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TMI Blog2019 (5) TMI 2018X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Commissioner of Income-tax (Appeals)-VII, New Delhi qua the assessment year 2005-06 on the grounds inter alia that :- "1. That on the facts and in law, the Learned CIT(A) has erred in not adjudicating the additional grounds of appeal on its respective merits and in dismissing summarily on the principle of consistency. 2. Without prejudice to the above, principle of consistency cannot be discretionally applied only on one streak of income ignoring others. 3. That on the facts and in law, the Learned CIT(A) has erred in upholding the order of the learned AO to include purchase from India in the turnover while computing the total income attributable to the activities of the Liaison Office ('LO') in complete disregard of the provisions of Income tax Act, 1961 ("Act') which clearly states that income shall not be deemed to accrue or arise in India on account of purchase operations for the purpose of export from India. 4. That on the facts and in law, the Learned CIT(A) has erred in upholding the order of the learned AO to include purchase from India in the turnover while computing the total income attributable to the activities of the Liaison Office (' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Ground Nos. 9, 9.1 and 9.2, the Learned CIT(A) ought to have appreciated that since the Indian subsidiary is remunerated on arm's length, any PE which is constituted of the appellant on account of the activities of the Indian subsidiary, gets extinguished. 9.4 Without prejudice to above, if an Indian subsidiary is held to be a PE in relation to support services provided to the appellant, the commission paid to subsidiary should-be allowed as deduction. 10. That the learned CIT(A) erred in law and in facts in upholding learned AO's order and in not appreciating the cost plus methodology adopted by the appellant for offering DMRC revenue to tax (to the extent attributable to the activities performed by appellant's Project office, MC PO) in India. In doing so: * The Learned AO/CIT(A) failed to appreciate that appellant's income pertaining to activities of its project office in India has been offered to tax at cost-plus arm's length mark up basis i.e., 9 percent; and * The Learned AO/CIT(A) has erred in law in not appreciating that once an arm's length mark up has been attributed to the Permanent Establishment (PE) in India, no additional income can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on gross basis by the appellant in view of the AAR ruling in Appellant's case and has thus been subjected to tax twice. 15.2 Without prejudice to Ground No. 1 0, on the facts and in law, the Learned CIT(A) has failed in not appreciating that the DMRC sales of Rs. 2,348, 868, 060 also includes the portion of receipts on the basis of which income of Rs. 41, 636, 466 has already been offered to tax by the Appellant as income from PO and has been subjected to tax twice. 16. The Learned CIT(A) has erred in law and on the facts of the case in upholding that the contract in question, i.e., RS1 contract is a 'Works' contract and not a 'Sales' contract." 3. Briefly stated the facts necessary for adjudication of the controversy at hand are : assessee filed revised return at taxable income on turnover of Rs. 61,05,41,430/- voluntarily offering income to tax from activities in India to the tune of Rs. 56,89,04,966/- (Rs. 53.82 crores attributed to the activities of its Liaison Office (LO) + Rs. 3.06 crores attributed to actual sale made to Delhi Metro Rail Corporation (DMRC). Assessee, after assuming GP rate of 2.75% and a profit attribution rate of 50%, estimated it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from export of goods from India while computing the total income attributable to the activities of the LO in complete disregard of the provisions of tax treaty between India and Japan which clearly states that no profits can be attributable to the purchase function. 3. Without prejudice to the appellant's mere intention to buy peace and avoid litigation in not challenging the assessment order, the Assessing Officer erred in not appreciating that the LO of the appellant handled only the Machinery Division and since LO was held to be a PE, the sales made by other divisions of Me Japan (without any involvement of LO) should not be included in the turnover for the purpose of computing the total income. 4. That on the facts of the case and in law, the Assessing Officer erred in not appreciating that the Indian Subsidiary is not a Permanent Establishment (,PE,) of the appellant. 4.1 In any case the sales made to Indian subsidiary on principal to principal basis should be excluded from the total turnover for the purpose of computing the total income as the Indian subsidiary was selling goods on its own account and not on behalf of the appellant. 4.2 That on the facts of the case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r all divisions including Machinery Division) to tax. The Gross Profit of 2.75% of total sales and purchase was taken by the Assessing Officer in all the seven assessment years which was not challenged by the appellant. From the Gross profit (2.75% of total sales and purchase), certain India related expenses were deducted i.e., expense of LO and expatriate salaries and 50% of the resultant profits were attributed to India and deduction u/s 44C was allowed. The appellant did not challenge the above action of the AO before the appellant authorities and also filed return of its income for the subsequent years including the assessment year 2005-06 on the basis of formula determined by the department in the said seven years. At no point of time in the original round of assessment proceedings the assessee raised any objection to the action taken by the Assessing Officer and submitted himself to the jurisdiction of the Assessing Officer without demur. Similarly during the course of proceedings under section 143(3) read with section 144C for assessment year 2006-07 no objections to this regard were raised by the assessee before the Assessing Officer as well as before the Dispute Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. CIT (A) has admitted the additional grounds raised by the assessee to decide the issue on merit, the issue was not to be decided by the ld. CIT (A) on the basis of agreed settlement formula by applying the rule of consistency. The ld. CIT (A) has merely decided the issue pertaining to applicability of correct gross profit rate by applying the rule of consistency. The ld. CIT (A) has also decided the applicability of gross profit rate of 10% pertaining to DMRC project but has not decided the issue of exclusion from turnover. Ld. CIT (A) in order to test the applicability of gross profit rate of 10% has merely relied upon the order of AY 2006-07. All other grounds remained unadjudicated. 13. In view of what has been discussed above, we are of the considered view that since the assessee has set up a new case by raising additional grounds by departing from the rule of consistency, all the grounds were required to be decided by the ld. CIT (A) on merits. However, at the same time, we are of the considered view that since the assessee has raised many of the new grounds first time before the ld. CIT (A) qua which no material was there before the AO at the time of framing assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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