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2017 (11) TMI 1498 - AT - Income TaxTaxability in India - Sales made by the non-resident Canadian assessee on FOB basis under a contract sale - Held that - Laying our hands on the decisions of Hon ble Allahabad High Court 2016 (11) TMI 1496 - ALLAHABAD HIGH COURT , we hold that on sale of offshore supplies made on FOB basis outside India, no profit is chargeable to tax in India. Since the facts and issue involved in all the three appeals of the assessee are identical, therefore, the above decision will equally apply to all these three appeals of assessee for A.Yrs. 2004-05, 2005-06 and 2007-08. Accordingly, the appeals of the assessee deserve to be allowed. Penalty levied u/s. 271(1)(c) - Held that - The assessee cannot be deemed to have concealed the particulars of income with respect to profit on FOB supplies during the Assessment Year 2007-08. Besides, the department did not initiate any penalty on the similar addition made in A.Y. 2002-03, and the penalty imposed for A.Y. 2004-05, stood cancelled by ld. CIT(A) vide order dated 27th April 2009, which has been accepted by the Department and no further appeal against the order of CIT (Appeals) was filed by Revenue. In presence of all these facts, the penalty imposed by the AO has rightly been deleted by the ld. CIT(A). Accordingly, the appeal of the Revenue, being devoid of merit
Issues:
1. Taxability of sales made by a non-resident Canadian assessee on FOB basis under a contract in India. 2. Assessment of profits on offshore supplies of plant and machinery under sections 44BB and 44BBB of the Income-tax Act, 1961. 3. Imposition of penalty under section 271(1)(c) of the IT Act for inaccurate particulars of income in relation to offshore supplies. Issue 1: Taxability of Sales Made by Non-Resident Canadian Assessee on FOB Basis: The appeals revolve around whether sales made by a non-resident Canadian assessee on FOB basis under a contract are taxable in India. The key contention was that while the FOB supplies made outside India are not taxable, the contract signed in India led to a portion of the profits being taxable in India. The ITAT referred to a previous case where it was held that 20% of global profits relating to such supplies should be taxed in India. However, following a decision by the Hon'ble Allahabad High Court, it was concluded that no profit is chargeable to tax in India on sales of offshore supplies made on FOB basis outside India. Issue 2: Assessment of Profits on Offshore Supplies of Plant and Machinery: The assessment involved the application of sections 44BB and 44BBB of the Income-tax Act, 1961 to determine the taxability of profits on offshore supplies of plant and machinery. The AO assessed 10% of the total value of the supply contract as assessable income in addition to the income declared by the assessee. The ITAT and CIT (Appeals) referred to previous judgments and held that profits on FOB supplies made outside India are not chargeable to tax in India. The Hon'ble Allahabad High Court's decision further supported this stance, leading to the conclusion that no profit is taxable in India on offshore supplies made on FOB basis. Issue 3: Imposition of Penalty under Section 271(1)(c) of the IT Act: The penalty under section 271(1)(c) was imposed by the AO based on the addition made in respect of profits on offshore supplies. However, following the decision of the Hon'ble Allahabad High Court and the deletion of the addition, it was held that the assessee did not conceal income particulars regarding profits on FOB supplies. The penalty was deemed unjustified, especially considering the department's lack of action on similar additions in previous assessment years. As a result, the penalty imposed by the AO was rightly deleted by the CIT (Appeals). This detailed analysis of the judgment highlights the key issues of taxability of sales, assessment of profits, and imposition of penalties in the context of offshore supplies made by a non-resident Canadian assessee. The decision ultimately favored the assessee based on legal precedents and interpretations of relevant tax laws.
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