TMI Blog2023 (1) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as offshore supplies. A reading of the assessment order would reveal that the assessing officer has specifically enquired into assessee's claim regarding non-taxability of income earned from offshore supplies and after due deliberation on the issue regarding applicability of section 44BB of the Act to such income, the Assessing Officer has ultimately attributed 1% of the gross receipts as profit attributable to the PE in India. The assessing officer has adopted this approach by referring to Rule 10 of the Rules as it empowers the assessing officer to tax profit by adopting a certain percentage, in case, profit attributable to the PE is not ascertainable. AO has also referred to CBDT Instruction No. 767/1987. However, as could be seen, the biggest single factor which persuaded the Assessing Officer to adopt such approach is the consistent view taken by the Assessing Officers while bringing to tax the income from offshore supply in the past assessment years. In assessment year 2010-11, the assessee while offering the income from onshore activities under Section 44BB of the Act had claimed that the income earned from offshore supply of equipment is not taxable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. - ITA No. 733/Del/2022 - - - Dated:- 20-12-2022 - SHRI SAKTIJIT DEY , JUDICIAL MEMBER And SHRI PRADIP KUMAR KEDIA , ACCOUNTANT MEMBER Assessee by : SShri Sachit Jolly Sohum Dua , Adv. Respondent by : Shri Sanjay Kumar Bharati , CIT - DR ORDER Per Saktijit Dey , Judicial Member Captioned appeal has been filed by the assessee assailing the order dated 24.03.2022 passed by learned Commissioner of Income Tax (International Taxation)-3, Delhi under Section 263 of the Income-Tax Act, 1961 pertaining to assessment year 2017-18. 2. The grounds raised by the assessee are as under: 1. That on the facts and in circumstances of the case and in law, order dated 24.03.2022 ( impugned order ) passed by the Commissioner of Income Tax (International Taxation, Delhi-3 ('CIT') under Section 263 of the Income-Tax Act, 1961 ('the Act') is without jurisdiction, bad in law and void ab initio. 1.1 That on the facts and in circumstances of the case and in law, the impugned order is legally untenable as the same is passed without affording opportunity of personal hearing as mandated under Section 263 of the Act. 2. That on the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, the CIT erred in holding that equipment rentals earned by the Appellant were taxable under 44DA r.w.s. 9(1)(vi) of the Act as Royalty and not under section 44BB of the Act, which is directly in contravention of the decisions of the jurisdictional Delhi High Court in PGS Exploration (Norway) AS v. Additional Director of Income Tax [2016] 383 ITR 178 (Delhi) and Director of Income Tax v. OHM Ltd. [2013] 352 ITR 406 (Del.). 3. Briefly the facts are, the assessee is a non-resident corporate entity incorporated under the laws of Singapore and a tax-resident of Singapore. It is evident, the assessee is engaged in the business of offshore supply of equipment, plant and machinery, as also, providing services in connection with prospecting for, extraction, production of mineral oil. During the year under consideration, the assessee had entered into following transactions with Indian customers including Oil and Natural Gas Commission (ONGC): i) Offshore supply of equipment; ii) Rental/leasing of equipment; iii) Provision of services and repair. 4. In the return of income filed for the assessment year under dispute on 31.10.2017, the assessee offered income of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be definitely ascertained, recourse has to be made to Rule 10 of the Income-Tax Rules. Referring to clause (iii) of Rule 10 and Instruction No. 1767 dated 01.07.1987 issued by the Central Board of Direct Taxes (CBDT), the assessing officer held that 10% of the gross receipts from offshore supply can be treated as profit of the assessee and out of such profit, 10% would be attributable to the activities of offshore sales assumed to be carried out in India. In other words, according to the assessing officer, 1% profit on revenue earned from offshore supply of equipment is taxable in India as income attributable to the PE in India. For coming to such conclusion, assessing officer relied upon the decision taken while completing assessments for the preceding assessment years. Thus, he added Rs. 1,68,63,890 to the income of the assessee representing the profit attributable to the PE from offshore supply of equipment. 6. After completion of assessment as aforesaid, learned CIT in exercise of powers under Section 263 of the Act called for and examined the assessment records for the impugned assessment year and after examining them was of the view that the assessment order passed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 44BB of the Act and 25% out of lease rental receipts of Rs. 9,73,19,312 under Section 44DA of the Act. Accordingly, he passed the order under Section 263 of the Act. 9. Before us, learned counsel appearing for the assessee submitted that the exercise of power under Section 263 of the Act is grossly erroneous and without jurisdiction. He submitted, in course of assessment proceedings, the assessing officer has enquired in detail regarding onshore activities as well as offshore supply of equipment. In this regard, he drew our attention to the notices issued by the assessing officer in course of assessment proceedings. He submitted, in fact, the assessing officer has made specific inquiry with regard to taxability of income earned from offshore supply of equipment. He submitted, in course of assessment proceedings, the assessee had furnished detailed reply with regard to non-taxability of revenue received from offshore supply of equipment. He submitted, the assessee is in identical nature of business in India, since, assessment years 2010-11 to 2016-17. He submitted, in assessment orders passed under Section 143(3) of the Act in assessment year 2010-11 onwards, the assessing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. CIT: (2000) 243 ITR 83 (SC); iii) CIT vs. Ashish Rajpat (2010) 320 ITR 674 (Deol.); iv) Radhasoami Satsang vs. CIT 193 ITR 321; v) Hyundai Heavy Ind. Ltd. vs. DIT, [2011] 12 ITR (T) 168 (Delhi); vi) CIT vs. Hyundai Heavy Ind. Co. Ltd. [2007] 291 ITR 482 (S.C.); vii) Baker Hughes Asia Pacific Ltd. Ors. vs. Addl. DIT (2014) 34 ITR (T) 192; and viii) DDIT v. Mitsui Co. Ltd. [2020] 118 Taxmann.com 379. 12. Learned Departmental Representative submitted, once the Assessing Officer held that a part of the profit on revenue earned from offshore supply of equipment is attributable to the PE, hence, taxable in India, the only provision under which the assessing officer could have taxed it is section 44BB of the Act. He submitted, instead of taxing the profit from offshore supply under section 44BB @ 10%, the Assessing Officer has assessed profit at 1%, which is grossly erroneous. Thus, he submitted, learned CIT has correctly exercised jurisdiction under Section 263 of the Act to remove the deficiency in the assessment order. 13. We have considered rival submissions in the light of decisions relied upon and perused the material on record. As discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee primarily provides services/leasing equipments etc. to companies engaged in the business of oil exploration, such as, ONGC, il India, Reliance Industries and Gujarat Petroleum etc. The nature of activities of the assessee over the years has remained identical. In assessment year 2010-11, the assessee while offering the income from onshore activities under Section 44BB of the Act had claimed that the income earned from offshore supply of equipment is not taxable in India. However, while completing the assessment for that assessment year, the assessing officer held that 1% of the gross receipts from the offshore supply of equipment is attributable towards profit of the PE in India. The same approach was adopted by the assessing officer in subsequent assessment years 2011-12 to 2016-17, which is the immediately preceding assessment year. Thus, as could be seen from the aforesaid facts on record, the Department has all along adopted a consistent approach with regard to taxability of profit from offshore supply of equipment. In the impugned assessment year, the Assessing Officer has merely followed the consistent approach adopted in the past assessment years. Thus, in the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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