2024 (1) TMI 1408 - AT - Income Tax

Income deemed to accrue or arise in India - Taxability of revenue earned by the assessee from offshore supplies in India - Existence of Permanent Establishment (PE) in India - HELD THAT - In the present case, it is noticed that an identical issue having similar facts was a subject matter of the assessee s appeal in 2022 (11) TMI 1534 - ITAT DELHI held that while deciding the issue relating to existence of PE, the departmental authorities have simply relied upon decision taken in earlier assessment years without verifying the factual position qua contracts executed in these assessment years, in our view, the assessee must be given an opportunity to furnish the relevant contracts before the departmental authorities to establish its case that in the assessment years under consideration the assessee did not have any PE in India so as to bring to tax the income from off- shore supplies. We are inclined to restore the matters back to the Assessing Officer for fresh adjudication after thoroughly examining the relevant contracts and other materials brought on record. Hence, in the absence of any material change on the facts of the issue, the matter is being restored to the Assessing Officer for adjudication afresh.

Summary

Issues:
1. Taxability of revenue earned by the assessee from offshore supplies in India
2. Existence of Permanent Establishment (PE) in India
3. Attribution of business profit to the PE
4. Levy of interest under section 234 A, 234 B, and 234 C of the Act
5. Initiation of penalty proceedings under section 270 A of the Act

Taxability of revenue earned by the assessee from offshore supplies in India:
The assessee contested the addition made by the Assessing Officer to the returned income, arguing that the revenue from offshore supplies to customers in India should not be taxed as it is not attributable to any business activity carried out in India. The Assessing Officer attributed 3.75% of the revenue to the alleged PE in India. The Tribunal noted that the revenue from providing design and other offshore services from outside India could not be taxed in India as it did not satisfy the restrictive conditions under the Double Taxation Avoidance Agreement (DTAA) between India and France. The Tribunal allowed the appeal on this ground.

Existence of Permanent Establishment (PE) in India:
The Assessing Officer held that the assessee had a PE in India based on past assessment orders and departmental proceedings. The Tribunal observed that the decision from past assessment years could not automatically apply to the current assessment year, especially considering that most contracts were fresh. The Tribunal emphasized the need to thoroughly examine the contracts and work allocation among consortium members to determine the existence of a PE. As a result, the matter was restored to the Assessing Officer for fresh adjudication, allowing the assessee to furnish complete contracts for examination.

Attribution of business profit to the PE:
The Assessing Officer attributed a percentage of the revenue earned from offshore supplies to the PE in India. The Tribunal, however, emphasized the importance of examining the terms of contracts and scope of work to determine the attribution of business profit accurately. The Tribunal directed the Assessing Officer to conduct a fresh adjudication after examining the relevant contracts and materials, ensuring the assessee is given a fair opportunity to present its case.

Levy of interest and initiation of penalty proceedings:
The Assessing Officer levied interest under sections 234 A, 234 B, and 234 C of the Act, as well as initiated penalty proceedings under section 270 A. The Tribunal did not delve into the merits of these issues but allowed the appeals of the assessee for statistical purposes. The matters were restored to the Assessing Officer for further adjudication, advising against mechanical adherence to past assessment orders and emphasizing a denovo examination of the issues.

In conclusion, the Tribunal allowed the appeals of the assessee on the grounds of taxability of revenue from offshore supplies and directed a fresh adjudication by the Assessing Officer regarding the existence of a PE in India and the attribution of business profit. The Tribunal emphasized the importance of thoroughly examining contracts and work allocation for a fair determination. The issues of interest levy and penalty proceedings were left for further adjudication by the Assessing Authorities.