2013 (11) TMI 900 - AT - Income Tax

Travelling and conveyance expenditure Held that - This amount was spent by the employees of PAC, US in India, in Indian currency - The provisions of section 44C cannot apply Section 44C refers to common head office expenses and cannot encompass the expenses exclusively incurred by the expenses incurred by head office employees exclusively for rendering services in India, this cannot be covered within the ambit of section 44C - Only the expenditure incurred outside India can be brought within the purview of this provision - Complete details in respect of all the items of traveling expenses have been made available in the paper book starting with Ledger account of travel expenses with each relevant invoice number, nature of expenditure, amount of expenditure etc. Section 37 cannot be invoked Decided in favour of assessee. Interest u/s 234B Held that - Following Director of Income-tax (International Taxation) v. NGC Network Asia LLC (2009) 313 ITR 187 (Bom) - When the duty is cast on the payer to deduct tax at source, on failure of the payer to do so, no interest can be charged from the payee assessee u/s 234B - As the assessee before us is a non-resident, naturally any amount payable to it which is chargeable to tax under the Act, is otherwise liable for deduction of tax at source Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment
2. Disallowance of traveling and conveyance expenditure
3. Applicability of sections 44C and 37(1)
4. Set off of current year loss
5. Levy of interest u/s 234A
6. Levy of interest u/s 234B
7. Initiation of penalty proceedings

Validity of Reassessment:
The appeal challenged the order passed by the Assessing Officer under sections 143(3), 147, and 144C(13) of the Income-tax Act, 1961 for the assessment year 2007-2008. The first three grounds questioning the validity of reassessment were withdrawn by the appellant and thus dismissed.

Disallowance of Traveling and Conveyance Expenditure:
Grounds 4 to 6 contested the disallowance of traveling and conveyance expenses amounting to Rs. 1,19,26,793. The appellant, a foreign company from the USA, incurred significant traveling expenses in India, which the Assessing Officer disallowed under section 44C and 37(1). However, the Tribunal found that these expenses were exclusively for services in India and not covered under section 44C or 37(1), leading to the deletion of the addition.

Applicability of Sections 44C and 37(1):
The Tribunal analyzed the nature of expenses incurred by the appellant's employees in India and concluded that these expenses did not fall under the purview of section 44C as they were spent in India. Additionally, the Tribunal found that complete details of the expenses were furnished, refuting the Assessing Officer's contention under section 37(1).

Set Off of Current Year Loss:
The Tribunal allowed the deduction related to the traveling expenses, rendering the issue of set off of the current year loss moot.

Levy of Interest u/s 234A and 234B:
Regarding the levy of interest under sections 234A and 234B, the Tribunal referred to relevant judgments and held that no interest could be charged under these sections due to the non-resident status of the appellant and the obligation to deduct tax at source.

Initiation of Penalty Proceedings:
The Tribunal deemed the initiation of penalty proceedings premature and dismissed the same.

In conclusion, the appeal was partly allowed, with the Tribunal ruling in favor of the appellant on various grounds related to the disallowance of expenses and the levy of interest, while dismissing premature penalty proceedings.