Assessee wins appeal on offshore income taxation, citing Supreme Court ruling.

The Tribunal allowed the assessee's appeals, setting aside the orders of the CIT and the A.O. It ruled that income from offshore contracts, involving equipment transferred outside India, was not taxable in India, citing the Supreme Court's decision. The Tribunal directed the CIT(A) to reconsider the appeal on its merits, emphasizing that the original assessment order was restored after the section 263 order was set aside.

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Issues Involved:
1. Jurisdiction of CIT under section 263.
2. Taxability of income from offshore contracts.
3. Direction to A.O. to ascertain taxable income under Rule 10 of the Income Tax Rules.
4. Consequential orders passed by A.O. under section 143(3) read with section 263.
5. Maintainability of the appeal before CIT(A) after proceedings under section 263.

Detailed Analysis:

1. Jurisdiction of CIT under section 263:
The CIT invoked jurisdiction under section 263 and set aside the issue to the file of the A.O. to ascertain the actual income taxable in India from offshore contract receipts. The CIT's action was based on the ruling by the Authority for Advanced Rulings in the case of Ishikawajima Harima Heavy Industries Co. Ltd. The assessee contested this, arguing that the ruling was reversed by the Supreme Court and cited a similar case decided by the Tribunal in their favor. The Tribunal upheld the assessee's contention, stating that the principles laid down in the earlier decision applied to the current year as well, thus setting aside the CIT's order.

2. Taxability of income from offshore contracts:
The CIT argued that the offshore supply of fiber optic cables was part of a composite contract involving operations in India, thus taxable in India. However, the Tribunal noted that the offshore contract was entered into before the establishment of the India Project Office and that the income from offshore contracts was not attributable to operations carried out in India. The Tribunal relied on the Supreme Court judgment in Ishikawajima Harima Heavy Industries Co. Ltd., which held that income from offshore contracts, where equipment was transferred outside India, was not taxable in India. Consequently, the Tribunal ruled that no part of the income from the offshore contract was taxable in India.

3. Direction to A.O. to ascertain taxable income under Rule 10 of the Income Tax Rules:
The CIT directed the A.O. to ascertain the actual income taxable in India on the offshore contract receipts using Rule 10 of the Income Tax Rules. The Tribunal, however, found that since the offshore contract income was not attributable to operations in India, there was no need to apply Rule 10. The Tribunal set aside the CIT's order, negating the need for the A.O. to ascertain taxable income under Rule 10.

4. Consequential orders passed by A.O. under section 143(3) read with section 263:
The appeal against the consequential orders passed by the A.O. under section 143(3) read with section 263 was allowed. The Tribunal noted that since the order under section 263 was set aside, the consequential order did not survive. Therefore, the Tribunal set aside the orders of the CIT(A) and the A.O., allowing the assessee's appeal.

5. Maintainability of the appeal before CIT(A) after proceedings under section 263:
The CIT(A) had dismissed the appeal on the grounds that the assessment order did not survive due to the issuance of a notice under section 148 and a fresh assessment order. The Tribunal, however, held that the CIT(A) should have adjudicated the issue separately or stated that the order was not maintainable. Since the order under section 263 was set aside, the original assessment order was restored. The Tribunal directed the CIT(A) to consider the appeal on merits, thus allowing the assessee's grounds.

Conclusion:
The Tribunal allowed ITA.No.916/Hyd/2006 and ITA.No.246/Hyd/2012 of the assessee, setting aside the orders of the CIT and the A.O. It restored the appeal in ITA.No.244/Hyd/2012 for adjudication on merits, directing the CIT(A) to consider the appeal afresh. The judgment emphasized that income from offshore contracts, where equipment was transferred outside India, was not taxable in India, following the Supreme Court's ruling in Ishikawajima Harima Heavy Industries Co. Ltd.

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