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TMI Blog2023 (12) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... 21, passed under Section 143(3) of the Act holding the same to be erroneous in so far as prejudicial to the interest of the Revenue. 3. The Appellant has raised following grounds of appeal: "1. Assumption of jurisdiction under section 263 of the Income- tax Act, 1961 is bad in law 1.1 On the facts and circumstances of the case and in law, the impugned Revision Order passed by Ld. CIT under section 263 of the Act, holding that the Assessment Order passed by the AO under section 143(3) of the Act is erroneous and prejudicial to the interest of the revenue, bad in law, illegal, non-est and ultra-vires the provisions of section 263 of the Act. 1.2 On the facts and circumstances of the case and in law, the Ld. CIT erred in holding that AO has failed to conduct proper verification and enquiry regarding offshore services rendered by the Appellant outside India and regarding the Appellant's claim under the Double Taxation Avoidance Agreement between India and Korea ("DTAA") of non-taxability of revenue from such off-shore services in India, without appreciating that the aspect of rendition of offshore services by the Appellant, and non-taxability thereof in India, was enquired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncluding that revenue from off-shore services provided by the Appellant amounting to INR 44.35 crores was attributable to operations in India and hence taxable in India 3. Without prejudice, on the facts and circumstances of the case and in law, the Ld. CIT erred in arbitrary taxing the entire revenue from offshore services and attributing 100% of such offshore revenue to the project office(s) in India." 4. The relevant facts in brief are that the Appellant, i.e. Kepco Plant Service & Engineering Co. Ltd [Formerly known as Korea Plant Service & Engineering Co. Ltd] is tax resident of South Korea being a company incorporated as per the laws of South Korea. The Appellant was engaged, inter alia, in the operation and maintenance of power plants and had entered into a number of India companies engaged in generation of power (hereinafter referred to as 'Indian Project Owners') for operation and maintenance of power plants in India in the capacity of Operation & Maintenance Contractor. 5. For providing the operation & maintenance services, the Appellant had set up project offices in India (hereinafter referred to as the 'Project Offices') which, admittedly, constituted 'Permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and response thereto, the Appellant filed replies furnishing the required details, documents and reconciliation statements. 11. Since the Project Office and the Head Office were to be considered as separate enterprises, the Assessing Officer was of the view that the contractual terms between the Project Offices and the Project Owners were determined by the contract between the Project Owner and the Head Office, and therefore, according to the Assessing Officer the transactions between the Indian Project Owners and the Project Offices were in the nature of deemed international transactions. Accordingly, the transaction between the Project Office and the Project Owners were referred to the Transfer Pricing Officer (TPO) by the Assessing Officer for the determination of the Arm's Length Price (ALP). The TPO it's order, dated 28/01/2021, passed under Section 92CA(3) of the Act did not propose any transfer pricing adjustment. The Assessing Officer completed the assessment vide order, dated 30/05/2021, passed under Section 143(3) of the Act accepting returned income as the assessed income of the Appellant. 12. Subsequent, on perusal of the record the CIT was of the view that the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of the Act or the concerned DTAA Kindly furnish supporting documentary evidence of the same." 5. The assessee vide submission dated 22.10.2019 has submitted copies of contract agreement of contract agreement. The assessee claimed to have provided services rendered outside India', however, the nature of services as well as whether the services were actually applied in India was not properly examined by the assessing officer. Further, the attribution of income of PE was not done by the assessing officer. The AO has passed the order without conducting proper enquiry and without proper verification of facts. The AO was required to ascertain the income attributable to the assessee in India. No application of mind in this regard has been made and the extent of income to the PE has not been attributed. The AO has passed the order allowing relief claimed by the assessee under DTAA without enquiring into the allowability of the said claim with respect to offshore services performed, if any. 5.1 The explanation 2 of section 263 of the Act is reproduced as under. "Explanation 2-For the purposes of this section, it is hereby declared that an order passed by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s it was in A.YS. 2011-12 to 2015-16. The erstwhile assessing officers have examined the applicability of treaty benefits and subsequently allowed relief to the assessee. 3. The assessee relied upon the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT regarding non applicability of section 263 stating that the assessment order dated 02.09.2021 is neither erroneous nor prejudicial to the interest of revenue as the AO has made complete enquiry into all aspects. 4. The assessee relied upon various judicial pronouncements and submitted that the AO while passing assessment order dated 30.05.2021 has made diligent enquiry into all aspects and there is no justification to revise the assessment order." 14. However, the CIT was not convinced. The CIT noted that despite making consistent losses from Indian operations, the Appellant was expanding work in India. Nearly one third of the total payments were made by the Indian Project Owners directly to the Head Office and the same were not reflected in the Profit & Loss Account of Indian operations. Further, on perusal of operation and maintenance responsibility matrix of the operation & maintenanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the paper-book) to show that the relevant enquiry/verification was made by the Assessing Officer. He submitted that all the relevant details and documents including copy of the agreement and reconciliation statements were filed by the Appellant during the course of assessment proceedings. He vehemently contended that once the payments made by the Indian Project Owners to the Project Offices were treated as arm's length by the TPO, it could be inferred that the payments made by the Indian Project Owners to the Head Office had been examined and the same were also at arm's length. The scope of services provided by the Project Office to the Project Owners was examined by the TPO and the payments made by the Project Owners for the same to Project Office was also found to be at Arm's Length. Therefore, no further inquiry/investigation was required by the Assessing Officer. He further submitted that, in any case, the payments made by the Indian Project Owners to the head office were not liable to tax in India. In earlier years also similar payments were examined during the assessment proceedings and no additions were made. The payments made to the Head Office were for offshore services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed outside in India. Even during the proceedings before the CIT, the Appellant had failed to provide any proof that any offshore services were rendered. Therefore, the entire payments made by the Indian Project Owners to the Head Office were liable to tax in India. Thus, the CIT was justified in setting aside the Assessment Order as being erroneous insofar as prejudicial to the interest of revenue and also directing the assessing officer to tax foreign payments of INR 44.35 Crores in India. On the strength of the aforesaid, Learned Departmental Representative submitted that the order passed by the CIT under Section 263 of the Act be sustained. 18. In rejoinder, the Ld. Senior Counsel for the Appellant submitted that the Appellant was never put to notice about the issue of taxability of payments made by the Indian Project Owners to the Head Office. The proceedings under Section 263 of the Act were initiated for the reason that the Assessing Officer has failed to carry out the necessary enquiry/verification and therefore, the PCIT exceeded his jurisdiction in holding that payments made by the Indian Project Office to the Head Office were liable to tax in India, without confronting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed at page 448 of the paper-book) giving details of income reconciliation with Form 26AS, and Annexure 9 (placed at page 449 of the paper-book) giving details of reconciliation of income as per income tax and the income as per service tax. While the Assessing Officer has called for the details, the material on record does not shown application of mind to the same. We agree with the Revenue that there were no follow- up queries by the Assessing Officer reflecting any inquiry or investigation into nature or scope of offshore services was not made by the Assessing Officer. 21. The details submitted by the Appellant (relevant extract reproduced herein below), showed that around 27% of the total payments were made directly by the Indian Project Owner to Head Office. Particulars HZL Amount (INR) VAL Amount (INR) GMDC Amount (INR) BECL Amount (INR) Total Amount (INR) Total Receipts 329,782,347 521,250,124 373,457,303 88,066,610 1,312,556,384 Onshore Activities 62.97% 69.15% 80.89% 100.00% 73.01% Offshore Activities 37.03% 30.85% 19.11% - 26.99% 22. The Appellant was providing operation and maintenance serviced for power plants in India requiring presence of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion as per the reference which was limited to determining the ALP of the domestic payments made by the Indian Project Owners to the Project Offices. Though, in response to notice dated 19/02/2020, the Appellant had, vide letter dated 24/02/2020, provided to the TPO copies of Contracts/Agreements executed with Indian Project Owners and the details and bifurcation of offshore and onshore activities. The foreign payments made directly by the Indian Project Owners to Head Office, and the nature/scope of offshore services were not examined either by the TPO or by the Assessing Officer during the assessment proceedings. The TPO, vide order dated 28/01/2021, accepted the domestic payments made by the Indian Project Owners to Project Offices to be at arm's length and thereafter, on 30/05/2021 the Assessing Officer passed Assessment Order under Section 143(3) of the Act accepting the retuned income as assessed income. It is clear that after initial query, no further follow-up query or information was sought by the Assessing Officer. In our view, the Assessing Officer should have enquired into both the payments made to Project Offices as well as the Head Office. On perusal of notice issued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merit in the contention advanced by the Ld. Senior Counsel for the Appellant that CIT was not justified in concluding that the payments made by the Indian Project Owners to the Head Office were liable to tax in India as the Appellant was never confronted with that issue leading to violation of principles of natural justice. On perusal of notice, dated 28.01.2022 issued under Section 263(1) of the Act we find that the Appellant was asked to show cause why the Assessment Order should not be set- aside being erroneous insofar as prejudicial to the interest of revenue on account of failure of the Assessing Officer to carry out necessary enquiry/investigation. Therefore, we concur with the Ld. Senior Counsel for the Appellant that the directions issued by the CIT to the Assessing Officer to the effect that the payments made by the Indian Project Owners directly to the Head Office should be brought to tax and that the benefit of tax treaty should be denied to the Appellant were issued in violation of principles of natural justice. Therefore, to this extent we modify the directions issued by the CIT by directing the Assessing Officer to examine the issue of taxability of payments made by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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