DCIT (OSD) Range I, V. Alfa Crew as Platform vein,

ITA 3469/DEL/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1062 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 31-08-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 31-07-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHWANI MAHAJAN
• Assessee Lawyers: SACHIT JOLLY ADV NEERAJ SHARMA
• Keywords: Transfer pricing; Business expenditure; Salary income; Revised return; Set aside
• Section: 234B; 192; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `A : NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NO.3469/DEL./2009 (ASSESSMENT YEAR : 2004-05) DCIT, (OSD) RANGE I, VS. M/S ALFA CREW AS, DEHRADUN. C/O NANGIA & CO., 75/7-RAJPUR ROAD, DEHRADUN. (PAN/GIR NO.AAECA8804D) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SACHIT JOLLY, ADV./NEERAJ SHARMA , CA REVENUE BY : SHRI ASHWANI MAHAJAN, CIT(DR) ORDER PER K.D. RANJAN: AM THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 2004 -05 ARISES OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS), DEHRADUN.. T HE GROUNDS OF APPEAL RAISED Y THE REVENUE ARE REPRODUCED AS UNDER: 1. WHETHER THE LD.COMMISSIONER OF INCOME-TAX (APP EALS) HAS ERRED IN LAW AND ON FACTS IN ALLOWING DEDUCTION U/S 44AC OF THE I.T. ACT @ 5% OF THE ADJUSTED TOTAL INCOME? 2. WHETHER THE LD.COMMISSIONER OF INCOME-TAX (APP EALS) HAS ERRED IN LAW AND ON FACTS IN ADMITTING THE GROUND F APPEAL ON TH 3E ISSUE OF 10(6)(VIII)? 3. WHETHER THE LD.COMMISSIONER OF INCOME-TAX (APPEA LS) HAS ERRED IN LAW AND ON FACTS IN DELETING THE INTEREST U/S 234B OF THE I .T. ACT? 2. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION ON THE GROUND THAT SALARY INCOME WAS EXEMPT U/S 10(6)(VIII) OF THE INC OME-TAX ACT, 1961. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE IS A NON -RESIDENT COMPANY INCORPORATED IN NORWAY. IN THE RETURN OF INCOME, THE ASSESSEE DECL ARED INCOME U/S 44AB OF THE ACT @ 10%. LATER ON, THE ASSESSEE REVISED ITS RETURN OF INCOME ON 3.3.2006 DECLARING INCOME OF RS.1,59,95,590/- U/S 44BB(3) OF THE ACT AS AGAINST RS.1,59,10,627/- ORIGINALLY ADMITTED IN THE ORIGINAL RETURN. M/S DOLPHIN DRILLING LTD.( DDL) ENTERED INTO A CONTRACT WITH I.T.A. NO.3469/DEL./2007 (A.Y. : 2004-05) 2 ONGC FOR CHARTER HIRE OF RIG, NAMELY, BELFORD DOLP HIN FOR OFFSHORE DRILLING. THE ASSESSEE IS AN ASSOCIATE COMPANY OF M/S DOLPHIN DRI LLING LTD., AND IT PROVIDED TECHNICAL PERSONNEL I.E. CREW MEMBERS FOR OPERATING THE DRILL SHIP ON THE FOLLOWING TERMS AND CONDITIONS: (A) M/S DD SHALL PAY TO ALFA CREW A FIXED FEE OF U S $ 869 PER DAY. (B) M/S DDL SHALL REIMBURSE ALFA CREW ALL CREW SALA RIES AND OTHER RELATED EXPENSES AND THE APPELLANT COMPANY WILL BE ENTITLED TO A HANDLING FEE @ 5% OF SUCH EXPENSES. THE TOTAL SALARY OF THE CREW DURING THE YEAR WAS RS .26,45,59,780/-. WHILE DRAWING ITS P&L A/C, THE ASSESSEE COMPANY DECLARED ON THE CREDI T SIDE THE FIXED FEE OF US $ 869 PER DAY AND 5% OF THE CREW EXPENSES AS HANDLING CHARGES . THE RECEIPT OF RS.26,45,59,780/- WAS NEITHER DECLARED ON CREDIT SIDE NOR DID IT CLAI M THIS AMOUNT AS EXPENDITURE WHILE PREPARING THE P&L A/C. THE ASSESSING OFFICER HELD THAT THIS AMOUNT OF RS.26,45,59,780/- WAS THE RECEIPT OF THE ASSESSEE C OMPANY AND SINCE NO TAX U/S 192 WAS DEDUCTED BY THE ASSESSEE COMPANY ON ACCOUNT OF SALA RIES PAID TO THE CREW MEMBERS, THE ASSESSING OFFICER DISALLOWED THE AMOUNT U/S 40(A)(I ) OF THE ACT. 3. BEFORE COMMISSIONER OF INCOME-TAX (APPEALS), IT WAS SUBMITTED THAT AS PER CLAUSE 4 OF THE AGREEMENT, THE CLIENT WAS TO PAY AL FA CREW, FEE OF RS.US $ 869 PER DAY INCLUSIVE OF VALUE ADDED TAX, IF APPLICABLE PAYABLE UPON RECEIPT OF MONTHLY INVOICES THEREON, OR AS OTHERWISE AGREED. THIS FEE SHALL CO VER ALFA CREW RUNNING COSTS, SUCH AS BUT NOT LIMITED TO PERSONNEL, OFFICE AND ADMINISTRA TION COSTS/EXPENSES. THIS FEE WILL BE SUBJECT TO YEARLY REVIEW BUT WILL REMAIN FIXED UNLE SS OTHERWISE AGREED BY THE PARTIES. CAUSE 5 OF AGREEMENT PROVIDES THAT CLIENT SHALL RE IMBURSE ALFA CREW SALARIES/EXPENSES REASONABLY INCURRED BY ALFA CREW IN THE PROPER PROV ISION OF THE SERVICES IN ACCORDANCE WITH THE CLIENTS IDENTIFICATION AND REQUESTS AND AL FA CREW SHALL BE ENTITLED TO A 5% HANDLING FEE THEREON AS ALFA CREW SHALL PROVIDE THE CLIENT WITH EVIDENCE OF SUCH SALARIES/EXPENSES AS THE CLIENT MAY REASONABLY REQU IRE. 4. IT WAS ALSO SUBMITTED THAT AS PER CREWING SERVIC E AGREEMENT ENTERED INTO BETWEEN ALFA CREW AND DDL, ALFA CREW HAD SECONDED PERSONNEL TO DDL DURING THE PERIOD ENDED I.T.A. NO.3469/DEL./2007 (A.Y. : 2004-05) 3 ON MARCH 31,2004. THE PERSONNEL WERE UNDER THE SUP ERVISION, MANAGEMENT AND CONTROL OF DDL. FOR ADMINISTRATIVE EASE, THE CREW SALARY A ND OTHER COSTS WEE DISCHARGED BY THE ALFA CREW AND THEN RECALLED FROM DDL (I.E. ALFA CRE W WAS ACTING AS DISBURSEMENT AGENT). ACCORDINGLY, THE PAYMENT OF REMUNERATION TO THE SAI D PERSONNEL WERE NOT INCLUDED IN THE GROSS RECEIPTS AS PER THE FINANCIAL STATEMENTS. FU RTHER SINCE AS PER REVISED RETURN OF INCOME, THE INCOME HAS BEEN OFFERED TO TAX ON A NET INCOME BASIS OF TAXATION, THE QUESTION OF REIMBURSEMENTS BEING TAXED ON A GROSS BASIS WOUL D NOT ARISE. IT WAS FURTHER SUBMITTED THAT UNDER THE AGREEMENT, THE CREW MEMBERS BECAME D EEMED EMPLOYEES OF DDL AND, THEREFORE, IN THE HANDS OF THE ASSESSEE, THE AMOUNT RECEIVED FROM DDL WAS ONLY REIMBURSEMENT AND, THEREFORE, NOT LIABLE TO TAX. 5. IT WAS ALSO SUBMITTED THAT RIG BELFORD DOLPHIN ARRIVED INTO INDIA ON 14.11.2003. THE EMPLOYEES THAT WORKED ON OFFSHORE RIGS ALWAYS O PERATE ON 28/28 OR 42/42 DAYS SCHEDULE. IN OTHER WORDS, THEIR WORK PERIOD ON RIG WAS 28 DAYS OR 42 DAYS FOLLOWED BY FIELD BREAK FOR PERIOD BREAK OF SIMILAR PERIOD WHIC H WAS SPENT BY THE EMPLOYEES IN HOME COUNTRY. ACCORDINGLY, ONCE THE RIG ENTERED INDIA O N 14.11.2003, NONE OF THE EMPLOYEES RESIDED IN INDIA ON BOARD BELFORD DOLPHIN FOR MOR E THAN 90 DAYS IN INDIA. ACCORDINGLY, IT WAS SUBMITTED THAT ALL EMPLOYEES WERE NON-CITIZE N AND NON-RESIDENT IN INDIA. ALL EMPLOYEES WORKED ON BOARD ON FOREIGN VESSEL, I.E. BELFORD DOLPHIN OWNED BY DOLPHIN DRILLING PTE. LTD., A COMPANY INCORPORATED IN SINGA PORE AND THAT THEIR AGGREGATE PERIOD OF STAY IN INDIA DID NOT EXCEED 90 DAYS IN AGGREGATE. THEREFORE, IT WAS SUBMITTED THAT ALL CONDITIONS MENTIONED IN SECTION 10(6)(VIII) OF THE ACT WERE FULFILLED AND THE REMUNERATION PAID TO CREW WAS EXEMPT FROM INDIAN TAXATION. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF ITAT, MUMBAI IN THE CASE OF OCCEANIC C ONTRACTOR INC. VS. ITO, 33 ITD 213 (MUM.). 6. LD.COMMISSIONER OF INCOME-TAX (APPEALS) ON CONS IDERATION OF ABOVE FACTS OBSERVED THAT AS PER CONVENTION IN OIL INDUSTRY, TH E EMPLOYEES WORKED ON RIG FOR 28 DAYS FOLLOWED BY 28 DAYS AS FIELD BREAK DURING WHICH THE Y WENT BACK TO THEIR HOME COUNTRY. THUS, AS PER THE ASSESSEE NONE OF THE EMPLOYEES ST AYED IN INDIA EXCEEDING 90 DAYS IN AGGREGATE. THE ASSESSEE HAD EMPLOYED IN ALL 87 EMP LOYEES TOWARDS INDIAN OPERATIONS. ALL THESE EMPLOYEES EXCEPT MR. FENTON FRANK STEPHEN HAVE STAYED ON DRILLSHIP FOR LESS THAN 90 DAYS AS PER DETAILS COLLATED FROM THEIR PAS SPORTS AND SUBMITTED DURING THE COURSE I.T.A. NO.3469/DEL./2007 (A.Y. : 2004-05) 4 OF APPELLATE PROCEEDINGS. HE FURTHER OBSERVED THAT THE TECHNICIANS I.E. CREW MEMBERS WERE WORKING ON DRILLSHIP. AS PER THE DECISION OF ITAT SEDCO FOREX INTERNATIONAL DRILLING INC. VS. ACIT (1998) 60TTJ (DEL.) 373, RI G IS A SHIP AND, THEREFORE, INCOME OF THESE TECHNICIANS WAS ELIGIBLE FOR EXEMPTION U/S 10 (6)(VIII) OF THE ACT. HE PLACED RELIANCE ON THE DECISION OF OCEANIC CONTRACTORS INC . VS. ITO (SUPRA), WHEREIN IT HAS BEEN HELD THAT IN CASE OF PAYMENT OF SALARY WHERE SALARY INCOME IS EXEMPT U/S 10(6)(VIII), PROVISIONS OF SECTION 40(A)(I) WERE NOT APPLICABLE. HE FURTHER OBSERVED THAT THE ASSESSING OFFICER IN HER ASSESSMENT HAD MENTIONED THAT THE AS SESSEE HAD APPEARED TO HAVE PRESUMED BEFORE THAT ITS EMPLOYEES WOULD NOT COMPLETE 90 DA YS IN THE YEAR UNDER CONSIDERATION. EVEN IN THAT SITUATION, RISK WAS OF THE ASSESSEE AN D IN CASES, WHERE THEIR STAY EXCEEDED 90 DAYS, DEPARTMENT WOULD NOT ONLY DISALLOW FOR PAYM ENT U/S 40A(I) OF THE ACT, BUT ALSO WOULD HAVE COLLECTED TAX ON THE EMPLOYEES WHOSE STA Y EXCEEDED 90 DAYS. UNDER THESE CIRCUMSTANCES, THE ASSESSING OFFICER WAS NOT RIGHT IN MAKING THE DISALLOWANCE. HE ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO DELET E THE ADDITION. 6. BEFORE US, LD.SR.DR SUBMITTED THAT DDL REIMBURSE D THE SALARY OF THE EMPLOYEES WHICH WERE EMPLOYED BY ALFA CREW. THE PAYER HAS TO DEDUCT TAX AT SOURCE. THE PLEA THAT THE SALARY PAID TO CREW MEMBERS WAS EXEMPT U/S 10(6)(VIII) WAS TAKEN BEFORE COMMISSIONER OF INCOME-TAX (APPEALS) AND NOT BEFORE THE ASSESSING OFFICER. HE FURTHER SUBMITTED THAT THEY WERE NOT WORKING ON FOREIGN SHI P. THE ASSESSING OFFICER DID NOT EXAMINE THE ISSUE WITH REGARD TO THE EXEMPTION. TH E COMMISSIONER OF INCOME-TAX (APPEALS) HAS ALLOWED THE CONTENTION OF THE ASSESSE E THAT PAYMENTS WERE NOT COVERED BY PROVISION OF SECTION 40(A)(I) OF THE ACT. ON THE O THER HAND, LD.AR OF THE ASSESSEE SUBMITTED THAT WHEN INCOME IS NOT CHARGEABLE TO TAX , NO TAX WAS TO BE DEDUCTED. 7. WE HAVE HEARD BOTH THE PARTIES. U/S 40(A)(I), A NY FEE FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT SHALL NOT BE AL LOWED DEDUCTION IN COMPUTING INCOME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS OF THE BUSINESS OR PROFESSION WHICH IS PAYABLE OUTSIDE INDIA OR IN INDIA TO A NON-RESIDENT NOT BEING A COMPANY OR TO A FOREIGN COMPANY ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII OF THE ACT AND AS SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION HAS NO T BEEN PAID DURING THE PREVIOUS YEAR OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF TIME PR ESCRIBED UNDER SUB-SECTION (1) OF I.T.A. NO.3469/DEL./2007 (A.Y. : 2004-05) 5 SECTION 200 OF THE ACT. FROM THE PROVISIONS OF SEC TION 40(A)(I), IT IS CLEAR THAT FEE FOR TECHNICAL SERVICES SHOULD BE CHARGEABLE TO TAX UNDE R THE INCOME-TAX ACT, 1961. U/S 10(6)(VIII) OF THE INCOME-TAX ACT, 1961, ANY INCOME CHARGEABLE UNDER THE HEAD SALARY RECEIVED BY OR DUE TO ANY SUCH INDIVIDUAL BEING A N ON-RESIDENT, A REMUNERATION FOR THE SERVICES RENDERED IN CONNECTION WITH HIS EMPLOYMENT ON FOREIGN SHIP WHERE HIS STAY IN INDIA DOES NOT EXCEED IN AGGREGATE A PERIOD OF 90 D AYS IN THE PREVIOUS YEAR SHALL NOT FORM PART OF TOTAL INCOME. THE COMMISSIONER OF INCOME-T AX (APPEALS) HAS RELIED ON THE DECISION OF ITAT IN THE CASE OF SEDCO FOREX INTERNA TIONAL DRILLING INC. VS. ACIT (SUPRA) WHEREIN IT HAS BEEN HELD THAT RIG IS A SHIP. IN TH E CASE BEFORE US, NONE OF THE ASSESSEE EMPLOYEES HAD STAYED MORE THAN 90 DAYS EXCEPT IN ON E CASE IN RESPECT OF WHICH TAX HAS BEEN DEDUCTED AT SOURCE. THEREFORE, THE SALARY PAI D BY THE ASSESSEE TO NON-RESIDENT IS EXEMPT U/S 10(6)(VIII) OF THE ACT. ACCORDINGLY, IN OUR CONSIDERED OPINION, COMMISSIONER OF INCOME-TAX (APPEALS) WAS JUSTIFIED IN DELETING T HE ADDITION. 8. THE NEXT ISSUE FOR CONSIDERATION RELATES TO ALLO WING DEDUCTION U/S 44C OF THE ACT @ 5% OF ADJUSTED TOTAL INCOME. THE FACTS OF THE CA SE RELATING TO THIS GROUND OF APPEAL ARE THAT THE ASSESSING OFFICER WHILE COMPUTING TOTAL IN COME DISALLOWED PERSONNEL COSTS OF RS.24,90,379/-, TRAINING EXPENSES OF RS.74,914/- AN D OFFICE RENT OF RS.17,95,193/-. THE ASSESSEE COMPANY HAD DEPLOYED A PERSON IN NORWAY T O LOOK AFTER THE DAY TO DAY ADMINISTRATION OF THE COMPANY. THE ASSESSING OFFIC ER DISALLOWED THE SAME ON THE GROUND THAT THE ASSESSEE WAS UNABLE TO EXPLAIN THE NATURE OF JOB PERFORMED OUTSIDE INDIA. ACCORDING TO THE ASSESSING OFFICER, THE PERSONNEL C OSTS REPRESENTED SALARY PAID TO MR.BJORN NILSEN, AN EXPATRIATE EMPLOYEE. U/S 9(1)(I I) OF THE ACT, SALARY INCOME WOULD BE TAXABLE IN INDIA ONLY IF IT IS EARNED IN INDIA. IN THE CASE OF THE ASSESSEE, THE EMPLOYEE HAD RENDERED SERVICES OUTSIDE INDIA. ACCORDINGLY, SA LARY INCOME WAS NOT TAXABLE IN INDIA AND, THEREFORE, THE ALFA CREW WAS NOT REQUIRED TO D EDUCT TAX AT SOURCE FROM THE SAME. AS REGARDS RENT, ALFA CREW DID NOT MAINTAIN ANY OFFICE OR ANY ESTABLISHMENT IN INDIA. THE ENTIRE RENTAL PAID PERTAINS TO PROPERTY SITUATED OU TSIDE INDIA. ACCORDINGLY, THE SAME WAS NOT TAXABLE IN INDIA U/S 9(1)(II) OF THE ACT. AS R EGARDS TRAINING EXPENSES, EXPENDITURE WAS INCURRED ON TRAINING PROVIDED OUTSIDE INDIA AND, TH EREFORE, THE SAME WAS NOT TAXABLE AS PER PROVISIONS OF SECTION 9(1)(II) OF THE ACT. THE ASSESSING OFFICER CONSIDERED THE I.T.A. NO.3469/DEL./2007 (A.Y. : 2004-05) 6 SUBMISSION OF THE ASSESSEE AND HE WAS OF THE OPINIO N THAT CREW WAS UNDER THE DIRECT CONTROL OF DDL AND, THEREFORE, THERE WAS NO QUESTIO N OF HAVING ANY PERSON OUTSIDE, TO CONTROL THEM ADMINISTRATIVELY. THE ASSESSEE WAS AL SO UNABLE TO EXPLAIN THE NATURE OF JOB PERFORMED OUTSIDE INDIA IN RESPECT OF ASSESSEE. TH EREFORE, THE EXPENSES UNDER THE HEAD SALARY OF EXPATRIATE WERE DISALLOWED. REGARDING THE TRAINING EXPENSES, THE ASSESSEE COULD NOT SUBSTANTIATE AS TO WHOM THE TRAINING WAS GIVEN AND WHAT SORT OF TRAINING WAS GIVEN. THERE WAS NO JUSTIFICATION OF CLAIM OF THIS EXPENDITURE. THEREFORE, THE ASSESSING OFFICER DISALLOWED SAME. 9. THESE ADDITIONS WERE OBJECTED TO BEFORE THE COMM ISSIONER OF INCOME-TAX (APPEALS). IT WAS EXPLAINED THAT MR.BJORN NILSEN W AS HIRED AND WAS DEPUTED AT THE HEADQUARTERS OF THE COMPANY. THE CONTENTION OF THE ASSESSING OFFICER THAT NO OTHER EMPLOYEE WAS REQUIRED BY THE ASSESSEE, WAS GROSSLY INCORRECT AND CONTRADICT TO THEIR ACTUAL POSITION. THE EMPLOYEES ON RIG WERE NOT IN ANY POSITION TO LOOK AFTER THE DAY TO DAY RUNNING OF THE AFFAIRS AND THE ASSESSEE NATURAL LY REQUIRED AT LEAST ONE PERSON TO PERFORM THE REQUISITE FUNCTIONS OF THE COMPANY. TH EREFORE, THE PAYMENT OF RS.24,90,379/- WAS NEITHER UNREASONABLE OR EXCESSIV E. AS REGARDS TRAINING COST, IT WAS SUBMITTED THAT THE EXPENDITURE WAS BOOKED ON THE BA SIS OF DOCUMENTS AND VOUCHERS MAINTAINED IN NORWAY AND IT HAD PROVED DIFFICULT FO R THE ASSESSEE TO OBTAIN NECESSARY DETAILS FROM THE HEAD OFFICE. AS REGARDS THE RENTA L COST, IT WAS SUBMITTED THAT DETAILS OF PAYMENT OF RENT HAVE BEEN PAID TO THE PARENT COMPAN Y M/S DOLPHN DRILLING LTD. THIS FACT HAS BEEN DULY REPORTED IN THE TRANSFER PRICING REPORT ENCLOSED ALONG WITH THE RETURN OF INCOME. THE CHARGE OF RENTAL HAS BEEN MADE TO M/S DOLPHIN DRILLING LTD. FOR OFFICE SPACE USED BY THE ASSESSEE FOR THE PURPOSE OF RUNN ING ITS OPERATIONS IN NORWAY. OFFICE SPACE IN EUROPEAN COUNTRY WAS EXTREMELY HIGH AND WO ULD HAVE BEEN ECONOMICALLY UNVIABLE FOR THE ASSESSEE TO OBTAIN INDEPENDENT OFF ICE SPACE. THEREFORE, OFFICE SPACE WITH M/S DOLPHIN DRILLING LTD. WAS UTILIZED FOR WHICH R ENTAL PAYMENT WAS MADE. 10. THE COMMISSIONER OF INCOME-TAX (APPEALS) ON CON SIDERING THE SUBMISSION MADE BY THE ASSESSEE OBSERVED THAT THE ASSESSEE HAD NOT BEEN ABLE TO GIVE ANY DETAILS/EVIDENCE OF TRAINING COST EITHER BEFORE THE ASSESSING OFFICE R OR BEFORE HIM. HE WAS OF THE OPINION THAT THE ONUS WAS ON THE ASSESSEE TO PROVE THAT EXP ENDITURE WAS INCURRED FOR THE PURPOSES I.T.A. NO.3469/DEL./2007 (A.Y. : 2004-05) 7 OF BUSINESS. SINCE IT WAS NOT DONE, DISALLOWANCE M ADE BY THE ASSESSING OFFICER WAS JUSTIFIED. AS REGARDS THE PERSONNEL COST AND OFFIC E EXPENSES, THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS OF THE OPINION THAT SUCH E XPENDITURE WAS SOLELY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. THE BUSINESS OPERATION SUCH AS RAISING INVOICES, MAKING SALARY PAYMENT AND OTHER DAY TO DA Y OPERATIONS COULD NOT BE PERFORMED BY THE PERSONS DEPLOYED ON RIGS. FOR THESE OPERATI ONS, MR.BJORN NILSEN WAS EMPLOYED IN NORWAY FOR CARRYING OUT ASSESSEES BUSINESS AND, TH EREFORE, ALLOWABLE IN NORMAL COURSE OF BUSINESS EXPENSES. HOWEVER, A PERUSAL OF THE P&L A /C REVEALED THAT THE ASSESSEE HAD CLAIMED ALSO EXPENSES ON ACCOUNT OF BANK CHARGES, I NSURANCE, LEGAL AND PROFESSIONAL FEES, COMMUNICATION COST AND OTHER EXPENSES. THE ASSESSIN G OFFICER HAD ALLOWED THOSE EXPENSES. THE ASSESSEE DID NOT MAINTAIN ANY OFFICE IN INDIA AND ALL THESE EXPENSES INCLUDING PERSONNEL COSTS AND RENTAL COST HAVE BEEN INCURRED IN NORWAY. THEREFORE, ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE EXPENDI TURE MAY NOT BE TREATED AS HEAD OFFICE EXPENSES AND BE RESTRICTED AS PER PROVISION S OF SECTION 44C OF THE ACT. LD.AR OF THE ASSESSEE OBJECTED THE RESTRICTION OF EXPENSES U /S 44C OF THE ACT. HOWEVER, COMMISSIONER OF INCOME-TAX (APPEALS) AFTER CONSIDER ING THE OBJECTIONS RAISED BY THE ASSESSEE HELD THAT EXPENSES INCURRED ON PERSONNEL C OSTS, RENT, BANK CHARGES, INSURANCE, LEGAL AND PROFESSIONAL EXPENSES, COMMUNICATION COST S, REPAIRS AND MAINTENANCE TOTALING TO RS.56,45,972/- WERE HEAD OFFICE EXPENSES. OUT OF THIS, THE ASSESSING OFFICER HAD DISALLOWED RS.24,90,379/- ON ACCOUNT OF PERSONNEL C OST AND RS.17,95,193/- ON RENT. HE, THEREFORE, DIRECTED THE ASSESSING OFFICER TO DISALL OW THE EXPENSES ON ACCOUNT OF BANK CHARES, INSURANCE, LEGAL AND PROFESSIONAL EXPENSES, COMMUNICATION COST AND REPAIR AND MAINTENANCE. HOWEVER, HE DIRECTED TO ALLOW THE DED UCTION U/S 44C @ 5% OF TOTAL ADJUSTED INCOME. 11. BEING AGGRIEVED BY THE DIRECTION OF THE COMMISS IONER OF INCOME-TAX (APPEALS), THE REVENUE IS IN APPEAL BEFORE US. IT HAS BEEN SU BMITTED BY THE LD.SR.DR THAT THE ASSESSEE HAD NOT GIVEN DETAILS OF TRAINING EXPENSES . THE PERSONNEL COSTS DID NOT RELATE TO BUSINESS OF THE ASSESSEE. THE COMMISSIONER OF INCO ME-TAX (APPEALS) HAS HELD THAT THESE EXPENSES WERE RELATABLE TO THE ASSESSEE ON THE OT HER HAND, LD.AR OF THE ASSESSEE SUPPORTED THE ORDER OF COMMISSIONER OF INCOME-TAX ( APPEALS). I.T.A. NO.3469/DEL./2007 (A.Y. : 2004-05) 8 12. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAD INCURRED CERTAIN EXPENSES ON PERSO NNEL COSTS, RENT, BANK CHARGES, INSURANCE ETC. TOTALING TO RS.56,45,971/-. THE ASS ESSEE HAD KEPT ONE PERSON TO LOOK AFTER THE WORK RELATING TO COMPANY IN NORWAY. BEFORE US, NOTHING HAS BEEN BROUGHT ON RECORD TO DISLODGE THE FINDING OF THE COMMISSIONER OF INCO ME-TAX (APPEALS) THAT THE EXPENDITURE WAS NOT RELATED TO HEAD OFFICE EXPENSES. U/S 44C I N CASE OF AN ASSESSEE BEING A NON- RESIDENT, NO ALLOWANCE SHALL BE MADE IN COMPUTING T HE TOTAL INCOME CHARGEABLE UNDER THE HEAD PROFIT & LOSS OF THE BUSINESS OR PROFESSION IN RESPECT OF SO MUCH OF THE EXPENDITURE IN THE NATURE OF OFFICE EXPENDITURE AS IN EXCESS OF AMOUNT COMPUTED AS HEREUNDER, NAMELY: (A) AN AMOUNT EQUAL TO 5% OF THE ADJUSTED TOTAL INC OME; OR (B) THE AMOUNT OF SO MUCH OF EXPENDITURE IN NATURE HEAD OFFICE EXPENDITURE INCURRED BY THE ASSESSEE AS IS ATTRIBUTABLE TO BUSI NESS OR OPERATION OF THE ASSESSEE IN INDIA, WHICHEVER IS LOWER; FROM THE ASSESSMENT ORDER, WE FIND THAT THE ASSESSI NG OFFICER HAD NOT EXAMINED THESE ISSUES WHILE COMPUTING THE INCOME OF THE ASSESSEE FOR ALLOWANCE OF CLAIM U/S 44C OF THE ACT. HE HAS SIMPLY DISALLOWED THE TRAINING, RENT, AND PERSONNEL COSTS WHILE COMPUTING THE TOTAL INCOME. WE FEEL IT PROPER TO SET ASIDE T HE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE U/S 44C OF THE ACT. 13. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE INTEREST U/S 234B OF THE ACT. SINCE CHARGING OF INTEREST U/S 234B IS MANDAT ORY AND CONSEQUENTIAL TO THE ADDITIONS MADE, THEREFORE, NO DISCUSSION IS REQUIRED. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTY ALLOWED FOR STATISTICAL PURPOSES. 15. ORDER PRONOUNCED IN OPEN COURT ON 30/10/2009. (RAJPAL YADAV) (K.D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: OCT. 30 , 2009. *SKB* I.T.A. NO.3469/DEL./2007 (A.Y. : 2004-05) 9 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A)-I, DEHRADUN. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. AR/ITAT