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2017 (2) TMI 462
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.... appeal before the Commissioner of Income-tax (Appeals), Baroda which had confirmed the said rejection of books results by directing not to estimate the profit and make lump sum disallowance of Rs. 10 lakhs. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue as well as the assessee filed an appeal before the Tribunal which were disposed of by the Tribunal by its common order dated August 25, 2005 whereby partly setting aside the orders for the assessment year 1998- 99 to 2000-01 to the file of the Assessing Officer to decide the issues afresh after providing opportunity to the assessee. 2.2 Pursuant to the said directions of the Tribunal, the Assessing Officer finalized the set aside assessment on December 27, 2005 arriving at the assessed loss of Rs. 4,39,089 after making certain additions and dis allowances which reads thus : (1) Disallowance of Rs. 1,22,94,128 by applying the provisions of section 44C of the Act. (2) Disallowance of Rs. 87,47,333 on account of expenses incurred by sub-contractor but claimed by the assessee being for execution of work project under sub-contract. 2.3 Against the aforesaid action of the Assessing Officer, the asse....
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.... total income of the assessee for the assessment year 1998-99 as well as for the assessment year 1999-2000 is loss and therefore the entire head office expenditure is disallowable under section 44C. He has contended that the Commissioner of Income-tax (Appeals) did not apply its mind to this aspect. 4.1 Learned counsel Mr. Mehta has also contended that the Tribunal has relied upon it's own decision and has deleted the whole addition without considering the facts that the assessee could not produce any bills and vouchers for the expenses of Rs. 87.47 lakhs; whereas those expenses were incurred by the sub-contractors and debit notes were raised on the asses see, but the assessee was failed to produce any ledger summary of expenses. He, therefore, contended that it is clear that the amount was actually paid by the sub-contractor and debited to the account of the asses see for which the assessee has claimed these expenses in its profit and loss account. 4.2 Learned counsel Mr. Mehta has further contended that expatriates were working for execution of Dahej Project which was the sole responsibility of the sub-contractor and therefore expenditure related to that would be the expend....
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.... nothing to show that the contribution of this amount had anything to do with the business of the assessee or that the construction of the Deoni Dam or the Deoni Dam Majhala Road was in any way advantageous to the assessee's business. The amount of Rs. 22,332 was apparently contributed by the assessee without any legal obligation to do so, purely as an act of good citizenship, and it could not be said to have been laid out wholly and exclusively for the purpose of the business of the assessee. The expenditure of the amount of Rs. 22,332 was therefore rightly disallowed as deductible expenditure under section 10(2)(xv)." 4.5 Learned counsel Mr. Mehta has also placed reliance upon a decision in case of CIT v. Emirates Commercial Bank Ltd. [2003] 262 ITR 55 (Bom) and paragraph No. 4 reads thus (page 58) : "We find merit in the arguments advanced on behalf of the asses see on this point. It is, no doubt, true that the judgments cited on behalf of the assessee refer to the assessees whose business was con fined to data processing for their clients. Today, we have computerised accounting in the banks. In the case of computers, which existed during the relevant assessment year and ....
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....es stand related to their business or profession in India having regard to the fact that foreign companies operating through branches in India sometimes try to reduce incidence of tax in India by inflating their claims in respect of the head office expenses. In other words, section 44C seeks to impose a ceiling/restriction on head office expenses. However, section 44C contemplates allocation of expenses amongst various entities. That, the expenditure which is covered by section 44C is of a common nature, which is incurred for the various branches or which is incurred for the head office and the branch. However, in this case, we are concerned with the expenditure exclusively incurred for the branch. In this case, there is a concurrent finding of fact recorded by the Commissioner (Appeals) as well as the Tribunal stating that the officers came from the head office at Abu Dhabi to Bombay to attend to the work of the Bombay branch and, in connection with that work, the expense was incurred. That, the expense was initially incurred by the head office which was recovered by the head office from the branch in India by raising a debit note. Therefore, the expense was incurred for the branc....
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....ave been claimed by way of deduction both by the assessee-company and the sub-con tractor, resulting in duplication of claims. There is no such we of any duplication of claims in respect of project expenses account either by the assessee-company or by the sub-contractor. When there no case of duplication of the expenses, when all the expenses have be incurred by the assessee-company exclusively for the execution of the project in terms of the contract and the sub-contract justifying incur ring of expenditure in the hands of the assessee-company, we find that there no reason to disallow any portion of the expenditure claimed by the five assessee-company on the ground that the asses see-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 alo....
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....16. Now we take up ground No. 5 in the Departmental appeal and ground No. 3 in the appeal of the assessee. Regarding disallowance of the expenditure of Rs. 87,47,333 made by the Assessing Officer on account of sundry expenses, rent, travelling expenses, car hiring expenses, telephone expenses, equipment hire charges, electricity charges, house maintenance, food charges, salary and hire charges of computers. The learned Commissioner of Income-tax (Appeals) however, allowed the claim of the assessee in a sum of Rs. 13,97,050 and restricted the addition to Rs. 73,50,283. The Revenue as well as asses see 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 Rs. 57,47,333 in respect of the expenditure incurred by the latter on the assessee's behalf. The said expenditure inter 5"3 includes reimbursement of expenditure on account of accommodation of expatriate personnel of the assessee, travelling expenses of the expatriates, telephone, food expenses of the expatriates, etc. The Assessing Officer has disallowed reimbursements amounting to Rs. 87,47,333. in making the disallowance the A....
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...." 5.2 Learned senior counsel has also relied upon a decision in case of S. A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1 (SC) and placed reliance on the following paragraph (page 9) : "We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (Bharat) Ltd. [2002] 254 ITR 377 (Delhi) that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The Income-tax authorities must put themselves in the shoes of the asses see and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the am....
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.... said circular would be applicable for payment made to principal to principal. Considering the aforesaid facts and circumstances of the case, when the learned Tribunal has confirmed the order passed by the Commissioner of Income-tax (Appeals) quashing and setting aside the order passed by the Assessing Officer in deleting the disallowance of Rs. 6,93,372 and Rs. 76,00,509 claimed by the assessee under section 40(a)(ia) of the Income-tax Act, we see no reason to interfere with the same. No error has been committed by the learned Tribunal in confirming the order passed by the Commissioner of Income-tax (Appeals). No question of law, much less substantial question of law, arises in the present appeal. Hence, the present appeal deserves to be dismissed and is accordingly dismissed." 5.4 After making aforesaid submissions and placing reliance on the aforesaid decisions, learned senior counsel for the assessee has contended that both the orders passed by the Commissioner of Income-tax (Appeals) as well as Tribunal require to be upheld and appeals deserve to be dis missed by answering the questions in favour of the assessee and against the Department. 6. We have heard the learned counse....
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....23, 2004 and reduced the net profit to 1.8 per cent. from 6 per cent. adopted by the Assessing Officer and also deleted the addition under section 40(a)(i) of the Income-tax Act. The issue of claim of loss on collapse of steel piles was subject matter in earlier assessment order on which addition is confirmed but the Assessing Officer dropped the penalty proceedings on the entire matter on March 30, 2005. The cross appeals of the assessee and the Revenue have been decided by the Tribunal on August 25, 2005. The Assessing Officer passed the order as per direction of the Tribunal on January 6, 2006 on which no penalty proceedings under section 271(1)(c) of the Act have been initiated. It would show that the Assessing Officer dropped the penalty proceedings vide order dated March 30, 2005 after the order passed by the learned Commissioner of Income-tax (Appeals) dated February 23, 2004 but before order of the Income-tax Appellate Tribunal dated August 25, 2005. The learned Commissioner of Income-tax (Appeals) was therefore justified in holding that the provisions of section 275(1A) of the Act cannot be invoked since the Assessing Officer's order dropping the penalty proceeding is ....
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....roceedings 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 sub judice before the hon'ble High Court. The second assessment order dated January 6, 2006 does not find mention initiation of penalty proceedings under section 271(1)(c) of the Income-tax Act. Section 271(1)(c) of the Income-tax Act provides for penalty if the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, may direct that such persons shall pay by way of penalty. The language of the above section clearly provides that the initiation of the proceedings for penalty should be made in the course of proceedings under this Act and the satisfaction of the Assessing Officer should also be discernible from such proceedings. However in this case, there is nothing in the order dated January 6, 2006. The Assessing Officer could have initiated the fresh penalty proceedings after receipt of the order of the Tribunal, but the Assessing Officer did not do so. No revie....