Offshore supply attribution to PE and revised expense claims require proper factual verification before assessment can stand.

Offshore supply receipts were held not sustainable for attribution to an Indian installation PE where the assessee showed FOB supply, passage of title and risk outside India, separate supply and installation orders, and receipt of consideration abroad; the Tribunal found the core facts were not properly verified and remitted the issue for fresh examination. A revised expense claim, including revised audit report and additional supervision fee expenditure, was also disallowed without adequate factual verification or consideration of the remand report, so that assessment aspect was similarly set aside for de novo consideration. Interest grounds remained consequential.

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Issues: (i) Whether the receipts from offshore supply of equipment were taxable in India as attributable to the assessee's installation permanent establishment on the footing that the arrangement was a composite contract. (ii) Whether the assessment on the claim of expenses, including the revised audit report and additional supervision fee expenditure, could be sustained without proper factual verification and remand report consideration.

Issue (i): Whether the receipts from offshore supply of equipment were taxable in India as attributable to the assessee's installation permanent establishment on the footing that the arrangement was a composite contract.

Analysis: The assessee produced material to show that the supply of equipment was made on FOB basis, title and risk passed outside India, consideration was received outside India, and separate purchase orders and invoices existed for supply and for installation or supervision services. These assertions went to the root of whether the offshore supply had any economic nexus with India and whether it could be treated as part of a composite contract attributable to the permanent establishment. The Tribunal noted that the Assessing Officer did not carry out the required factual verification of these core assertions and no remand report was furnished to the Dispute Resolution Panel on these issues.

Conclusion: The addition based on attribution of offshore supply receipts to the permanent establishment could not be sustained and the issue was restored for fresh examination.

Issue (ii): Whether the assessment on the claim of expenses, including the revised audit report and additional supervision fee expenditure, could be sustained without proper factual verification and remand report consideration.

Analysis: The assessee's revised claim of expenses and the challenge to rejection of the revised audit report required examination of the underlying facts, including the nature and timing of the expenditure and the basis on which the audit report was revised. The Tribunal found that the Assessing Officer had not verified the assessee's submissions and the Dispute Resolution Panel had proceeded without the benefit of the remand report. In the absence of such verification, the disallowance and the consequential computation could not be affirmed.

Conclusion: The assessment on the expense claim was set aside and the matter was directed to be examined afresh.

Final Conclusion: The appeal succeeded to the extent that the assessment was annulled for fresh adjudication on the disputed issues, while the interest grounds remained consequential.

Ratio Decidendi: Where the core factual foundation for attributing offshore supply receipts to an Indian permanent establishment and for rejecting a revised expense claim has not been properly verified, the assessment cannot be sustained and must be remitted for de novo consideration.

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