Director of Income Tax (International Taxation) v. Skanska Cementation International Ltd.
2016-07-28
G.R.UDHWANI, K.S.JHAVERI
body2016
DigiLaw.ai
JUDGMENT : K.S. Jhaveri, J. 1. By way of these appeals, the appellant - Department has challenged the order dated 05/03/2010 passed by the ITAT in ITA No. 46/Ahd/2007 for assessment year 1998-99, whereby the appeal of the appellant-department came to be dismissed and the appeal of the assessee came to be allowed. 2. The facts of the case in nutshell are as under: 2.1 The assessment under Section 143(3) of the Income Tax Act, 1961 was finalized on 28/03/2001 determining the total income of Rs. 9,57,330/- after rejecting the book results and estimating income at the rate of 6% of gross receipts. Against such action, the assessee preferred an appeal before the CIT(A), 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 Lacs. Aggrieved by the order of CIT(A), 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 25/08/2005 whereby partly setting aside the orders for the assessment year 1998-99 to 2000-01 to the file of the AO to decide the issues afresh after providing opportunity to the assessee. 2.2 Pursuant to the said directions of the Tribunal, the AO finalized the set aside assessment on 27/12/2005 arriving at the assessed loss of Rs. 4,39,089 after making certain additions and disallowances 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 AO, the assessee again preferred an appeal before the CIT(A) who vide his order dated 31/10/2006 has given partial relief and confirmed the following additions: Relief given:- (i) Allowed 5% of salary of Rs. 82,07,238 i.e. Rs. 4,10,362/- on guess work and confirmed the balance amount of Rs. 77,96,876/-. (ii) Allowed 5% of expenses towards air fare, visa charges and medical expenses of Rs. 15,98,355 i.e. Rs. 79,918/- on guess work and confirmed the balance amount of Rs. 15,18,448/-. (iii) Allowed electricity charges, house maintenance charges, mess food charges and wages of staff of Rs. 13,97,050/- Confirmed additions/disallowance:- (I) Confirmed the sum of Rs.
77,96,876/-. (ii) Allowed 5% of expenses towards air fare, visa charges and medical expenses of Rs. 15,98,355 i.e. Rs. 79,918/- on guess work and confirmed the balance amount of Rs. 15,18,448/-. (iii) Allowed electricity charges, house maintenance charges, mess food charges and wages of staff of Rs. 13,97,050/- Confirmed additions/disallowance:- (I) Confirmed the sum of Rs. 5,97,443/- 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' u/s. 44C of the Act. (III) Confirmed the disallowance of Rs. 73,50,283/- being expenses out of Rs. 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 CIT(A), the Department preferred an appeal before the Tribunal whereas cross appeal was also filed by the assessee against the said decision of the CIT(A) 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 Rs. 1,22,94,128/- in respect of reimbursement of expenses to Head Office? [B] Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 87,47,333/- made in respect of reimbursement of expenses like sundry expenses, rent, travelling expenses, car hiring expenses, etc. to sub-contractor (i.e. Kvaerner Cementation India Limited)?" 4. Learned Counsel Mr. Nitin Mehta for the appellant-Department has contended that head office expenditure in the case of non-resident is allowable subject to 5% of the adjusted total income; whereas the 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 CIT(A) 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.
He has contended that the CIT(A) 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 Lacs; whereas those expenses were incurred by the subcontractors and debit notes were raised on the assessee, 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 assessee for which the assessee has claimed these expenses in its P & L 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 expenditure of sub-contractor and not of the assessee. He has also contended that the conclusion given by the Tribunal that if the assessee has made any voluntary payments then the same could not be allowed even in the hands of the assessee as the same does not form the part of the business expenditure of the assessee. He has therefore contended that the Tribunal has erred in not appreciating the correct facts of the case and wrongly deleted the entire addition of Rs. 87,47,333/-. 4.3 Learned Counsel Mr. Mehta in support of his argument has relied upon the decision in case of American Bureau of Shipping v. Commissioner of Income Tax, (2003) 263 ITR 0590 and placed reliance upon paragraph No. 7 of the said decision which reads thus: "7. 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 ITO was right in allowing nil expense as the least of the three parameters mentioned in cls. (a), (b) and (c) of s. 44C. This finding is based on facts of this case. Consequently, question No. 2 need not be answered." 4.4 Learned Counsel Mr.
(a), (b) and (c) of s. 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 & Oil Mills (P) Ltd. v. Commissioner of Income Tax, 125 ITR 0293 and paragraph No. 2 of the said decision reads thus: "2. 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 Rs. 22,332 and Rs. 50,000 contributed by the assessee represented expenditure incurred wholly and exclusively for the purposes of the business of the assessee and the other is whether this expenditure was in the nature of capital or revenue expenditure. So far the first item of expenditure of Rs. 22,332 is concerned, the case does not present any difficulty at all, because it was common ground between the parties that this amount was contributed by the assessee long after the Deoni Dam and the Deoni Dam-Majhala Road were constructed and there is absolutely 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 Commissioner of Income-tax v. Emirates Commercial Bank Ltd., [2003] 262 ITR 55 (Bombay) and paragraph No. 4 reads thus: "4. We find merit in the arguments advanced on behalf of the assessee on this point.
Mehta has also placed reliance upon a decision in case of Commissioner of Income-tax v. Emirates Commercial Bank Ltd., [2003] 262 ITR 55 (Bombay) and paragraph No. 4 reads thus: "4. We find merit in the arguments advanced on behalf of the assessee on this point. It is, no doubt, true that the judgments cited on behalf of the assessee refer to the assessees whose business was confined 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 even today, the, operation of the computers in principle remains the same. That, commercial data is fed into the computers as inputs as per the requirement of various customers and the data is processed to get necessary information, computation and statements as outputs. These computers cannot be compared to calculators. Today, in matters of investments and security transactions, banks have a front office and back office. Today, under customer services, the banks render several services including providing information to customers on the basis of which the customers would make investments. All this is based on the print outs which constitute 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 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. 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.
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. "Question IV : Whether the Tribunal was right in law in allowing the travelling expenses of Rs. 4,20,706 incurred on the staff members of the head office on their visit to the branch office of the assessee in India ?" Findings on question No. IV: 5. Section 44C is applicable only in the cases of those non-residents, who carry on business in India through their branches. The said section was introduced to get over difficulties in scrutinising claims in respect of general administrative expenses incurred by the foreign head office in so far as such expenses 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 branch office in India. These are concurrent findings of fact. We do not wish to interfere with those findings. Hence, Section 44C has no application." 4.6 Learned Counsel Mr.
Therefore, the expense was incurred for the branch office in India. These are concurrent findings of fact. We do not wish to interfere with those findings. Hence, Section 44C has no application." 4.6 Learned Counsel Mr. Mehta has contended that looking to the aforesaid factual legal position the appeal may be allowed and the question raised in these appeals may be answered in the favour of the department and against the assessee. 5. On the other hand, learned Senior Counsel Mr. S.N. Soparkar appearing with Mr. Bandish Soparkar, learned Advocate for the respondent-assessee has drawn the attention of the Court to the various observations made by the CIT(A) 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 No. 13, 14, 16 and 18 of the order passed by the Tribunal, which read thus: "13. The learned CIT(A) considering submission of the assessee rightly noted that the Assessing Officer ought not to have assumed that no such expenditure is allowable as per earlier order of the Tribunal. This finding of learned CIT(A) 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 appeals have been incurred by the assessee-company wholly and exclusively for the purpose of executing the contract. The Revenue has no case that the expenses incurred and claimed by the assessee-company were incurred for the purposes other than for the purpose of the Dahej Project. The assessee has incurred all the expenditure relating to Dahej Project only as per the contract. The nexus between the expenses incurred by the assessee-company and the execution of the project has not been questioned by the Revenue authorities.
The assessee has incurred all the expenditure relating to Dahej Project only as per the contract. The nexus between the expenses incurred by the assessee-company and the execution of the project has not been questioned by the Revenue authorities. The Revenue has to case that same item of expenditure have been claimed by way of deduction both by the assessee-company and the sub contractor, 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 incurring 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 5 assesses-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 0f 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 deduction of the expenditure has been disallowed with aid of Section 44C or the IT Act by observing that the expenses pertain to the Head Office and the assessee being nonresident company, the deduction could be allowed u/s. 44C of the IT Act. Since assessee has shown loss income.
We may also note that the claim of the assessee for deduction of the expenditure has been disallowed with aid of Section 44C or the IT Act by observing that the expenses pertain to the Head Office and the assessee being nonresident company, the deduction could be allowed u/s. 44C of the IT Act. Since assessee has shown loss income. Therefore, deduction u/s. 44C of the IT Act was taken at Nil, it may be noted that in order to qualify as the Head Office expenditure u/s. 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, traveling 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 if' India. Therefore, such expenditure would not fall under the definition of head office expenditure for the purpose of Section 44C of the IT Act. therefore. the limit prescribed under such provision would not be attracted in the case of the assessee. Our findings are fortified by the judgment of the Hon'ble Bombay High Court in the case of CIT v. Emirates Commercial bank Ltd. (supra) and Tribunal decision in the case of British bank of Middle East and American Bureau of Shipping (supra) relied upon by the assessee. Therefore, provisions of section 44C of the IT Act would not apply in the case of the assessee. 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 AO on account of sundry expenses, rent, traveling expenses, car hiring expenses, telephone expenses, equipment hire charges, electricity charges, house maintenance, food charges, salary and hire charges of computers. The learned CIT(A) 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 assessee are in appeal.
The learned CIT(A) 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 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 Rs. 7,47,333/- 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, traveling expenses of the expatriates, telephone, food expenses of the expatriates etc. The AO has disallowed reimbursements amounting to Rs. 87,47,333/-. in making the disallowance the AO 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 AO has also held that the expenses are voluntary in nature and hence are not allowable in the hands of the assessee. The assessee challenged the addition before learned CIT(A) and it was submitted that employees had been deputed 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 AO 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 CIT(A) reproduced 6th Schedule in the impugned order. The learned CIT(A) considering the fact that the expenditure are to be borne by sub contractor confirmed the disallowance of Rs. 73,50,283/-. However, for electricity charges, house maintenance, mess food charges and wages to the staff amounting to Rs. 13,97,050/- were found to be covered by part 2 of 6th Schedule and accordingly addition was deleted. 18.
The learned CIT(A) considering the fact that the expenditure are to be borne by sub contractor confirmed the disallowance of Rs. 73,50,283/-. However, for electricity charges, house maintenance, mess food charges and wages to the staff amounting to Rs. 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 issue is squarely covered by our earlier order on issue No. 1 in which we have deleted the entire addition. The learned CIT(A) without considering 6th Schedule in proper perspective restricted the addition because it was the duty of the assessee to provide facility and services at its own cost for the completion of the project. Considering our earlier finding in this order and by following the same. we set aside the orders of authorities below and delete the entire addition of Rs. 84,47,333/-. As a result, departmental stands dismissed. Appeal of the assessee on this issue is allowed." 5.2 Learned Senior Counsel has also relied upon a decision in case of S.A. Builders Ltd. v. Commissioner of Income-Tax Appeals & Anr., [2007] 288 ITR 1 (SC) and placed reliance on the following paragraph: "We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (Bhart) Ltd., (2002) 254 ITR 377 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 arm-chair 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 assessee 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.
No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee 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 amount was advanced for earning profits." 5.3 Learned Senior Counsel has also placed reliance upon a decision in case of Commissioner of Income-tax-III v. Gujarat Narmada Valley Fertilizers Co. Ltd., [2014] 361 ITR 192 (Gujarat) and placed reliance upon paragraph No. 3 of the said decision which reads thus: "3. In an appeal by the assessee the Commissioner Appeals allowed such deductions observing that so far as the amount of Rs. 6,93,372/- is concerned as such the agent had already deducted the TDS and deposited in the Government and, therefore, there was no further liability of the assessee to deduct the TDS. With respect to Rs. 76,00,509/-, the CIT(A) 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 CIT(A) 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 CIT(A) 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 CIT(A). It is required to be noted that while confirming the order passed by the CIT(A) 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 has been spelt out in the bill itself including the commission to the agent. The learned tribunal also observed that the relation between the assessee and the agent is principal and an agent.
The learned tribunal also observed that the relation between the assessee and the agent is principal and an agent. The learned tribunal also observed that so far as the obligation to deduct tax at source from the payment of transport charges and other charges is concerned, the same was complied with by the agent, who had made payment on its behalf. On the aforesaid facts the learned tribunal also observed that the circular relied upon by the revenue that it is the liability of the assessee as principal agent to deduct the TDS will not be applicable and the 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 CIT(A) 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 CIT(A). 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 CIT(A) as well as Tribunal require to be upheld and appeals deserve to be dismissed by answering the questions in favour of the assessee and against the department. 6. We have heard the learned Counsel appearing for the respective parties and have also gone through the facts of the case. 7. Having gone through the orders passed by the CIT(A) and the Tribunal, it appears that the Tribunal while coming to the conclusion has rightly relied upon its own decision and has deleted the whole addition. Furthermore, for execution of Dahej project, expatriates were working, as also the sub-contract was also given to the Indian company which is subsidiary of parent company and the expenses were to be borne by the parties as per the agreement.
Furthermore, for execution of Dahej project, expatriates were working, as also the sub-contract was also given to the Indian company which is subsidiary of parent company and the expenses were to be borne by the parties 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 CIT(A) and the Tribunal. We are in complete agreement with the view taken by the CIT(A) and Tribunal. 9. It is also required to be noted here that the additions made by the AO 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 reads thus: "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 84 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 Officer and also deleted the addition 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 Officer and also deleted the addition under section 40(a)(i) of the I.T. 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 30.03.2005. The Cross appeals of the assessee and revenue have been decided by the Tribunal on 25.08.2005. The Assessing Officer passed the order as per direction of the Tribunal on 6.01.2006 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 30.03.2005 after the order passed by the Learned Commissioner of Income Tax Appeals dated 23.02.2004 but before order of ITAT dated 25.08.2005. 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 passed after the Learned Commissioner of Income Tax Appeals order and not before. The provisions of section 275(1A) of the Act is not applicable in this case because penalty proceedings were dropped prior to passing the order by the Tribunal. We may also note that penalty proceedings were initiated vide notice dated 12.03.2003 consequent to the assessment order passed under section 143(3) on dated 12.03.2003. Proviso to clause (a) of sub section (1) of section 275 of the Act would be applicable because the Learned Commissioner of Income Tax Appeals passed the order on 23.02.2004 i.e. much after the date of 1.06.2003 mentioned in the proviso for passing of 85 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 31.03.2005 considering that the order of the Learned Commissioner of Income Tax Appeals passed on 23.02.2004 and was received by the CCIT on 27.02.2004 as mentioned in the impugned order. The Assessing Officer has however, passed the penalty order on 31.05.2007 which is clearly time barred and void ab-initio.
The Assessing Officer has however, passed the penalty order on 31.05.2007 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 31.10.2006 for the purpose of determining the time limit of 6 months referred to 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 section 271(1)(c) of the I.T. Act. Section 271(1)(c) of the I.T. Act provides for 86 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 discernable from such proceedings. However in this case, there is nothing in the order dated 6.01.2006.
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 discernable from such proceedings. However in this case, there is nothing in the order dated 6.01.2006. The Assessing Officer could have initiated the fresh penalty proceedings after receipt of the order of the Tribunal, but Assessing Officer did not do so. No review of the order is permitted under the I.T. Act by the Assessing Officer. The additions now made by the Assessing Officer in the order dated 6.01.2006 are not part of the show cause notice and no fresh notice is issued for initiating the penalty proceedings against the assessee. The result would be that the Assessing Officer dropped the proceedings for penalty on 30.03.2005 and thereafter, did not initiate the penalty proceedings. Therefore, Learned Commissioner of Income Tax Appeals was justified in deciding the issue in favour of the assessee and against the revenue department. We may also note that substantial additions on merits have been deleted in this order while considering the cross appeals on merits. Therefore, nothing survives in favour of the revenue for levy of the penalty. Considering the facts and circumstances, in the light of the findings of the Learned Commissioner of Income Tax Appeals, we are of the view, Learned Commissioner of Income Tax Appeals was justified in canceling the penalty under section 271(1)(c) of the I.T. Act. We do not find any merit in the departmental appeal, the same is accordingly dismissed." 10. Accordingly, we answer the issues raised in these appeals in favour of the assessee and against the Department. In the result, both the appeals stand dismissed.