Offshore operations and transfer pricing attribution require fresh factual verification when supporting accounts and activity evidence remain disputed.

Where the existence and extent of alleged offshore operations are not established by reliable evidence, attribution of income and the related transfer pricing adjustment cannot be sustained on the existing record. The ITAT noted a serious dispute over whether the contract was divisible into onshore and offshore components, whether the outside-India activities were separately identifiable, and whether the claimed receipts and corresponding expenditure were properly supported. It therefore held that the proper attribution of income required fresh factual verification by the Assessing Officer and Transfer Pricing Officer after giving the assessee an opportunity to be heard, and restored the substantive additions for de novo examination.

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Issues: Whether the addition relating to receipts attributed to offshore operations and the transfer pricing adjustment required fresh examination in view of the disputed factual position and incomplete verification of the underlying accounts and activities.

Analysis: The material on record showed a serious dispute as to whether the contract was divisible into distinct onshore and offshore operations, whether the alleged outside-India activities were separately identifiable, and whether the receipts described as imported components were supported by a proper account of corresponding expenditure and profit. The assessee asserted that only the income attributable to the permanent establishment in India was taxable, while the Revenue disputed the existence of separate offshore operations and emphasized the absence of reliable supporting details. In these circumstances, the proper attribution of income and the correctness of the transfer pricing adjustment could not be conclusively determined on the existing record and required factual verification by the Assessing Officer and the Transfer Pricing Officer after giving the assessee adequate opportunity of being heard.

Conclusion: The matter on the substantive additions was remitted for fresh consideration and the assessee succeeded to that extent.

Final Conclusion: The appeal was not decided on merits of the additions and was restored for de novo examination of the disputed factual issues, while the consequential grounds were left without separate adjudication.

Ratio Decidendi: Where the existence and extent of alleged offshore operations are not established by reliable evidence, attribution of income and related transfer pricing consequences cannot be sustained without fresh factual verification.

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