AXENS (PROJECT OFFICE) [earlier it was HEURTEY PETROCHEM SA (PROJECT OFFICE)], MUMBAI V. DCIT (IT) 2(2)(2), MUMBAI

ITA 2216/MUM/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9922 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 29-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AVANEESH TIWARI
• Keywords: Business income; Transfer pricing; Opportunity of being heard; Additional evidence; Permanent establishment; Set aside
• Section: 143(3); 234B; 201; 13; 119; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI VIKAS AWASTHY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 2216/MUM/2017 ASSESSMENT YEAR: 2012 - 13 AXENS (PROJECT OFFICE),A - 301, BOOMERANG MAIN CHANDIVALI FARM R OAD , NE AR CH A NDIV A LI STUDIO , ANDHERI (EAST) MUMBAI - 400059 VS. DCIT(IT)1 ( 1 )(2), ROOM NO 528, 5 TH FLOOR , AIR INDIA, BLDG. NARIMAN POINT MUMBAI - 400021. PAN NO. AACCH0871M APPELLANT RESPONDENT ASSESSEE BY : MR. NITESH JOSHI, AR REVENUE BY : MR. AVANEESH TIWARI, DR DATE OF HEARING : 16/03/2020 DATE OF PRONOUNCEMENT : 20/03/2020 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2012 - 13. THE APPEAL IS DIRECTED AGAINST THE ORDER PASSED BY THE DCIT (IT) - 2(2)(2), MUMBAI (IN SHORT AO) U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE GR OUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER : 1 THE ASSESSING OFFICER ('AO ) / DISPUTE RESOLUTION PANEL ('DRP ) HAVE ERRED IN LAW AND ON FACTS OF THE CASE IN ASSESSING THE INCOME PERTAINING TO OFFSHORE SUPPLIES AXENS (PROJECT OFFICE) ITA NO. 2216/MUM/2017 2 TO TAX IN INDIA AND THEREBY DETERMINING THE TAXABLE INCOME FR OM CONTRACTS WITH IOCL AT RS. 22 5 ,0 42 ,61 4. 1. 2 THE AO/ DRP HAVE ERRED IN TREATING THE CONTRACTS FOR ONSHORE SUPPLY AND SERVICES AND OFFSHORE SUPPLY AND SERVICES WITH INDIAN OIL CORPORATION LIMITED ('IOCL ) AS A COMPOSITE CONTRACTS EXECUTED IN INDIA . 2.1 WITHOU T PREJUDICE TO THE ABOVE, THE AO / DRP HAVE ERRED IN LAW AND ON FACTS IN ASSUMING THE PROFIT RATE OF 15% AND APPLYING THE SAME ON THE GROSS INCOME FROM IOCL TO ARRIVE AT TAXABLE INCOME OF ASSESSEE UNDER THE HEAD 'INC OME FROM BUSINESS AND PROFESSION'' AND NOT CONSIDERING THAT THE INCOMES FROM OFFSHORE SUPPLIES ARE NOT ATTRIBUTABLE TO THE PROJECT OFFICE/PE. 2.2 THE AO / DRP HAVE ERRED IN LAW IN NOT ACCEPTING T HE AUDITED BOOK PROFITS OF THE APPELLANT'S PROJECT OFFICE WITH RESPECT TO ONSHORE ACTIVITIES UNDERTAKEN BY THE APPELLANT IN INDIA AND APPLYING THE PRESUMPTIVE PROFIT RATE OF 15% WITHOUT BRINGING ANY MISTAKE OR DEFECTS IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE APPELLANT AND NOT CONSIDERING THAT THE TRANSFER PRICI NG OFFICER HAS ACCEPTED THE TRANSACTIONS BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES AS BEING ON ALP BASIS. 2.3 THE AO / DRP HAVE ERRED IN LAW AND ON FACTS OF THE CASE IN TAXING INCOME FROM OFFSHORE SUPPLIES AS INCOME FROM BUSINESS OF PERMANENT ESTABLISHMENT WITHOU T APPRECIATING THAT THE SUPPLIES WERE CARRIED OUT FROM OUTSIDE INDIA AND NOT CONNECTED TO THE ACTIVITIES CARRIED OUT BY THE PROJECT OFFICE AND THE TITLE OF GOODS PASSED OUTSIDE INDIA AND THEREFORE THE INCOME FROM SUPPLIES ARE NOT TAXAB LE UNDER THE INCOME T AX ACT, 1961 ('THE ACT ) / INDIA - FRANCE TAX TREATY ('TAX TREATY'). 2.4 WITHOUT PREJ UDICE TO ABOVE, THE AO / DRP HAVE DISREGARDED THE WORKINGS OF ACTUAL PROFITABILITY AS PER THE AUDITED BOOKS OF ACCOUNTS AS WELL AS THE GLOBAL PROFITABI LITY ESPECIALLY WHEN THE TRANSACTIONS BETWEEN ASSOCIATED ENTERPRISES HAVE BEEN HELD TO BE ON ARM'S LENGTH BASIS BY THE T PO. 3. THE FINAL ASSESSMENT ORDER IS BASED ON IMPROPER APPRECIATION OF FACTS, ERRONEOUS REFERENCE T O CONTRACT CLAUSES AND ALSO BASED ON ASSUMPTIONS AND PRESUMPTIONS AND THEREFORE, THE ASSESSMENT ORDER IS BAD IN LAW AND VOID AB IN ITIO, AXENS (PROJECT OFFICE) ITA NO. 2216/MUM/2017 3 4. THE AO / DRP HAVE ERRED IN LAW AND FACTS IN DETERMI NING THE TAXABLE INCOME OF THE A PP E LLANT BY NOT FOLLOWING TH E DECISIONS OF HON BLE SUPREME COURT IN ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES LIMITED AND OTHER HIGH COURT DECISIONS WHICH ARE BINDING ON THE AO / DRP, ERRONEOUS CONSIDERATION OF THE OF DIRECTIONS OF DRP AND FINAL ASSESSMENT ORDER FOR ASSESSMENT YEAR 201 0 - 11 AND 2011 - 12 WHICH HAVE BEEN SET ASIDE BY THE I TAT AND COMING TO A CONCLUSION WHICH IS ALSO CONTRARY TO THE PRO VISIONS OF THE ACT AND THE TAX TREATY. 5. THE AO/ DRP HAVE ERRED IN LAW AND ON FACTS IN CHARGING INTEREST UNDER SECTION 234B OF T HE ACT. 6. T HE A O H A S ERRED IN LAW AND ON THE FACTS OF THE CASE IN INITIATING PENAL T Y PROCEEDINGS UNDER 271 OF THE ACT. 3. AT THE OUTSET, WE MAY MENTION THAT THE LD. COUNSEL FOR THE ASSESSEE HAS STATED THAT THE APPELLANT W OULD NOT PRESS GROUND NO. 1.1, 1.2, 2.3, 3, 4 ,5 A ND 6. IN OTHER WORDS, IT IS THE CONTENTIONS OF THE LD. COUNSEL THAT THE APPELLANT WOULD LIKE TO PRESS GROUND NO. 2.1, 2.2 AND 2.4. HAVING CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL IN THE BACKGROUND OF THE CASE, WE DISMISS GROUND NO. 1.1, 1,2, 2.3, 3, 4 ,5 AND 6 AS NOT PRESSED. WE TAKE UP FOR CONSIDERATION GROUND NO. 2.1, 2.2 AND 2.4. THE APPELLANT IS A NON - RESIDENT COMPANY INCORPORATED IN AND TAX RESIDENT OF FRANCE. IT IS AN INTERNATIONAL OIL AND GAS ENGINEERING GROUP AND IS A LEADER IN THE AREA OF PRO CESS FURNACES FOR REFINING, PETROCHEMICALS AND HYDROGEN PRODUCTIONS. IT SET UP A PROJECT O FFICE (PO) AT VADODARA, GUJARAT IN JUNE 2008. THE SAID PO IS A FOREIGN COMPANY AS PER THE COMPANIES ACT, 1956/2013 AND IS SUBJECT TO TAX UNDER THE ACT AS A FOREIGN COMPANY. IT EARNED ITS BUSINESS INCOME FROM THE PROJECTS IN INDIA AS MENTIONED BELOW: INDIA OIL CORPORATION LIMITED (IOCL) PARADIP DCU PROJECT ; AXENS (PROJECT OFFICE) ITA NO. 2216/MUM/2017 4 IOCL PARADIP DHDT PROJECT ; IOCL PARADIP VGO PROJECT ; IOCL VADODARA VGO PROJECT BHARAT PETROLEUM CORPORATION LIMITED (BPCL) MAHUL CCR PROJECT; AND NAGARJUNA OIL CORPORATION LIMITED (NOCL) CDU/VDU PROJECT, CUDDAIORE, TAMIL NADU. 3.1 AS MENTIONED EARLIER, THE APPELLANT HAS SET UP A PO IN INDIA, WHICH IS PERMANENT ESTABLISHMENT (PE) IN INDIA. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS INTER ALIA EXECUTED TURNKEY PROJECTS WITH INDIAN OIL CORPORATION (IOCL). THE DETAILS OF I NCOME ARISING FROM THE CONTRACT WITH IOCL AND TREATMENT BY THE APPELLANT IN THE RETURN OF INCOME ARE SUMMARIZED AS UNDER : SR. TYPE OF INCOME AMOUNT IN R S. REMARKS 1. ONSHORE SUPPLY AND SERVICES TO IOCL 1,38,47,82,080 OFFERED TO TAX IN INDIA ON A NET BASIS AS PER AUDITED FINANCIAL STATEMENTS OF THE PO IN INDIA 2. OFFSHORE SERVICES TO IOCL 80,27,875 OFFERED TO TAX IN INDIA ON A GROSS BASIS AS FEES FOR TECHNICAL SERVICES UNDER ARTICLE 13 OF THE INDIA - FRANCE TAX TREATY 3. OFFSHORE SUPPLY TO IOCL 11,55,02,01 NOT TAXABLE AS TRANSFER OF TITLE IN THE EQUIPMENT WAS OUTSIDE INDIA AND CONSIDERATION PAID OUTSIDE INDIA. THE AO VIDE THE DRAFT ASSESSMENT ORDER DATED 21.03.2016 INTER ALIA HELD AS UNDER : (I) THE OFFSHORE SUPPLY AND SERVICES ARE ALSO INEXTRICABLY LINKED TO THE PE IN INDIA BECAUSE ALL OFFSHORE SUPPLY AND SERVICES ARE MAINLY GENERATED FROM THE MAIN AXENS (PROJECT OFFICE) ITA NO. 2216/MUM/2017 5 CONTRACT WITH IOCL AND THEREFORE, THE ENTIRE AMOUNT RECEIVED IN CONNECTION WITH THE CONTRACT SH OULD BE TAXED AS A BUSINESS RECEIPT WITH PE AND TAXED ACCORDINGLY. (II) SINCE THE ASSESSEE HAS NOT OFFERED PROFITABILITY OF THE ENTIRE CONTRACT, THEREFORE, FOR THE PURPOSE OF TAXABILITY OF THE WHOLE CONTRACT IN INDIA, AN ESTIMATED PROFIT @ 15% ON THE ENTI RE RECEIPT WAS TAKEN. THE APPELLANT FILED ITS OBJECTION ON THE ABOVE BEFORE THE DISPUTE RESOLUTION PANEL (DRP). WE FIND THAT THE DRP BY FOLLOWING THE ORDERS IN THE FIRST ROUND OF PROCEEDINGS FOR THE PRECEDING YEARS I.E. AYS 2010 - 11 AND 2011 - 12, ON THE IS SUE OF ATTRIBUTION OF INCOME TO OFFSHORE SUPPLY OF EQUIPMENT UNDER THE IOCL CONTRACT UPHELD THE STAND TAKEN BY THE AO IN THE ASSESSMENT ORDER. BASED ON THE DIRECTIONS ISSUED BY THE DRP , THE AO MADE AN ADDITION OF 15% ON THE RECEIPTS FROM IOCL. THUS THE AO APPLIED 15% ON THE TOTAL INCOME FROM (I) ONSHORE SUPPLIES AND SERVICES WHICH WERE ALREADY OFFERED TO TAX BY THE APPELLANT IN ITS RETURN OF INCOME ON A NET BASIS AS PART OF INCOME ARISING TO THE PO AND (II) INCOME FROM OFFSHORE SUPPLY. 4. BEFORE US, THE LD . COUNSEL FOR THE APPELLANT SUBMITS THAT IN THE FIRST ROUND OF PROCEEDINGS FOR AYS 2010 - 11 AND 2011 - 12, THE AO HELD AND THE DRP THEREAFTER CONFIRMED THAT APPELLANTS CONTRACT WITH IOCL IS A COMPOSITE CONTRACT AND 15% OF SALE VALUE OF EQUIPMENTS TO INDIAN C USTOMER IS ATTRIBUTABLE TO THE PE (I.E. PO) IN INDIA. THE APPELLANT SUBSEQUENTLY FILED AN APPEAL BEFORE THE ITAT AGAINST THE SAID ORDER. DURING THE COURSE OF HEARING BEFORE THE ITAT FOR AYS 2010 - 11 AND 2011 - 12, THE APPELLANT FILED ADDITIONAL EVIDENCES TO C HALLENGE THE ADDITIONS/DISALLOWANCES MADE IN THE ASSESSMENT ORDER. THE ITAT VIDE ORDER DATED 03.08.2016 ADMITTED THE ADDITIONAL EVIDENCE AND REMANDED THE MATTER BACK TO THE FILE OF THE AO DIRECTING TO LOOK AT THE AXENS (PROJECT OFFICE) ITA NO. 2216/MUM/2017 6 ISSUES AND ADDITIONAL EVIDENCES AND GRANT R EASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE TO EXPLAIN ITS CASE. TO GIVE EFFECT TO THE ORDER OF THE ITAT THE AO GAVE AN OPPORTUNITY TO THE APPELLANT AND THEREAFTER PASSED A DRAFT ASSESSMENT ORDER DATED 29.12.2017 FOR AYS 2010 - 11 AND 2011 - 12, ONCE AGAIN CONCLUDING THAT THE CONTRACT WITH IOCL IS A COMPOSITE CONTRACT AND THAT 15% OF CONTRACT VALUE IS PROFIT ACCRUING FROM OFFSHORE SUPPLIES TO THE PE IN INDIA. THEREAFTER, THE APPELLANT ONCE AGAIN FILED ITS OBJECTIONS BEFORE THE DRP, WHICH VIDE DIRECTION DATED 11.08.2018 HELD AS UNDER : (I) WITH REGARD TO INCOME FROM ONSHORE SUPPLY AND SERVICES, SINCE NO DISCREPANCY WAS FOUND BY THE AO IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, THE PROFITS OF THE ASSESSEE FROM ONSHORE SUPPLIES AND SERVICES HAS TO BE DETERMINED AS PER THE BOOKS OF ACCOUNTS OF TH E PO AND NOT ON AN ESTIMATION BASIS. (II) ON THE OFFSHORE SUPPLY, IT WAS HELD THAT PROFITABILITY CAN BE BETTER ACCOUNTED IF THE SAME IS CALCULATED ON THE BASIS OF GLOBAL PROFITABILITY. THE DRP NOTED THAT COST OF OFFSHORE SUPPLIES HAS ALREADY BEEN ACCOUNTE D FOR BY THE GLOBAL ENTITY IN ITS BOOKS OF ACCOUNT AND THE PROFIT ELEMENT THEREIN CAN BE ESTIMATED ON THE BASIS OF GLOBAL PROFITABILITY. THE DRP DID NOT APPROVE THE ACTION OF THE AO TO USE THE PROFITABILITY RATES OF THE PO BECAUSE THE PROFIT OF THE PO HAS BEEN DETERMINED, WITHOUT CONSIDERING THE COST OF THE ONSHORE SUPPLIES. A PERUSAL OF THE DIRECTIONS BY THE DRP INDICATES THAT IT WAS OF THE VIEW THAT AD - HOC RATE OF 15% CANNOT BE APPLIED TO THE OFFSHORE SUPPLIES AS IT HAS NO BASIS. IN THE ASSESSMENT ORDER PASSED FOR THE LATER YEAR I.E. AY 2013 - 14, THE AO ON SIMILAR SET OF FACTS HELD THAT THE PROFIT OF THE PO SHOULD BE TAKEN FOR TAXATION OF OFFSHORE SUPPLY OF EQUIPMENT UNDER THE IOCL CONTRACT. AXENS (PROJECT OFFICE) ITA NO. 2216/MUM/2017 7 REFERRING TO THE ABOVE, THE LD. COUNSEL SUBMITS THAT THE DETAI LS OF GLOBAL PROFITABILITY FOR THE CALENDAR YEAR 2012, THREE YEARS AVERAGE GLOBAL PROFITABILITY AND THE PO PROFITABILITY FOR THE YEAR UNDER CONSIDERATION ARE AS UNDER : (I) GLOBAL PROFITABILITY FOR CALENDAR YEAR 2012 - 1.91% (REFER PAGE NO. 119 OF THE PAPE R BOOK FILED BEFORE THE TRIBUNAL ON 22.04.2019 FOR THE WORKINGS) (II) THREE YEARS AVERAGE GLOBAL PROFITABILITY 2.39% (REFER PAGE NO. 119 OF THE PAPER BOOK FILED BEFORE THE TRIBUNAL ON 22.04.2019 FOR THE WORKINGS). (III) PO PROFITABILITY FOR AY 2012 - 13 1.93% (REFER PAGE NO. 78 OF THE PAPER BOOK FILED BEFORE THE TRIBUNAL ON 22.04.2019 FOR THE AUDITED PROFIT AND LOSS OF THE PO FOR THE FINANCIAL YEAR ENDED 31.03.2012 ). THUS THE LD. COUNSEL SUBMITS THAT THE GLOBAL PROFITABILITY IS A BETTER INDICATOR AND SHOULD BE ADOPTED FOR ATTRIBUTION OF INCOME TO OFFSHORE SUPPLY SINCE THE SAME HAS BEEN ACCOUNTED IN THE GLOBAL ACCOUNTS AND HAS NOTHING TO DO WITH THE PO AND THE PROFIT OF THE PO HAS BEEN DETERMINED WITHOUT CONSIDERING THE COST OF SUCH OFFSHORE SUPPLIES . T O SUM UP, THE LD. COUNSEL SUBMITS THAT THE INCOME FROM OFFSHORE SUPPLY OF EQUIPMENT MAY BE TAXED @ 1.91%, BEING GLOBAL PROFIT FOR THE CALENDAR YEAR 2012. 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITS THAT THE OFFSHORE SUPPLY AND S ERVICES ARE ALSO INEXTRICABLY LINKED TO THE PE IN INDIA BECAUSE ALL OFFSHORE SUPPLY AND SERVICES ARE MAINLY GENERATED FROM THE MAIN CONTRACT WITH IOCL AND THEREFORE, THE ENTIRE AMOUNT RECEIVED IN CONNECTION WITH THE CONTRACT SHOULD BE TAXED AS A BUSINESS R ECEIPT WITH PE. IT IS FURTHER STATED BY HIM THAT SINCE THE APPELLANT HAS NOT OFFERED PROFITABILITY OF AXENS (PROJECT OFFICE) ITA NO. 2216/MUM/2017 8 THE ENTIRE CONTRACT, THUS FOR THE PURPOSE OF TAXABILITY OF WHOLE CONTRACT IN INDIA, THE AO HAS RIGHTLY ESTIMATED PROFIT @ 15% ON THE ENTIRE RECEIPT. THUS THE LD. DR SUPPORTS THE ORDER PASSED BY THE AO. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. BROADLY STATED, THERE ARE TWO ISSUES ARISING IN THIS APPEAL FOR CONSIDERATION. THESE ARE (I) WHETHER INCOME FROM OFFSHORE SUPPLY OF EQUIPMENT TO IOCL IS TAXABLE IN INDIA, AND (II) ATTRIBUT ION OF INCOME TO THE OFFSHORE SUPPLY OF EQUIPMENT. WITH REGARD TO ISSUE NO. (I) I.E. TAXABILITY OF OFFSHORE SUPPLY OF EQUIPMENT, A S MENTIONED EARLIER, THE APPELLANT IS NOT PRESSING THE SAME IN VIEW OF THE ACCEPTANCE OF THE APPELLANTS CONTENTIONS BY THE AO WITH RESPECT TO ISSUE NO. (II). WE HAVE MENTIONED EARLIER THAT THE APPELLANT IS NOT PRESSING GROUND NO. 1.1, 1.2, 2.3, 3, 4, 5 & 6 RAISED IN THE GROUNDS OF APPEAL BEFORE THE TRIBUNAL. IT IS THE CONTENTIONS OF THE APPELLANT THAT THE RATE OF TAXATION TO BE APPLIED ON INCOME FROM OFFSHORE SUPPLY SHOULD BE RESTRICTED TO GLOBAL PROFITABILITY OR THE PO PROFITABILITY RATE AND SHOULD BE A PPLIED ONLY ON THE INCOME FROM OFFSHORE SUPPLY OF GOODS AS RAISED IN GROUND NO. 2.1, 2.2 AND 2.4 BEFORE THE TRIBUNAL, IN VIEW OF THE STAND RELATING TO ATTRIBUTION OF INCOME ACCEPTED BY THE DEPARTMENT FOR THE EARLIER YEARS (I.E. AYS 2010 - 11 AND 2011 - 12) AN D THE LATER YEAR (I.E. AY 2013 - 14) AND BY THE AO IN HIS LETTER DATED 28.02.2020 FILED BEFORE THE TRIBUNAL FOR THE CURRENT ASSESSMENT YEAR. AXENS (PROJECT OFFICE) ITA NO. 2216/MUM/2017 9 6.1 IN THE INSTANT CASE, THE AO HAS APPLIED PRESUMPTIVE PROFIT RATE OF 15% WITHOUT BRINGING ANY MISTAKE OR DEFECTS IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE APPELLANT. WE FIND THAT THE DRP VIDE DIRECTIONS DATED 11.08.2018 HELD THAT : (I) WITH REGARD TO INCOME FROM ONSHORE SUPPLY AND SERVICES, SINCE NO DISCREPANCY WAS FOUND BY THE AO IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, THE PROFITS OF THE ASSESSEE FROM ONSHORE SUPPLIES AND SERVICES HAS TO BE DETERMINED AS PER THE BOOKS OF ACCOUNTS OF TH E PO AND NOT ON AN ESTIMATION BASIS. (II) ON THE OFFSHORE SUPPLY, IT WAS HELD THAT PROFITABILITY CAN BE BETTER ACCOUNTED IF THE SAME IS CALCULATED ON THE BASIS OF GLOBAL PROFITABILITY. THE DRP NOTED THAT COST OF OFFSHORE SUPPLIES HAS ALREADY BEEN ACCOUNTE D FOR BY THE GLOBAL ENTITY IN ITS BOOKS OF ACCOUNT AND THE PROFIT ELEMENT THEREIN CAN BE ESTIMATED ON THE BASIS OF GLOBAL PROFITABILITY. THE DRP DID NOT APPROVE THE ACTION OF THE AO TO USE THE PROFITABILITY RATES OF THE PO BECAUSE THE PROFIT OF THE PO HAS BEEN DETERMINED, WITHOUT CONSIDERING THE COST OF THE ONSHORE SUPPLIES. A PERUSAL OF THE DIRECTIONS BY THE DRP INDICATES THAT IT WAS OF THE VIEW THAT AD - HOC RATE OF 15% CANNOT BE APPLIED TO THE OFFSHORE SUPPLIES AS IT HAS NO BASIS. FURTHER IN THE ASSESSME NT ORDER PASSED FOR THE LATER YEAR I.E. AY 2013 - 14, THE AO ON SIMILAR SET OF FACTS HELD THAT THE PROFIT OF THE PO SHOULD BE TAKEN FOR TAXATION OF OFFSHORE SUPPLY OF EQUIPMENT UNDER THE IOCL CONTRACT. IN VIEW OF THE ABOVE FACTUAL SCENARIO, WE SET ASIDE TH E ORDER OF THE AO ON ISSUES RELATING TO GROUND NO. 2.1, 2.2 AND 2.4 AND DIRECT HIM TO ADOPT GLOBAL PROFITABILITY FOR ATTRIBUTION OF INCOME TO OFFSHORE SUPPLY, SINCE THE SAME HAS BEEN ACCOUNTED IN THE GLOBAL ACCOUNTS. WE DIRECT THE ASSESSEE TO FILE THE DETA ILS OF COMPUTATION OF THE GLOBAL PROFITABILITY BEFORE THE AO. NEEDLESS TO AXENS (PROJECT OFFICE) ITA NO. 2216/MUM/2017 10 SAY, THE AO WOULD GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE FINALIZING THE ORDER. THUS THE GROUND OF APPEAL NO. 2.1, 2.2 AND 2.4 ARE ALLOWED FOR STATISTICAL P URPOSES. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/03/2020 . SD/ - SD/ - ( VIKAS AWASTHY ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 20/03/2020 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI