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TMI Blog2024 (3) TMI 1369X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale is concluded outside India and the property in goods is passed outside India; the payment of consideration is received outside India; no activity in relation to such offshore supply is conducted in India, then income from such offshore supplies cannot be made liable to tax in India as assessee does not constitute Business Connection in India. It is also pertinent to note that under the Contract No.3 which is in dispute before us, Offshore Supply under THDC Contract, supply of plant and equipment was to take place on FOB basis. Title to and property in the goods shipped by the assessee stood transferred at the port of shipment and the event of sale clearly took place outside the territory of India. In these facts, the income arising out of such sale cannot be said to have accrued or arisen in India. The accrual of income derived from offshore supplies cannot be attributed to any operation in India and therefore, no income can be deemed to accrue or arise in India. Fixed Place PE of the assessee in India - AO had merely reproduced the observations made in the assessment order of some other assessee with respect to PGCIL contract without appreciating the fact that the receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f offshore supplies cannot be brought to tax in India in the hands of the assessee. Here the treaty provisions are also beneficial to the assessee herein and hence on this count also, there cannot be taxability of income in respect of offshore receipts in the hands of the assessee. Since we have already held that there is no PE of the assessee in India, the other argument advanced by the ld. AR that there would be no attribution of profits in view of operational or net loss at global level, need not be gone into as adjudication of the same would become merely academic in nature. Thus, we hold that assessee was engaged in offshore supply of plant and equipment pursuant to contract with THDC and that the said contract was not artificially split for gaining any tax advantage as alleged by the revenue; there is no business connection of the assessee in India; there does not exist Fixed Place PE or Construction PE of the assessee in India and provisions of section 44BBB of the Act are not applicable in the instant case. Hence we hold that the addition made by the ld. AO by bringing to tax receipts from offshore supply is hereby directed to be deleted. Decided in favour of assessee. Disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AYs 2018-19 and 2019-20 arise out of the order of the Assessing Officer/ ACIT, Circle International Taxation 1(3)(1), New Delhi [hereinafter referred to as ld. AO, in short] dated 29.07.2022. Identical issues are involved in both the appeals and hence they are taken up together and disposed of by this common order for the sake of convenience. 2. The assessee has raised the following grounds of appeal in ITA No. 2085/Del/2022 for AY 2018-19:- 1. That on the facts and circumstances of the case and in law, the assessment order dated 29.07.2022 passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 ( the Act ) for assessment year 2018-19 assessing the total income of the Appellant at Rs.46,93,12,952 is bad in law, void-ab-initio and therefore, liable to be quashed and/ or set aside. 2. That on the facts and circumstances of the case and in law, the assessment order passed under section 143(3)/ 144C(13) of the Act on 29.07.2022, being barred by limitation, is bad in law and void-ab-initio. Re: Offshore supply receipts of Rs.38,46,36,867 from THDC 3. That the DRP/ assessing officer erred on facts and in law in holding that receipts of Rs.38,46,36,867 from offs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the non- obstante clause contained in section 44BBB and therefore, disallowance of Rs.3,20,01,335 on account of duty drawback written off and Rs.4,21,800 under section 40 of the Act is bad in law, unsustainable and deserves to be deleted. Re: Income of Rs.96,45,476 from Fees for Technical Services ( FTS ) 14. That the DRP/ assessing officer erred on facts and in law in applying the provisions of section 44BBB of the Act to bring to tax income of Rs.96,45,476 received on account of FTS, not appreciating that the same constituted Income from Other Sources and was already offered to tax in the return of income. 15. That the DRP/ assessing officer erred on facts and in law in making the aforesaid addition of Rs.96,45,456 to the returned income, not appreciating that the same resulted in double taxation. Re: Other grounds relating to computation of tax demand penalty proceedings 16. Without prejudice, that the assessing officer erred in erroneously computing total receipts as 'Profits from Business or Profession' and taxing the same at 40% instead of first applying presumptive rate of 10% provided under section 44BBB of the Act to compute the income embedded in the receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity from NHPC 3,10,31,524 3 Income from fees for technical services from GEPIL 96,45,476 4 Expenses for duty drawback claim written off 3,20,01,335 Total 45,73,15,202 7. The assessee thereafter filed objections against the aforesaid draft assessment order before the Learned Dispute Resolution Panel ( ld. DRP ), which were dismissed. Pursuant to the directions issued by the ld. DRP under section 144C(5) of the Act, the ld. AO passed final assessment order dated 29.07.2022 under section 143(3) r.w.s. 144C(13) of the Act, assessing the total income of the assessee at Rs.46,93,12,952/-. 8. The assessee filed application u/s 154 of the Act before the ld. AO on 04.08.2022 for rectification of certain mistakes apparent from record. The said rectification application was disposed of vide order dated 24.12.2022 wherein assessed income was recomputed at Rs.9,53,13,511/-. The computation of total income after rectification is as under: S. No. Particulars Amount (in Rs.) Whether addition in dispute before the Tribunal 1. 10% of receipts from THDC for offshore supply 3,84,63,687 Yes - Ground Nos.3 to 9 2. Income from onshore activity from NHPC 3,10,53,628 No - Offered to tax in the ITR itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Erection, Testing and Commissioning of the ElectroMechanical plant machinery and Hydro- Mechanical plant machinery (Onshore Services) of 4 x 250 MW Tehri Pumped Storage Plant Alstom Projects India Limited 9.2. As is evident from the above, under the THDC Agreement, the assessee is executing Contract No.3, i.e., supply of electro-mechanical plant machinery and hydro-mechanical plant machinery (Offshore Component). The said Contract No.3 is hereinafter referred to as THDC Contract No.3 for Offshore Supply . As per the said THDC Contract No.3 for Offshore Supply read with Particular Conditions of Contract, the transfer of ownership, for the plants and equipment (including spares) supplied from foreign country, was done on FOB basis. The relevant clause is reproduced hereunder:- Sub-Clause 7.7 Ownership of Plant and Material The Ownership of imported material will be transfer on FOB basis. The ownership of indigenous material will transfer on Ex. Work basis 9.3. As per the THDC Overall Agreement, the consortium members are jointly and severally responsible and liable to THDC. Separate roles and responsibilities of consortium members emanate under the aforesaid THDC Overall Agreement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffice for correspondence at The International, V Floor, 16, Marine Lines Cross Road No. 1, Off Maharahi Karve Road, Churchgate, Mumbal. (E) It being agreed and understood that the execution of the Project under several CONTRACTS (as at C above) shall not in any manner dilute the respective responsibilities, obligations and liabilities of the each partner of the Consortium as defined in the sald CONTRACTS (detailed in Annexure -III) and In this Agreement to ensure completion and performance of the Project within the TIME FOR COMPLETION with the understanding that the Consortium shall be jointly and severally responsible and liable for the performance of the Project with in the Time for Completion as defined in Para 1.1.3 of this Agreement. (F) It is deemed necessary and expedient to enter into this Agreement to, inter-alla, define the scope of the WORKS and provide for the responsibilities of Alstom Hydro France as the leader of the Consortium ( the Leader ) and the joint and several responsibility and liability of the Consortium in respect of the execution thereof under the several CONTRACTS. (G) Alstom Hydro France, Alstom Projects India Limited and Hindustan Construction Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Consortium under all the CONTRACTS and this Agreement. 3.2 Not withstanding the entering into the several CONTRACTS and the provisions contained therein, the Consortium, under the leadership of ALSTOM Hydro France shall be bound by the provisions of this Agreement and each member/partner of the Consortium shall be severally and Jointly obliged: a) To execute and perform or cause to be executed and performed the CONTRACT: b) To satisfy the obligations and liabilities of any and all members/ partners of the Consortium as set out in the CONTRACT and/or this Agreement; and c) To execute and perform the WORKS in accordance with the Master Program annexed as Annex-11 hereto and as may be modified by mutual Agreement between the Consortium and the Employer from time to time. 3.3 Nothing contained in this Agreement is intended by the Consortium nor shall be construed as creating a joint venture / Consortium, partnership, agency or association of persons amongst the various members / partners of the Consortium for the purpose of execution of the Project. Without prejudice to the joint and several responsibility and liability provided for in this Agreement each Consortium Partner / mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owerhouse, all more fully described in the Employer's Requirement. The detailed Scope of Works under Civil Works shall be as per section -I of Employer's Requirement and as detailed in Appendix CW-1 to Section I of Employer's Requirement and Bidding Documents. Contract No. THDC/RKSH/CD- 262/AG/03 Supply of Electro-Mechanical plant machinery and Hydro- Mechanical plant machinery (Off-shore Component) of 4 x 250 MW Tehri Pumped Storage Contractor M/s Alstom Hydro France Contract Price Euro 82,841,152.00 (EM Supply EURO 62,923,012.00 and HM supply EURO 19,918,140.00) Brief Scope of Work Design and Engineering of the Electro-Mechanical works and of Hydro-Mechanical Works of 4 X 250 MW Tehri Pumped Storage Plant, preparation of design criteria and technical specifications, manufacture and supply of off-shore equipments and material forming part of permanent works for Electro-Mechanical and Hydro-Mechanical Works of 4 X 250 MW Tehri Pumped Storage Plant The detailed 'scope of Work under Supply of ElectroMechanical plant machinery and Hydro-Mechanical plant machinery (Off- shore Component) shall be as per Section I of Employer's Requirement and as detailed in Appendix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Employer's Requirement and Bidding Documents. 9.5. Based on the Overall Agreement with THDC, it was submitted that Joint and Several responsibility of the Consortium is provided and according the ld. AO alleging that assessee bears all the responsibilities and liabilities for execution of the contracts under THDC Overall Agreement has no basis. Rather assessee is jointly and severally liable along with the other consortium members under all the Agreements. It was submitted that assessee acted as a leader of the consortium for the purposes of ensuring coordination of the inter-related tasks between the members of the consortium undertaking the project but did not assume responsibility and liability (other than to THDC) for work to be performed by the independent contractors being consortium members, responsible for undertaking onshore work under separate and independent contracts with THDC. We find that the Hon ble Jurisdictional High Court in the case of Linde AG, Linde Engineering Division vs DDIT reported in 365 ITR 1 (Del) had held that that the fact that contractual obligations of one of the consortium members were not limited merely supplying equipment, but were for perfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to make the appellant to pay tax in India. The taxable events in execution of a contract may arise at several stages in several years. The liability of the parties may also arise at several stages. Obligations under the contract are distinct ones. Supply obligation is distinct and separate from service obligation. Price for each of the component of the contract is separate. Similarly offshore supply and offshore services have separately been dealt with. Prices in each of the segment are also different. 18. The very fact that in the contract, the supply segment and service segment have been specified in different parts of the contract is a pointer to show that the liability of the appellant thereunder would also be different. . 70. We would in the aforementioned context consider the question of division of taxable income of offshore services. Parties were ad idem that there existed a distinction between onshore supply and offshore supply. The intention of the parties, thus, must be judged from different types of services, different types of prices, as also different currencies in which the prices are to be paid. 76. In construing a contract, the terms and conditions thereof a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to take place on FOB basis. At the cost of reiteration, we hold that title to and property in the goods shipped by the assessee stood transferred at the port of shipment and the event of sale clearly took place outside the territory of India. In these facts, the income arising out of such sale cannot be said to have accrued or arisen in India. The accrual of income derived from offshore supplies cannot be attributed to any operation in India and therefore, no income can be deemed to accrue or arise in India. 9.9. The ld. AO had further alleged that there is a Fixed Place PE of the assessee in India. The assessee had stated that it does not have PE in India apart from the project office which is set up for rendering services in connection with the contract with NHPC project and the income earned by such Project Office is already offered to tax by the assessee in the return filed in India. We find that the ld. AO had concluded that there exists a Fixed Place PE of the assessee in India without bringing on record any evidence to demonstrate that the assessee has a fixed place available at its disposal in India which was used for purposes of undertaking core business activities of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributed to the alleged PE in India. It was specifically submitted by the ld.AR before us that the ld. AO had stated in his order that this is a legacy issue and it is already covered in favour of the revenue by the decision of the Delhi Tribunal in GE Group company cases for Asst Year 2001-02. But it is pertinent to note that assessee herein became part of GE group only in the year 2015 which is also admitted by the ld. AO in his order. Hence all the findings of Delhi Tribunal in GE Group company cases relied upon by the ld. AO cannot be made applicable to the facts of the assessee herein. It is also relevant to understand that Contract No. 03 between THDC and assessee is in dispute before us with regard to offshore supply. Admittedly THDC is a Government of India Undertaking, which had split the contracts. Splitting of contracts is not done at the behest of the assessee. The case laws relied upon hereinabove for non-existence of Fixed Place PE in India would apply for nonexistence of Construction PE also. Hence we have no hesitation to hold that the assessee does not have a Construction PE in India and accordingly no income earned by the assessee from operations and activities un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 dated 12.4.23 for AY 2018-19 . The relevant operative portion of the said order is reproduced below:- 9. Ground no 3 to 8.Ld. Sr. Counsel for the assessee/ appellant contended that Ld. Tax Authorities below have erred in understanding the nature of three agreements entered between the assessee, its associate ALSTOM-I and employer PGCIL. It was submitted that Ld. Tax Authorities have fallen in error in concluding that there was an artificial splitting of the contract between the assessee and ALSTOM-I. Referring to the contracts executed between the assessee and PGCIL, made available on page no. 6 to 249 of the paper book, it was submitted that engaging an Associate was an integral part of the bid proposal and the execution of two separate contracts between PGCIL and ALSTOM-I was part of bidding documents. It was submitted that Ld. Tax Authorities below have selectively construed the recitals of the bid and contract documents. 9.1 It was submitted that tax authorities below have also fallen in error in construing the business connection in India without appreciating that the sales were concluded outside India and the property in goods under the offshore agreement had passed outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctively involved in soliciting business for the assessee as the assessee had procured the contract by way of open bidding. 9.5 It was submitted that the Associate was engaged in independent contracts under the bid and was independent entity. Referring to the financial statements of GE T D India Limited, available on page no. 429 to 437 for F.Y. 2017-18 and 438-445 for F.Y. 2018-19 it was submitted that related party transactions have been disclosed and it was submitted that the Indian associates has several independent source of revenue. The income earned from the two contracts was independently offered to Tax under the Act. 9.6 As with regard to the Associate constituting a Construction PE,he submitted that the associate was independent and responsible for concluding the contracts and the role of assessee was limited to off-shore supplies. In this context he specifically contended in regard to the findings of construction PE that there was no factual evidence to support the findings. Assessee was not involved into any activity of construction project and as supply is not included in the activities taxable in the provisions, so Article 5(2) of the treaty was not applicable. 9.7 He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (AAR) and KronesAktiengesellschaftvs CIT: ITA No.907/Del/2017 dated 30.12.2022 (Del Trib.) 9.8.5 The Ld. Sr. Counsel stressed that the onus is on Department to prove existence of PE and for that he relied CIT vs eFunds IT Solution: 399 ITR 34 (SC), DIT vs Samsung Heavy Industries Co Ltd: 426 ITR 1 (SC), DIT vs Mitsui Co Ltd: 399 ITR 505 (Del) and AB SciexPte Ltd vs ACIT: 195 ITD 384 (Del Trib.) 9.8.6 As with regard to principles of attribution to business connection/ PE he relied DIT vs Morgan Stanley Co Inc: 292 ITR 416 (SC), DIT vs Morgan Stanley Co Inc: 292 ITR 416 (SC), The Anglo French Textile Co Ltd vs CIT: 25 ITR 27 (SC), Annamalais Timber Trust and Co vs CIT: 41 ITR 781 (Mad), CIT vsBertrams Scotts Ltd: 31 Taxman 444 (Cal), CIT vs Hyundai Heavy Industries Co Ltd: 291 ITR 482 (SC), Samsung Heavy Industries Co Ltd vs DIT: 265 CTR 109 (Uttarakhand), Affirmed by the Supreme Court in 426 ITR 1(SC), DCIT vs Roxon OY: 106 ITD 489 (Mum Trib.) 10. Ld. DR however, supported the findings of Ld. Tax Authorities below and submitted that it was not a case of consortium but one consolidated bid was fragmented. It was submitted that the PGCIL had invited bid and assessee was the contractor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and with different tax incidences. The adjudication of an issue should be on basis of wholesome reading of the contract and context of terms. In regard to this principle of law the Hon ble Supreme Court in Ishikawajma-Harima Heavy Industries Ltd. (supra) has observed in para no. 60 as follows :- In construing a contract, the terms and conditions there of are to be read as a whole. A contract must be construed keeping in view the intention of the parties. No doubt, the applicability of the tax laws would depend upon the nature of the contract, but the same should not be construed keeping in view the taxing provisions. 14. Thus, it will be relevant to reproduce some major clauses of agreements and contracts entered between the PGCIL and the assesse, unlike selectively done by the Revenue Authorities below. The Off-shore contract agreement along with 11 Appendices dated 17.08.2012 is available at page no. 6 to 43 of the paper book and is the basic document and the relevant clauses of same starting from page 9, are reproduced as below :- WHEREAS the Employer is desirous of setting up 800kV, 3000 MW HVDC Terminal ' Package associated with Western / Northern Region Interconnector fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A-18, First Floor, Okhla Noida-201301, U.P. Area, Phase-ll, New Delhi-110020 and business address as A-7, Sector-65, : ca-201301, (hereinafter referred to as ALSTOM-l as their Associate for the purpose of executing the OnShore Supply Contract and On-Shore Services Contract) and furnished ALSTOM-l written unequivocal consent vide their letter dated 26.11.2011 (enclosed in their First Stage bid) to work as Employer s independent Contractor, on the terms and conditions as laid down in the Bidding Documents. WHEREAS the associate proposed by ALSTOM has been accepted by the Employer, as above, subject to the condition that ALSTOM shall be overall responsible and liable for the execution of all the three Contracts irrespective of the fact that the Employer will enter into the First Contract with them and the Second Contract and the Third Contract with ALSTOM- I. Further, in the Contract Documents, for First Contract the word Contractor shall mean ALSTOM, who had submitted the bid and shall, for the purpose of 'Second Contract and Third Contract , include' ALSTOM-I - the Permitted Associate of ALSTOM. Accordingly, without prejudice to the overall responsibility and the liability o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivery at site, handling, storage, erection including associated civil works, testing and commissioning of all the Plant and Equipment including mandatory Spares supplied under the Off- Shore Contract and On-Shore Supply Contract, Training in India etc. and any other services specified in the Contract Documents of said contract, for complete execution of 800kV, 3000 MW HVDC Terminal Package associated with Western / Northern Region Interconnector for IPP Projects in Chhattisgarh under National Grid Improvement Project . Notwithstanding the award of work under three separate Contracts in the aforesaid manner, ALSTOM shall be overall responsible to ensure the execution of all the three Contracts to achieve successful completion and operational acceptance / taking over of the facilities by the Employer as per the requirements stipulated in the respective Contract Documents. It is expressly understood and agreed by ALSTOM that any default or breach by its Associate, ALSTOM-l under the Second Contract and/or Third Contract shall automatically be deemed as a default or breach of this First Contract also and vice-versa, and any such default or breach or occurrence giving the Employer a rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hereinabove. The scope of work inter-alia includes the following: Design, engineering, manufacture, testing at manufacturer s works and CIF supply of all off-shore equipment and materials from country(ies) outside India including Type Testing and training to be conducted outside India. The scope of work under this Notification of Award (NOA) shall also include all such items which are not specifically mentioned in the Bidding Documents and/or your bid but are necessary for the successful completion of your scope under the Contract for the construction of 800kV, 3000 MW HVDC Terminal Package associated with Western / Northern Region Interconnector for IPP Projects in Chhattisgarh under National Grid Improvement Project , unless otherwise specifically excluded in the Bidding Documents or in this NOA. 2.2 As per the Record Notes of Clarification Meetings (referred to in para 1.5 above) and the acceptance of proposed Associate confirmed vide our communication dated 01.03.2012 (referred to in para 1.6 above), we have notified your Associate M/s. ALSTOM T D India Limited vide our Notification of Award Ref. No. CC-CS/156- WR1/HVDC- 1489/7/G10/NOA-II/4336 dated 21.06.2012 for award of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsibility, either in full or in part and/or recover damages under this First Contract as well. However, such default or breach or occurrence in the Second Contract and/or Third Contract , shall not automatically relieve you of any of your obligations under this First Contract. It is also expressly understood and agreed by you that the equipment/materials supplied by you under this 'First Contract and by your Associate M/s. ALSTOM T D India Limited under the Second Contract , when erected, installed commissioned by your Associate M/s, ALSTOM T D India Limited under the Third Contract shall give satisfactory performance in accordance with the provisions of the Contract. 15. When these minutes dated 28.10.2011 are considered, the clause 1.3 makes it apparent that in the bid itself ALSTOM-I was proposed and confirmed as an Associate for the purpose of executing the on-shore supply and service contracts. So having an Indian Associate was an integral part of the Bid and not introduced at the discretion of the assessee. Reference in this context can be made to the bid document of September, 2011 containing special conditions of contract available at page no. 231 of the paper book whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pe of work of each contract, required each party to perform its obligation under the respective contracts awarded to them separately and to receive the consideration under the contracts independent to each other. The terms negotiated and document executed firmly establish that there was no mix up in the role and identity. 19. The Ld. Tax Authorities below have actually fallen in error in construing the aforesaid discussed clauses because what appears to be a narrow and not a pragmatic approach. As observed above, they were selective in considering the bid and contract documents clauses and failed to take note of it as a whole and to understand the business prudence of such Bidding involving International entities, while dealing with Indian entities, for such infrastructural contracts. The Ld. AO has merely focused on the fact of three contracts, alleging that a single composite contract awarded on turnkey basis was split artificially into three subcontracts by the assessee. The matter of fact happens to be it was a condition in bid and there was nothing on the part of assessee to do the splitting of a composite contract. 20. Then the Ld. DRP has fallen in error in making certain fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract Price 3.1 The total Contract Price for the entire scope of work under this Contract shall be GBP 107,590,567 + EURO 68,835,118+USD 13,559,144 (Great Britain Pound One Hundred Seven Million Five Hundred Ninety Thousand Five Hundred Sixty Seven Plus Euro Sixty Eight Million Eight Hundred Thirty Five Thousand One Hundred Eighteen Plus USD Thirteen mijlion Five Hundred Fifty Nine Thousand One Hundred ' Forty Four Only) as per the following break-up : Sl. No. Price Component Amount 1. CIF Price Component GBP EURO USD 107,590,567 68,835,118 13,559,144 2. Type Test Charges Included 3. Training Charges Included Total for Off-Shore Contract GBP EURO USD 107,590,567 68,835,118 13,559,144 3.2 Notwithstanding the break-up of the Contract Price, the Contract shall, at all times, be construed as a single source responsibility Contract and any breach in any part of the Contract shall be treated as a breach of the entire Contract. 20.3 Ld. DRP has fallen in error in considering that the reference here to single source of responsibility is with regard to three contracts but the matter of fact is that it was only in context to the contract price for the off-shore contract. The off shore con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be jointly and severally liable for performance of the contract, would be sufficient to hold that they constituted an Association of Persons for the purposes of the Act. Linde and Samsung agreeing to be jointly and severally liable to OPAL for due performance of the Contract only indicates that Linde and Samsung had accepted a contractual obligation towards a third party, the same does not by itself lead to a conclusion that the said members had formed an Association of Persons. Any entity/individual may agree, for its own business purposes, to accept a liability for due performance of an obligation of another. This by itself would not lead to a conclusion that the said persons had formed a common enterprise or an association which was moved by joint action for a common purpose. As a matter of illustration, let us take a case where a director of a company provides a personal guarantee for a loan taken by the company. Having stood as a surety for the company, the director and the company would be jointly and severally liable to the lender. However, they continue to be independent of each other and the fact that are jointly and severally liable cannot possibly lead to the conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstituted an Association of Persons. 22. Hon ble Delhi High Court in the Linde AG Case (supra) has also referred to case of Hyundai Rotem Co., in re [2010] 323 ITR 277/190 taxman 314 (AAR) which was also referred by the assessee before Ld. Tax Authorities below and where the facts were that Hyosung Corporation submitted a bid for execution of the works relating to 800 KV/400KV Tehri Pooling Station which was floated by Power Grid Corporation of India Limited (Power Grid). The applicant was successful and its bid was accepted. As per the terms and conditions of the bid, the applicant could assign the whole or part of the work to an independent contractor subject to the approval of Power grid. In terms of this provision, the applicant requested that part of the contract relating to onshore supply and services be assigned to M/s L T. Accordingly, Power Grid entered into a separate contract for onshore supplies and services with M/s L T. Although, Hyosung continued to be responsible for the overall execution of the project, the scope of work of Hyosung was limited to the offshore portion of the contract. The facts of this case are quite identical; with PGCL being a common party and Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments, ALSTOM-I to be its Independent Contractor . There is substance in the argument of Ld. Sr. Counsel on the basis of judgment of Hon ble Supreme Court in CIT vs. E-funds IT solutions (supra) that the onus was on the department to prove the existence of PE. The Bench is of considered opinion that such an onus can be considered discharged by specific reference to the evidence. No evidence is brought on record to show that the Indian Associate was employed by any act of the assessee to represent the assessee independently while dealing with PGCIL. On the contrary what is established is that it was the assessee at whose proposal, ALSTOM-I was accepted to be an Associate of the assessee and the employer PGCIL treated ALSTOM-I as its independent contractor on the terms and conditions, as laid down in the bidding document. If there was any involvement of the employees of Indian Associate, at any stage in the meetings between assessee and the PGCIL that was bound to be there and outcome of the fact that assessee and its Indian associate were required to work in tandem and that does not give rise to existence of a dependent agent P E of the assessee. 26. As with regard to the question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction in question, i.e. the transfer of property in goods as well as the payment, were carried on outside the Indian soil, the transaction could not have been taxed in India. (3) The principle of apportionment, wherein the territorial jurisdiction of a particular state determines its capacity to tax an event, has to be followed. 29. Thus, the Bench is inclined to conclude that there was not an artificial split of bid into three separate contracts to avoid taxes in India.In the present case, the Indian Associate s non- involvement in off-shore transaction excludes it from being a part of the cause of the income itself, and thus there is no business connection. The Ld. Tax authorities below failed to appreciate the distinction between the existence of a business connection and the income accruing or arising out of such business connection, which is clear and explicit. It is established that assessee had no business connection or dependent agent PE or construction PE in India. The attribution of profit from off-shores supplies made to PGCIL to the alleged business connection or PE and application of Section 44BBB is not sustainable. The ld. Tax Authorities below have fallen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding on March 31, 2017. The same was shown as Advances Recoverable in Cash or in Kind or Value to be Received under the head Short Term Loans and Advances ). 11.2 The application filed by the assessee to claim refund of the duty drawback deposited was rejected by JDGFT on the ground that the Chamera Project does not qualify as a Mega Power project prescribed under para 8.2 of the FTP. The assessee was of the view that the excise duty recoverable amount of Rs.3,20,01,335/- recorded in the books of accounts of the assessee became irrecoverable. Hence, the assessee wrote-off the said amount by booking an expense as Duty Draw Back Claim Written off in the books of account for the previous year 2017-18 relevant to subject AY 2018-19. It is submitted that the ld. AO erred in making addition to the returned income in respect of deduction amounting to Rs.3,20,01,335 claimed on account of duty drawback written off, without assigning any reason for such disallowance and without passing speaking order in this regard, blatantly disregarding the directions of the ld. DRP. In fact the ld DRP had in principle upheld the finding of the ld. AO in disallowing the claim of deduction of duty drawback ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also relevant to mention that the co- ordinate bench of ITAT Hyderabad in the case of NCS Distilleries P. Ltd. vs. ITO held that the amount of advance in the course of business which become irrecoverable is deductable or allowable as business expenditure/loss. Accordingly, ground no. 3 of assessee is allowed. 11.4 The said loss is also allowable as business loss u/s 37(1) of the Act. Reliance in this regard has also been rightly placed by the ld AR on the decision of Hon ble Bombay High Court in the case of CIT Vs. Wackhardt International Ltd reported in 314 ITR 11 (Bom) as under:- 2. A few facts may be set out. The assessee is exporter. He had exported certain goods which were returned and thereafter re-exported the goods. However, it was not in a position to furnish necessary documents as in the meantime the records of the assessee were lost on account of collapse of the building where the assessee maintained his records. It is the case of the assessee that they made attempts to reconstruct the records. However, as they were not in a position to reconstruct the records, they treated the said amount as bad debt for the assessment year 1996-97. The Assessing Officer disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -19 and 2019-20, interest u/s 234B of the Act had been charged to the tune of Rs 1,55,82,996/- and Rs 11,24,840/- respectively. The ld. AR argued that interest u/s 234B of the Act is not chargeable on the ground that the buyer has deducted tax at source and remitted to the account of the Central Govt in accordance with the proviso to section 209(1)(d) of the Act and hence there would be no liability for the assessee to pay advance tax. In the present case, THDC, who is buyer of offshore supplies made by the assessee which has been brought to tax by the ld AO in the final assessment order, had duly deducted tax at source before making the said payment. Hence, it was submitted that there was no default on the part of the assessee in payment of advance tax. This issue is no longer res integra in the view of the decision of the Coordinate Bench of this Tribunal in the case of BG International Vs. JCIT in ITA 62/DDN/2019 for AY 2015-16 dated 24.02.2020, wherein, it was held in para 32 and 33 as under:- 32. We have heard the rival contentions and perused the record. The AO while computing the income in the hands of the assessee has charged interest u/s 234B of the Act at Rs.39.46 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X
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