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2023 (3) TMI 557 - AT - Income TaxTaxability of amount received in the arbitration settlement received from Indian Oil Infrastructure Energy Services Ltd. ( IOT ) - connection with the project office in India - HELD THAT - We do not see any infirmity into the order of Ld.DRP as admittedly the settlement amount is related to project office of the assessee company. Therefore, the submission of the assessee is that it has no connection with the project office in India is misplaced and contrary to the records. We therefore, do not find any merit in the Ground No.1 raised by the assessee, the same is hereby dismissed. Disallowance of claim of brought forward business loss - AO did not allow set off of loss of earlier years on the basis that assessee has not claimed brought forward loss in the Income tax return for the year under consideration - HELD THAT - We find that the Revenue has not disputed the fact that the expenses are related to the project office and claimed on the basis of audited financial statement. In our considered view, the AO ought to have given set off of losses in pursuance of the direction of Ld.DRP. The AO failed to take note of the fact that the assessee had raised its claim before the Ld.DRP. Therefore, the AO was under legal obligation to comply with the direction of higher authority. We therefore, considering the totality of the facts, direct the Assessing Authority to allow set off of the losses as claimed by the assessee before the Ld.DRP. Thus, Ground No.2 raised by the assessee is allowed in terms indicated herein above.
Issues Involved:
1. Taxability of the arbitration settlement amount. 2. Disallowance of the claim of brought forward business loss. 3. Initiation of penalty proceedings under section 270A of the Income Tax Act. Summary: Issue 1: Taxability of the Arbitration Settlement Amount The primary issue was whether the arbitration settlement amount of Rs. 16,13,20,000 received from Indian Oil Infrastructure & Energy Services Ltd (IOT) should be taxed in India. The assessee contended that the settlement amount was not effectively connected with its Project Office (PO) in India and should not be taxable under Article 21(2) of the India-Germany DTAA. However, the Dispute Resolution Panel (DRP) found that the economic ownership of the income from the project lay with the PE and that the settlement amount was effectively connected with the PE. The DRP concluded that the settlement amount was taxable in India under Article 7 of the DTAA. The Tribunal upheld the DRP's decision, stating that the settlement amount was related to the project office of the assessee company, and thus, taxable in India. Issue 2: Disallowance of the Claim of Brought Forward Business Loss The second issue was the disallowance of the claim of brought forward business losses amounting to Rs. 9,80,71,711. The assessee argued that the losses were substantiated with documentary evidence, but the AO disallowed the claim on the ground that the losses were not mentioned in the income tax return form. The DRP had directed the AO to verify the expenses claimed as brought forward losses. Despite verification and finding the claim satisfactory, the AO disallowed the set-off on technical grounds. The Tribunal noted that the expenses were related to the project office and claimed based on audited financial statements. The Tribunal directed the AO to allow the set-off of losses as claimed by the assessee, emphasizing that the AO was legally obligated to comply with the DRP's directions. Issue 3: Initiation of Penalty Proceedings under Section 270A The assessee also raised a general ground against the initiation of penalty proceedings under section 270A for under-reported income due to misreporting. However, this issue was not elaborated upon in the judgment. Conclusion The appeal was partly allowed. The Tribunal dismissed the ground regarding the taxability of the arbitration settlement amount but allowed the ground concerning the disallowance of brought forward business losses, directing the AO to allow the set-off as claimed by the assessee.
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