9911796707
TMI Blog2017 (2) TMI 1318X X X X Extracts X X X X X X X X Extracts X X X X ..... ise, engaged mainly in development and consultation for power equipment technology, manufacturing and sale of power equipment, turnkey contracting for power projects, turnkey contracting for machinery, electrical machinery, electronic equipment and related projects etc.' The assessee has its sufficient presence in India, in order to carry on its business in India, through the project office referred to as "Dongfang Electric Corporation Kolkata Project Office". Admittedly, since the year 2004 i.e. on October 1, 2004, this Kolkata Project Office has served as the Permanent Establishment (PE) in India in the context of taxation under the Indian Income-tax Act, l96l and the India-China Double Taxation Avoidance Agreement [hereafter referred to as 'DTAA']. In the year 2004, the assessee entered into two separate contracts; one with the "The West Bengal Power Development Corporation Limited (WBPDCL)' for setting up Units 1 & 2 (2 X 300 M) for the Sagardighi Power Projects at Murshidabad, West Bengal and the other with "The Durgapur Projects Limited (DPL) for setting up units 7(1x300 MW) for the Durgapur Project Power Station at Durgapur, West Bengal, Each contract was di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of work was split up in to two contracts on mutual arrangement. However, a 'cross-fall' breach clause features very prominently in both cases by virtue of which performance of the entire contract was treated as a single point responsibility of DEC, China and non-performance of any part or portion of the contract was to deemed as a breach of the whole contract. In February, 2005 the assessee made separate applications u/s 197 of the income tax Act, 1961 (the Act) in respect of the aforesaid two projects in which the following submissions were made. (i) Supply of equipment from overseas is not taxable in India both under the Domestic Law as well under the Indo-China DTAA and hence should not be subjected to tax deduction at source and (ii) Local supply and services portion should be subjected to tax deduction of source at Nil rate since the company expected to incur substantial loss on such services. Section 44BBB of the Act will be applicable to the company's case and company will opt for taxation on net income basis under sub-section (2) of the said section which requires maintenance of regular books of accounts u/s 44AA as well as preparation of accounts and getting the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttributable to the operation relating offshore supply is carried out by the PE in India is taxable in India. There would be no deduction of tax in respect of receipts from offshore supply, but the petitioner shall maintain a separate account of receipt and expenditure in respect of operation relating to offshore supply contract carried out by the PE in India (with proper documentation and supporting evidence), the profit, from which shall be clubbed with the profits from local supply and services portion and if there is only tax liability, after giving credit for TDS from local supply and services contract, the same shall be paid by the petitioner by way of advance tax. b) Local supply and Services:- The order of the Assessing Officer is confirmed. The tax shall continue to be deducted @ 4.182% of the receipts for local suppliers & services till the completion the contract, even if there is actual loss/lesser income, after exercising option u/s 44BBB(2) of the I.T. Act, by the petitioner. It is considered necessary to do so, because there may be some profit attributable to offshore supply which can only be determined after regular assessment. 3. The assessee has filed hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld draft assessment order and transfer pricing order passed on identical lines as in earlier years. DRP completely failed to appreciate that the whole purpose of de novo assessment as already directed by the higher courts in earlier years, would be lost by merely repeating the earlier orders. 4b. On the facts and in the circumstances of the case, DRP erred in not considering the fact that routine and predetermined repetition of the very same grounds for reaching same conclusions as in earlier years has led to serious miscarriage of justice and in a way made mockery of directions from Higher Courts in earlier years to carry out 'de novo assessment considering all aspects'. 5. On the facts and in the circumstances of the case, DRP erred in not considering the fact that the TPO has chosen to selectively ignore critical facts or consciously chosen to apply irrelevant provisions to reach predetermined conclusions and avoided objective evaluation. 6. On the facts and in the circumstances of the case, the AO/ TPO/ DRP has erred in not even considering guidelines laid down by the Courts including Hon'ble Income Tax Appellate Tribunal in similar situations including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-12; (vii) By not taking into consideration the fact that while computing operating expense of the Project Office, the sub-contractor and supply expenses has already been considered by the TPO while computing the operating margin of the Project Office in Financial Year ('FY') 2009-10 and considering the same again while computing the operating margin of the Project Office in the FY 2010-11 is explicitly bad in law. 12. On the facts and in the circumstances of the case, DRP erred in not considering the fact that the TPO has not given an opportunity of being heard to the assessee and in not providing the details/ documents on which the TPO has relied in its order. DRP did not consider the fact that the TPO has not provided to the company in respect of the materials/ information gathered and used against the company by him in its order and has also not provided the company with the copies of bid documents of BHEL obtained from DPL and WBPDCL and other details obtained from BHEL and other parties. 13. Without prejudice to the above grounds, TPO's order giving effect to DRP directions is in explicit contradiction to said directions of DRP. 14. On the facts and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A of the Act. He submitted that, no international transaction has been referred to the TPO by the Assessing Officer as required u/s 92CA of the Act and what was referred is the entire assessment itself. Thus, he submits that the reference is bad in law and subsequently the assessment is barred by limitation. On merits, the contentions of the assessee is that CUP method is the Most Appropriate Method (MAM), and that the Assessing Officer has erred in adopting TNMM method. Detailed arguments were made in support of the contentions. Alternatively, he made arguments on the exclusions/inclusions of certain such comparables. We do not repeat all these submissions in details as we would first take up the preliminary issue of limitation for consideration. 4.1. The ld. D/R, on the other hand, strongly supported the order of the DRP and submitted that a valid reference was made by the Assessing Officer to the TPO-1, Kolkata, on 14th March, 2014, a copy of which was placed before the Bench. Hence he submits that the argument that there is no valid reference by the Assessing Officer to the TPO, in the eyes of law is factually incorrect. On the arguments that no specific international transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal transaction. No specific letter/ communications referring the international transaction, by the Assessing Officer to the TPO, could be produced before us. The letter dt. 14/03/2014, relied upon by the ld. D/R, is extracted for ready reference:- 6.1.1. A perusal of the above letter demonstrates that the approval granted by the DIT(TP), was communicated to the TPO. Section 92CA(1) of the Act, reads as follows:- "92CA. (1) Where any person, being the assessee, has entered into an international transaction [or specified domestic transaction] in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the [Principal Commissioner or] Commissioner, refer the computation of the arm's length price in relation to the said international transaction [or specified domestic transaction] under section 92C to the Transfer Pricing Officer." (Emphasis ours) 6.1.2. A plain reading of the same demonstrates that, if the Assessing Officer considers it necessary to do so, he may refer the computation of the ALP, in relation to the said international transaction, u/s 92CA of the Act, to the TPO, after obtaining approval f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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