TMI Blog2019 (1) TMI 1720X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee in India. To this extent, the order challenged by the assessee of the coordinate bench before the honourable High Court has been upheld. As relying on own case [ 2013 (12) TMI 1594 - UTTARAKHAND HIGH COURT] it is apparent that for that assessment year also the existence of the permanent establishment was upheld and only for the purpose of the profit attribution the matter was set aside to the file of the learned assessing officer. Attribution of income where the learned assessing officer has upheld 25% of the gross revenue build by the appellant during the relevant previous year in respect of activity carried out outside India - HELD THAT:- As in the earlier years the coordinate bench set aside the issue back to the file of the learned assessing officer as well as for assessment year 2007 - 08 and 2008 - 09 the issue has been set aside to the file of the learned assessing officer for the purpose of determining the profit attribution, we also respectfully following the decision of the coordinate bench as well as the honourable High Court set aside the issue back to the file of the learned assessing officer with a direction to the assessee to submit the profit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound number 6 of the appeal of the assessee set aside to the file of the learned assessing officer. Adhoc disallowance of the expenditure incurred under the head construction expenses - HELD THAT:- As assessee could not produce the bills, in the interest of the justice 1 more opportunities given to the assessee to produce the necessary bills as submitted by the learned authorised representative before the assessing officer. The learned assessing officer may examine the details in the bills produced by the assessee, if any, and then decide the whole issue afresh. Accordingly ground number 7 -8 of the appeal of the assessee are set aside to the file of the learned assessing officer. Accordingly these grounds are allowed with above direction. - IT APPEAL NOS. 1064 (DELHI) OF 2013 & 1909/DELHI OF 2014 - - - Dated:- 9-1-2019 - H. S. Sidhu, Judicial Member And Prashant Maharashi, Accountant Member Ravi Sharma, Adv. for the Appellant. G.K. Dhall, CIT DR for the Respondent. ORDER Prashant Maharishi, These are the two appeals filed by the assessee for Ay 2009-10 and 2010-11 involving c identical issues, argued together and disposed of by this common order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3. That the assessing officer erred on facts and in law in alleging that the appellant also had dependent agent permanent establishment (PE) in India. Re: Attribution of income: Without prejudice: 4. That the assessing officer erred on facts and in law in attributing revenues from activities carried on outside India to the alleged PE of the appellant in India, without appreciating that the alleged PE of the appellant had no role to play in design, fabrication, etc. of the platforms which was carried on outside India. 4.1 That the assessing officer erred on facts and in law in attributing on adhoc basis 25% of the outside India revenues relating to the VED project, to the alleged PE of the appellant in India, rejecting the accounts of the appellant in respect of the operations carried on outside India. 4.2 That the assessing officer erred on facts and in law in alleging that the accounts of the outside India operations were unaudited and could not be relied upon in absence of supporting bills. 4.3 That without prejudice, the assessing officer erred on facts and in law in holding 25% to the gross revenues billed by the appellant during the relevant previous yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and communication activities in India, design and engineering activities in Malaysia, fabrication enquiry and Malaysia and transportation/loading from Malaysia to India. Further on arrival of goods from Malaysia to India installation and commissioning activities are carried out in India at Mumbai offshore. It is the claim of the assessee that in pursuance to the above contract the ONGC asked the assessee to open a project office in Mumbai for the purpose of coordination and communication between the parties to the contract which assessee did by obtaining the approval of the reserve bank of India on 24/5/2006. It recruited two employees. On the basis of these facts the claim of the assessee is that it is consistently offering tax on from inside India activities like installation and commissioning of the platform. This revenue was recognized as taxable in India due to an admitted position that assessee had an installation permanent establishment in India. Accordingly in this year also the assessee filed its return of income showing loss in respect of one sure activity that is installation and commissioning. 5. The learned assessing officer must draft assessment order on 30/12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the income, after obtaining the reply of the learned assessing officer held that the sufficient opportunity had been given by the AO during the assessment proceedings and also the opportunity was given by the dispute resolution panel but the assessee could not furnish the required information and evidences. However considering the submission of the assessee that the information are voluminous and are mostly in Korean language which have to be translated in English the assessing officer was also directed to give one more opportunity to the assessee. The learned assessing officer gave an opportunity to the assessee to provide the evidences however assessee did not file any information. Further certain verifications is directed by the learned dispute resolution panel were also carried out by the learned assessing officer. With respect to the non-deduction of tax at source it accepted certain objections of the assessee however the addition was restricted to INR 20 550 29555 on account of payment of INR 975,000 to M/s logistic enterprises private limited and INR 2 4554555 to M/S Teras transporter private limited. Accordingly the assessment order was passed determining total loss of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s adopted on principle as it is realized that : 1. Ordinarily, a litigant does not stand to benefit by lodging an appeal late. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. ** ** ** 1. Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908, may be admitted after the prescribed period if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period. 3. Every day's delay must be explained does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational, common sense and pragmatic manner. 4. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other sid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' Therefore following those principles as laid down by the honourable Supreme Court, which are also fulfilled by the assessee, we condone the delay in filing the appeal. 10. Ground number 1 of the appeal is general in nature and no spectator arguments were advanced before us and hence same is dismissed. 11. Ground number 2 and 3 of the appeal of the assessee is against the existence of permanent establishment. On the issue of taxability of offshore supply and disallowance of expenses on account of non deduction of tax submitted as under :- 'TAXABILITY OF OFFSHORE SUPPLY 2.1 The submission of the assessee/appellant is that the facts of the current year undisputedly are identical with the fact of the previous year. The issue of taxability of offshore supply of equipment is covered by the judgment of the High Court in assessee's own case for AY 2007- 08. Further, this Hon'ble tribunal in its order for AY 2008-09 has categorically found that the assessing officer has not brought any material on record to prove that the fixed place Permanent Establishment (in form of a Project Office) has played any role in offshore supply of equipment. 2.2 It is furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are to be brought to tax in India. Therefore, the income of the assessee cannot be taxed unless it is shown that income generating activities were carried out through the Permanent Establishment, mere existence of a PE is not enough to fasten tax liability. 2.7 In the instant case, since the assessee is a tax resident of Korea and hence the income earned by virtue of offshore supply of platforms is to be taxed only in Korea and not in India. This is unless the AO is able to bring evidence on record that the same were carried out through the assessee's PE in India, a burden which has not been discharged by the assessing officer. 2.8 In light of the above submissions, it is prayed that the appeal of the assessee be kindly allowed and it be further held that no income from offshore supplies could be attributed to assessee's PE. 2.9 Reliance is placed on the decision of Hon'ble Supreme Court in the case of Hyundai Heavy Industries Co. Ltd. (210 CTR 178) wherein, Hyundai Heavy had a project office in Mumbai just like the assessee in the instant case. (Refer para 3 of the judgement). However, the Hon'ble court held that nothing pertaining to offshore supply of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. 4.3 Furthermore the disallowance made by the AO was without even specifying the provision under which the tax was deductible therefrom. Hence the same need to be allowed as an expenses under the income tax act. 4.4 The assessee would like to place further reliance on the decision of the Hon'ble Bombay High Court in the case of CIT v. Siemens Aktiongesellschaft: 220 CTR 425 wherein it was held that reimbursement of expenses in respect technical assistance rendered by the assessee can, in no circumstances, be regarded as income of the assessee. 4.5 In view of the above facts and judicial precedent, the assessee humbly submits that no disallowance made by the Ld AO under Section 4o(a)(ia) of the Act on payments made to Logistics enterprise Pvt Ltd amounting to ₹ 9,75,000/- is warranted in this case as these payments represent pure reimbursement of expenses without any income element. (B) Allowability of expenditure- payment made to Teras Transporters Pte. Ltd. 5.1 The Ld. AO has disallowed the payment made to Teras Transporters Pte. Ltd. towards barge hire charges under Section 4o(a)(i) of the Act on account of non-deduction of tax at source. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.5 Therefore, as Teras Transporters Pte. Ltd is a Company incorporated in Singapore, hence, in light of Article 8(1) read with Article 8(4) of the Indo-Singapore DTAA, rental/hire charges of the vessel paid to Teras Transporters Pte. Ltd would only be taxable in Singapore and nothing will be taxable in India. 5.6 It is further submitted that barges operate in international waters and carry goods from various ports. These goods (fabricated parts of platforms) are delivered on Indian High Seas, where they are installed by the assessee. To support the contention, a sample bill of lading along with barge entry certificate and list of goods as approved by the Indian Authorities are attached as Annexure 5.7 In absence of taxability of the rental / hiring charges paid to Teras Transporters Pte. Ltd in India for hire of Barges which is a ship as per the decision of the Hon'ble Mumbai Tribunal in the case of DCIT v. Orion Agencies Ltd [2009] 32 SOT 527 (Mumbai)l. provisions of Section 195 of the Act would not be applicable and the assessee would not be required to deduct any taxes in India. 5.8 In other words, as Teras Transporter is a shipping company covered under the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite contract of the assessee with ONGC and further referred to the finding of the continent bench on account of role played by and the functions of the permanent establishment. He further submitted that none of the above findings were controverted by the honourable High Court on the order of the coordinate bench being challenged there. He further stated that honourable High Court has also confirmed the existence of the permanent establishment. He submitted that only point of departure between the decision of the coordinate bench and honourable High Court is with respect to the way income was attributed to the permanent establishment. The honourable High Court allowed the appeal of the assessee and set aside the order of the honourable tribunal to the file of the learned assessing officer where the 25% of the gross receipt was attributed by the learned assessing officer. Therefore his argument was that the permanent establishment of the assessee is upheld by the honourable High Court in the earlier years and there is no change in the facts and circumstances of the case of the assessee compared to those years and therefore the permanent establishment is upheld. 13. With respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject office has a very intimate connection with the activities relating to the contract being carried on outside India and the materials are not delivered 3 on-board basis and ONGC has clarified that the title to the supply passed inside India. 15. With respect to the disallowance of expenses for non-deduction of tax deduction at source he relied upon the order of the learned dispute resolution panel. 16. We have carefully considered the rival contentions and also perused the orders of the lower authorities. The 1st issue required to be examined is whether there is any permanent establishment of the assessee in India or not. Further whether the project office has any role to play with respect to the offshore supply of the goods in the impugned contract. Identical issue has been examined in case of the assessee with respect to the same contract by the coordinate bench in earlier years wherein it has been held that the assessee has a permanent establishment in India and the activities carried on to the extent of the project office of the assessee is required to be attributed as income accruing and arising to the assessee in India. To this extent, the order challenged by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held out that a part of the money received by it was attributable to within India activities and the remaining on account of out of India activities. Appellant was not generating any revenue by dealing with either its Indian tax identity, or its Korean tax identity. It was generating revenue by dealing with O.N.G.C. under the said contract. It confessed that a part of such revenue was earned by it for having had carried out within India activities. It asserted and continues to assert that the remaining revenue was generated by carrying out out of India activities. There is no finding anywhere that the revenue earned and said to have been on account of out of India activity was earned, in fact, on account of within India activity. 9. Being a resident of Korea, appellant is governed by the Income-tax Laws applicable to the class of assessees as that of the appellant as prevalent in Korea. Therefore, it has a tax identity in Korea. In addition thereto, appellant has submitted to the jurisdiction of Indian Taxing Authorities by furnishing return of income and, thereby, acknowledged that it has also a tax identity in India. The question is, this identity is covered by which provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whole issue and as per para number 6 of that order set aside the issue back to the file of the learned assessing officer to consider para number 78 of the order of the coordinate bench in ITA number 5737/del/2010. In view of this it is apparent that for that assessment year also the existence of the permanent establishment was upheld and only for the purpose of the profit attribution the matter was set aside to the file of the learned assessing officer. 18. In view of the binding precedents available, respectfully following the same we dismiss ground number 2 and 3 of the appeal of the assessee. 19. Coming to ground number 4 of the appeal which is against the attribution of income where the learned assessing officer has upheld 25% of the gross revenue build by the appellant during the relevant previous year in respect of activity carried out outside India. Further while ground number 5 of the appeal of the assessee it has been stated that there being loss in the activities carried on outside India no income could be attributed to the installation PE of the appellant in India. As in the earlier years the coordinate bench set aside the issue back to the file of the learned asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective amendment made by the finance act 2012, the disallowance may be deleted. 21. With respect to the 2nd disallowance of INR 2455 4555/- paid to M/s Terras transporters PTE Ltd Singapore the assessee has claimed that is the recipient of the income is a resident of Singapore and according to article 8 of the double taxation avoidance agreement the income is chargeable to tax only in Singapore and not in India. However the assessee has not addressed article 24 of the double taxation avoidance agreement which is limitation of the benefit available to the resident of Singapore company. In view of this the disallowance with respect to above payment is also set aside to the file of the learned assessing officer with a direction to the assessee to prove before the assessing officer that recipient of the income is eligible for benefit of double taxation avoidance agreement with respect to article 8 and 24 of the double taxation avoidance of India and Singapore. 22. Accordingly ground number 6 of the appeal of the assessee set aside to the file of the learned assessing officer. 23. Accordingly ITA number 1064/del/2013 filed by the assessee for assessment year 2009 - 10 is partl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bidding for the contract, awarding of the contact, signing of the contract and site surveys cannot lead to establishment of PE in India. 2.3 That the Ld. AO has erred in ignoring the facts, circumstances and the legal position that if at all there could be a PE of the appellant in India that could only be installation/assembly PE as per Article 5(3) of the Treaty. 2.4. That the Ld. AO has erred in ignoring the legal position that specific provisions i.e. Article 5(3) in respect of installation/ assembly PE overrides the general provisions i.e. Article 5(1) and (2), and thus, no PE in the form of project office can come into place where the appellant is performing installation activities in India. 3. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in holding that the contract is not a divisible contract. 3.1 That the Ld. AO has erred in holding that the entire receipts from offshore supplies (i.e. design engineering, fabrication and supply of platform) is taxable in India without appreciating the actual position that the entire activity in relation of offshore supplies (i.e. design engineering, fabrication and supply of platf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation to outside India revenue could be taxed in India as the appellant actually incurred losses in relation to VED project, the Ld. AO erred in not following the directions of Hon'ble DRP wherein it directed the ld. AO to consider the global profit range of 6% to 8% (in relation to both inside and outside India activities taken together) of the appellant as reflecting in the global financial statements filed by the appellant during the course of hearing before the Hon'ble DRP. 7. On the facts and circumstances of the case and in law, the Ld AO has erred in making an ad- hoc disallowance of ₹ 1,20,87,351 of the- expenditure incurred under the head construction expenses for. the project entered by the appellant with Samsung Electronics India Private Limited ('SIEPL') dated November 9, 2009. 7.1. That the Ld. AO has erred in disallowing an amount of ₹ 1,20,87,351 on the alleged ground of non- production of copies of 100 percent bills/ invoices and without appreciating that the details filed be the appellant contained proof of tax deducted at source on construction expenses and deposited to the account of central government which is a conclusive ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were liable to tax deduction at source , the assessee could not produce copies of the bills and vouchers in respect of the above expenditure and therefore the whole expenditure have been disallowed by the learned assessing officer. Consequently assessment order under section 143 (3) read with section 144C (13) of the income tax act was passed on 31/1/2014 against which the assessee has preferred this appeal. 26. The arguments of both the parties remained the same. The learned authorised representative with respect to the disallowance on account of construction expenses which was disallowed on account of non-submission of the bills and vouchers, assessee submitted that it has managed to collect bills for the rest of the amount as well and accordingly prays that the matter may be remanded to the assessing officer with a direction to verify the above said claim. To the above argument the learned departmental representative stated that assessee has been given enough opportunity before the assessing officer and the learned dispute resolution panel and therefore the matter should not be set aside once again to the file of the learned assessing officer. 27. The ground number 1 - 6 ..... 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