Answer
From what we understand through the scriptures, the Lord's internal spiritual energy operates in the spiritual world, whereas the material world functions through the Lord's external energy.
The role of Paramatma is specifically connected with the material creation. Here, the Lord accompanies every conditioned soul as the Supersoul, witnessing, guiding, sanctioning, and supervising all activities. This is a particular pastime (lila) connected with the material world.
Such a function is not required in the spiritual world.
Therefore, we do not speak of the Paramatma expansion existing there in the same way.
However, this does not mean that Krishna is absent from the hearts of the liberated souls.
Krishna says in the Bhagavad-gita:
"By My unmanifested form, I pervade the entire universe."
His all-pervading presence exists everywhere—both in the material and spiritual worlds. This all-pervading presence is different from His specific expansion as Paramatma.
Thus, Krishna is always directly and indirectly present everywhere and remains the ultimate controller of everything.
One may reconcile these scriptural statements in this way:
The Paramatma expansion functions within the material world.
Krishna's eternal all-pervading presence exists everywhere, including the spiritual world.
In one place the scriptures state that there is no Paramatma expansion in the spiritual world, while elsewhere they say that the Lord is always situated in the heart of every living being.
These statements are not contradictory.
In the material world, the Lord resides in the heart as Paramatma, performing the specific functions of witness, guide, and sanctioner.
In the spiritual world, Krishna is present within every soul because nothing can ever be separated from its ultimate cause. His presence there is not in the functional role of Paramatma but as the Supreme Lord Himself.
That is how I presently understand the subject by bringing together the various scriptural descriptions.
