office expenses. 6.5 It was, therefore, prayed that provisions of Section 44C of the IT Act are not attracted in the case of the assessee and that the addition made by the A O be deleted. 7. The Learned Commissioner of Income Tax (Appeals) considering the submissions of the assessee and material on record allowed the appeal of the assessee partly. The findings of the Learned Commissioner of Income Tax (Appeals) in paras 4.3 to 4.3.22 are reproduced as under: 4.3 I have carefully considered the arguments of Assessing Officer and the submissions of the appellant, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee it was necessary to verify whether the expenditure incurred by Head Office for execution of Dahej project ad claimed by the appellant, was incurred for appellant s business. 4.3.4 During the course of appellant proceedings following questions were specifically addressed to the appellant in order to arrive at a conclusion about the work actually performed by these personnel. (1) What were the specific jobs performed by these expatriates? (2) Were the jobs overlapped with the functions performed by the supervisory cadre of the subcontractor ? (3) If yes what is the degree of overlap? (4) What were the division of work between the expatriates and the operating cadre of sub contractor? (5) What value was added by these people if execution was with sub contractor and how was the value addition measured? (6) Were they not performing execution functions as per organogram? (7) Who signed the day to day work measurement sheets? (8) What if these expatriates were not there? Could the job had not been managed? (9) Since in respect of part of work ie installation of steel piles it was concluded by ITAT that as the design , fabrication, planning was respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir terms of employment and positions held by them and after assessing all the details furnished by the assessee he came to a conclusion that these expatriates performed execution jobs. It has also been observed that in earlier appeal proceedings it was admitted in statement of fact that the expenditure on expatriates were incurred for providing proper infrastructure for purposes of executing the project. Vide submission dated 18.12,2000 before the Assessing Officer it has also been stated by the assessee that the company was engaging expatriates personnel for execution of the project and that the personnel were engaged in carrying out various activities like engineering, planning, technical development and administrative functions, etc. It is also a fact that these personnel were holding key posts such as managers, project directors, technicians, etc. as evidenced by the site organogram and it could not be shown that the nature of functions performed by the sub contractor were indeed different from those performed by the expatriates. It is admitted that the appellant operated in India merely through a project office and back to back contract was entered right from the date of iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly when the ITO doubts the genuineness thereof. In the case of Jaipur Electro (P) Ltd. vs. CIT - 134 CTR 237(Raj) it is observed that Assessing Officer has the right and duty to enquire into purpose of expenditure - the doctrine that the businessman is the best judge of business expediency does not affect the right, and duty, of the assessing authorities to know whether it was incurred for business purposes and not for other extraneous considerations In the case of Ramanand Sagar vs. DCIT - 255 ITR 134(Bom.) it is held that the mere fact that the payment has been made under a contract is not conclusive of the expenditure being laid out wholly and exclusively for the purposes of the business. Once doubts arise about the bona fide nature of the payment, it is necessary to look into all the necessary circumstances such as relationship of the payee to the assessee, the general standards of similar expenditure in comparable business, the true worth of the services or goods in question and so forth. It is also open to the Assessing Officer to question the reality of the expenditure, i.e. the true nature of payment, the true consideration for it and so forth. The expenditure mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the duties of the appellant were performed through a lean project office to procure, collate the details and progress of work completed by the subcontractor for further discussions with the owner. In the absence of any clear details the percentage of supervision attributable to the personnel has to be at best estimated. The profit and loss account under the head 'Expenses under Sub contract' shows only work charges and no separate details of supervision or personnel costs were charged by the appellant. Thus there appears to be little doubt that these personnel performed the execution job which was the primary responsibility of the sub contractor. It is also seen that the personnel posted were posted by the parent company for Dahej project and in the larger scheme of things when all these companies are the group concerns it is fairly easy to assign these personnel to any task and to allocate the expenditure according to overall business strategy of parent company. 4.3.11 Another plea of the appellant that there were other sub contractors apart from SCEM and this aspect was not considered by the Department was examined. However no details of expenses for supervision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. 4.3.15 Another plea of the appellant, that as per clause 4 of letter of intent it was contractor responsibility to provide supervisory personnel in case the owner demands it, has been examined. It is seen that as per LOI cost of such personnel is to be borne by the owner and it has been admitted in appeal that no such supervisory staff was posted. In any case, even if, the cost if any were to accrue it would not have been on appellant's count. Thus the plea of the appellant lacks force. 4.3.16 Considering all the facts and in view of available, incomplete information, I have no choice but to make a fair guess about expenditure on supervision tasks which was the domain of the appellant for purposes of claim of expenditure under the Act. Considering that functions performed by these expatria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain aspects of the commentary on treaty provisions as detailed in succeeding paras were not brought to the kind notice of Hon'ble ITAT. Article 26(2) (Non-discrimination clause) is reproduced as under... 2. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favorably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities in the same circumstances or under the same conditions. This provisions shall not be construed as preventing a Contracting State from charging the profits of a permanent establishment which an enterprise of the other Contracting State has in the first-mentioned State at a rate of tax which is higher than that imposed on the profits of a similar enterprise of the first-mentioned Contracting State, nor as being in conflict with the provisions of paragraph 4 of Article 7 of this Convention. The expression 'taxation..... shall not be less favourably levied means, in the context of the Indian Income-tax Act, levy of income-tax on the income of an enterprise, that the charging section and the computation se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities, with their fiscal implications, can be fully brought within the purview of the States where it is has its head office... Not all differences in tax treatment, either as between nationals of the two states, or between residents of the two States, are violations of this national treatment standard. Rather, the national treatment obligation of this Articles applies only if the nationals or residents of the two States are comparably situated. Each of the relevant paragraphs of the Article provides that two persons that are comparably situated must be treated similarly. Although the actual words differ from paragraph to paragraph (e.g. paragraph 1 refers to two nationals in the same circumstances, paragraph 2 refers to two enterprises carrying on the same activities and paragraph 4 refers to two enterprises that are similar ), the common underlying premise is that if the difference in treatment is directly related to a tax relevant difference in the situations of the domestic and foreign persons being compared, that difference is not to be treated as discriminatory (e.g. if one person is taxable in a Contracting State on worldwide income and the other is not, or tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tops and digital plotter, as THCIL are able to provide at the site. 2) Hotel accommodation and transportation, including airfares, as may be required to be undertaken by the Contractor's management staff in connection with the operation 'of the Contract, in accordance with Kvaerner standards. 3) Administrative management of the contractor's office and living accommodation, transport, travel, domestic and office staff, etc. 4) Assistance to the contractor in the management of its financial accounts. 5) Assistance to the contractor in obtaining all necessary visas, licences, permits and customs clearance in connection with the execution of the contract works and the entry and exit of the contractor's staff into and out of India. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sub contractor, therefore, the expenses pertain to them and not to the assessee. The assessee need not to spend any expenditure on the same. The learned D R submitted that the learned C I T (A) should not have allowed the deduction of even 5% of the expenditure in the matter. 9. On the other hand, learned Counsel for the assessee reiterated the submissions made before the authorities below. He has submitted that the Tribunal in the first round proceedings restored the matter to the file of the A O for examination, therefore, such finding cannot be read against the assessee. He has submitted that learned C I T (A) agreed with the submission of the assessee that the A O ought not to have assumed that no such expenditure is allowable as per decision of the ITAT and that the department has not challenged such findings of the learned C I T(A). He has submitted that department has not made out any case that assessee ought not to have spent the amount. He has submitted that now, the A O has made the case of execution or supervision for completion of the sub contract which is not permissible because ultimately it was the responsibility of the assessee to complete the agreement f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of C I T Vs Emirates Commercial Bank Ltd. (supra) and order of the Mumbai Tribunal in the case of Metchem Canada Inc (supra) (also reported in 100 ITD 251). He has also relied upon following decisions: (i) decision of Hon'ble Gujarat High Court in the case of C I T Vs Raipur Manufacturing Co. Ltd. 84 ITR 508 in which the company paid to the liquidator the amount as per agreement to avoid disputes and claimed deduction. The Income Tax Officer held that it was purely an ex-gratia payment and rejected the claim of the assessee. The finding of the Tribunal was that the payment was made by the assessee company to buy peace and to see that the employees were contended and that there was no disturbance in the smooth working of the factory because of strike, stoppage of work, or rowdyism in the mill premises and the Tribunal allowed the deduction. On reference, Hon'ble High Court held that the Tribunal was justified in holding that assessee was entitled for deduction of the expenditure laid out wholly and exclusively for the purpose of assessee company s business, (ii) decision of Hon'ble Gujarat High Court in the case of C I T Vs City Ahmedabad Spinning Weaving Manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that reasonable expenditure may be allowed as deduction. 10. The learned D R in the rejoinder submitted that expenses can be examined by the A O as per sub contract. Specific production of the details of the expenses was called for. However, assessee has not discharged its onus to prove genuineness of the expenditure. 11. We have considered rival submissions and material on record. The facts of the case as noted above are not in dispute that the assessee company being the contractor obtained the contract work from the Principal i.e. Gujarat Chemical Port Terminal Company Ltd. (GCPTCL/owner) for construction of a Liquid Chemical Handling Jetty at Dahej. For the purpose of execution of the aforesaid contract, the assessee had established project/site office at Dahej. For completion of the project assessee had given sub contract to Skanska Cementation India Ltd. for carrying out the job. The issue in the present appeal is relating to principal contract and the sub contract entered into between the Principal and the assessee AND the assessee and the sub contractor. The A O proceeded on the basis that expenses incurred by the contractor outside India and the expenses reimbursed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub contracted because the contractor shall be solely responsible for the quality, proper and expeditious execution of the works and the performance of all the conditions of the contract in all respect as if such sub-letting or sub-contracting had not taken place and as if such work had been done directly by the contractor. The above clause, therefore, would prove that the assessee is solely responsible for the work and all the obligations shall have to be discharged towards the principal. The assessee was required to furnish the security and bank guarantee towards the timely performance of the work. It will also prove that in case of non-performance of the agreement by the assessee, it shall be liable for forfeiture of the security. Clause 9 of the letter of intent (WS/PB 17) required the contractor to set out the site organization which indicated that personnel of the contractor will play a supervisory role even in respect of site activities. As per Clause 4 of the same letter of intent the contractor is to provide the services of Indian and expatriate personnel for pre-commissioning and commissioning activities. As per clause 84.3, page 114 of the paper book on the general condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to play even in respect of the work to be undertaken by the sub contractor. The contractor cannot absolve from the liability towards the principal even if sub contract is given. 12. The general rule is that contracts are executed strictly in terms of the stipulations incorporated therein, unless it is proved otherwise. In the present case, there is nothing available on record to show that the principal, the assessee-contractor and the sub contractor had acted differently from the terms of the contract. When it is so, we have to see that the assessee-contractor had incurred expenditure in its own account as well as made payments to sub contractors and again the sub contractor incurred expenditure on the basis of terms and conditions of the agreements executed by them. The reason for the apprehension of the A O is that he has been overwhelmed by the terms of the contracts between the contractor and the sub contractor. The A O has thus overlooked the overall responsibility and contractual obligations of the assessee-contractor in the light of the principal contract entered into between the assessee-contractor and the principal contractee. The A O gave undue stress to the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pervision business expenditure in law because Section 37 of the IT Act provides for deduction of the expenditure if the same are laid out or expended wholly and exclusively for the purpose of business. Considering overall supervision of the project by the assessee and that it has to perform operational functions, the assessee has to incur expenditure in executing the project. Once incurring of expenditure in the hands of the assessee is warranted by the facts and circumstances of the case and further induced by the contractual obligations, it is not permissible to question the legitimacy of incurring expenditure by the assessee-company. In the case of Sassoon J. David Co. (supra), it was held that wholly and exclusively does not mean necessarily. In the case of C I T Vs Malayalam Plantation Ltd. (supra), it was held the term for the purpose of business is wider in scope. The learned Counsel for the assessee relied upon decisions in the case of C I T Vs Raipur Manufacturing Co. Ltd., C I T Vs City Ahmedabad Spinning Weaving Manufacture Company, S. A. Builders Ltd. Vs C I T and Sri Venkata Satyanarayana Rice Mill Contractors Co. Vs C I T (supra) clearly support the case of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee-company on the ground that the assessee-company was not expected to incur expenditure. Once we come to the finding that assessee is justified in incurring expenditure in its own account, in addition to payments made to the sub contractor, for the purpose of executing the project, the legality and legitimacy of the claim made by the assessee shall have to be accepted. The assessee has maintained proper accounts after classifying the expenses incurred by it. The assessee has maintained details of quantum work executed by the sub contractor along with the corresponding payment made to it. The expenses incurred at the Head Office of the assessee-company abroad have been properly accounted and audited and consolidated in the global accounts of the assessee-company. Since all expenses are incurred for the project at Dahej in India therefore, there is no ground to reject the claim of the assessee for want of evidence and lack of verification. It is, therefore, beyond doubt that the expenses are in fact, expenses wholly and exclusively incurred for the purpose of business of the assessee company contractor. 14. We may also note that the claim of the assessee for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re charges of computers. The learned C IT (A) however, allowed the claim of the assessee in a sum of ₹ 13,97,050/- and restricted the addition to ₹ 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 ₹ 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in ITA No.52/Ahd/2007 is allowed. 20. Both the cross appeals are directed against the order of the leaned Learned Commissioner of Income Tax (Appeals)-VI, Baroda dated 21-10-2006 for Assessment Year 1999-2000. 21. The Assessing Officer made the addition of ₹ 5,31,21,689/- on account of disallowance of Head Office expenses. The A O also made the addition by disallowing ₹ 1,76,74,225/- on account of Head Office expenses u/s 44C of the IT Act. The A O also disallowed ₹ 1,65,95,402/- on account of expenditure incurred by the sub contractor and claimed by the assessee. The issues are same and identical as are considered in the assessment year 1998-99 in ITA No.46/Ahd/2007 and ITA No.52/Ahd/2007. The assessee made same submissions before the learned Commissioner of Income Tax (Appeals). The learned Commissioner of Income Tax (Appeals) allowed 5% of the deduction out of the addition of ₹ 2,71,35,886/- i.e. ₹ 13,56,792/- and balance of ₹ 2,57,79,092/- was confirmed. On the same analogy, the other expenses were allowed at 5% and the balance ₹ 63,42,007/- was confirmed. Similarly, addition of ₹ 1,12,93,497/- was confirmed . Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount of ₹ 1,44,04,368(representing sundry expense, rent, traveling expenses, telephone and part of equipment hire charges) expenses out of ₹ 1,65,95,403/- that have been reimbursed to Kvaerner Cementation India Ltd. Pursuant to the provisions of Sixth Schedule of sub contract Agreement dated 18- 12-1998 entered into between the assessee and Kvaerner Cementation India Ltd. By holding that these expenses are the responsibility of the sub contractor. On ground Nos. 4 and 5 the above additions are challenged. On the last ground, assessee challenged charging of the interest u/s 234B of the IT Act. 22. The learned representatives of both the parties submitted that all the issues in the cross appeals are similar as have been considered in assessment year 1998-99 and requested that the order in that assessment year may be followed in this year also. 23. On consideration of the submissions of the parties and findings of authorities below, we are of the view that all the grounds of appeals in cross appeals are similar and identical as are considered and argued by both the parties in Assessment Year 1998-99 in ITA Nos. 46/Ahd/2007 and ITA No.52/Ahd/2007. Therefore, foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the same were incurred by the sub-contractor and not by t he assessee. 27. The appeal of the assessee on ground Nos. 1 to 4 read as under: 1. The learned C IT-A has, erred in holding that out of expenses of ₹ 4,83,71,219 reimbursed to Head Office only 5% of the expenses of ₹ 3,53,95,387 in respect of salaries of expatriates and 5% of the expenses of 70,38,304 in respect of expenses like medical, air fare and visa charges for the expatriates can be considered to be towards supervision. The learned C I T-A has erred in disallowing an amount of ₹ 29,94,382 (comprising of sundry expenses of ₹ 2,07,585, traveling expenses of ₹ 24,10,860, care hire charges of ₹ 3,75,937) expenses out of ₹ 68,63,514 (included ₹ 4,83,71,219) that have been reimbursed to Kvaerner Cementation India Limited pursuant to the provisions of Sixth Schedule of Sub-contract Agreement dated 18th December 1998 entered into between the appellant and Kvaerner Cementation India Limited by holding that these expenses are the responsibility of the sub-contractor. The learned C I T-A has thus confirmed disallowance of ₹ 4,62,49,535/-. 2. The learned C I T- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee reads as under: 7. The learned CIT(A) has erred in confirming action of the learned Assessing Officer of making disallowance of ₹ 1,42,85,226 u/s 40(a) (i) of the Act. 31. The facts on this issue are that the Head Office incurred expenditure in respect of professional and consultancy fees on behalf of the assessee. The assessee reimbursed the Head Office in respect of the same. The A O disallowed the same under Section 40 (a) (i) by holding that no tax was deducted at source in respect of the same. The A O has dealt with the issue on page 26 of the impugned order. The relevant portion is reproduced below: . As per section 9(1)(vii) ( c ) amount of fees paid by way of professional and consultancies fees by a non-resident in respect of services utilized in business or profession by such person for the purpose of making or earning any income from any source in India is income deemed to be accrued for arise in India. From the details submitted by the assessee, it is clear that the parties who raised the invoices to KCIL, UK have rendered services for Dahej project. The services were utilized by this project. Therefore, on these payments, it is the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sub-contract work. These payments were related to technical support and services for the execution of the project and as per subcontract act it was the responsibility of sub contractor, not of the assessee. Therefore, expenditure related to these services if the assessee has made voluntary payment therefore cannot be allowed as expenditure in the hands of the assessee because the same cannot be held to be business expenditure of the assessee. On the basis of the above facts and information submitted by the assessee and after reexamined the whole issue I hold that amount of ₹ 1,42,85,226/- is disallowed. (Addition ₹ 1,42,85,226/-) 31.1. The A O has held that since the payments constituted Fees for Technical ( TFS ) services under section 9(1)(vii) of the Act, the assessee was obliged to deduct tax at source in respect of the above payments. Since no tax had been withheld, the provisions of section 40(a) (i) were attracted. 31.2 The assessee challenged the addition before the learned Commissioner of Income Tax (Appeals) and it was submitted by the assessee that the obligation to withhold tax is cast under section 195 of the Act whereby any person responsibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on are reimbursement of expenses incurred by the then KCI Ltd. For the purpose of Dahej Project in India, so there is no income element and therefore, there was no obligation to deduct tax at source u/s 195 of the IT Act while making payments to non-residents. He has submitted that payee is not in India and no income accrued in India and that there is no permanent establishment in India. Therefore, for reimbursement of the expenses the provisions of section 40(a) (1) of the IT Act cannot be invoked in the case of the assessee. He has relied upon 310 ITR 237 (Mad.), 221 CTR-1 (Bom.) and 225 CTR 220 (Karnataka). On the other hand, learned Departmental Representative relied upon orders of the authorities below and referred to page 32 to 37 of the order of the C I T (A) and also relied upon the decision in the case of Wallace Pharmaceutical Pvt. Ltd. (supra) relied upon by the learned C I T(A). 34. We have considered rival submissions and material available on record. The relevant provisions in the Act on this issue are reproduced as under: 35. Section 40(a) (i) of the Act provides Notwithstanding anything to the contrary in sections 30 to [38], the following amounts shall not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation.-For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called Interest payable account or Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] 35. Section 9 (1) (vii) of the Act provides that the following incomes shall be deemed to accrue or arise in India:--- income by way of fees for technical services payable by- (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : [Provided that nothing contained in this clause shall apply in relation to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that due to the above fact, there was no obligation of the assessee to deduct tax at source u/s 195 while making payments to non-residents. A O has not brought any evidence or material on record that the recipients who got payments through sub contractor were liable to tax in India. A O has also not brought about their status for receiving the payments. No efforts have been made to prove as to how the payment in question was liable to tax under the provisions of Income Tax Act. Unless the income was chargeable to tax, there would be no tax liabilities to deduct tax as per provisions of Section 195 (1) of the IT Act. The A O has also not properly examined the provisions of DTA agreement with UK for the purpose of appreciating the issue. According to the assessee the amount is paid by the UK payer to UK payees, therefore, there was no reason to deduct TDS. The reimbursement of the expenses to the sub contractor for further payment to others was not appreciated in the light of the relevant provisions and how these expenses were considered as fees for technical services is also not considered by the A O. As regards the reimbursement of the expenses to t he sub contractor, A O disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e documents to him. If however the seller s dealing with the bill of lading is only to secure the contract price not with the intention of withdrawing the goods from the contract, and he does nothing inconsistent with an intention to pass the property, the property may pass either forthwith subject to the seller s lien or conditional on performance by the buyer of his part of the contract. Even though the property in the goods may pass to the buyer when the documents are handed over, the buyer may yet retain the right to examine and repudiate the goods but this right generally which a buyer has in a c. i. f. contract does not by itself indicate that the property in the goods has not passed to him. In the case of C I T Vs Gulf Oil (Great Britain) Ltd. 108 ITR 874 (Bom) the Hon'ble Bombay High Court held, on the facts that the contracts were made in U. K. as the indents placed by the Indian company were accepted in U. K. The contracts were also executed outside India because once the goods were put on ship there was no reservation of right of disposal in the goods by the non-resident. Pursuant to the indents the products were not merely supplied by the non-resident company b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishable from the facts of this case. Considering the facts on this issue and in the absence of specific finding and material brought on record by the A O, we do not find any justification to sustain the findings of authorities below. We accordingly set aside the orders of authorities below and delete the entire disallowance. As a result, ground No.7 in the appeal of the assessee is allowed. 39. The ground NO.9 in the appeal of the assessee reads as under: 9. (1) The learned C I T (A) has erred in withdrawing the depreciation on temporary office units from 100% allowed by the learned Assessing Officer to 10% without giving the mandatory notice for making enhancement as stipulated in section 251 (2) of the Act. (2) The learned C I T (A) has erred in not accepting the appellant s claim to either allow by way of revenue expenditure or allow by way of 100% depreciation the claim for deduction of ₹ 26,03,24,147 in respect of camp units, ₹ 2,57,14,870 in respect of camp equipment, ₹ 1,30,00,169 in respect of camp furniture and fixtures. Without prejudice to (1) above, the learned C I T-A erred in not accepting appellant s claim to allow the deduction of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the assessee and Lingtec. Thus such units do not constitute any asset but are expenses solely incurred for the purpose of facilitating the business of the contractor. In this regard, the assessee relied on the following judgments: (i) Empire Jute Co. Ltd. Vs C I T 124 ITR 1 (SC) (ii) Bombay Steam Navigation Co. (P) Ltd. Vs C I T 56 ITR (iii) Indian Ginning Pressing Co. Ltd. Vs C I T 252 ITR 577 (Gujarajt) (iv) Madras Auto Service (P) Ltd. Vs C I T 233 ITR 468 (SC) (v) C I T Vs Associated Cement Companies Ltd. 172 ITR 257 (SC) The only benefit that was derived by the incurring the aforesaid expenditure was the savings in revenue expenditure that the assessee would have otherwise incurred for transport and accommodation of the employees. The ratio laid down in the cases of Indian Ginning Pressing Co. Ltd. Vs C I T, Madras Auto Services (P) Ltd. and Associated Cement Companies Ltd. (supra), therefore, is squarely applicable to the assessee s case. It was therefore submitted that the expenses incurred by the assessee are wholly revenue in nature. Further, it was stated that the assessee was under an obligation to vacate the land on the completion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that expenditure incurred by appellant for erection of temporary structure should be fully allowed as these are revenue in nature and these expenditure were incurred to provide proper accommodation to its deputed employees at project site at Dabhol which was located in a remote area and that such expenditure saved travel time and also the expenditure on hotel stay. Further the said expenditure was essential till the time the project continued and that as per contractual obligation between the appellant and Lingtec the said structures were to be dismantled after the project was completed. An additional plea was advanced by the appellant that treatment in the books of accounts of a particular expenditure would not dictate the tax treatment as the accounting entries in the books of accounts are occasioned by diverse set of consideration and that h4e tax treatment of such expenditure has to be determined with reference to provisions of Income Tax Act. 8.6.4.2 The Assessing Officer on the other hand at para 16.2 of the assessment order has mentioned that the assessee had amortised the infrastructure expenditure of ₹ 5.26 crores in his books on structures and furniture and fixt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riveni Engineering Works Vs DCIT 86 TTJ 32 (Delhi) it has been held that to determine the nature of structure one has to look into the nature of material used in such construction. In that case expenditure were incurred on aluminum structure, aluminum partition and doors and door paneling which were held not eligible for 100% depreciation for the reason that life span of aluminum structure is more than wooden partition work. 8.6.4.7 In the instant case I find that type of construction and material used comprised of aluminum, iron, concrete, asbestos, fiber glass, etc. and thus by no stretch of imagination, these structures could be held akin to temporary wooden structures. The Assessing Officer is therefore justified in applying the appropriate rates of 10% for the camp units and 15% for camp equipment and furniture and fixture. 8.6.4.8 As regards the plea that Assessing Officer has himself treated the site office as temporary in nature and allowed 100% depreciation whereas for similar other structures differential treatment was give, I am in agreement with appellant and looking into nature of structure and the material used and Appendix I of Income Tax Rules, in my view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as revenue expenditure. (v) C I T Vs Premier Cotton Spinning Mills Ltd. 223 ITR 440 (Kerala) in which expenses lying for road, water tanks, drainage etc. were allowed as revenue expenditure. (vi) South Eastern Coalfield Ltd. Vs C I T 260 ITR 1 in which expenditure incurred on widening of the road, street lights etc. for welfare of the employees was allowed as revenue expenditure. (vii) DCIT Vs Sun Pharmaceutical Ltd. (judgment of Gujarat High Court dated 23rd March, 2009) (WS/PB 243) in which lease rent paid at nominal rate was considered as business expenditure. Learned Counsel for the assessee, therefore, submitted that the above expenditure may be allowed as revenue expenditure and in the alternate submission submitted that since it was a temporary structure therefore, 100% depreciation may be allowed as allowed by the A O and relied upon several decisions in support of the contention. On the other hand, learned Dr relied upon orders of authorities below. 43. We have considered the rival submission and material on record. The facts as noted above are not in dispute. The assessee raised these temporary structures at the project site for the purpose of business and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A)-XXI, Ahmedabad has erred in law in holding that the order passed u/s. 271(1)(c) r.w.s. 274 of the Act is bad in law and hence void ab initio having being passed beyond time prescribed u/s.275 of the Act. Ld CIT(A) has erred in deciding that subsection 275(1A) is not applicable in present case as the AO's order dropping the penalty is before the ITAT's order and before the effective date of application of provision of section 275(1 A). Section 275(1A) is inserted by Taxation Laws (amendment) Act -2006 w.e.f. 13/07/2006. Ld CIT(A) failed to appreciate that as on 13/07/2006, appeal was pending before the CIT(A) against the AO's order dated 06/01/2006 which is part of original order dated 12/03/2003 and section 275(1A) is clearly applicable in present case and AO's has rightly levied penalty within the time limit prescribed under section 275(1 A) of the Act. 2. The ld CIT(A)-XXI, Ahmedabad has erred in law and facts in holding that the AO has erred in disregarding the order passed by his predecessor on March 30, 2005 dropping the penalty proceedings in this very case. Ld CIT(A) failed to appreciate that as per section 275(1A), even if order imposing dropping of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the Assessing officer. 8. It is therefore prayed that the order of the ld CIT(A) may be cancelled and that of Assessing Officer may be restored to the above extent. 46. The Learned Commissioner of Income Tax (Appeals) decided the appeal of the assessee which was directed against the order dated 31st May 2007 passed u/s. 271(1)(c) r.w.s 274 of the I.T. Act passed by the ACIT, Circle-6, Baroda levying a penalty of ₹ 20,00,00,000. Following were the grounds of appeal before Learned Commissioner of Income Tax (Appeals):- 1. The order passed u/s. 271(1)(c) read with section 274 of the Act is bad in law and hence, void ab initio having being passed beyond time prescribed u/s. 275 of the Act. 2. The learned AO has erred in disregarding the order passed by his predecessor on March 30, 2005 dropping the penalty proceedings in this very case. 3. The learned AO has erred in levying penalty despite the fact that the order dated March 12, 2003 no longer survived in the eyes of law in view of directions of ITAT setting aside the order of the lower authorities (reproduced in para 8 of statement of facts) which covered both the grounds on which the penalty was initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the laws of United Kingdom, is mainly in the business of civil construction. The assessee had been awarded a contract in November, 1997 for the construction of a liquid chemical handling jetty at Dahej by M/s. Gujarat Chemical Port Terminal Company Limited; while another contract was awarded by Lingtec, USA for construction of LNG tanks at Dabhol in November, 1998. Return of income was filed on 28th November, 2000 declaring loss of ₹ 23,31,81,901. The Assessing Officer passed the assessment order dated March 12, 2003 u/s. 143(3) of the Act determining total income at ₹ 18,36,04,833. He rejected the book results by invoking section 145 of the Act and estimated the net profits at 6% of the total receipts. This resulted in an income of ₹ 16,93,19,607. He also made further disallowance of ₹ 1,42,85,226 u/s. 40(a)(i) of the Act. In this very order dated March 12, 2003, it was mentioned by the AO that penalty proceedings u/s. 271(1)(c) of the Act were also being initiated for the concealment of income and for furnishing of inaccurate particulars of income. A notice dated March 12, 2003 u/s. 271(l)(c) read with section 274 of the Act was issued. 46.1. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee preferred appeal before Learned Commissioner of Income Tax (Appeals). The copies of the submissions of the Assessee made from time to time were sent to the AO for his comments who vide his report dated 23 January, 2008 submitted his report. As noted above, assessee raised several legal and factual issues before Learned Commissioner of Income Tax (Appeals) for quashing of the penalty order. The first issue considered by the Learned Commissioner of Income Tax (Appeals) is as under:- 1. The order passed u/s. 271 (1)(c) read with section 274 of the Act is bad in law and hence void ab initio having being passed beyond time prescribed u/s. 275 of the Act. The assessee vide his submissions dated 25th September, 2007 has submitted before Learned Commissioner of Income Tax (Appeals) which is reproduced as under:- 1.1 Section 275 of the Act is reproduced below for your honour's ready reference. Bar of limitation for imposing penalties.-(1) No order imposing a penalty under this Chapter shall be passed- (a) in a case where the relevant assessment or other order is the subject matter of an appeal to the Commissioner (Appeals) under section 2461 or section 246A or an app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducing or cancelling penalty or dropping the proceedings for the imposition of penalty may be passed on the basis of assessment, as revised by giving effect to such order of the Commissioner (Appeals) or, the Appellate Tribunal or the High Court, or the Supreme Court or order of revision under section 263 or section 264: Provided that no order of imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty shall be passed- (a) unless the assessee has been heard, or has been given a reasonable opportunity of being heard ; (b) after the expiry of six months from the end of the month in which the order of the commissioner (Appeals) or the Appellate Tribunal or the High Court or the Supreme Court is received by the Chief Commissioner or the Commissioner or the order of revision under section 263 or section 264 is passed: Provided further that the provisions of sub-section (2) of section 274 shall apply in respect of the order imposing or enhancing or reducing penalty under this sub-section. (2)........ Explanation.-In computing the period of Imitation for the purposes of this section, - (i)....,...; (ii)......,; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36. 1.6 With regard to the then learned AO's contention that in view of the insertion of sub-section (1A) to section 275 of the Act penalty can be levied in the instant case, we have to submit that even sub-section (1A) of section 275 of the Act would not have any application in view of the following observations which are without prejudice to each other: (i) Sub-section (1A) of the section 275 of the Act is inserted by the Taxation Laws (Amendment) Act, 2006 w.ef. July 13, 2006, and hence can not have any retrospective application. Relevant extract from the notes on clauses explaining the insertion of the sub-section (1A) to section 275 of the Act is reproduced below for your honour's ready reference. Clause 15 seeks to amend section 275 of the Income-tax Act relating to bar of limitation for imposing penalties. Under the existing provisions contained in the proviso to clause (a) of sub-section (1) of said section, in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner(Appeals), and he passes the order on or after 1st June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Taxation Laws (Amendment) Bill, 2006 received the assent of the President which in the instant case is July 13, 2006. Based on the above, we have to submit that the insertion of sub-section (1A) of section 275 of the Act can not have any retrospective application. Strong reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax v. Varas International (P.) Ltd. [(2006) 154 Taxman 331], which has effectively held that for an amendment to a statute to be construed as being retrospective, the amended provision should itself indicate either in terms or by necessary implication that it is to operate retrospectively. (iii) The relevant assessment or other order referred to in the said sub-section is the regular assessment order passed on March 12 2003 wherein the proceedings for the initiation of penalty u/s. 271(1)(c) r.w.s. 274 of the Act have been initiated. The appeal was tiled to the then learned CIT(A) against this order dated March 12, 2003 which was decided by the then learned CIT(A) vide his order dated February 23, 2004. An appeal to the Hon'ble ITAT by the appellant as well as by the department ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 275 of the Act. We may further add that it was only in this order dated March 12, 2003 that the direction for the initiation of the penalty proceedings was given. No other order contained such a direction to initiate penalty proceedings u/s 271(1)(c) of the Act. (iv) In other words, it is submitted that it was only up to the stage of the passing of the order by the Hon'ble ITAT on August 25, 2005 that the order of March 12, 2003 could be said to have any relevance. However, as stated earlier, for the purpose of applicability of the proviso appearing below clause (a) of subsection (1) of section 275 of the Act, the only relevant order is the order passed by the then learned CIT(A) on February 23, 2004 since it dealt with the issues arising out of the order of March 12, 2003 wherein the direction for initiation of penalty proceedings was given. The proviso referred to above mentions of the orders of the CIT(A) only, and, therefore, even the Hon'ble ITAT s order would not have any relevance. It appears from the date of the order passed by the then learned AO on May 31, 2007 levying the penalty of ₹ 20 crores that the department seems to be taking false shelter of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... your honour would kindly appreciate that there was no reference to the sum of ₹ 40,65,54,561 intended to be considered for the levy of penalty in question of ₹ 20 crores. In fact, the reference to the notice dated March 12, 2003 in the notice dated May 21, 2007 is an ample proof that the notice dated March 12, 2003 could never have visualized that the department was going to make an addition of ₹ 40,65,54,561. In view of above, the order passed u/s. 271(1)(c) read with section 274 of the Act is bad in law and hence void ab initio having being passed beyond time prescribed u/s. 275 of the Act, The AO in his remand report commented as under. 1) Assessee has taken the ground that the order passed is beyond the time limit prescribed u/s. 275 of the I.T. Act. This ground has been dealt with by the A.O. in the para 2.5 of the penalty order and keeping in view of provision of sec 275(1) and sec 275(1A), the penalty order passed is within the time limit prescribed and is not barred by limitation, 4.1 Without prejudice to the above section 275(1A) is inserted by the Taxation Law Amendment Act 2006, an order imposing penalty can be passed within 6 month fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r items following two items only were included along with other items (which were never mentioned in the order dated 12-03-2003) for the purpose of penalty: - Loss on collapse of still piles Rs.14,37,78,195 - Disallowance u/s.40(a)(i) Rs. 1,42,85,226 In other words, the AO has not mentioned the following two items which were considered in the order dated 12-03-2003 as being included in the imputed profit of 6%. - Non availability of vouchers Rs.12,24,099 - Donation ₹ 1,28,499 The appellant has further argued that in the order dated 31-05- 2007 the learned AO added five more following items. - Head office expenses(Dahej Project) Rs.4,83,71,219 - Expenditure incurred by head office Rs.1,82,55,408 - Expenditure incurred by sub-contractor Rs.68,63,514 - Expenditure debited in P L belonging to Sub-contractor Rs.1,09,70,601 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A). In view of this, the order imposing the penalty ought to have been passed on or before March 31, 2005 considering that the order of the CIT(A) passed on February 23, 2004 was received by the Chief Commissioner of Income tax on February 27, 2004. The AO seems to have considered the order of the CIT(A) passed on 31st October, 2006 as the basis for determining the time limit of six months referred to in proviso to sub-section (1A) of section 275 of the Act. The action of the AO in considering the aforesaid order of the CIT(A) is not correct since the said order of the CIT(A)is in respect of the appeal filed by the appellant against the order dated January 6, 2006 which was passed to give effect to the directions of the ITAT contained in the consolidated order dated August 25, 2005. The aforesaid order of the CIT(A) had nothing to do with the initiation of penalty and hence cannot form the basis of determining the time limit. I agree with the appellant's arguments that sub-section (1A) of the section 275 of the Act is inserted by the taxation Laws (Amendment) Act, 2006 w.e.f. July 13, 2006 and hence can not have any retrospective application. The appellant has cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax (Appeals) on the issue of batching plant expenses noted that the addition is modified and was subjected to verification by the Assessing Officer therefore, on such matter of disallowance of expenditure, penalty cannot be imposed. The learned Commissioner of Income Tax (Appeals) also noted that the notices for imposition of the penalty were issued on 12.03.2003 and 23.07.2004 and thereafter, only one letter is issued calling explanation of the assessee and penalty was dropped on 30.03.2005 and thereafter, no subsequent notices issued to the assessee. Therefore, penalty is void ab initio. The Learned Commissioner of Income Tax (Appeals) ultimately considering various issues and after giving findings of the same, set aside the penalty order and deleted the entire penalty. Appeal of the assessee accordingly allowed. The Revenue is in appeal on the above grounds. 48. Learned Departmental Representative relied upon the order of Assessing Officer levying the penalty. He has submitted that Assessing Officer rightly imposed the penalty on the basis of the findings of the Tribunal and the provisions of section 275(1A) squarely applies to the case of the assessee because the orig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le under section 271(1)(c) of the Act. He has submitted that since the assessee disclosed all the particulars of income, therefore, it is not a case of concealment of particulars of income or filing inaccurate particulars of income. He has submitted that Learned Commissioner of Income Tax (Appeals) rightly deleted the penalty in the matter. 50. We have considered the rival submissions and bestowed our careful consideration and do not find any justification to interfere with the order of the Learned Commissioner of Income Tax (Appeals) in canceling the penalty. The facts and the dates of various orders of assessment, Learned Commissioner of Income Tax (Appeals) and the Tribunal are not in dispute. It is admitted that that the Assessing Officer dropped the penalty proceedings under section 271(1)(c) of the Act on 30.03.2005. The Assessing Officer initiated the penalty proceedings in the assessment order dated 12.03.2003 under section 143(3) on the issue of estimate of net profit and disallowance under section 40(a)(i) of the I.T.Act. The Learned Commissioner of Income Tax (Appeals) decided the appeal on 23.02.2004 and reduced the net profit to 1.8% from 6% adopted by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 275(1A) of the I.T.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 I.T.Act have been inserted in the statute by the Taxation Laws (amendment) Act, 2006 w.e.f. 13.07.2006, therefore, the same cannot have any retrospective effect. The Learned Commissioner of Income Tax (Appeals) was therefore, justified in holding that the impugned order is bad in law and void ab initio because the penalty order should have been passed on or before 31.03.2005 which is not so in the matter. 51. In view of the above findings, there is no need to give further finding in the matter, however, for the finality of the matter, we may also note that the earlier assessment order was not in force which is the basis of initiation of the penalty proceedings because it was set aside by the Tribunal except on the issue of loss on steel piles on which also the matter is stated to be subjudice before Hon'ble High Court. The second assessment order dated 6.01.2006 does not find mention initiation of penalty proceedings under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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