IT APPEAL NO. 344 (DELHI) OF 2014
[ASSESSMENT YEAR 2010-11]

G.D. AGRAWAL, VICE-PRESIDENT 
AND H.S. SIDHU, JUDICIAL MEMBER

Deepak Chopra, Piyush Singh, Ms. Manaswini Bajpai Advocates and Niten Narang, CA for the Appellant. 
Sanjeev Sharma, CIT-DR and Vivek Kumar, Sr. DR for the Respondent.

ORDER

The order of the Bench was delivered by

G.D. Agrawal, Vice-President - This appeal by the assessee is directed against the order of learned Dispute Resolution Panel-II, New Delhi dated 30th October, 2013 for the AY 2010-11.

2. We have heard the arguments of both the sides and perused relevant material placed before us. The facts of the case are that the assessee is a company incorporated under the laws of People's Republic of China and is engaged in the business of supply of Boiler, Turbine & Generator (BTG) equipments to various companies setting up power plants in India. The assessee also provided supervisory services for erection/commissioning of such equipment at project owners' sites. The assessee offered income from supervisory service fee under Section 44BBB of the Income-tax Act, 1961. Regarding supply of BTG equipment, the assessee's contention is that these are off-shore supplies, hence, not taxable in India. The Assessing Officer, after detailed discussion on factual as well as legal aspects, arrived at the conclusion that the supply of the BTG equipment and supervisory services in respect of erection and commissioning of such equipment was a composite work contract and the same cannot be divided and held one as contract for sale of equipment and another as contract for rendering of supervisory services. He further held that the assessee is having permanent establishment in India and arrived at the conclusion that 25% of the profit accruing from the supply of BTG equipment is attributable to PE in India. Accordingly, the Assessing Officer determined the assessee's income at Rs. 62,50,63,759/- as against the income of Rs. 7,72,74,388/- offered by the assessee. That against the proposed order of the Assessing Officer, the assessee had filed objection before the DRP and the DRP, vide its order dated 30th October, 2013, overruled all the objections filed by the assessee and held as under:—

"On careful consideration of the matter, the panel is of the opinion that the AO has taken the above stand regarding turn-key/composite nature of contract after detailed analysis of the terms of the contract entered into by the assessee. As regards the adoption of the global profit ratio of 8.29% by the AO, we find that the same is based on the global P & L account of the assessee and the assessee's contention regarding segmental profit of 1.69% is not fully verifiable. The attribution by the AO of 25% of profit to the PE in India is also based on the analysis of functions performed by the assessee's PE in India. Therefore, we find no reason to interfere with the above propositions made by the AO in the draft assessment order. The grounds of objection nos.1 to 5 are, accordingly, rejected."

3. After carefully considering the arguments of both the sides and the facts of the case, we are of the opinion that the order of the DRP is cryptic and non-speaking without considering any submissions and arguments of the assessee. We find that the assessment order is running into 44 pages. The assessee's objection to the DRP is of more than 60 pages in which the assessee has not only dealt with the factual aspect but has also referred to the various decisions of the ITAT, Hon'ble Jurisdictional High Court and Hon'ble Apex Court which included :—

4. The assessee also dealt with the provisions of DTAA between India and China. However, we find that the DRP has not considered either the assessee's contention or the decisions relied upon by the assessee or the provisions of DTAA and simply sustained the addition holding that the Assessing Officer has taken the stand after detailed analysis of terms and contract entered into by the assessee. That if the DRP has to simply endorse the order of the Assessing Officer, the purpose of creating the high-powered panel i.e., DRP, which is consisting of three Commissioners of Income-tax, would be totally frustrated. We are, therefore, of the opinion that the order of the DRP needs to be set aside being cryptic and non-speaking.

5. However, during the course of assessment proceedings, it was pointed out by the learned DR that the assessee had taken the contradictory stand before the Assessing Officer. He stated that on one side the assessee contended that there are two separate and independent contracts, one for supply of equipment and another for rendering of supervisory services but the assessee has offered the income from supervisory services under Section 44BBB which is applicable in respect of turnkey projects. He further submitted that the assessee has entered into an agreement for supply of equipment with twelve parties but has produced only copy of three agreements, all with Jindal group of companies. In the absence of agreement with nine parties, the Revenue is unable to determine the nature of contract between the parties. He, therefore, submitted that either the order of the Assessing Officer should be sustained or if at all the matter is being set aside, it should be set aside to the file of the Assessing Officer so that he may examine all the aspects in detail.

6. Learned counsel for the assessee, on the other hand, objected to the setting aside of the matter to the file of the Assessing Officer and stated that the setting aside of the issue to the file of the Assessing Officer will only result in multiplicity of proceedings and, therefore, he contended that the ideal situation would be the adjudication of all the issues by the ITAT. He also stated that he is ready to produce the agreement of supplying of equipment and the supervisory services with all parties before the ITAT and the ITAT may examine the same. He also submitted that the issue of determination of income from supervisory services is not in appeal before the ITAT and, therefore, it is not relevant how the income is offered by the assessee in respect of supervisory contract. He further submitted that if at all the matter is required to be sent back, then it should be sent to the file of the DRP and not the Assessing Officer.

7. After considering the above submissions of the parties, we are of the opinion that it would meet the ends of justice if the matter is set aside and restored to the file of the Assessing Officer. It is the assessee's contention that the assessee entered into two agreements, one for supply of equipment and another agreement for supervision of erection of those equipment. He contended that both the contracts are separate and independent contracts and equipments have been supplied off-shore. The title in the equipment has passed outside the territory of India and payment is also made outside India. However, income from supervisory contract has been offered by the assessee under Section 44BBB which reads as under:—

'Special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects.—

44BBB. (1) Notwithstanding anything to the contrary contained in section 28 to 44AA, in the case of an assessee, being a foreign company, engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning thereof, in connection with a turnkey power project approved by the Central Government in this behalf, a sum equal to ten per cent of the amount paid or payable (whether in or out of India) to the said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession.

(2) Notwithstanding anything contained in sub-section (1), an assessee may claim lower profits and gains than the profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section 44AB, and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee under sub-section (3) of section 143 and determine the sum payable by, or refundable to, the assessee.'

8. Section 44BBB is applicable for computing the profits and gains of foreign companies engaged in the business of civil construction or in certain turnkey power projects. Thus, the assessee is taking a contradictory stand while offering income in respect of supervisory service agreement and in respect of equipment supply agreement. Moreover, the contention of the learned DR that all the agreements relating to equipment supply and supervisory contract were not furnished before the Assessing Officer has not been denied by the learned counsel. He offered to furnish those agreements before us but when certain crucial agreements were not before the Assessing Officer, it would be appropriate that first those agreements are examined by the Assessing Officer and thereafter, he may take a view in accordance with law. If assessee is not satisfied with the view taken by the Assessing Officer, he may avail appropriate remedy as may be permissible in law. In view of the above, we set aside the orders of authorities below and restore the matter to the file of the Assessing Officer. We direct him to allow adequate opportunity to the assessee to produce all the agreements in respect of equipments supply as well as supervision of erection of those equipments. We also direct the assessee to produce all these agreements and any other document, evidence or explanation which may be relevant for determination of taxable income of the assessee. Thereafter, the Assessing Officer is directed to pass the order in accordance with law. We also observe that if the assessee is not satisfied with the order of the Assessing Officer and files objection before the DRP, then the DRP will pass a speaking order considering the assessee's objection in accordance with law.

The order pronounced in the open court on the 5th September, 2014.