M/s Prysmian Cavi e Systemi Telecom S.RL. (formerly Pirelli Cavi e Systemi Telecom S.P.A) India Project Office, Hyderabad V. The DCIT, Circle - 16(3), Hyderabad

ITA 244/HYD/2012

• Counselvise Citation: 24422514 RSA 2012
• Duration Of Justice: 2 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-07-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 15-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: P J PARDIWALLA; MILIND THAK O R E
• Keywords: Business income; Double taxation relief; Permanent establishment; Onus to prove
• Section: 143(3); 147; 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.916/HYD/2006 ASSESSMENT YEAR 2001-2002 M/S. PRYSMIAN CAVI E SISTEMI S.R.L., (FORMERLY PIRELLI CAVI E SYSTEMI TELECOM S.P.A.) INDIA PROJECT OFFICE, HYDERABAD. PAN AABCP-2267-Q VS. ACIT, CIRCLE 2(3) HYDERABAD. (APPELLANT) (RESPONDENT) ITA.NO.246/HYD/2012 ASSESSMENT YEAR 2001-2002 M/S. PRYSMIAN CAVI E SISTEMI S.R.L., (FORMERLY PIRELLI CAVI E SYSTEMI TELECOM S.P.A.) INDIA PROJECT OFFICE, HYDERABAD. PAN AABCP-2267-Q VS. DCIT, CIRCLE 16(3) HYDERABAD. (APPELLANT) (RESPONDENT) ITA.NO.244/HYD/2012 ASSESSMENT YEAR 2001-2002 M/S. PRYSMIAN CAVI E SISTEMI S.R.L., (FORMERLY PIRELLI CAVI E SYSTEMI TELECOM S.P.A.) INDIA PROJECT OFFICE, HYDERABAD. PAN AABCP-2267-Q VS. DCIT, CIRCLE 16(3) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE MR. P.J. PARDIWALLA & MR. MILIND THAKORE FOR REVENUE MR. P. SOMASEKHAR REDDY DATE OF HEARING 15.07.2014 DATE OF PRONOUNCEMENT 25.07.2014 2 ITA.NO.916/HYD/2006, ITA.NO.246/HYD/2012 ITA.NO.244/HYD/2012 M/S. PIRELLI CAVI E SYSTEMI TELECOM SPA INDIA PROJECT OFFICE, HYDERABAD. ORDER PER BENCH THESE THREE APPEALS VIZ., ITA.NO.916/HYD/2006, ITA.NO.246/HYD/2012 AND ITA NO.244/HYD/2012 ARE BY ASSESSEE AGAINST THE ORDERS OF CIT UNDER SECTION 26 3 AND CONSEQUENTIAL ORDER PASSED BY THE A.O. THEREON AND AGAINST CIT(A). LD. CIT INVOKED THE JURISDICTION UNDER SECT ION 263 AND VIDE ORDER DATED 13.03.2006 SET ASIDE THE ISSUE TO THE FILE OF A.O. TO ASCERTAIN THE ACTUAL INCOME WHICH IS TAXABL E IN INDIA ON OFF-SHORE CONTRACT RECEIPTS IN ACCORDANCE WITH L AW BY RESORTING TO THE PROVISIONS OF RULE 10 OF THE INCOM E TAX RULES, IF NECESSARY. 2. ASSESSEE IS AGGRIEVED ON THE ORDER OF THE LD. C IT AND RAISED DETAILED GROUNDS WHICH WERE ABRIDGED LAT ER AND ALL THE GROUNDS PERTAIN TO THE ISSUES OF JURISDICTION A ND DIRECTION OF THE LD. CIT IN BRINGING TO TAX THE PROFITS OF OF F-SHORE CONTRACTS. 3. BRIEFLY STATED, ASSESSEE COMPANY, PRYSMIAN CAVI E SISTEMI TELECOM S.P.A. (FORMERLY PIRELLI CAVI E SIS TEMI S.P.A.) MILAN, ITALY HAD ENTERED INTO THREE DIFFERENT CONTR ACTS WITH POWER GRID CORPORATION OF INDIA LIMITED (PGCI) ON F EBRUARY 6, 1998 FOR SETTING UP A FIBER OPTIC SYSTEM FOR SOUTHE RN REGION. A. OFF-SHORE SUPPLY CONTRACT NUMBER C-50901- 9/546/I FOR ALL WORKS TO BE PERFORMED IN COUNTRIES OUTSIDE INDIA COVERING, INTER ALIA, THE OFFSHORE SUPPLY OF EQUIPMENTS REQUIRED FOR THE COMPLETE EXECUTION OF THE PROJECT. B. ON-SHORE SUPPLY CONTRACT NUMBER C-50901-S859- 9/547/II FOR THE SUPPLY OF EQUIPMENTS FROM WITHIN 3 ITA.NO.916/HYD/2006, ITA.NO.246/HYD/2012 ITA.NO.244/HYD/2012 M/S. PIRELLI CAVI E SYSTEMI TELECOM SPA INDIA PROJECT OFFICE, HYDERABAD. INDIA REQUIRED FOR THE COMPLETE EXECUTION OF THE PROJECT. C. ON-SHORE SERVICES CONTRACT NUMBER C-50901- S858-9/548/III FOR ALL THE SERVICES INCLUDING PORT CLEARANCE (IN CASE OF SUPPLIES FROM OFFSHORE) INLAND TRANSIT INSURANCE, HANDLING AND TRANSPORTATION TO SITE, UNLOADING AT SITE, STORAGE, PRESERVATION, INSURANCE, ERECTION, INSTALLATION, TESTING, COMMISSIONING AND INTEGRATION AT SITE OF THE COMPLETE FIBER OPTIC SYSTEM INCLUDING ASSOCIATED CIVIL WORKS ETC., CABLES AND OTHER ELECTRICAL AND MECHANICAL C. AUXILIARY SYSTEMS FOR COMPLETE EXECUTION OF THE PROJECT. 3.1. ASSESSEE OBTAINED REQUISITE PERMISSION FROM R BI FOR EXECUTION OF ONSHORE SUPPLY CONTRACT AND ONSHOR E SERVICES CONTRACT WITH PGCI. THE REGISTRAR OF COMPANIES NCT OF DELHI AND HARYANA HAD ISSUED A CERTIFICATE FOR THE ESTABL ISHMENT OF PLACE OF BUSINESS IN INDIA TO PIRELLI CAVI E SYSTEM I S.P.A. MILAN ITALY. THE ASSESSEE OFFERED INCOME ONLY FROM THE CO NTRACTS NO.2 AND 3 RELATING TO ONSHORE SUPPLIES AND ONSHORE SERV ICES CONTRACT WHILE MAINTAINING THAT THE INCOME FROM OFF SHORE CONTRACT NO.1 WAS NOT TAXABLE IN INDIA. ASSESSEE FI LED RETURN OF INCOME DECLARING LOSS OF RS.(-) 1,56,33,038/- FOR T HE IMPUGNED YEAR. IN THE SCRUTINY ORDER PASSED UNDER SECTION 14 3(3) DATED 29.03.2004, A.O. EXAMINED THE ASSESSEES ACCOUNTS A ND DISALLOWED VARIOUS EXPENDITURE THEREBY, DETERMINING THE TAXABLE INCOME AT RS.1,58,54,605/- AND RAISED DEMAN DS ACCORDINGLY. THIS ORDER OF THE A.O. WAS SUBJECT MAT TER OF APPEAL BEFORE THE LD. CIT(A) (APPEAL THEREON WAS SE PARATELY DEALT WITH). IN THE MEANTIME, LD. CIT ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE WHY THE RECEIPTS ON OFF-SHOR E CONTRACTS SHOULD NOT BE BROUGHT TO TAX. LD. CIT MAINLY RELIED ON THE RULING GIVEN BY THE AUTHORITY FOR ADVANCED RULINGS IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES CO. LTD., ( 2004) 271 4 ITA.NO.916/HYD/2006, ITA.NO.246/HYD/2012 ITA.NO.244/HYD/2012 M/S. PIRELLI CAVI E SYSTEMI TELECOM SPA INDIA PROJECT OFFICE, HYDERABAD. ITR 193. AFTER CONSIDERING THE DETAILED SUBMISSIONS OF THE ASSESSEE AND ANALYZING THE TERMS OF AGREEMENT, LD. CIT SUMMARIZED THE ISSUES AS UNDER : 1. IN THE CASE OF THE ASSESSEE IT IS NOT MERELY SA LE OF FIBRE OPTIC BY PIRELLI BUT SUPPLY OF FIBRE OPTIC, LAYING OF THE SAID FIBRE OPTIC CABLES WAS AWARDED BY POWER GRID, TO PI RELLI BY WAY OF CONTRACT. THEREFORE, THE ASSESSEES SUPPL Y OF CABLES FROM ABROAD IS NOT SALE OF GOODS SIMPLICITOR BY A NON-RESIDENT. HENCE, IT CANNOT BE SAID THAT SINCE T HE SALE TOOK PLACE OUTSIDE INDIA, NO INCOME ARISES IN INDIA . 2. IN THE PRESENT CASE, THE CONTRACT IS A COMPOSITE ONE (AS EVIDENCED FROM THE SANCTION LETTER OF MINISTRY OF P OWER, GLOBAL TENDER INVITATION BY POWER GRID, BIDDING DOCUMENT, PRE BID TENDER DOCUMENT FINAL TENDER DOCUMENT SUBMITTED BY THE ASSESSEE AND EVEN AS PER THE CONTRACT AGREEMENTS ENTERED BY PIRELLI). THEREF ORE, IT IS SINE QUA NON THAT THE SUPPLY OF CABLES BY PIRELL I OUTSIDE INDIA IS A PART OF A COMPOSITE CONTRACT INV OLVING VARIOUS OPERATION WITHIN INDIA AND HENCE INCOME FRO M SUCH SALE SHALL BE DEEMED TO ACCRUE OR ARISE IN IND IA, THROUGH OR FROM A BUSINESS CONNECTION IN INDIA. 3. IN THE PRESENT CASE PROCUREMENT OF FIBRE OPTIC C ABLE ETC., WAS DONE ABROAD, LAYING OF CABLES, TESTING, COMMISSIONING WAS DONE IN INDIA. WITHOUT PROCUREMEN T OF FIBRE OPTIC ETC., THERE WAS NO QUESTION OF LAYIN G CABLES, TESTING ETC., BY PIRELLI IN INDIA. IN OTHERWORDS, PROCUREMENT OF CABLES IS A PRE CONDITION TO THE LAY ING OF CABLES. THEREFORE, PROFIT THAT ARISES ON PROCUREMEN T OF THE CABLES IS TOTALLY ATTRIBUTABLE TO THE INDIAN PROJEC T WHICH HAS DONE LAYING OF CABLES, TESTING ETC., 4. THERE IS A BUSINESS CONNECTION IN INDIA. THE CON TRACT WAS AWARDED IN INDIA AND THE PROJECT IS SITUATED IN INDIA. THE CONTRACT WAS SIGNED IN INDIA AND THE BUS INESS WAS DONE IN INDIA AS IS EVIDENT FROM THE SANCTION L ETTER OF THE MINISTRY OF POWER, GLOBAL TENDER, TENDER DOCUMENTS SUBMITTED BY THE ASSESSEE. INCOME FROM OFF SHORE SUPPLY WOULD BE GOVERNED BY ARTICLE 7 OF THE TREATY WHICH DEALS WITH BUSINESS P ROFITS. THERE IS NO DENYING THE FACT THAT THE ASSESSEE HAS BEEN IN INDIA SINCE 1998-99 AND HAS BEEN OFFERING ITS BUSINESS INCOME FROM ON SHORE SUPPLY AND ON SHORE 5 ITA.NO.916/HYD/2006, ITA.NO.246/HYD/2012 ITA.NO.244/HYD/2012 M/S. PIRELLI CAVI E SYSTEMI TELECOM SPA INDIA PROJECT OFFICE, HYDERABAD. SERVICES. THE OFF SHORE SUPPLY IS ALSO INEXTRICABLY LINKED TO THE PERMANENT ESTABLISHMENT. THE POWER GRID CERTAINLY COULD NOT HAVE ORDERED THE PURCHASE FOR S UPPLY MATERIAL MENTIONED IN THE OFF SHORE SUPPLY CONTRACT ALONE. HAD THE ASSESSEE SUPPLIED THE MATERIAL ALONE (I.E., OFF SHORE SUPPLY) IT MAY BE MERE SALE SIMPLICITOR A ND IN SUCH A CASE THE ASSESSEES ARGUMENT THAT THERE IS N O INCOME TAXABLE IN INDIA IS ACCEPTABLE. BUT THAT IS NOT THE CASE HERE. THE ASSESSEE IS RESPONSIBLE FOR SURVEY, PROCUREMENT, ERECTION, COMMISSIONING, TRAINING OF S TAFF, MAINTENANCE FOR CERTAIN PERIOD OF THE TELEPHONE CAB LES AND SYSTEM IN ITS ENTIRETY AND ALSO TO GIVE PERFORM ANCE GUARANTEE WHICH INVOLVES BRINGING IN EQUIPMENT, MATERIAL, SPARE PARTS AND MEN ETC., IN THIS TYPE OF TURN KEY PROJECT, THE OFF SHORE SUPPLY CANNOT BE TREATED AS A SALE OF GOODS SO THE BIFURCATION OF PRICE IS NOT PR OPER. THOUGH THE ENTIRE INCOME OF THE ASSESSEE IS DEEMED TO ACCRUE IN INDIA BY VIRTUE OF SECTION 9(1) BUT IN VI EW OF THE EXPLANATION APPENDED TO CLAUSE (I) OF SUB SECTION 1 , ONLY SUCH PART OF INCOME AS IS REASONABLY ATTRIBUTABLE T O THE OPERATIONS CARRIED OUT IN INDIA ALONE IS TAXABLE. IN THE LIGHT OF ABOVE DISCUSSION, I HOLD THAT THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATI ONS CARRIED OUT IN INDIA RELATABLE TO THE OFF SHORE CON TRACT IS LIABLE TO TAX IN INDIA. THE A.O. IS DIRECTED TO ASC ERTAIN THE ACTUAL INCOME WHICH IS TAXABLE IN INDIA ON THE OFF SHORE CONTRACT RECEIPTS IN ACCORDANCE WITH LAW BY RESORTI NG TO THE PROVISIONS OF RULE 10 OF THE INCOME TAX RULES, IF NECESSARY. 4. AGGRIEVED ON THE ABOVE ORDER OF LD. CIT, IT WAS THE SUBMISSION OF THE LD. COUNSEL THAT THE RULING OF TH E AUTHORITY FOR ADVANCED RULINGS WAS REVERSED BY THE HONBLE SU PREME COURT IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDU STRIES CO. LTD., VS. DIRECTOR OF INCOME TAX (2007) 288 ITR 408 (SC) . FURTHER, LD. COUNSEL REFERRED TO THE ORDER OF THE C OORDINATE BENCH IN ITA.NO.160 & 254/HYD/2006 DATED 28.05.2014 FOR A.Y. 2000-01 WHEREIN SIMILAR ISSUE WAS DECIDED BY T HE TRIBUNAL HOLDING THAT UNDER AN OFF SHORE CONTRACT W HERE EQUIPMENT WAS FOUND TRANSFERRED OUTSIDE INDIA NECES SARY 6 ITA.NO.916/HYD/2006, ITA.NO.246/HYD/2012 ITA.NO.244/HYD/2012 M/S. PIRELLI CAVI E SYSTEMI TELECOM SPA INDIA PROJECT OFFICE, HYDERABAD. TAXABLE INCOME ALSO ACCRUED OUTSIDE INDIA AND HENCE , NO PORTION OF SUCH INCOME WAS TAXABLE IN INDIA. ACCORD INGLY, IT WAS SUBMITTED THAT ORDERS OF LD. CIT ARE NOT CORREC T. 5. LEARNED D.R. REITERATED THE CONTENTIONS AND REFERRED TO THE ORDER OF THE COORDINATE BENCH OF TH E DELHI TRIBUNAL IN THE CASE OF PASCO ENGINEERING & CONSTRU CTION CO. LTD., ITA.NO.5787/DEL/2013 DATED 26.02.2014 WITH RE FERENCE TO TAX OF OFFSHORE CONTRACT. HE ALSO RELIED ON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF ANSALDO ITALIAN SP A 310 ITR 237 AND DECISION OF AUTHORITY FOR ADVANCED RULINGS IN THE CASE OF ROXAR MAXIMUM RESERVOIR PERFORMANCE WLL, IN RE ( 2012) 349 ITR 189 (AAR). HE ALSO RELIED ON THE CASE LAW DISCUSSED BY THE LD. CIT TO SUBMIT THAT OFFSHORE CONTRACT INC OME WAS TO BE TAXED. 5.1. THE ISSUE OF TAXABILITY OF OFF SHORE CONTRACT S WAS ELABORATELY DISCUSSED IN THE EARLIER ASSESSMENT YEA R 2000-01 IN ITA.NO. 160 & 254/HYD/2006 VIDE ORDER DATED 28.0 5.2014 WHEREIN SIMILAR ISSUE WAS RAISED BY THE A.O. CONSEQ UENT TO THE ORDERS UNDER SECTION 263 BY THE LD. CIT IN THIS YEA R. THE ITAT CONSIDERED THE ISSUE ELABORATELY AND DECIDED IN FAV OUR OF THE ASSESSEE AS UNDER : 13. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FACTS AND RIVAL CONTENTIONS. THERE ARE TWO ISSU ES FOR CONSIDERATION IN THIS APPEAL ON OFF- SHORE CONTRACT . THE FIRST ISSUE IS ABOUT THE TAXABILITY OF THE INCOME STATED TO HAVE BEEN EARNED ON OFFSHORE CONTRACT IN INDIA AND SECON D ESTIMATION OF INCOME AT 5% BY THE A.O. WHICH WAS RE DUCED BY THE CIT(A) TO 20% OF WHAT WAS ESTIMATED BY THE A .O, THUS ESTIMATING AT 1% OF THE TOTAL CONTRACT AMOUNT. ADMI TTEDLY, ASSESSEE HAS ENTERED INTO THREE SEPARATE CONTRACTS WHICH WERE CLEARLY DISTINGUISHABLE. THERE IS NO DISPUTE W ITH REGARD TO TAXATION OF INCOME STATED TO HAVE BEEN EARNED ON ONSHORE 7 ITA.NO.916/HYD/2006, ITA.NO.246/HYD/2012 ITA.NO.244/HYD/2012 M/S. PIRELLI CAVI E SYSTEMI TELECOM SPA INDIA PROJECT OFFICE, HYDERABAD. SUPPLY CONTRACT AND ONSHORE SERVICE CONTRACT. THE O NLY ISSUE IS THE ACTION OF THE A.O. IN CONSIDERING THE OFFSHO RE SUPPLY CONTRACT ALSO FOR THE PURPOSE OF TAXATION IN INDIA. THERE ARE CERTAIN FACTUAL ERRORS COMMITTED BY THE LD. CIT(A) WHILE CONFIRMING THE ORDER. A) FIRST OF ALL, THE OFFSHORE CONTRACT WAS ENT ERED INTO IN THE MONTH OF FEBRUARY, 1998 WHEREAS INDIA PROJECT O FFICE WAS ESTABLISHED IN JUNE, 1998. THEREFORE, THERE IS NO CO- RELATION WITH REFERENCE TO SIGNING UP THE CONTRACT IN INDIA TO THE PE I.E., INDIA PROJECT OFFICE. EVEN THOUGH THES E FACTS WERE NOTED BY THE CIT(A). HOWEVER, THE LD. CIT(A) CONSID ERED THAT THERE IS A ROLE OF INDIAN PE IN ENTERING THE CONTRA CT ALSO. LD. CIT(A) CORRECTLY ANALYSED THE RULING IN THE CASE OF ISHAKA WAJIMA- HARIMA HEAVY INDUSTRIES CO. LTD. OF THE HON BLE SUPREME COURT IN COMING TO THE CONCLUSION THAT THE PROFIT SHALL BE DEEMED TO ACCRUE OR ARISE TO THE ASSESSEE IN INDIA ONLY SUCH PART OF PROFIT AS IS REASONABLE ATTRIBUTA BLE TO OPERATIONS CARRIED OUT IN INDIA. HE ALSO CORRECTLY ANALYSED THE ARTICLE 7 OF DTAA BETWEEN INDIA AND ITALY VIDE PARA 5.6 OF THE ORDER AND ALSO EXPLANATION TO SECTION-9. SIN CE INDIA PROJECT OFFICE HAS NO CONNECTION WITH ENTERING INTO CONTRACT, THAT ASPECT OF CONSIDERING PART OF CONTRACT HAS ACC RUING OR ARISING IN INDIA, HAVING SIGNED IN INDIA DOES NOT A PPLY TO PE AT ALL. B) THE SECOND ASPECT CONSIDERED BY THE LD. CIT(A ) IS WITH REFERENCE TO SECTION B(BPS) ABOUT THE INSTALLATION PART. THE SAID SECTION IN THE CONTRACT IS AS UNDER : PIRELLI CONFIRMED THAT THE FIBRE OPTIC CABLE QUANT ITIES INDICATED IN THEIR OFFER ARE BASED ON LINK LENGTHS. PIRELLI CONFIRMED THAT THE UNIT PRICE OF THE PRICE SCHEDULE S INCLUDES ALL THE INSTALLATION HARDWARE, APPROACH CABLE, MIC CABL E AND ADDITIONAL LENGTH OF CABLE REQUIRED TOWARDS SAG, SE RVICE LOOPS, WASTE AND OTHER SUCH CONSIDERATIONS. AS CAN BE SEEN THAT THE ABOVE IT CONFIRMS THAT FIB RE OPTIC CABLE QUANTITIES INDICATED IN THEIR OFFER ARE BASED ON LINK LENGTHS. IT ALSO CONFIRMS THAT UNIT PRICE OF THE P RICE SCHEDULES INCLUDES ALL INSTALLATION, HARDWARE, APP ROACH CABLE ETC., REQUIRED TOWARDS SAG, SERVICE LOOPS, WA STE AND OTHER SUCH CONSIDERATIONS. THIS ONLY INDICATES THAT THE CABLE REQUIRED FOR VARIOUS SERVICES IN INDIA WERE ALSO IN CLUDED IN THE PRICE QUOTED BUT THAT DOES NOT INDICATE THE PRI CE QUOTED INCLUDES THE INSTALLATION COST, WHICH THE LD. CIT(A ) INTERPRETED WRONGLY. THE WORD INSTALLATION THERE IS NOT 8 ITA.NO.916/HYD/2006, ITA.NO.246/HYD/2012 ITA.NO.244/HYD/2012 M/S. PIRELLI CAVI E SYSTEMI TELECOM SPA INDIA PROJECT OFFICE, HYDERABAD. PERTAINING TO THE SERVICE OF INSTALLATION BUT INCLU SION OF LENGTH OF CABLE LINES REQUIRED FOR INSTALLATION ACTIVITY. THEREFORE, WE ARE OF THE OPINION THAT LD. CIT(A) ERRED IN CONSIDE RING THIS AS PART OF ONSHORE SUPPLY. C) THE THIRD ASPECT IS WITH REFERENCE TO PART OF TRAIN ING IMPARTED TO PERSONNEL IN INDIA. IT WAS EXPLAINED BY THE ASSESSEE THAT THIS TRAINING IS INCIDENTAL TO SUPPLY OF MATERIAL OFFSHORE AND EVEN IF IT WERE TO BE CONSIDERED AS PA RT OF PE OPERATIONS, ASSESSEE HAS NOT EARNED ANY INCOME AS EXPLAINED EARLIER. FURTHER AS NO PROFIT WAS EARNED ON THE SAID ACTIVITY IN INDIA, NO INCOME CAN BE DEEMED TO ACCRUE OR ARISE IN INDIA. WE ARE OF THE OPINION THAT THE LD. CIT(A) WRONGLY CONSIDERED ALL THE THREE ASPECTS IN CONFIRM ING THE ESTIMATION AT 1% ON THE OFFSHORE CONTRACTS. 14. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT INCOME FROM THE OFFSHORE CONTRACT IS TAXABLE O NLY TO THE EXTENT OF PROFITS ATTRIBUTABLE TO THE OPERATIONS IN INDIA WHICH ARE CLEARLY DEFINED IN THE INCOME TAX ACT AS WELL A S THE DTAA BETWEEN INDIA AND ITALY. ORDINARILY, BOTH FIND ING AS TO THE OPERATIONS IN INDIA AS WELL AS DETERMINATION OF PROFITS ATTRIBUTABLE TO SUCH OPERATIONS ARE MATTER OF FACT. THE BURDEN OF PROOF OF INDIA OPERATIONS IN THE CASE OF A NON- RESIDENT WERE GENERALLY LIE ON THE REVENUE AS IT WA S CONTENDED THAT NO PART OF THE OFFSHORE CONTRACT WAS EXECUTED IN INDIA. SINCE THE LD. CIT(A) ELABORATELY DISCUSSE D THE LEGAL PRINCIPLES AND ARRIVED AT A CORRECT CONCLUSIONS VID E PARA 11 THAT INDIA PROJECT OFFICE IS LIABLE UNDER THE INCOM E TAX AND THE DTAA BETWEEN INDIA AND ITALY ONLY TO THE EXTENT OF PROFIT ATTRIBUTABLE TO THE BUSINESS OPERATIONS CARRIED OUT BY THE PERMANENT ESTABLISHMENT IN INDIA. THIS POSITION DOE S NOT CHANGE EVEN IF ALL THE THREE CONTRACTS SIGNED BY TH E PARENT COMPANY ARE TREATED TO BE SINGLE OR COMPOSITE CONTR ACT. THE CABLES ARE MANUFACTURED OUTSIDE INDIA AND PROCUREME NT OF CABLES OUTSIDE INDIA FALL BEYOND PURVIEW AND JURISD ICTION OF THE PROVISIONS OF INCOME TAX ACT. THEREFORE, WE ARE OF THE OPINION THAT SINCE THE OFFSHORE CONTRACT IS ONLY FO R PROCUREMENT OF CABLES THAT TOO OUTSIDE INDIA AND TH E TRAINING PROVIDED IN INDIA IS INCIDENTAL TO THE CONTRACT NO. 1 I.E., OFFSHORE CONTRACT AND FURTHER AS THERE IS NO PROFIT EARNED ON SUCH TRAINING ALSO, WE ARE OF THE OPINION THAT NO P ART OF THE INCOME CAN BE ATTRIBUTABLE TO THE PE. WE PLACE REL IANCE ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES CO. LTD. (SUPR A) AND ALSO THE DECISION OF THE HONBLE DELHI HIGH COURT I N THE CASE 9 ITA.NO.916/HYD/2006, ITA.NO.246/HYD/2012 ITA.NO.244/HYD/2012 M/S. PIRELLI CAVI E SYSTEMI TELECOM SPA INDIA PROJECT OFFICE, HYDERABAD. OF L.G. CABLES LIMITED 197 TAXMAN 100 THAT WHEN UND ER AN OFFSHORE CONTRACT, EQUIPMENT WAS FOUND TRANSFERRED OUTSIDE INDIA, NECESSARILY TAXABLE INCOME ALSO ACCRUED OUTS IDE INDIA AND HENCE, NO PORTION OF SUCH INCOME WAS TAXABLE IN INDIA. THEREFORE, WE SET ASIDE THE ORDER OF THE CIT(A) IN RESTRICTING THE ADDITION TO 1% OF THE TOTAL CONTRACT THAT WAS D ONE BY HIM IN PARA 5.12. ASSESSEE GETS COMPLETE RELIEF FROM TH IS AND THEREFORE, REVISED GROUND NOS. 1 RAISED BY THE ASSE SSEE ON THIS IS ALLOWED. 6. RESPECTFULLY FOLLOWING THE ABOVE, SINCE THIS YE AR IS LATER TO THE ISSUE ALREADY DECIDED AS ABOVE, THE PR INCIPLES LAID DOWN THEREIN ARE EQUALLY APPLICABLE TO THE APPEAL I N THE IMPUGNED YEAR A.Y. 2001-02. ACCORDINGLY, WE UPHOLD THE CONTENTION OF THE ASSESSEE AND SET ASIDE THE ORDER OF THE LD. CIT. IN FACT, LD. CIT PASSED HER FINDINGS PURELY ON THE BASIS OF THE JUDGMENT OF AAR WHICH WAS REVERSED BY THE HONB LE SUPREME COURT. IN VIEW OF THAT ALSO, THE ORDER OF T HE LD. CIT CANNOT BE SUSTAINED. ASSESSEES GROUNDS ARE ACCORDI NGLY ALLOWED. 7. IN THE RESULT, ITA.NO.916/HYD/2006 OF THE ASSESSEE IS ALLOWED. ITA.NO.246/HYD/2012 A.Y. 2001-02: 8. THIS APPEAL IS ON THE CONSEQUENTIAL ORDERS PASS ED BY THE A.O. UNDER SECTION 143(3) READ WITH SECTION 263. EVEN THOUGH, LD. CIT(A) DISMISSED THE APPEAL ON THE REAS ON THAT THIS IMPUGNED ASSESSMENT ORDER DID NOT SURVIVE BECA USE NOTICE UNDER SECTION 148 WAS ISSUED ON 31.03.2006 A ND FRESH ASSESSMENT ORDER WAS PASSED ON 20.12.2006, WE ARE N OT CONCERNED WITH ORDER UNDER SECTION 143 READ WITH SE CTION 147 SUBSEQUENTLY PASSED. LD. CIT(A), SHOULD HAVE ADJUDI CATED THE ISSUE SEPARATELY OR SHOULD HAVE STATED THAT THIS OR DER WAS 10 ITA.NO.916/HYD/2006, ITA.NO.246/HYD/2012 ITA.NO.244/HYD/2012 M/S. PIRELLI CAVI E SYSTEMI TELECOM SPA INDIA PROJECT OFFICE, HYDERABAD. CONSEQUENT TO THE ORDER PASSED UNDER SECTION 263, T HEREFORE, NOT MAINTAINABLE. BE THAT AS IT MAY, SINCE THE ORDE R UNDER SECTION 263 WAS SET ASIDE, THE CONSEQUENTIAL ORDER DOES NOT SURVIVE. IN VIEW OF THIS, WE ALLOW THE GROUNDS RAIS ED BY THE ASSESSEE AND SET ASIDE THE ORDER OF LD. CIT(A) AS W ELL AS A.O. ACCORDINGLY, APPEAL OF THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, ITA.NO.246/HYD/2012 OF THE ASSESSEE IS ALLOWED. ITA.NO.244/HYD/2012 A.Y. 2001-02 : 10. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORD ER OF LD. CIT(A)-V, HYDERABAD DATED 29.11.2011 PREFERRED AGAINST THE ASSESSMENT ORDER UNDER SECTION 143(3) DATED 29. 03.2004. ASSESSEE IS AGGRIEVED ON THE ORDER OF THE LD. CIT(A ) WHO STATED THAT THE APPEAL IS NOT MAINTAINABLE CONSEQUENT TO T HE PROCEEDINGS UNDER SECTION 263 INITIATED BY THE LD. CIT-IV VIDE ORDER DATED 13.03.2006 WHEREIN THE ASSESSMENT ORDER WAS SET ASIDE AND DIRECTED THE A.O. TO PASS FRESH ASSESSMEN T ORDER. 11. VIDE ITA.NO.916/HYD/2006 OF THE SAME DATE HEREINABOVE, WE HAVE SET ASIDE THE ORDER OF LD. CIT PASSED UNDER SECTION 263, CONSEQUENTLY, THE ORIGINAL ASSES SMENT ORDER PASSED BY THE A.O. COMES TO LIFE AND GETS RES TORED. LD. CIT(A) HAS TO ADJUDICATE THE APPEAL PREFERRED BY TH E ASSESSEE ON THE ADDITIONS MADE IN THE ASSESSMENT ORDER DATED 29.03.2004. WE ARE OF THE OPINION THAT THE APPEAL B EFORE THE LD. CIT(A) WHICH WAS DISMISSED AS NOT MAINTAINABLE SHOULD BE RESTORED FOR ADJUDICATION ON MERITS. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) DATED 29.11.2011 AND RESTOR E THE APPEAL BEFORE HIM AFRESH WITH A DIRECTION TO THE LD . CIT(A) TO 11 ITA.NO.916/HYD/2006, ITA.NO.246/HYD/2012 ITA.NO.244/HYD/2012 M/S. PIRELLI CAVI E SYSTEMI TELECOM SPA INDIA PROJECT OFFICE, HYDERABAD. CONSIDER THE APPEAL ON MERITS. ASSESSEES GROUNDS A RE TREATED AS ALLOWED ACCORDINGLY. 12. IN THE RESULT, ITA.NO.244/HYD/2012 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 13. TO SUM-UP, ITA.NO.916/HYD/2006 AND ITA.NO.246/HYD/2012 OF THE ASSESSEE ARE ALLOWED AND ITA.NO.244/HYD/2012 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25.07.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 25 TH JULY, 2014 VBP/- COPY TO : 1. M/S. PRYSMIAN CAVI E SISTEMI S.R.L., (FORMERLY P IRELLI CAVI E SYSTEMI TELECOM S.P.A.) INDIA PROJECT OFFICE, H .NO.5-7-64, EWHS-128, GROUND FLOOR, APHB COLONY, MOULALI, HYDERABAD. PAN AABCP-2267-Q 2. DCIT, CIRCLE-16(3), AYAKAR BHAVAN, HYDERABAD. 3. CIT (OSD) & CIT-IV, HYDERABAD 4. CIT(A)-V, HYDERABAD. 5. ADIT (INTERNATIONAL TAXATION), HYDERABAD 6. ADDL.CIT, RANGE-16, HYDERABAD 7. D.R. ITAT, A BENCH, HYDERABAD.