2009 (7) TMI 907 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of profits u/s 40BBB.
2. Consistency in the method of computing taxable profit.
3. Applicability of the rule of consistency and the principle of res judicata.
4. Interpretation of section 44BBB and its precedence over normal provisions.
5. Set off of losses u/s 70 in conjunction with section 44BBB.

Summary:

1. Taxability of Profits u/s 40BBB:
The primary issue in this appeal concerns the taxability of the profits of the assessee, a German company, u/s 40BBB. The assessee had set up a branch office in India and entered into an agreement with NHPC for a project. The assessee offered 10% of the receipts as taxable profits and claimed losses incurred by the branch office against this income. The Assessing Officer (AO) observed that the assessee had inconsistently applied the deeming provisions and normal provisions of the Act, and thus, computed the income on a net basis as per section 44BBB(2).

2. Consistency in the Method of Computing Taxable Profit:
The CIT (Appeals) upheld the AO's order, emphasizing that the assessee had consistently disclosed profit on a net basis in previous years and had no valid reason for changing the method to a gross basis in the current year. The CIT (Appeals) cited the rule of consistency and the judgment of the Delhi High Court in CIT v. A.R.J. Security Printers [2003] 264 ITR 276, which supports maintaining consistency in income-tax proceedings unless fresh facts are found.

3. Applicability of the Rule of Consistency and the Principle of Res Judicata:
The CIT (Appeals) and the AO relied on the principle of consistency and the Supreme Court's decision in Radhasoami Satsang v. CIT [1992] 193 ITR 321, which states that earlier decisions on the same question should not be reopened unless new facts emerge. The CIT (Appeals) concluded that the assessee was not justified in changing the method of profit computation without any change in facts and circumstances.

4. Interpretation of Section 44BBB and Its Precedence Over Normal Provisions:
The Tribunal noted that section 44BBB provides a special provision for computing profits of foreign companies engaged in turnkey power projects. This section, being a non obstante provision, overrides sections 28 to 44AA. The Tribunal held that the AO cannot force the system followed in earlier years if the assessee opts for the presumptive tax provision u/s 44BBB(1). The Tribunal emphasized that the mandate of section 44BBB must be followed, and the AO cannot ignore these provisions on the pretext of consistency.

5. Set Off of Losses u/s 70 in Conjunction with Section 44BBB:
The Tribunal also addressed the assessee's contention regarding the set off of losses u/s 70, which is not overridden by section 44BBB. The Tribunal directed the AO to consider the decisions in CIT Alcatel [1993] 47 ITD 275 (Delhi) and Anchor Line Ltd. v. ITO [1990] 32 ITD 403 (Bom.) for setting off losses against the profits computed u/s 44BBB.

Conclusion:
The Tribunal reversed the orders of the CIT (Appeals) and the AO, directing the AO to determine the income of the assessee as per the provisions of section 44BBB and to consider the set off of losses. The appeal of the assessee was allowed.