2022 (4) TMI 91 - AT - Income Tax

Tribunal rules offshore income not taxable in India, directs AO to verify customs duty expenses

The tribunal partly allowed the assessee's appeals by ruling that income from offshore supplies was not taxable in India. The tribunal directed the ... Taxing income from off-shore supplies - HELD THAT:- Case records suggest that this tribunal's co-ordinate bench order in assessee's own case itself [2017 (8) TMI 737 - ITAT HYDERABAD] has already decided the very issue of taxability of its off-shore supplies against the department As DR argued the concept of res judicata too is indeed alien to income tax proceedings as per Radhasoami Satsang [1991 (11) TMI 2 - SUPREME COURT] wherein each and every assessment year involves its own facts and circumstances. He fails to pinpoint any distinction vis-à-vis the assessee's taxability in Assessment Year 2009-10 and all the five impugned assessment years during the course of hearing. We thus adopt judicial consistency to accept the assessee's instant substantive ground in very terms. It further succeeds in its corresponding substantive grounds in Assessment Years 2010-11, 2011-12 and 2014-15. Disallowance of customs duty expenses - HELD THAT:- The assessee has strongly emphasized that the corresponding liability on account of customs duty has crystallized only in these twin relevant assessment years. Learned counsel invited our attention to assessment order for Assessment Year 2011-12 involving the corresponding vouchers between 31.08.2010 to 30.10.2011. We thus find prima facie merit in the assessee's argument indicating the impugned expenditure which have been crystallized much later in these assessment years and direct the Assessing Officer to verify the corresponding factual position and allow the same as per law in consequential proceedings. This identical later substantive ground in assessment years 2010-11 and 2011-12 is accepted for statistical purposes. Assessments as non-est since the Assessing Officer had finalized the same without issuing the corresponding draft assessment order u/s. 144C(1) - HELD THAT:- Section 144C(1) of the Act herein envisages that the Assessing Officer shall 'Notwithstanding anything to the contrary contained in this Act', in the first instance, forward a draft of the proposed order of assessment i.e. a draft assessment order to the eligible assessee. We thus observe that there would be hardly any denial to the fact that this section 144C(1) of the Act in issue contains a non-obstante clause having overriding effect over other provisions in the Act. Both the draft assessments herein dt. 28.3.2013 and 14.3.2013 continue to hold the field as valid ones only as the latter notices would also in the nature of drafts only in light of 144C(1) of the Act. The assessee fails in its identical additional substantive ground raised in assessment year 2010-11 and 2011-12 Set off of brought forward losses is restored back to the Assessing Officer for his afresh factual verification in the very terms to be finalized within three effective opportunities of hearing. Issues Involved:1. Taxability of income from offshore supplies.2. Disallowance of customs duty expenses.3. Validity of assessments without issuing draft assessment orders.4. Set off of brought forward losses.Detailed Analysis:1. Taxability of Income from Offshore Supplies:The assessee challenged the correctness of the lower authorities' action in taxing its income from offshore supplies. The primary contention was that the contracts with Singareni Collieries Company Limited (SCCL) were composite and artificially divided into three agreements, which were interdependent and interconnected. The Assessing Officer (A.O.) attributed income from offshore supply contracts to the Indian Project Office (PO), disregarding the fact that these contracts were awarded through separate tenders. The A.O. also held that the existence of a Permanent Establishment (PE) was not confined to services rendered by the Project Office and that the offshore supply of equipment/spares was taxable in India.The tribunal referred to its coordinate bench order in the assessee's own case (ITA No. 1842/Hyd/2012 dated 28.04.2017), which had already decided the issue of taxability of offshore supplies against the department. The tribunal concluded that the contracts were not composite and indivisible, and the income from offshore supplies could not be taxed in India as the risk and title to the goods had passed outside India. The tribunal upheld the assessee's contention that the Project Office had no role in the supply of equipment/spares, and therefore, the income from offshore supplies could not be attributed to the Indian PO.2. Disallowance of Customs Duty Expenses:The assessee's second substantive grievance involved the disallowance of customs duty expenses amounting to Rs. 1,32,61,917 for Assessment Years 2010-11 and 2011-12. The A.O. disallowed these expenses, alleging they were prior period expenses and not allowable in the impugned assessment year as per the mercantile system of accounting.The tribunal found merit in the assessee's argument that the corresponding liability on account of customs duty had crystallized only in the relevant assessment years. The tribunal directed the A.O. to verify the factual position and allow the expenses as per law in consequential proceedings, accepting the assessee's ground for statistical purposes.3. Validity of Assessments Without Issuing Draft Assessment Orders:The assessee raised an additional ground challenging the validity of the assessments on the basis that the A.O. had finalized the assessments without issuing draft assessment orders u/s. 144C(1) of the Income Tax Act, 1961. The tribunal noted that the A.O. had indeed passed draft assessment orders, followed by statutory objections before the Dispute Resolution Panel (DRP) and final assessments.The tribunal rejected the assessee's additional ground, holding that the draft assessments continued to hold the field as valid ones. The tribunal emphasized that Chapter X of the Act, dealing with anti-tax avoidance provisions, contained a non-obstante clause with overriding effect over other provisions in the Act. The tribunal concluded that the assessments were correctly framed, and the assessee's additional ground was dismissed.4. Set Off of Brought Forward Losses:For Assessment Year 2014-15, the assessee raised a substantive ground regarding the set off of brought forward losses. The tribunal restored this issue back to the A.O. for fresh factual verification, directing that the matter be finalized within three effective opportunities of hearing.Conclusion:The tribunal partly allowed the assessee's five appeals, concluding that the income from offshore supplies was not taxable in India, directing the A.O. to verify and allow customs duty expenses, dismissing the challenge to the validity of assessments without draft assessment orders, and restoring the issue of set off of brought forward losses for fresh verification.