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TMI Blog2013 (10) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... cer to attribute profit of the assessee, is recognised by any law in India. This aspect of the matter goes to the root. There is no question, when the assessee has represented that it has maintained accounts, either in cash or in mercantile system, but has failed to establish that it has, in fact, maintained any such accounts, of applying best judgment method of assessment. In other words, if the assessee has maintained the accounts and has established that its expenses are more than its income or receipt, it is not liable to pay any tax in India. In the event, however, it fails to establish all or any of its expenses, the expenses shown to have been incurred, which could not be established, will be treated as the income of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are concerned. This method was adopted in relation to within India activities, in respect whereof payments, within India, were received. During these two assessment years, with which we are concerned, the assessee submitted returns and, there, claimed to have suffered loss for India operations. It, accordingly, asked for return of tax deducted at source. The Assessing Officer found that, in relation to the Permanent Establishments, books of accounts are being maintained. It recorded that those were not produced. On the basis of the explanations given and forms submitted, it gathered that, in relation to certain expenditures, TDS was deducted and the same was deposited and, accordingly, proceeded to hold that there cannot be any dispute pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, there was no question of sending back the matter, pertaining to outside India activities, to the Assessing Officer by the Director of Income Tax. 3. However, the Tribunal has taken a strange stand purporting to express that, whereas the assessee had no taxable income, the Assessing Officer made assessment of taxable income and, accordingly, there was no prejudice to the Revenue. The Tribunal, as a fact, found that there was no dispute pertaining to the receipt by the assessee in relation to within India activities. The Tribunal, as a fact, has found that the assessee could establish only a part of the claimed expenditure. In income tax parlance, the deduction will be that the expenditure that the assessee has not been able to accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are incurred for the purposes of the permanent establishment including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, which are allowed under the provisions of the domestic law of the Contracting State in which the permanent establishment is situated. 6. Therefore, the method referred to in paragraph 5 of Article 7 of the Treaty is a method known to the domestic law of the contracting State, in the instant case, India. The Assessing Officer and the Tribunal have failed to record anywhere that the method, that was adopted by the Assessing Officer to attribute profit of the assessee, is recognised by any law in India. This aspect of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it failed to produce the same. In such circumstances, the extent of failure of establishing those expenses was required to be treated as income of the assessee, liable to be taxed. 7. We, accordingly, set aside the judgment of the Tribunal to the extent the same upheld assessment of profit arising out of within India transactions and remit back the same to the Assessing Officer for re-consideration. The Assessing Officer will call upon the assessee to produce not only the books of accounts, but all relevant papers pertaining to each entry shown in respect of each expenditure that the assessee has shown to have incurred in respect of such transactions. For that, the Assessing Officer will give a two months notice to the assessee. 8. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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