TaxTMI 
TaxTMI 
2017 (10) TMI 1609
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....n India in order to carry on its business in India through the project office referred to as "Dongfang Electric Corporation Kolkata Project Office". Admittedly, since the year 2004 the said Kolkata Project Office has served as the Permanent Establishment (PE) in India in the context of taxation under the Indian Income-tax Act, 1961 and the India-China Double Taxation Avoidance Agreement [hereafter referred to as 'DTAA'] 2. In the year 2004, the assessee entered into two separate contracts; one with the 'The West Bengal Power Development Corporation Limited (WBPDCL), for setting up Units 1 & 2 (2 X 300 MW) for the Sagardighi Thermal Power Projects at Murshidabad, West Bengal and the other with 'The Durgapur Projects Limited(DPL)' for setting up units 7(1 x 300 MW) for the Durgapur Project Power Station at Durgapur, West Bengal. Each contract was divided into two distinctly separate parts, the details of which are as under: WBPDCL (a) Contract No. SgTPP/1/(SgMP-1 Supply)/03/2004 dated August 26, 2004 for supply of equipment and materials of Main Plant Turnkey Package (SgMP-1) Units 1 & 2 (2 X 300MW) alongwith some common facilities; and (b) Letter of Awar....
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....to be deemed as a breach of the whole contract. 4. In February, 2005 the assessee made separate applications u/s 197 of the Income-tax Act, 1961 (the Act) in respect of the aforesaid two projects, in which the following submissions were made: Supply of equipment overseas is not taxable in India both under the Domestic Law as well under the Indo-China DTAA and hence, should not be subjected to tax deduction at source; and Local supply and services portion should be subjected to tax deduction at source at NIL rate since the company expects to incur substantial loss on such services. Section 44BBB of the Act will be applicable to the company's case and company will opt for taxation on net income basis under sub-section (2) of the said section, which requires maintenance of regular books of accounts u/s 44AA as well as preparation of accounts and getting the same audited as required u/s 44AB, which are subject to scrutiny by the Assessing Officer u/s 143(3) of the Act. 5. After considering the assessee's submissions separate orders u/s.197 were passed on 28.2.2005. WBPDCL & DPL were directed to deduct tax at source u/s 195 in the following manner: Offshore supply: A sum e....
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....oper documentation and supporting evidence), the profit, from which shall be clubbed with the profits from local supply and services portion, and if there is any tax liability, after giving credit for TDS from local supply and services contract, the same shall be paid by the petitioner by way of advance-tax. Local supply, erection and services The order of the assessing officer is confirmed. The tax shall continue to be deducted @ 4.182% of the receipts for local supplies & services till the completion of the contract, even if, there is actual loss/lesser income, after exercising option u/s.44BBB(2) of the I.T .ACT., by the petitioner. It is considered necessary to do so, because, there may be some profit attributable to offshore supply, which can, only be determined after regular assessment. In the result, the revision petition is partly allowed." Effect of such order was duly given on 01.07.2005." 3. The assessee filed the following grounds of appeal, for both the Assessment Years;- Assessment Year 2009-10 1. On the facts and in the circumstances of the case, the DRP and consequentially the impugned order erred in rejecting the Appellant's claim that the reference ma....
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....esulting into a short grant of TDS to the extent of Rs 65,187. 7. On the facts and in the circumstances of the case and, the AO erred in levying interest under section 234D of the Act. 8. On the facts and in the circumstances of the case and, the Assessing Officer erred in granting short credit of interest under section 244A of the Act. 9. On the facts and circumstances of the case and in law, the AO has erred in initiating penalty proceedings under sections 271 (1 )(c) of the Act." Assessment Year 2010-11 "1. On the facts and in the circumstances of the case, the DRP and consequentially the impugned order erred in rejecting the Appellant's claim that the reference made by the AO to Transfer Pricing-Officer (TPO') is erroneous and bad in law and against the interest if natural justice. 2. On the facts and in the circumstances of the case, the DRP grossly erred in mechanically and routinely following DRP directions in earlier years without any independent application of mind and erred in upholding draft assessment order 'and transfer pricing order for AY 2010- 11 leading to the impugned order, without appreciating that the stand taken by said authorities in ea....
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....impugned order is bad in law and on the facts and circumstances of the case as the same has been made:- (i) By applying Transactional Net Margin Method and rejecting Comparable Uncontrolled Price method or Profit Split Method for determining the amount of profit; (ii) By taking into consideration the comparable which differ in many aspects in context of business activities of the Project Office of the Appellant in India; (iii) Without making adjustments necessary to account for differences in the comparable; (iv) By adopting the cost base without appreciation of the scope of activities undertaken by the Project Office; (v) Without appreciating that the appellant is making overall loss on the said project 10. On the facts and in the circumstances of the case, the DRP and consequently the impugned order erred in affirming treatment of interest on income tax refund of Rs 6,589,064 as income from other sources instead of business income and taxing the same @10% on the gross basis under India-China Double Taxation Avoidance Agreement. 11. On the facts and in the circumstances of the case and, the Assessing Officer erred in levying interest under section 234D of the Act. ....
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....c and distinct jurisdictions conferred in law and consequently the resultant demand in invalid and unenforceable in law. 9(i) That on the facts and in the circumstances of the case, Learned Dispute Resolution Panel erred in routinely upholding the FAR analysis and transfer pricing adjustment made by the TPO even while finding the FAR to be grossly different on facts." 4. These additional grounds are admitted for both the Assessment Years as they raise legal issues and as they do not require investigation into any fresh facts. All the facts are on record. 5. For both the Assessment Years, we take up the first issue, as to whether there is valid reference made u/s 92CA(1) of the Act, by the Assessing Officer to the Transfer Pricing Officer (TPO). 5.1. The ld. Counsel for the assessee, Shri Nageswar Rao, argued that, no reference was made by the ld. Assessing Officer, to the ld. TPO for determination of Arms Length Price of any international transaction and hence the assessment gets barred by limitation on 31/12/2012, for the Assessment Year 2009-10 and, 31/12/2013 for the Assessment Year 2010-11. He referred to Section 92CA(1) and emphasized that the Assessing Officer has to ref....
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....osition for assessment year 2010-11. As it is the duty of the AO under the law, to decide the existence of an international transaction, and thereafter take approval from the competent authority and refer the particular international transaction/s to the TPO for the determination of ALP, whereas in the case on hand, the TPO was trying to discover the existence of an international transaction, without a reference from the Assessing Officer. 5.4. He further submitted that DEC, China and the DEC-PO are not AEs, and that there is no international transaction. He further submits that DEC China is carrying out its own business activity from its own project office and the income of the Project Office TPO is being offered to tax in India in accordance with Article 7 (2) of the Indo-China DTAA. It was submitted that the project office had earned income from two unrelated Indian entities i.e., WBPDCL & DPL and tax accounts were drawn to reflect the attribution of profits. As there is no transaction between the assessee and the project office, there is no international transaction requiring a reference to the TPO. Article 7 (2) of the Indo-China DTAA, does not justify taxation of notional in....
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....ng to import the restrictions under section 148 to a reference by the TPO under section 92CA(3) of the Act. On the letter dt. 03/01/2012, he submitted that it was a mere reminder. On the mentioning by the TPO in his order under section 92 CA (3) of the Act on 30/01/2013 for the Assessment Year 2009-10, that the reference was received on 03/01/2011, he submitted that it was the date on which the TPO received the reminder and argued that but the Assessing Officer's letter was dt.27/12/2011, and it was received on the same day by the TPO. On a query from the Bench, no letter written by the Assessing officer to the TPO referring certain international transactions for determination of ALP u/s 92CA(1) of the Act, was produced for both the Assessment Years. 7. On the issue of whether there is an international transaction, he submitted that the permanent establishment of a foreign company has to be treated as separate entity for the purpose of transfer pricing and hence it becomes an Associate Enterprise of the assessee. He relied on the following decision:- * DCIT, Hyderabad vs. M/s IJM (India) Infrastructure Ltd. Hyderabad (2014- TII-114-ITAT-HYD-TP) He made detailed submissions t....
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....he Transfer Pricing Officer in terms of approval granted for the same by the Ld. DIT(International Taxation), Kolkata on 27.12.2011. Even at the cost of repetition, it is placed on record that the Ld.DIT(International Taxation), Kolkata accorded his approval for marking the reference to the TPO on 27.12.2011 vide letter No. DIT(IT)/Kol/TP-Approval/SS/2010-11/1760 and the copy of this letter was also sent to the Ld.DIT(Transfer Pricing), Kolkata on the very same day i.e. 27.12.2011 for taking necessary action. The reference was received by the office of the DIT(Transfer Pricing), Kolkata on 27.12.2011 itself which may be seen from the scanned copy of the Ld.DIT(International Taxation), Kolkata's letter reproduced below: 26. That the reference to TPO was made on 27.12.2011 can also be verified from the Issue Register maintained in the office of the Ld. DIT (International Taxation), Kolkata, the copy of which is scanned below: 27. In view of the above discussion, there is no merit in the assessee's claim the requisite reference to the TPO was made after 31.12.2011. The assessee's contention in this regard is, accordingly, rejected." 8.2. On a pointed query, despite re....
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....y made to the TPO and the TPO had passed his order observing due process of law. Certified copy of the document i.e. approval of the DIT(IT), Kolkata, which is available in the file is enclosed. (Annexure-I). Copy of page of issue register maintained in the office of Director of Income Tax (International Taxation) is also enclosed as per annexure-1A. DRP had also considered the matter and were of the opinion that it was a valid TP reference within the time limit permitted by Statute. 2. Date of Dispatch of reference letter by the Assessing Officer to Addl. CIT(TP) Cannot be readily replied for non-availability of the copy of the letter in the records. It may be mentioned that the Directorate of International Taxation was previously situated at 4th Floor, Aayakar Bhawan, P-69, Chowringhee Square, Kolkata. The office has subsequently shifted to 110, Shantipally, Kolkata. Other Corroborative records such as Dispatch Registers etc could not be located. However it could not be correct that a valid reference has not been made after obtaining DIT's approval. Similarly, for Assessment Year 2010-11, at para 7.2.2., it was stated as follows:- 1. Date of reference by the AO C....