According to the assessee, nonresident was not having any permanent establishment in India or any business connection. Thus, such sum is not taxable in India and no question of deducting TDS would arise. Reference to circular no.786 dated 7.2.2000 is being made. The AO failed to bring on record any material showing that recipient is taxable in India. With regard to other two items i.e. reimbursement of administrative charges and reimbursement of insurance and foreign travel expenses are concerned, these expenses have been reimbursed to Dr.Henk Pluim who was responsible for procurement, chemical development and technological up gradation etc. These amounts have been calculated on the basis of services rendered and time devoted by him to three concerns viz. Dishman UK, Dishman India and Dishman USA. The AO was of the view that allocation of expenditure was on higher side. He also observed that in subsequent year such expenses have been allocated amongst these concerns in the ratio of 40:40:20 based on advice given by the group chairman. On the basis of that ratio, the ld.AO has allocated this expenditure in this year also and worked out allowance expenditure out of Rs. 81,02,622/- debited under the head “Administrative services”. He observed that it should be allowed at Rs. 49,89,517/-. A perusal of the assessment order would indicate that the ld.AO has assigned two reasons for making disallowance, viz. (i) non-deduction of tax, and (ii) higher allocation of expenditure in the hands of the assessee which were incurred on Dr.Henk Pluim. As far as first party is concerned, these are simply reimbursement of administrative expenses incurred by Dr.Henk Pluim outside India. They did not involve any element of income and TDS was not required to be deducted. As far as second party is concerned, the ld.AO failed to bring any material on record to justify the administrative expenses required to be incurred for availing services of Dr.Henk. It is totally in the domain of the businessman and the AO cannot dictate terms how much salary and other expenses are necessary for availing the services. This disallowance made by the AO is not sustainable. The ld.CIT(A) ought to have not confirmed disallowance made by the AO. We allow this ground of appeal and delete addition of Rs. 1,12,01,869/-. In view of above, we hold that once the quantum addition has been deleted then the penalty under Section 271(1)© will not survive.