Durr Systems AG, CHENNAI V. DCIT International Taxation 2(1), CHENNAI

ITA 3109/CHNY/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0116 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 19-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KARTHIK RENGANATHAN
• Keywords: Business income; Transfer pricing; Double taxation relief; Principle of natural justice; Additional evidence; Permanent establishment; Wholly owned subsidiary; TDS
• Section: 133A; 133(6); 131; 145

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, D BE NCH, CHENNAI . . . , . , # BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI S.JAYARAMAN, ACCOUNTANT MEMBER / I.T.A. NO.3109/CHNY/2017 '' /ASSESSMENT YEAR : 2014-15 M/S. DURR SYSTEMS AG (FORMERLY DURR SYSTEMS GMBH) C/O.DURR INDIA PVT.LTD PRESTIGE POLYGON, NO.471, ANNA SALAI, TEYNAMPET, CHENNAI-600 018. VS THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION-2(1) CHENNAI-600 006. PAN: AACCD4307Q ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.VIKRAM VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : MR. KARTHIK RENGANATHAN, STANDING COUNSEL /DATE OF HEARING : 23.01.2019 /DATE OF PRONOUNCEMENT : 27.03.2019 / O R D E R PER S.JAYARAMAN, AM: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER O F THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION- 2(1), CHENNAI, DATED 08.11.2017 FOR ASSESSMENT YEAR 2014-15 PASSED IN PURSUANCE OF THE ORDER PASSED BY DRP-2, BANGALORE IN F.NO.412/DR P-2/BANG/2016- 17 DATED 27.09.2017. 2. M/S. DURR SYSTEMS AG, (FORMERLY KNOWN AS DURR SY STEMS GMBH), THE ASSESSEE, IS A WHOLLY OWNED SUBSIDIARY OF D URR AKTIENGESELLSCHAFT, 2 ITA NO.3109/CHNY/2017 STUTTGART, GERMANY AND SERVES THE MARKET WITH TWO DIVISIONS NAMELY (1) PAINT AND ASSEMBLY DIVISION AND (II) MEASURING AND PROCESS SYSTEM DIVISION. THE PAINT AND ASSEMBLY DIVISION OFFERS PRODUCTION AND PAINT FINISHING TECHNOLOGY MAINLY FOR AUTOMOTIVE BODY SHE LLS. THE MEASURING AND PROCESS SYSTEMS DIVISION PRODUCE MACHINES AND S YSTEMS THAT ARE USED IN ENGINE AND DRIVE CONSTRUCTION AS WELL AS FI NAL ASSEMBLY. IT ALSO OPERATES IN INDIA THROUGH ITS SUBSIDIARY M/S DURR I NDIA PVT LTD. THE ASSESSEE WAS AWARDED TURNKEY PROJECTS BY AUTOMO BILE MANUFACTURERS. FORD INDIA IS THE MAJOR CLIENT. AFTER THE AWARD OF THE CONTRACT, THAT CONTRACT WAS SPILT INTO THREE PARTS AT THE INSTANC E OF DURR GERMANY AND THREE PURCHASE ORDERS ARE ISSUED. CONTRACT 1 DEALT WITH OFF-SHORE SUPPLY, CONTRACT 2 WAS SUPERVISION CHARGES AND CONTRACT 3 W HICH WAS INSTALLATION AND COMMISSIONING OF THE PROJECT. INC OME ARISING OUT CONTRACT 2 HAS BEEN OFFERED TO TAX BY DURR GERMANY IN INDIA. THE INCOME FROM INSTALLATION AND COMMISSIONING IS OFF ERED TO TAX BY DURR INDIA (P) LTD. IN THE EARLIER YEAR ORDERS, IT HAS B EEN HELD THAT THE ENTIRE NATURE OF CONTRACTS, THE TERMS INVOLVED AND THE CON DUCT OF THE PARTIES CLEARLY SHOW THAT ONLY FOR THE TAX PURPOSES, THE CO NTRACT WAS SPILT UP. 3. WHILE MAKING THE ASSESSMENT FOR THE ASSESS MENT YEAR 2014- 15, THE ASSESSING OFFICER CONSIDERED THAT THE MAIN ISSUE ARISE FROM VARIOUS CONTRACTS EXECUTED BY DURR SYSTEMS GERMANY IN INDIA WITH 3 ITA NO.3109/CHNY/2017 AUTOMOBILE MANUFACTURERS LIKE FORD INDIA, MAHINDRA AND MAHINDRA, HUYNDAI MOTORS, VOLKSWAGEN AND TATA MOTORS AND HENC E LOOKED INTO THE FOLLOWING KEY ISSUES : A. WHETHER THE CONTRACT IS DIVISIBLE INTO OFFSHO RE SUPPLY OF GOODS AND MATERIALS AND SERVICES RENDERED, WHETHER OBLIGATIONS UNDER THE WORK AS PER THE CONTRACT ARE DISTINCT, I. E WHETHER OFF SHORE SUPPLY IS AN INDEPENDENT SCOPE OF WORK IN THE CONTRACT? B. WHETHER VARIOUS STAGES OF THE PROJECT (ENGINEERI NG, PROCUREMENT, INSTALLATION AND COMMISSIONING WERE IN EXTRICABLY AND ORGANICALLY LINKED AND CANNOT BE EXECUTED WITHO UT THE HELP OF THE PARENT DURR GERMANY? C. IN CASE IT IS A COMPOSITE CONTRACTS WHETHER TH E ENTIRE CONTRACT INCOME IS ATTRIBUTABLE TO THE PE IN INDIA AND NOT J UST THE SUPERVISION CHARGES AS RETURNED BY THE COMPANY. 3.1 AFTER ANALYSING THE IMPORTANT PORTIONS OF TH E CONTRACT / APPENDICES , THE VARIOUS FACTS AND STATEMENTS RECOR DED FROM SITE MANAGERS AND PROJECT MANAGERS HEADING THIS PROJECT AND AFTER CONSIDERING ASSESSEES SUBMISSIONS , MATERIAL E TC, THE AO HELD THAT ALL THE ACTIVITIES RIGHT FROM ENGINEERING STAGE TO COMMISSIONING STAGE WERE INEXTRICABLY AND ORGANICALLY LINKED AND HENCE, THE TURNKEY CONTRACT IS A SINGLE COMPOSITE CONTRACT BETWEEN FORD INDIA AND DURR SYSTEMS GMBH (ASSESSEE). THE RELEVANT KEY POINTES, CONCLUSION, RELIANCE ETC., PLACED BY HIM ARE EXTRACTED FROM HI S ORDER AS UNDER : 1. FROM THE DETAILS FURNISHED. A SINGLE COMPOSITE CONTRACT (TURNKEY CONTRACT) IS ENVISAGED BETWEEN FORD INDIA AND GERMANY. THERE IS NO SEPARATE OR EXCLUSIVE CONTRACT FOR OFFSHORE SUPPLY OF MATERIALS, NOR ANY AGREEMENT FORMING PART OF THE ORIGINAL CONTRACT RFQ. 4 ITA NO.3109/CHNY/2017 2 THE CONTRACT ENTERED BETWEEN FORD INDIA AND DURR GERMANY SPECIFIES THE CONSOLIDATED WORK TO BE EXECUTED BY DURR GERMANY IN SETTING UP THE PAINT SHOP RIGHT FROM ENGINEERING STAGE TO COMMISSIONING STAGE. IT C OMPRISES OF BOTH SUPPLY OF GOODS AND RENDERING OF SERVICES WHICH INCLUDES ERECTION I NSTALLATION, COMMISSION AND COMPLETION OF WORK. 3. FURTHER, IT IS DURR GERMANY BY IT PROPOSAL NO DE Q 1-01007.4 1VA/VE DATED 14.10.2011 THAT INSISTED THAT THE CONTRACT SHOULD B E SPLIT INTO SUPPLY AND SUPERVISORY. IT IS NOT BY NATURAL COROLLARY THE ASSESSEE COMPANY HAS ENTERED INTO TWO DIFFERENT SEPARATE CONTRACTS. IT IS AT THE INSTANCE OF DURR G ERMANY FORD INDIA HAS SPILT THE CONTRACT AND ISSUED THREE PURCHASE ORDERS. 4. TO EXECUTE THE CONTRACT AWARDED TO DURR GERMANY, IT WAS ESSENTIAL FOR DURR GERMANY TO HAVE THE GOODS AND MATERIALS REQUIRED DE SIGNED, FABRICATED AS PER THE DESIGN FORMULATED AND CUSTOMIZED BY DURR GERMANY AN D PROCURED FROM VARIOUS THIRD PARTIES BY PLACING ORDERS, FORD INDIA NEVER GOT INV OLVED IN THE PLACEMENT OR PROCUREMENT OF THE GOODS. 5. FORD HAS NOT MERELY CONTRACTED DURR SYSTEMS FOR SUPPLY OF GOADS. THE CONTRACT IS FOR THE COMPLETE PACKAGE OF SUPPLY OF GOODS AND SER VICES WHICH INCLUDE ERECTION, INSTALLATION, COMMISSION AND COMPLETION. THE GOODS ARE SUPPLIED IN ACCORDANCE WITH THE DETAILED SPECIFICATIONS AFTER AN ENGINEERING SI GN OFF HAPPENED BETWEEN DURR SYSTEMS AND FORD. THE SPECIFICATIONS ARE CUSTOMIZED AS PER THE INDIAN AUTOMOBILE MARKER CONDITION AND THE COST EFFICIENCY. THE CONTR ACT FOR OFFSHORE SUPPLY AND ONSHORE SERVICES ARE ESSENTIALLY FOR A SINGLE COMPO SITE CONTRACT, WHICH ULTIMATELY IS TO BE COMPLETED BY FULL EXECUTION OF THE PROJECT AT FO RD FACILITY, GUJARAT. HERE IT IS TO BE NOTED THAT THE WORD EMPHASIZED IN THE REQUEST FOR PROPOSAL CLEARLY INDICATES THAT THE CONTRACTOR DID NOT WANT TO SPLIT THE RISK AND HAS KEPT THE RISK FACTOR / LIABILITY FOR THE ENTIRE SUB CONTRACT AS A WHOLE ON THE APPLICANT. IT MEANS THAT ANY ISSUE WHICH INVOLVES RISK AT ANY PART OR TIME OF TH E EXECUTION OF THE WORK WILL HAVE THE IMPACT ON THE WHOLE PROJECT. THIS DEMONSTRATES THAT THE CONTRACT CANNOT BE DISSECTED IN ANY WAY AS IT IS A COMPOSITE ONE AND THE RESPONS IBILITY ON DURR GERMANY IS WHOLESOME. 7. II IS TRUE THAT THE MATERIALS WERE SHIPPED AT GE RMANY (AS GOOD AS FOR ANY OFFSHORE SUPPLIES) BUT THE RISK AND OWNERSHIP IS PASSED ON T O FORD ONLY AFTER INSTALLATION AND COMMISSIONING OF PAINT SHOP. THIS IS EVIDENT FROM T HE PROPOSAL SUBMITTED BY DURR GERMANY TO FORD CLAUSE 7.1 STATES THAT ONCE DELIVER Y AND/OR INSTALLATION HAVE BEEN CARRIED OUT THE CUSTOMER IS OBLIGED INSOFAR AS THER E ARE NO SIGNIFICANT DEFECTS TO CARRY OUT ACCEPTANCE PROCEDURE IMMEDIATELY UPON NOTIFICAT ION THAT THE PLANT IS READY FOR ACCEPTANCE FURTHER CLAUSE 7.4 OF THE PROPOSAL STAT ES THAT THE TRANSFER OF RISK OCCURS WITH THE EXECUTION OF SERVICES MID SUPPLIES AND THE IR ACCEPTANCE UNLESS A DIFFERENT POINT OF TRANSFER OF RISK IS AGREED AND SPECIFIED U NDER THE TERMS AND CONDITIONS OF SUPPLY IN ACCORDANCE WITH IN COTERMS 2000. THE FINA L INSTALMENT OF PAYMENTS FOR SUPPLIES ARE MADE AFTER PLANT COMMISSIONING. THIS W AS ALSO CONFIRMED BY THE PAINT SHOP MANAGER OF FORD DURING THE STATEMENT RECORDED U/S131. THEREFORE, IT IS INCORRECT TO SAY THAT THERE ARE THREE SEPARATE CONTRACT. IT I S ONLY A SINGLE PIECE OF CONTRACT WHICH WAS AWARDED TO DURR GERMANY. 5 ITA NO.3109/CHNY/2017 8. THE ASSESSEE MAY CLAIM THAT THE TRANSFER OF THE TITLE AND THE GOODS SHALL TAKE PLACE OUTSIDE INDIO HOWEVER THE FACTS MENTIONED ABOVE CLE ARLY INDICATES THAT DELIVERY WOULD NOT BE COMPLETED TILL THE GOODS ARE SUPPLIED AND CO MMISSIONED ON SITE. THE SUPPLY OF IMPORTED MATERIAL IS PART OF THE COMPOSITE CONTRACT AND MOST OF THE ACTIVITIES OF THE COMPOSITE CONTRACT WERE UNDERTAKEN IN INDIA. 9. THE SUPPLY OF THE EQUIPMENT OF NOT AN INDEPENDEN T OR ISOLATED TRANSACTION, BUT IS PART AND PARCEL OF THE EXECUTION OF THE PROJECT HI INDIA. THE INCOME ON OFFSHORE SUPPLY IS EARNED ON ACCOUNT OF THE COMPOSITE CONTRA CT; HI THE ABSENCE OF ONSHORE SERVICES CONTRACT, IT WAS NOT POSSIBLE TO EARN ANY INCOME FROM OFFSHORE SUPPLY. 10. WORK CARRIED OUT BY DURR GERMANY WAS A CUSTOMIZ ED ONE. HENCE THE CUSTOMIZATION OF THE PARTS REQUIRED AS PER THE DESI GN FORMULATED BY THE COMPANY AS THE PART OF THE CONTRACT INVOLVES HUGE RISK AS PER THE AGREEMENT. IT IS NOT ACCEPTABLE TO SAY THAT THE RISK INVOLVED WAS FOREGONE IN THE M IDDLE (UPON SHIPPING) AND THE CONTRACTOR DECIDED TO BUY THE PRODUCT OFFSHORE AND DELIVER IT ONSHORE TO CONTINUE ITS WORK. THE RISK FACTOR FOR THE WHOLE WORK IS A CONTI NUOUS ONE WHICH CANNOT BE DISSECTED FOR A WHILE BECAUSE OF SOME PAPER ARRANGE MENT. 11. AS PER THE CONTRACT, THE SUPPLIES/GOODS WERE TH E NEED OF DURR AND NOT OF FORD. THE CONTRACT WORK STARTS WITH THE FORMULATION OF DE SIGN BY DURR AND BASED ON THE DESIGN IT WAS REQUIRED TO FABRICATE AND INSTALL TH E GOODS. THE REQUIREMENT OF SUPPLIES/GOODS IS A STEP BY STEP PROCESS. THE REQUI REMENT CANNOT BE DETERMINED BY FORD UNLESS DURR FORMULATES THE DESIGN. FORD HAS GI VEN ONLY A ROUGH SKETCH DESIGN WHICH DEPICTS THE BASIC MINIMUM REQUIREMENTS. IT I S THE RESPONSIBILITY OF DURR GERMANY TO DEVELOP THE GIVEN SKETCH INTO A JIDI-FLE DGED ONE CONSIDERING THE TECHNICAL ISSUES WHICH INVOLVES EFFICIENCY. 12, DURR GERMANY REMAINS RESPONSIBLE FOR THE TIMELI NESS, COST AND RISK OF THE SHIPMENTS DELIVERY TO THE PROJECT SITE AND THE CON TRACT WORKS AS A WHOLE, CONCLUSIVELY PROVES THAT THE OFFSHORE SUPPLY IS AN ESSENTIAL PAR T OF THE COMPOSITE WORK AND NOT AN INDEPENDENT ONE. 13. DELAY IN DELIVERING THE MATERIALS, PLANTS, ASSE MBLED AND FABRICATED UNITS TO SITE WITH ALL CUSTOM DUTIES AND SHIPPING & IMPARTATION C HARGES PAID WOULD COST DURR GERMANY AS CONTRACTOR OF THE CONTRACT AGREEMENT. TH E DAMAGES IF ANY DUE TO DELAY IN DELIVERING THE MATERIALS TO SITE WOULD BE BORNE BY DURR. IT IS CLEAR THAT THE RISK OF THE EQUIPMENT WAS WITH DURR GERMANY TILL COMMISSIONING OF THE PROJECT FROM THE DISCUSSION GIVEN IN PARA 3 TO 11. HENCE IT IS CLEAR THAT THE ARRANGEMENT OF SHIPPING AND DELIVERING SUPPLIES (ON FOB TERMS) TO SITE WAS ONLY AN ARTIFICIAL ARRANGEMENT MADE BY THE COMPANIES INVOLVED TO REDUCE THE TAX AN D DUTY BURDEN ARISING TO ANY ONE OF THE COMPANIES IN IMPORTING THE GOODS IN TO I NDIA. 14. THE GOODS SAID TO HAVE BEEN SOLD AN HIGH SEA AN D HENCE NOT TAXABLE IN INDIA IS NOT ACCEPTABLE/OR THE REASONS THAT THE HIGH SEA SAL E WAS NOT A SALE AT ALL. THE GOODS IN QUESTION THOUGH, CLAIMED AS SOLD OFFSHORE, FINAL LY ARRIVED AT THE DESTINATION IN INDIA AND WERE USED BY THE DURR GERMANY ITSELF IN THE CON TRACT WORKS. 15. IN SHORT, THE MATERIALS REQUIRED FOR THE CONTAC T WORKS WERE PROCURED FROM OUTSIDE INDIA, AND WERE UTILIZED IN THE CONTACT WORKS, BY T HE DURR GERMANY. THE PROPER 6 ITA NO.3109/CHNY/2017 ARRANGEMENTS ARE ONLY PROCEDURES CONNECTED WITH IMP ORT OF MATERIAL AND ARE NOT IMPORTANT OR DECIDING FACTOR WITH REGARD TO TAXABIL ITY OF INCOME EARNED FROM THE CONTRACT. 16. THE FACTS MENTIONED CLEARLY INDICATES THAT DELI VERY WOULD NOT BE COMPLETED TILL THE GOODS ARE SUPPLIED AND COMMISSIONED ON SITE. THE SU PPLY OF IMPORTED MATERIAL WAS PART OF THE COMPOSITE CONTRACT AND MOST OF THE ACTI VITIES OF THE COMPOSITE CONTRACT WERE UNDERTAKEN IN INDIA. 17. THE SUPPLY OF THE EQUIPMENT WAS NOT AN INDEPEND ENT OR ISOLATED TRANSACTION, BUT IS PART AND PARCEL OF THE EXECUTION OF THE PROJECT IN INDIA. THE INCOME ATTRIBUTABLE TO OFFSHORE SUPPLY WAS EARNED AS PART OF THE COMPOSITE CONTRACT. IN THE ABSENCE OF THE ONSHORE COMPOSITE SERVICES CONTRACT, IT WAS NOT POS SIBLE TO EARN ANY INCOME FROM SUCH OFFSHORE SUPPLY. 18. IT IS CLEAR THAT WHEN THE CORPORATE VEIL IS LIF TED FROM M/S DURR INDIA PVT LTD, THE ENTIRE ORGANIZATION FUNCTIONED AS ONE UNIT DIRECTLY UNDER M/S. DURR GERMANY. FROM THE FACTS DISCUSSED IN PARA 3 TO 11, IT IS CLEAR TH AT DURR GERMANY HAD A FIXED PLACE OF WORK AND HAD PROJECTED ITSELF INTO THE INDIAN SUBSI DIARY MAKING IT THE PE OF THE FOREIGN COMPANY. 19. THE ACTIVITIES CARRIED IN INDIA IS SUPERVISORY ACTIVITY WHICH INCLUDES INSTAILATION ERECTION AND COMMISSIONING. THESE ACTIVITIES ARE TO BE SEEN IN TOTALITY WITH THE SUPPLY AND DELIVERY. BOTH ACTIVITIES SHOULD EXIST TOGETHER , THUS THE ACTIVITIES BECOME INDIVISIBLE AND DEPENDENT ON EACH OTHER. HENCE SUPE RVISORY ACTIVITY BECOMES A PART OF THE TOTAL ACTIVITY OF THE CONTRACTUAL AGREEMENT. 20. AS PER THE PROVISIONS OF INDIA -.GERMANY DTAA, IF ANY ACTIVITY OF THE FOREIGN COMPANY EXTENDS BEYOND SIX MONTHS PERIOD IN INDIA, THEN A PERMANENT ESTABLISHMENT IS DEEMED TO BE CONSTITUTED. BY THE A CTIVITY OF THE DURR GERMANY IN INDIA FOR THE PERIOD MORE THAN SIX MONTHS, A PE IS CONSTITUTED IN INDIA. THE ACTIVITY OF DURR GERMANY IS BEING MATERIALIZED THROUGH THE CONT RACTUAL AGREEMENT REFERRED ABOVE WHICH DEALT WITH SUPPLY OF THE EQUIPMENT ALON G WITH THE SUPERVISORY ACTIVITY. FURTHER, THE NEXUS BETWEEN THE DURR GERMANY AND THE CLIENTS STARTS WITH THE ENGINEERING, DESIGN SUPPLY OF THE EQUIPMENT AND END S WITH GIVING THE CERTIFICATION OF PROPER INSTALLATION. THOUGH THE INSTALLATION ACTIVI TY IS BEING CARRIED OUT BY M/S.DURR INDIA THE SUPERVISION OF SUCH INSTALLATION IS BEING CARRIED OUT BY M/S. DURR GERMANY AND IT IS THE RESPONSIBILITY OF THE DURR GERMANY TO GIVE A SATISFACTORY PROOF FOR PERFORMANCE. AS ALREADY STATED THE SUPERVISORY ACTI VITY CANNOT BE SINGLED OUT AS AN INDEPENDENT ACTIVITY AND IT HAS TO GO ALONG WITH TH E SUPPLY AND DELIVERY OF EQUIPMENT BY THE VIRTUE OF THE CONTRACT. THE PE IS BEING CONS TITUTED BECAUSE OF THE ACTIVITY BEING EXTENDED BEYOND THE PERIOD OF SIX MONTHS, HENCE THE INCOME EARNED BY THE DURR GERMANY IS NOT ONLY BY SUPERVISORY ACTIVITY BUT ALS O BY OTHER MEANS MENTIONED IN THE CONTRACT HAS TO BE ATTRIBUTED TO THE INDIA PE. CONCLUSION: BASED ON THE DISCUSSION ABOVE, THE CONT RACT IS A SINGLE COMPOSITE ONE AND OFFSHORE SUPPLIES ARE NOT AN INDEPENDENT SCOPE OF WORK. ALL PARTIES OF THE TRANSACTION RELATING TO SALE OF GOODS TO FORD INDIA WERE NOT COMPLETED OUTSIDE INDIA. 7 ITA NO.3109/CHNY/2017 THE OFFSHORE SUPPLY AND ONSHORE ELEMENTS OF THE CONTRACT ARE INEXTRICABLY AND ORGANICALLY LINKED. THE INCOME ACCRUE AND ARISE AT THE PLACE OF THE SOURCE THAT IS INDIA PE PLAYED A ROLE IN DESIGN, SELECTION AND PRO CUREMENT OF MATERIALS TO BE USED IN THE ESTABLISHMENT OF PAINT SHOP. THE FACT PATTER N OF THIS CASE IS NOT AT ALL SIMILAR TO THAT OF ISHIKAWAJIMA HARIMA AND THE LAW AS ENUNCIAT ED BY THE HONBLE SUPREME COURT DOES NOT APPLY TO THE FACTS OF THE PRESENT CA SE. THE PROTOCOL TO THE DTAA BETWEEN GERMANY AND INDIA IS NOT APPLICABLE IN THIS CASE. IN VIEW OF ABOVE, WE HOLD THAT THE CONTRACT IN THIS CASE IS A COMPOSITE ONE A ND THE AMOUNT RECEIVED BY THE DURR GERMANY FROM EQUIPMENT SUPPLY IN INDIA IS TAXABLE I N INDIA. 3.2 TO SUPPORT THE STAND TAKEN BY THE AO, T HE AO RELIED ON THE FOLLOWING CASE LAWS: ISHIKAWSJMA HARIMA HEAVY INDUSTRIES LTD VS. DIT ( (2007] 158 TAXMANN 259 [SC]) LG CABLE LTD IS, DEPUTY DIRECTOR OF INCOME TAX, ITAT. DELHI [2008-(IDJ)-GJX- 0173- TDEL] TECHNIP ITALY SPA VS. ADDITIONAL COMMISSIONER OF INCOME TAX THE ITAT, DELHI [2010-(1D2)- GJX.2941-TDEL] ANSALDO ENERGIA SPA VS THE ASST. DIRECTOR OF INCO ME TAX ROXAR MAXIMUM RESERVOIR WLL AAR NO. 977 OF 2010 MERO ASIA PTE LTD A.A.R. NO 981 OF 2010 VODAFONE INTERNATIONAL HOLDINGS BV NETHERLANDS VS. UNION OF INDIA AND ANOTHER (345 ITR 1 (SC)) 3.3 THEREFORE, THE A O IN THE DRAFT ASSESSMENT ORD ER (DAO), INTER ALIA, HAS ATTRIBUTED AN INCOME OF RS. 5,32,72,645 TO THE PERMANENT ESTABLISHMENT (PE) TOWARDS SUPPLY OF EQUIPMENT, AS EXTRACTED BELOW : PARTICULARS AMOUNT IN TOTAL RECEIPTS IN RESPECT OF SUPPLY OF MATERIALS 50,68 72,470 TOTAL RECEIPTS IN RESPECT OF SUPERVISORY SERVICES 13,38, L4,046 TOTAL RECEIPTS BY DURR INDIA FROM INSTALLATION AND COMMISSIONING 8,60,89,000 TOTAL 72,67,75,516 PROFIT MARK UP AS CONSIDERED BY THE AO IN THE DRAFT ASSESSMENT ORDER (OBJECTED BY THE ASSESSEE) 7.33% PROPOSED ADDITION AS PER DRAFT ASSESSMENT ORDER 5,32,72,645 8 ITA NO.3109/CHNY/2017 3.4 AGAINST THE DRAFT ASSESSMENT ORDER, THE AS SESSEE FILED ITS OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL . THE DRP REQUIRED THE AO TO VERIFY AND SEND REMAND REPORT WITH REFERENCE TO THE ASSESSEES CONTENTIONS. THE A O AFTER CONDUCTING ENQUIRIES, WHICH INCLUDED A TDS SURVEY IN THE CASE OF DURR INDIA PRIVATE L IMITED , WHOLLY OWNED SUBSIDIARY OF ASSESSEE COMPANY , WHICH RESULTED IN UNEARTHING OF VARIOUS FACTS HITHERTO NOT DISCLOSED BY THE ASSESS EE TO THE DEPARTMENT, SUBMITTED A REMAND REPORT AND AN ENHANCEMENT PR OPOSAL TO THE DRP. THE DRP FURNISHED A COPY OF THE REMAND REPORT TO THE ASSESSEE AND AFTER PROVIDING SUFFICIENT OPPORTUNITY TO THE AS SESSEE ETC , THE DRP ISSUED ITS DIRECTIONS TO THE AO IN WHICH , SOME OF THE ITEMS OF INCOME PROPOSED FOR ADDITION IN THE DAO ARE REDUCED, SOME OF THE ITEMS OF ADDITION ARE CONFIRMED AND SOME OF THE ITEMS OF AD DITION ARE ENHANCED. THE AO GAVE EFFECT TO IT. THE ASSESSEE FILED THIS APPEAL WITH FOLLOWING GROUNDS. 1. FAILURE TO SHARE INFORMATION OBTAINED UNDER SEC TION 131 AND 133(6) OF THE ACT: THE ASSESSING OFFICER (AO) FAILED TO SHARE COMPLE TE INFORMATION COLLECTED UNDER SECTION 131 AND 133(6) OF THE ACT F ROM THE CUSTOMERS OF THE APPELLANT BEFORE USING IT AGAINST THE APPELLANT. 2. AGAINST TAXABILITY OF SUPPLY OF EQUIPMENT: THE AO/DISPUTE RESOLUTION PANEL (DRP) 2 (DRP) ERRED IN SUBJECTING TO TAX SUPPLY OF GOODS BY THE APPELLANT ON A FOB BASIS, EX GERMANY. 3. PERMANENT ESTABLISHMENT OF THE APPELLANT: 9 ITA NO.3109/CHNY/2017 THE AO/DRP ERRED IN NOT EVALUATING THE EXISTENCE OF A PE, SEPARATELY, UNDER EACH CONTRACT OF THE APPELLANT. THE DRP ERRED IN ATTRIBUTING INCOME UNDER ALL CONTR ACTS OF THE APPELLANT IN INDIA TO THE PE OF THE APPELLANT UNDER 1 CONTRACT I.E. CONTRACT FOR SUPERVISORY SERVICES WITH FORD INDIA P VT. LTD. 4. METHOD OF ACCOUNTING CHANGED BY AO AGAINST THE P ROVISIONS OF SECTION 145 OF THE ACT: THE AO/DRP ERRED DETERMINING TAXABLE INCOME OF THE PE ON A CASH BASIS WHEREAS THE APPELLANT HAS DETERMINED T AXABLE INCOME ON A MERCANTILE BASIS, IN CONTRAVENTION OF T HE PROVISIONS OF SECTION 45 OF THE ACT. 5. AD-HOC RATE OF MARK-UP ADOPTED BY THE ASSESSING OFFICER: THE AO/DRP ERRED IN SUMMARILY AND UNILATERALLY REJE CTING THE PROFIT OF 4.13 PER CENT, DECLARED BY THE PE OF THE APPELLA NT AND DETERMINING NET PROFIT BY APPLYING, ON AN AD-HOC BA SIS, GROSS PROFIT PERCENTAGE. 6. TAXING OF OFFSHORE SUPPLY CONTRACT AND THE SUPER VISORY SERVICE CONTRACT: THE AO/DRP ERRED IN CONSIDERING ALL THE OFFSHORE SU PPLY CONTRACTS AS ORGANICALLY AND INEXTRICABLY LINKED TO THE ONS HORE SERVICE CONTRACTS AND ATTRIBUTING THE AGGREGATE REVENUE TO A PE WHICH THE APPELLANT HAS UNDER 1 CONTRACT. 7. INCOME NOT PROPOSED IN THE DRAFT ASSESSMENT ORDE R SUBJECTED TO TAX IN FINAL ASSESSMENT ORDER: THE AO ERRED IN ADDING INCOME IN THE FINAL ASSESSME NT ORDER WHICH WAS NOT PROPOSED IN THE DRAFT ASSESSMENT ORDE R. 8. REMAND REPORT IN THE NATURE OF SECOND DRAFT ASSE SSMENT ORDER: THE REMAND REPORT SUBMITTED BY THE AO DURING THE CO URSE OF PROCEEDINGS BEFORE THE DRP ASSESSED THE INCOME OF T HE APPELLANT AT A VARIATION FROM THE ORIGINAL DRAFT ASSESSMENT O RDER ISSUED ON 30 DECEMBER 2016 THEREBY PARTAKING THE ORIGINAL DRAFT ASSESSMENT ORDER. 9. SURVEY UNDER SECTION 133A OF THE ACT CONDUCTED A T THE PREMISES OF ANOTHER ASSESSEE: THE AO HAS RELIED ON THE INFORMATION COLLECTED FROM A SURVEY CONDUCTED AT THE PREMISES OF ANOTHER ASSESSEE UNDER SECTION 133A OF THE ACT TO ASSESS THE INCOME OF THE APPELLANT. 10. ERRONEOUS APPLICATION OF PRINCIPLES OF ATTRIBUT ION OF INCOME: THE AO HAS ATTRIBUTED INCOME TO THE APPELLANTS OPE RATIONS IN INDIA AGAINST THE BASIC PRINCIPLES OF ATTRIBUTION OF INCO ME, RESULTING IN AN ILLOGICAL AND UNSUSTAINABLE DETERMINATION OF TAXABL E INCOME. 10 ITA NO.3109/CHNY/2017 4. THE LD AR SUBMITTED THAT THE A O FAILED TO SH ARE INFORMATION COLLECTED FROM CUSTOMERS U/S 131 AND 133(6) .THE P ETITION FOR REQUEST FOR ADDITIONAL INFORMATION AND ADDITIONAL EVIDENCE SUBM ITTED ON 16 AUGUST 2017 TO DRP HAS BEEN EFFECTIVELY IGNORED. THE STATE MENT OF K. SURESH SHARED WITH APPELLANT ONLY AFTER COMPLETION OF ASSE SSMENT ALONG WITH THE DRAFT ASSESSMENT ORDER. THEREFORE, ENTIRE ASSESSME NT IS AGAINST PRINCIPLES OF NATURAL JUSTICE AND THEREFORE ARBITRA RY AND AD-HOC. ON THE ISSUE OF OFFSHORE SUPPLY (SALE) OF EQUIPMENT , THE LD AR SUBMITTED THAT IT IS ERRONEOUSLY BROUGHT TO TAX IN INDIA, IT IS PURE SUPPLY OF EQUIPMENT WHICH IS NOT TAXABLE IN INDIA AND IT IS NOTHING BUT AN OFFSHORE SALE OF EQUIPMENT. THE AO ERRED IN SUBJECTING TO TA X SUPPLY OF GOODS GIVEN ON A FOB BASIS, EX GERMANY. THE PROTOCOL OF INDIA GERMANY DTAA, WHICH SPECIFICALLY EXCLUDES SUPPLIES BEING AT TRIBUTABLE TO A PE IS COMPLETELY IGNORED BY THE AO. RELIED ON ISHIKAWAJIM A HARIMA HEAVY INDUSTRIES V/S DIT (288 ITR 408 SC) WHICH IS DIREC TLY IN THE ASSESSEES FAVOUR. ON COMPUTATION, THE LD AR SUBMITTED THAT SUPPLIES A RE ADDED TO THE TOTAL INCOME BY APPLYING AN ADHOC MARK-UP RATE. ON THE TR ANSACTIONS WITH FORD INDIA, THE LD AR SUBMITTED THAT DOWN PAYMENT I NVOICES CONSIDERED 11 ITA NO.3109/CHNY/2017 AS SUPPLIES AS PER THE RR, A BASIC ERROR WHICH LEAD S TO SAME PAYMENT BEING COUNTED TWICE RESULTING IN DOUBLE TAXATION. ON GROUND NO: 3 IE PERMANENT ESTABLISHMENT OF THE A PPELLANT INCORRECTLY AGGREGATED, THE LD AR SUBMITTED THAT EA CH CONTRACT TO BE EVALUATED SEPARATELY AS A PE - AS PER ARTICLE 5 OF THE DTAA. SEPARATE PE IS CREATED PER CONTRACT, AS HELD IN ADIT V. VAL ENTINE MARITIME (MAURITIUS) LTD. (ITA NO.1 532/MUM/05 DT S APR, 20 10) WHICH IS DIRECTLY IN APPELLANTS FAVOUR . THE A O ERRED IN ATTRIBUTIN G INCOME UNDER ALL CONTRACTS OF THE APPELLANT IN INDIA TO THE PE UNDER I CONTRACT I.E. CONTRACT FOR SUPERVISORY SERVICES WITH FORD INDIA . ON GROUND NO 4: IE BASIS OF CALCULATION OF INCOME B EING MISUNDERSTOOD BY AO, THE LD AR SUBMITTED THAT THE AO ERRED IN DE TERMINING TAXABLE INCOME OF THE PE ON A CASH BASIS WHEREAS THE APPE LLANT HAS DETERMINED TAXABLE INCOME ON A MERCANTILE BASIS, IN CONTRAVENTION OF S. 145 OF THE ACT. ADDITIONS TO SUPPLIES MADE ON INFOR MATION OBTAINED UNDER 133(6) ACT FROM CUSTOMERS WHICH IS ON PAYMENT BASIS . ON GROUND NO 5: IE AD-HOC RATE OF MARK-UP ADOPTED BY THE AO, THE LD AR SUBMITTED THAT THE AO ERRED IN SUMMARILY, UNILA TERALLY REJECTING PROFIT OF 4.13%, DECLARED BY THE PE OF THE APPELLANT. THE AO EGREGIOUSLY ERRED 12 ITA NO.3109/CHNY/2017 BY DETERMINING NET PROFIT BY APPLYING, ON AN AD-HOC BASIS, BY CONSIDERING GROSS PROFIT PERCENTAGE BASED ON BUDGET ESTIMATE/OU TLOOK DOCUMENTS OBTAINED IN SURVEY ON ANOTHER COMPANYS (DURR INDIA ) PREMISES AND WHICH ARE TOTALLY INAPPLICABLE WITH RESPECT TO THIS ASSESSMENT. ON GROUND NO 6 : SEPARATE CONTRACTS (PURCHASE ORDER S) IS MISCONSTRUED AS ONE COMPOSITE CONTRACT, THE LD AR SUBMITTED THAT SEPARATE CONTRACTS (PURCHASE ORDERS) AWARDED FOR SUPPLY AND SERVICES C ONTRACT. THE AO ERRED IN CONSIDERING ALL THE OFFSHORE SUPPLY CONTRA CTS AS ORGANICALLY AND INEXTRICABLY LINKED TO THE ONSHORE SERVICE CON TRACTS AND ATTRIBUTING THE AGGREGATE REVENUE TO A PE WHICH THE APPELLANT H AS UNDER ONE CONTRACT. 5 . THE LD STANDING COUNSEL FILED HIS COUNTER AS UNDE R : THE ASSESSEE, M/S. DURR SYSTEMS GMBH (COMPANY) IS A WHOLLY OWNED SUBSIDIARY OF DURR AKTIENGESELLSCHAFT, STUTTG ART, GERMANY. THE DRR GROUP IS ONE OF THE WORLDS LEADING MACHINERY AND PLANT ENGINEERING MANUFACTURERS. THE DRR GROUP IS A SUPP LIER OF PLANT AND EQUIPMENT THAT COMMANDS LEADING GLOBAL MARKET POSIT IONS IN ITS AREAS OF ACTIVITY. THE ASSESSEE SERVES THE MARKET WITH FOUR DIVISIONS: PAINT AND ASSEMBLY SYSTEMS DIVISION, MEASURING AND PROCESS SYSTEMS DIVISION, APPLICATION TECHNOLOGY DIVISION AND CLEAN SYSTEMS DIVISION. 13 ITA NO.3109/CHNY/2017 ASSESSEES INDIAN CONTRACTS ARE MAINLY RELATING TO PAINT AND ASSEMBLY SYSTEMS DIVISION AND APPLICATION TECHNOLOGY DIVISIO N. THE ASSESSEE IS AWARDED TURNKEY PAINT SHOP PROJECTS BY VARIOUS AUTO MOBILE MANUFACTURERS IN INDIA VIZ, FORD MOTORS, TATA MOTOR S, VOLKSWAGEN, MAHINDRA AND MAHINDRA ETC., ASSESSEE ALSO OPERATES IN INDIA THROUGH ITS SUBSIDIARY M/S DURR INDIA PVT LTD. THERE ARE THREE KINDS OF RECEIPTS EMERGING FROM THE PAINT SHOP PROJECTS. 1. INCOME ON ACCOUNT OF SUPPLY OF PAINT SHOP MATERI ALS /EQUIPMENTS. 2. INCOME FROM SUPERVISION CHARGES 3. INCOME FROM INSTALLATION AND COMMISSIONING. IN RESPECT OF THE SAID CONTRACTS, INCOME ARISING FR OM SUPERVISION CONTRACTS HAS BEEN OFFERED TO TAX BY DURR GERMANY I N INDIA, IF THERE EXIST A SERVICE PE ON ACCOUNT OF SUPERVISION ACTIVITIES C ARRIED OUT IN INDIA EXCEEDING THE TIME THRESHOLD AS PER DTAA. THE INCOME FROM INSTALLATION AND COMMISSIONING IS I NVARIABLY OFFERED TO TAX BY DURR INDIA(P) LTD. THE ISSUE IN THIS ORDER A ND THE EARLIER YEAR ORDERS RELATING TO THE ASSESSEE IS W.R.TO INCOME ON ACCOUNT OF OFFSHORE SUPPLY OF PAINT SHOP MATERIALS/ EQUIPMENTS. IN RESP ECT OF INCOME FROM OFFSHORE SUPPLY, IN THE EARLIER YEAR ORDERS, IT HAS BEEN HELD BASED ON THE ENTIRE NATURE OF CONTRACTS, THE TERMS INVOLVED AND THE CONDUCT OF THE PARTIES THAT ONLY FOR THE TAX PURPOSES, THE CONTRAC T WAS SPILT UP. THE 14 ITA NO.3109/CHNY/2017 ENTIRE SCOPE OF DISCUSSION FOR THE CURRENT YEAR IS ALSO THE SAME ISSUE BUT WITH ELABORATE FACTS BEING PRESENTED. THE VARIOUS CONTRACTS EXECUTED IN INDIA BY THE ASSE SSEE WHICH HAVE IMPLICATIONS FOR THE YEAR UNDER CONCERN ARE AS FOLL OWS: 1. FORD INDIA (P) LTD TAMIL NADU AND GUJARAT 2. VOLKSWAGEN INDIA (P) LTD (PUNE MAHARASHTRA) 3. MAHINDRA AND MAHINDRA (NASHIK MAHARASHTRA) 4. TATA MOTORS LTD (MUMBAI) 5. HYUNDAI MOTORS INDIA (P) LTD (TAMIL NADU) 6. VE COMMERCIAL VEHICLES LTD (MADHYA PRADESH). THE TOTAL VALUE OF THE CONTRACTS IN RESPECT O F THE ABOVE ARE AS FOLLOWS: NAME OF THE CONTRACT OFFSHORE SUPPLY SUPERVISION ONSHORE SUPPLY INSTALLATION & COMMISSIONING DURR SYSTEMS GMBH DURR INDIA FORD SANAND EURO 38,920,740 EURO 20,64,731 INR 189,29,53,744 INR 58,06,55,017 VOLKSWAGEN INDIA EURO 1,960,010 EURO 64,380 INR 4,21,07,000 INR 1,78,70,100 MAHINDRA & MAHINDRA INR 6,11,24,906 - - - TATA MOTORS EURO 11,997,187 - INR 79,12,13,105 INR 25,35,88,000 HYUNDAI MOTORS INR 51,79,950 - - - VE COMMERCIAL VEHICLES LIMITED INR 21,92,75,567 - - INR 69,35,611 OUT OF THE ABOVE, THE INCOMES, RELATING TO ASSESSEE ON ACCOUNT OF OFFSHORE SUPPLY OF MATERIALS FOR THE YEAR UNDER CONSIDERATION ARE AS FOLLOWS: 15 ITA NO.3109/CHNY/2017 PROJECT INCOME FOR THE YEAR IN EURO IN INR FORD INDIA PVT LTD (INVOICE WISE BREAKUP INCLUDES DELAY TO ACCESS COST) 57,09,544 44,47,12,429* MAHINDRA AND MAHINDRA LTD (LEDGER OF ASSESSEE IN THE BOOKS OF MAHINDRA) - 3,34,91,323 VOLKSWAGEN INDIA PVT. LTD 22,07,777 17,63,88,577 HYUNDAI MOTORS - 51,79,950 DURR INDIA PVT. LTD - 4,98,84,812 TATA MOTORS LIMITED (LEDGER OF ASSESSEE IN THE BOOKS OF TATA) - 10,26,81,549 TOTAL 81,23,38,640 *AS FAR AS COMPUTATION OF INCOME FROM FORD INDIA FO R THE YEAR IS CONCERNED, THE DRAFT ASSESSMENT IS BASED ON A CONSIDERATION FOR THE SUPP LY FOR THE ENTIRE PROJECT AT RS.187,06,34,790/-, WHEREIN APART FROM THE INVOICES CONSIDERED FOR ARRIVING AT THE QUANTUM OF RS.187,06,34,790, THE ASSESSEE HAS DURIN G THE YEAR RAISED CERTAIN INVOICES TOWARDS DELAY IN ACCESS COST AS APPROVED BY FORD. ASSESSEE HAS NOT OFFERED THE ABOVE INCOMES TO TAX I N INDIA FOR THE REASON THAT, IN CASE OF FORD CONTRACT SAID SUPPLIES ARE OF INDEPENDENT S COPE OTHER THAN SUPERVISORY CONTRACT AND THAT SUPPLIES ARE DONE ON FOB BASIS AN D IN RESPECT OF REMAINING CONTRACTS, FOR THE REASON THAT THERE EXISTS NO SUPE RVISORY/SERVICE PE IN INDIA IN RESPECT OF THE ABOVE CONTRACTS FOR ANY BUSINESS INCOME TO B E TAXED IN INDIA FOR THE ASSESSEE. A) FORD CONTRACT - COMPOSITE CONTRACT DURING THE COURSE OF PROCEEDINGS BASED ON ELABORATE FACTS VIZ IN CASE OF FORD CONTRACT, EXAMINATION OF RFQ, PROPOSAL BY DURR GERMANY IN RES PONSE TO RFQ, LETTER OF INTENT, PROPOSAL GIVEN TO FORD BY DURR GERMANY, PURCHASE OR DER, ORGANISATIONAL CHART, PROJECT PROGRESS/FINAL REPORT, TRANSFER OF RISK ON SUPPLY AND ACCEPTANCE, STATEMENT FROM PAINT SHOP MANAGER, FORD INDIA, IT WAS PROVED BEYON D DOUBT THAT THE CONTRACT WAS A SINGLE COMPOSITE CONTRACT AND THAT AT THE RFQ STAGE WHAT WAS ENVISAGED WAS A SINGLE COMPOSITE, TURNKEY CONTRACT. IT IS DURR GERMANY BY ITS PROPOSAL INSISTED THAT THE CONTRACT SHOULD BE SPLIT INTO SUPPLY AND SUPERVISOR Y. IT IS NOT BY NATURAL COROLLARY THE ASSESSEE COMPANY HAS ENTERED INTO TWO DIFFERENT SEP ARATE CONTRACTS. IT IS AT THE INSTANCE OF DURR GERMANY, FORD INDIA HAS SPLIT THE CONTRACT AND ISSUED THREE PURCHASE ORDERS. TAXABILITY IN INDIA OF THE OFFSHORE SUPPLY NOW THE SCOPE OF DISCUSSION IS WHETHER THE INCOME O N ACCOUNT OF SUPPLY OF PAINT SHOP MATERIAL/ EQUIPMENT ON ACCOUNT OF THE COMPOSITE CON TRACT IS TAXABLE IN INDIA IN THE HANDS OF THE PE. WHAT EMERGES FROM THE ABOVE DISCUS SION IS THAT IN RESPECT OF FORD 16 ITA NO.3109/CHNY/2017 CONTRACT, THE CONTRACT IS AN INEXTRICABLY AND ORGAN ICALLY LINKED CONTRACT WHICH CANNOT BE SPLIT AND HENCE THE INCOME ACCRUES OR ARISES AT THE SITUS OF THE COMPOSITE CONTRACT. TO ELABORATE FURTHER, ACCRUAL AS A LEGAL CONCEPT REFERS TO THE RIGHT TO RECEIVE. IT IS IN THESE CIRCUMSTANCES THAT PASSING OF TITLE AND THE ASSOCIATED RISKS AND REWARDS ASSUME IMPORTANCE. THE TERM ACCRUAL CONNOTE LEGAL RIGHT TO RECEIVE. IT IS THE ENFORCEMENT OF RIGHT TO RECEIVE (FROM RECIPIENT STA NDPOINT) WITH A CORRESPONDING OBLIGATION TO PAY (FROM PAYERS PERSPECTIVE). IN OUR CASE SINCE THE RISKS AND RESPONSIBILITIES OF THE ENTIRE CONTRACT VEST WITH DURR GERMANY AND ONLY ON SUCCESSFUL EXECUTION OF THE ENT IRE PROJECT ,THE LIABILITY CEASES TO EXIST, THE SITUS HAS TO BE DETERMINED ON THE BASIS OF THE SITE WHERE THE PLANT IS TO BE ERECTED. IT IS THEREFORE CLEAR THAT THE INCOME TO T HE APPLICANT ACCRUED IN INDIA AND THE SOURCE OF INCOME IS IN INDIA AND THEREFORE TAXABLE IN INDIA. EXISTENCE OF PE FOR OFFSHORE SUPPLIES IN THIS REGARD, REFERENCE IS ALSO INVITED TO THE PR OJECT MASTER SCHEDULE PREPARED FOR THE PROJECT, THE RELATED FACTS WHICH ARE BROUGHT OUT IN THE SUBSEQUENT SCRUTINY PROCEEDINGS. FROM THE SAME IT IS SEEN THAT, ASSESSEE WAS MAINTA INING A STORAGE AREA ON SITE SINCE 10.08.2012. SUBSEQUENT TO THAT FROM 11.09.2012, THE SHIPMENT OF GOODS BY IMPORT ORDER HAS COMMENCED AND HAS CONTINUED TILL 02.04.20 13. AFTER ALL THE GOODS HAVE BEEN RECEIVED AT SITE, THE INSTALLATION WAS TO COMMENCE ONLY ON 02/05/2013 TO BE COMPLETED ON 17.01.2014. TILL SUCH TIME, THE IMPORTED GOODS H AVE BEEN STORED IN THE STORAGE AREA ON SITE. HENCE, THE IMPORTED MATERIAL WAS ALWAYS IN THE CUSTODY OF ASSESSEE AND THE PASSING OF RISK ON EQUIPMENT TO CUSTOMER IS TO HAPP EN ONLY ON 17.01.2014 POST WHICH THE WARRANTY FOR THE EQUIPMENT SUPPLIED STARTS FROM 31.03.2014, POST INSTALLATION OF ALL THE EQUIPMENTS AT SITE. THERE ARE TWO STAGES OF PAS SING OF RISK ASSOCIATED WITH THE PROJECT VIZ., PASSING OF RISK OVER EQUIPMENT AS STA TED ABOVE AND PASSING OF RISK OVER COMPLETED PROJECT TO CUSTOMER WHICH IS TO HAPPEN ON LY POST COMMISSIONING/PILOT PRODUCTION START AND PRE ACCEPTANCE. ASSESSEE HAD A PE IN INDIA IN RESPECT OF OFFSHORE S UPPLIES BY VIRTUE OF PRESENCE OF SITE OFFICE/STORAGE AREA AT THE FORD SITE IN INDIA FOR A PERIOD MORE THAN THE THRESHOLD. OTHER CONTRACTS IT IS TO BE NOTED FORM THE STATEMENT RECORDED FROM GENERAL MANAGER SALES A& SERVICE DURR INDIA PRIVATE LIMITED, THE PROCESS AS MENTIONE D IN FORD CONTRACT IS COMMON FOR ALL THE CONTRACTS EXECUTED BY DURR GERMANY IN INDIA. 1. THE APPELLANT FULLY CO-OPERATED DURING THE ASSES SMENT PROCEEDINGS. THE ASSESSEE CLAIMS THAT FULL CO-OPERATION WAS EXTE NDED TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HOWEVER COMPLETE FACTS C ONCERNING THE TURNKEY PROJECT WAS NO DIVULGED BEFORE THE AO, BY THE ASSESSEE. TRU E FACTS CONCERNING THE ASSESSMENT WERE KNOWN TO THE AO SUBSEQUENT TO THE S URVEY OPERATION ONLY , AND THEREFORE WHATEVER MAY BE THE CO-OPERATION IN TERMS OF NUMBER OF DAYS ATTENDED FOR HEARING ETC, SINCE THE ASSESSEE HAD NOT REPORTED TH E CORRECT FACTS AND FURTHER ATTEMPTED TO AVOID TAXES IN INDIA BY SPLITTING A CO MPOSITE CONTRACT INTO OFFSHORE AND ON SHORE CONTRACTS, THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE HAD FULLY CO-OPERATED DURING THE ASSESSMENT PROCEEDINGS IS NOT ACCEPTABLE . 17 ITA NO.3109/CHNY/2017 2. SHOW CAUSE NOTICE DATED 16.12.2016 FOR ASSESSMEN T TO BE COMPLETED BEFORE 31. DECEMBER 2016. 2.1. IT MAY BE NOTED FROM THE SEQUENCE OF EVENTS CO NCERNING THE ASSESSMENTS THAT HEARINGS WERE AFFORDED TO THE ASSESSEE FROM 4 TH .M AY 2016 TILL 27.12.2016. STILL THE ASSESSEE HAD NOT FURNISHED THE TRUE FACTS OR CORREC T DETAILS CONCERNING THE PAINT SHOP PROJECT. SHOW CAUSE FOR THE DRAFT ASSESSMENT ORDER WAS ISSUED ON 16.12.2016, AND THE ASSESSEE BEING SEIZED OF THE FACTS HAD ENOUGH TIME TO REPLY FOR THE SAME. SINCE 31.12.2016 WAS THE LIMITATION DATE, DRAFT ASSESSMEN T ORDER WAS PASSED ON 31.12.2016, AND THIS ORDER IS NOT A FINAL ORDER, BUT ONLY A DRA FT ORDER. 2.2. DURING THE COURSE OF SCRUTINY PROCEEDINGS, IT WAS SEEN THAT APART FROM FORD INDIA PAINT SHOP CONTRACT, DURR GERMANY HAS EXECUTED DURI NG THE YEAR, SIMILAR CONTRACTS WITH OTHER AUTOMOBILE MANUFACTURERS IN INDIA. DURR GERMA NY WAS ASKED TO FURNISH THE RECEIPTS! CONTRACT UNDERTAKEN DURING AY 2014-15 VID E ORDER SHEET NOTING DATED 23/11/2016. DURR GERMANY HAS NOT FURNISHED THE DETA ILS CALLED FOR. HOWEVER BASED ON THE LIST OF CUSTOMERS GIVEN BY DURR GERMANY THIS OF FICE HAS ISSUED NOTICE U/S 133(6) TO THE INDIAN AUTOMOBILE MANUFACTURERS AND COLLECTED T HE DETAILS OF AMOUNT PAID BY THEM ON ACCOUNT OF SUPPLY OF MATERIAL! SERVICES DURING T HE YEAR. ASSESSEE DURING THE COURSE OF HEARING DT 23.12.2016 IN RESPONSE TO THE SHOW CA USE FOR COMPLETION OF ASSESSMENT ISSUED, CONTENTED THAT THE DATA REGARDING SUPPLY OF EQUIPMENTS RECEIVED FROM VARIOUS AUTOMOBILE MANUFACTURERS WAS NOT FURNISHED TO THE A SSESSEE. HENCE ON ASSESSEES REQUEST THE SAID INFORMATION WAS MADE AVAILABLE TO THE ASSESSEE DURING THE COURSE OF SAID HEARING, AND ASSESSEE WAS ASKED TO RECONCILE T HE SAME, WHICH ASSESSEE NEVER FILED(COPY OF ORDER SHEET EVIDENCING THE SAME IS EN CLOSED); WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THA T THE INFORMATION USED IN THE ASSESSMENT IS NOT A NEW INFORMATION WHICH WAS OBTAI NED FROM THE AUTOMOBILE MANUFACTURERS. THE DETAILS USED IN THE ASSESSMENT A RE THAT WHICH ARE AVAILABLE WITH THE ASSESSEE AND WAS OBTAINED FROM THE ASSESSEE CUS TOMERS DIRECTLY AS ASSESSEE WAS NOT FORTHCOMING IN GIVING THE DETAILS. HENCE IT IS SUBMITTED THAT NO NEW FACTS WHICH ARE NOT KNOWN TO THE ASSESSEE HAS BEEN USED IN THE ASSESSMENT ORDER. 2.3. THE SHOW CAUSE NOTICE WAS ISSUED ON 16.12.2016 , 15 (FIFTEEN) DAYS AHEAD OF THE TIME BARRING DATE OF 31.12.2016 . IN THE PRESENT ER A OF FAST COMMUNICATION MODES AVAILABLE, THE ASSESSEE CANNOT TAKE A PLEA THAT THE SHOW CAUSE WAS ISSUED VERY LATE. AS ALREADY STATED THE SHOWCAUSE ISSUED WAS WELL WIT HIN THE REASONABLE PERIOD, AND THE ORDER PASSED WAS ALSO A DRAFT ASSESSMENT ORDER. 3.1 & 3.2. FOR THE REASONS MENTIONED AGAINST SL. NO . 2.2, SINCE THE INFORMATION AND DETAILS COLLECTED WERE ALREADY WITH THE ASSESSEE OR IN THE KNOWLEDGE OF ASSESSEE, THERE WAS NO REQUIREMENT TO SEPARATELY SHARE SUCH I NFORMATION. THE ASSESSEE SHOULD HAVE PROVIDED ALL THE SAID INFORMATIONS TO THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGSITSELF. HAVING NOT PROVIDED THE SAME, AN D THE AO BEING TO FORCED TO GET HOLD OF SUCH DETAILS AND DOCUMENTS, FROM THE CUSTOM ERS OF THE ASSESSEE, THERE IS NO FURTHER REQUIREMENT TO SHARE SUCH INFORMATION WITH THE ASSESSEE. THE ASSESSEE ITSELF ADMITS THAT PART OF THE INFORMATION COLLECTED WERE SHARED WITH THE ASSESSEE IN RESPECT OF FIVE CUSTOMERS. 3.3. THE ASSESSEE OUGHT TO HAVE FURNISHED THE INFOR MATION MONTHS BEFORE, DURING THE PENDENCY OF ASSESSMENT PROCEEDINGS. HAVING NOT PROV IDED THE CORRECT DETAILS, THE AO WAS FORCED TO OBTAIN THE INFORMATION FROM OTHER CUS TOMERS OF THE ASSESSEE. AT THIS JUNCTURE, THE ASSESSEE CANNOT TAKE A PLEA THAT ENOU GH TIME WAS NOT ALLOWED TO EXAMINE THE DETAILS OBTAINED FROM THE CUSTOMERS OF THE ASSESSEE. 4.1 YES THE STATEMENT OF THE DEPUTY MANAGER, PAINT SHOP OF FORD INDIA WAS RECORDED ON 02.12.2016, SINCE THE ASSESSEE WAS NOT FORTH COM ING WITH THE CORRECT SET OF FACTS CONCERNING THE PROJECT AWARDED TO FORD INDIA. 18 ITA NO.3109/CHNY/2017 4.2. THE ASSESSEE IS SITTING OVER AND EVALUATING TH E DRAFT ASSESSMENT ORDER. AFTER COMPLETION OF DRAFT ASSESSMENT ORDER, THE ASSESSEE HAD FILED AN APPEAL BEFORE THE HONBLE DRP, AND THE DRP AFTER AFFORDING SUFFICIENT OPPORTUNITIES AND AFTER CALLING FOR A REMAND REPORT FROM THE AO HAD PASSED ORDERS AND THE FINAL ASSESSMENT ORDER WAS PASSED CONSEQUENT TO THE DIRECTIONS OF THE DRP. NOW THE ASSESSEE IS DISPUTING THE FINAL ASSESSMENT ORDER BEFORE THE ITAT AND NOT THE DRAFT ASSESSMENT ORDER. SHORTCOMINGS IF ANY IN THE DRAFT ORDER HAD ALREADY BEEN REMEDIED IN THE FINAL ASSESSMENT ORDER, SINCE THE FINAL ASSESSMENT ORDER WAS PASSED CONSEQUENT TO THE DIRECTIONS OF THE DRP. FURTHER THE ASSESSEE HAD NOT ASKED FOR A COPY OF THE STATEMENT RECORDED FROM SHRI. K. SURESH, DURING THE PENDENCY OF THE DRAFT ASSESSMENT PROCEEDINGS. 4.3. DURING THE PROCEEDINGS BEFORE THE DRP, THE ASS ESSEE HAD SOUGHT FOR A COPY OF THE STATEMENT RECORDED FROM SHR. K. SURESH AND THE SAME WAS PROVIDED. TO ENABLE THE ASSESSEE TO PRESENT THE CASE BEFORE THE DRP, THE IM PUGNED STATEMENT WAS FURNISHED TO THE ASSESSEE. THE STATEMENTS COULD HAVE BEEN WEL L REBUTTED BEFORE THE DRP, SINCE THE ORDER PASSED ON 31.12.2016 WAS ONLY A DRAFT ASS ESSMENT ORDER. 5. 5.1. SINCE THE ASSESSEE HAD FILED AN APPEAL BEFORE THE DRP AGAINST THE DRAFT ASSESSMENT ORDER, AND THE DRP HAD PASSED ORDERS ON THE ASSESSEES APPEAL AND FURTHER THE AO HAD PASSED FINAL ASSESSMENT ORDER IN CORPORATING THE DRPS DIRECTIONS, THE DRAFT ASSESSMENT ORDER GETS ABSOLVED WITH THE F INAL ASSESSMENT ORDER AND FOR ALL PRACTICAL PURPOSES THE FINAL ASSESSMENT ORDER PASSE D NEEDS TO BE CONTESTED AND NOT THE DRAFT ASSESSMENT ORDER. THE ASSESSEE ITSELF STA TES THAT THE DUPLICATION OF INCOME HAD BEEN CORRECTED IN THE FINAL ASSESSMENT ORDER. H ENCE THERE CANNOT BE ANY GRIEVANCE OVER THE DUPLICATION OF CERTAIN INCOME IN THE DRAFT ASSESSMENT ORDER. 5.2 -DO 5.3 -DO 5.4 -DO- 6. AS ALREADY STATED NO NEW EVIDENCE WAS OBTAINED, WHICH ARE CAPABLE OF BEING USED AGAINST THE ASSESSEE. THE DETAILS COLLECTED FROM TH E CUSTOMERS OF THE ASSESSEE, WERE ALREADY IN THE KNOWLEDGE OF THE ASSESSEE, AND NO DA MAGE WAS SAID TO HAVE BEEN CAUSED TO THE ASSESSEE. EVEN THE DRP WAS AWARE OF S UCH FACTS AND NOTED IN THE ORDER THAT THE AO HAD ONLY ACTED ON THE DIRECTIONS OF TH E DRP AND HENCE THERE IS NO INFIRMITY ON THE PART OF THE AO. WITH REFERENCE TO PROVISION OF SUFFICIENT OPPORTUNITY, THE ASSESSEE IS GIVEN SUFFICIENT OPPORTUNITY BY THE DRP 7. ASSESSEE FILED ADDITIONAL EVIDENCE AND ALSO LETT ER OF OBJECTION BEFORE THE HONBLE DRP. THE HONBLE DRP SUMMARIZING THE ASSESSEE OBJEC TIONS, REQUIRED THE ASSESSING OFFICER TO EXAMINE THE EVIDENCES AND SUBMISSIONS FI LED BY THE ASSESSEE AND SUBMIT A REMAND REPORT. AMONG OTHER ISSUES RAISED, ONE OF TH E ISSUE REQUIRED TO BE EXAMINED, AND THAT WAS RAISED BY THE ASSESSEE BEFORE HONBLE DRP WAS THE ASSESSEE CONTENTION THAT SUPPLY OF EQUIPMENT MADE TO CUSTOMERS IS CONSI DERED AS INCOME FROM PE OPERATIONS ALTHOUGH THE TITLE AND RISK IN GOODS HAS PASSED TO THE CUSTOMERS OUTSIDE INDIA. ASSESSEE WAS REQUIRED TO FILE THE EVIDENCES RELIED ON. MEANWHILE A TDS SURVEY WAS CONDUCTED IN THE CASE OF DURR INDIA PRIVATE LIM ITED. DURING THE COURSE OF PROCEEDINGS CERTAIN ADDITIONAL EVIDENCES RELATING T O THE CONTRACTS EXECUTED BY ASSESSEE IN INDIA WERE OBTAINED WHICH WERE OF DIREC T RELEVANCE TO THE QUESTIONS RAISED IN REMAND PROCEEDINGS. HENCE THE SAME WERE ALSO SOU GHT TO BE FILED BEFORE DRP. THE REMAND REPORT SUBMITTED TO DRP IS ONLY A REPORT ON EXAMINATION OF ADDITIONAL EVIDENCES AND SUBMISSIONS RELIED ON BY THE ASSESSEE BEFORE DRP ALSO ON THE GROUNDS RAISED BY THE ASSESSEE BEFORE THE DRP AND THE PRESE NTING OF RELEVANT FACTS. 19 ITA NO.3109/CHNY/2017 FURTHER THE TDS SURVEY CONDUCTED IN THE CASE OF DUR R INDIA, WHOLLY OWNED SUBSIDIARY OF ASSESSEE COMPANY, HAD UNEARTHED VARIOUS FACTS HI THERTO NOT DISCLOSED BY THE ASSESSEE TO THE DEPARTMENT ,, AND IN VIEW OF THE PE NDENCY OF PROCEEDINGS BEFORE THE DRP, AND IN RESPONSE TO THE REMAND REPORT CALLED FO R, THE SURVEY FINDINGS RELATING THE A.Y. 2014-15, WERE CONVEYED TO THE DRP FOR FURTHER CONSIDERATION. THE DRP HAD CONSIDERED THE ISSUES AND HAD ISSUED APPROPRIATE DI RECTIONS TO THE AO, WHICH WAS CARRIED OUT IN THE FINAL ASSESSMENT ORDER. THE ASSE SSEES CONTENTIONS ON THIS ISSUE GIVES A FEEL THAT THE AO., HIMSELF HAD OVERSTEPPED HIS LIMITS BY INCLUDING NEW ISSUES AND ADDITIONS OVER AND ABOVE , WHAT WAS COMMUNICATE D IN THE DRAFT ASSESSMENT ORDER. THE DEVIATION IF ANY IN THE FINAL ASSESSMENT ORDER IS DUE TO FRESH EVIDENCES GATHERED DURING THE SURVEY OPERATION, WHICH WAS NOT TRULY DI SCLOSED BY THE ASSESSEE COMPANY, PRIOR TO THE SURVEY, AND SUCH EVIDENCES WERE BROUGH T TO THE KNOWLEDGE OF THE DRP AND THE DRP HAD ISSUED DIRECTIONS TO ENHANCE THE ASSESS MENT, WHICH IS ALSO WITHIN THE LEGAL FRAME WORK OF SECTIONS 144C(5), (6) AND (7) O F THE IT ACT., AND THE AO HAD NOT SUO-MOTO DEVIATED FROM THE DRAFT ASSESSMENT ORDER, AS ALLEGED BY THE ASSESSEE. 8.1 THE PROFITABILITY ADOPTED IN THE ORDER IS BASED ON THE EVIDENCE OBTAINED DURING THE COURSE OF 131 PROCEEDINGS IN CASE OF DURR INDIA, WH EREIN IN THE FINAL REPORT IN RESPECT OF FORD CONTRACT THE PROFITABILITY FIGURES WERE AVAILA BLE. TO CORROBORATE THE SAME, THE PROFITABILITY OF DURR INDIA PRIVATE LIMITED WAS SOU GHT TO BE VERIFIED. SINCE THE ABOVE PROFITABILITY ADOPTED IS IN LINE WI TH THE PROFITABILITY OF DURR INDIA THE PROFITABILITY FIGURES ADOPTED IN THE ASSESSMENT ARE CORRECT.WITHOUT PREJUDICE TO THE ABOVE, THERE IS NO BASIS FOR THE PROFITABILITY DECL ARED BY THE ASSESSEE, WHEREIN THE PROFITABILITY ADOPTED IS BASED ON SOLID EVIDENCE. 8.2 THE ASSESSEE ITSELF ADMITS THAT DURING THE PEND ENCY OF REMAND PROCEEDIGS, A QUESTIONNAIRE WAS ISSUED TO THE ASSESSEE, AND THE S AME WAS RESPONDED BY THE ASSESSEE. THE QUESTIONNAIRE WAS ISSUED IN ORDER TO SUBMIT A REMAND REPORT TO THE DRP, ON THE ASSESSEES OBJECTIONS FILED BEFORE THE DRP. SINCE TRUE FACTS WERE NOT FORTHCOMING FROM THE ASSESSEE, A TDS SURVEY WAS CON DUCTED, WHEREIN THE ISSUE OF SINGLE CONTRACT AWARDED WAS SPLIT INTO TWO AT THE I NSTANCE OF THE ASSESSEE ETC. WERE ESTABLISHED . SINCE THE ASSESSEE WAS ALREADY AWARE OF THE CORRECT SET OF FACTS AND NOT DIVULGING THE SAME TO THE DEPARTMENT, AND TDS SURVE Y HAVING BROUGHT OUT THE CORRECT FACTS AND REPORTED TO THE DRP IN THE FORM OF A REMA ND REPORT, THERE CANNOT BE ANY GRIEVANCE TO THE ASSESSEE THAT THE SURVEY FINDINGS WERE NOT GIVEN FOR REBUTTAL. ONLY FACTS KNOWN TO THE ASSESSEE WERE ESTABLISHED DURING THE SURVEY OPERATION AND CONVEYED TO THE DRP IN THE FORM OF REMAND REPORT. 8.3. THE REMAND REPORT WAS SOUGHT FOR BY THE DRP, A ND THE SAME HAD BEEN PREPARED AND SUBMITTED TO THE SATISFACTION OF THE DRP. THE D RP HAD NOT PASSED ANY REMARKS ON THE QUALITY OF THE REMAND REPORT. BASED ON THE FIND INGS IN THE REMAND REPORT AND DETAILS ALREADY AVAILABLE ON RECORDS, THE DRP HAD P ASSED FINAL ORDER, WHICH WERE INCORPORATED IN THE FINAL ASSESSMENT ORDER. THEREFO RE AT THIS STAGE THE ASSESSEE CANNOT QUESTION THE CONTENTS OF THE REMAND REPORT. 8.4. THE ASSESSEE HAD NOT QUANTIFIED THE DOUBLE ADD ITION AMOUNTS IF ANY. SUCH DOUBLE ADDITION IF ANY IS PROVED, REMEDIAL MEASURES SHALL BE INITIATED AT THE TIME OF PASSING ORDER, GIVING EFFECT TO THE HONBLE ITAT ORDER. 8.5. SIMILAR NATURE OF INCOME NOT INCLUDED IN THE D RAFT ASSESSMENT ORDER CAN ALWAYS BE INCLUDED IN THE FINAL ASSESSMENT ORDER, BY BRINGING TO THE NOTICE OF THE DRP. IN THIS CASE, DURING THE PENDENCY OF REMAND PROCEEDINGS, SU CH INCOME IF ANY LEFT OUT WAS INCLUDED, WHICH IS WELL WITHIN THE PROVISIONS OF TH E ACT. 8.6 AND 8.7. CONCERNS THE DRP. 20 ITA NO.3109/CHNY/2017 CONSIDERING ALL THE ABOVE, BASICALLY THE ASSESSEE H AD NOT DIVULGED CERTAIN BASIC INFORMATION CONCERNING THE TURNKEY PROJECT AND TRIE D TO MISLEAD THE AO, BY HIDING SUCH FACTS. HOWEVER DURING THE PENDENCY OF ASSESSMENT PR OCEEDINGS, REMAND PROCEEDINGS OF THE DRP AND BY CONDUCTING A TDS SURVEY IN THE CA SE OF M/S. DURR INDIA (WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE COMPANY ) ASSESSEE S PREMISES, CORRECT FACTS WERE CULLED OUT, RESULTING IN THE ADDITIONS. DUE OPPORTU NITIES WERE ALSO GRANTED TO THE ASSESSEE. THE INITIAL ORDER PASSED WAS A DRAFT ASSE SSMENT ORDER. THE DRP HAD PASSED FURTHER ORDER AFTER CALLING FOR A REMAND REP ORT FROM THE AO. FINAL ASSESSMENT ORDER WAS PASSED TAKING INTO ACCOUNT THE DIRECTIONS OF THE DRP. THEREFORE THE ORDER PASSED IS FACTUALLY CORRECT AND WELL WITHIN THE PRINCIPLES OF NATURAL JUSTICE AND CANNOT BE TERMED AS ARBITRARY OR ADHOC, AS ALLEGED BY THE ASSESSEE. 5.1 THE LD STANDING COUNSEL HAS ALSO INVITED OUR A TTENTION TO VARIOUS PORTIONS OF THE ORDERS OF THE TPO AND THE DRP, THE DECISION OF THE JURISDICTIONAL HIGH COURT IN ANSALDO ENERGIA SPA V ITAT, CHENNAI IN TC NO 1303 OF 2007 DT 12.01.2009 , REPORTED IN (2009) 178 TAXMAN 57 (MADRAS) AND SUBMITTED THAT THE FACTS OF THE ASSESS EES CASE EXACTLY FITS WITH THAT CASE AND HENCE, HE PLEADED US TO A PPLY THE RATIO OF THE ABOVE JURISDICTIONAL HIGH COURTS DECISION . 6. ON THE COUNTER OF THE LD STANDING COUNSEL, TH E GIST OF THE LD AR IS AS UNDER : THE ASSESSEE DID IN FACT FULLY CO-OPERATE DURING T HE ASSESSMENT PROCEEDINGS; THE ASSESSMENT PROCEDURE WAS AGAINST THE PRINCIPLES OF NATURAL JUSTICE NEITHER PROVIDING FULL INFORMATION OBTAINED FROM TH IRD-PARTIES NOR PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE; - THAT THERE ARE A PLETHORA OF FACTUAL INACCURACIES AND INCORRECTLY APPLIED LEGAL PRINCIPLES IN THE COURSE OF THE IMPUGNED ASSE SSMENT 21 ITA NO.3109/CHNY/2017 - THAT THE ASSESSING AUTHORITIES CONFLATED THE SUPP LY (SALE) OF EQUIPMENT AND SERVICES CONTRACTS IS AGAINST THE PROVISIONS OF THE ACT AND THE DTAA AND VARIOUS JUDICIAL DECISIONS - THAT THE ASSESSING AUTHORITIES AGGREGATED THE SUP PLY TO VARIOUS CUSTOMERS WITH THE SUPERVISORY PE OF ASSESSEE FOR F ORD INDIA IS ILLOGICAL AND AGAINST PROVISIONS OF DTAA AND ACT AND VARIOUS JUDICIAL DECISIONS THAT THAT THE AO HAS USED INFORMATION OBTAINED FROM ANOTHER ASSESSEES PREMISES, AND TOO IN A WHOLLY INCORRECT MANNER, AGA INST THE ASSESSEE WITHOUT PROVIDING SUFFICIENT OPPORTUNITY - THAT THE FINAL ASSESSMENT SUFFERS FROM DUPLICATIO N OF INCOME LEADING TO DOUBLE TAXATION AND VARIOUS OTHER BLATANT PRIMA FAC IE ERRORS WHICH OUGHT TO BE RECTIFIED - THAT THE ENTIRE ASSESSMENT IS MADE ON ASSUMPTIONS AND PRESUMPTIONS AND IS BAD IN FACTS AND LAW AND AGAINST THE VARIOUS JUDICIAL DECISIONS DIRECTLY IN FAVOUR OF THE ASSESSEE. WE THEREFORE HUMBLY REQUEST THE HONBLE BENCH TO QU ASH THE ASSESSMENT ORDER AND PROVIDE RELIEF TO THE ASSESSEE. 7. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT MATERIAL. THE RELEVANT PORTION OF THE ORDER OF THE DRP IS EXTRACTED AS UNDER : 4. COMMENTS AND DIRECTIONS OF DRP 4.1 PE ISSUE: THE ASSESSING OFFICER HAS DISCUSSED T HIS ISSUE VERY ELABORATELY IN HIS ORDER FROM PAGE NO. 73 TO 88. TH E RELEVANT PORTION OF THE AOS ORDER ARE ALREADY REPRODUCED ABOVE. AS OBSERVE D BY THE AO ALL THE ACTIVITIES OF THE ASSESSEE FROM ENGINEERING STAGE TO SUPPLY ERECTION, INSTALLATION, COMMISSIONING AND COMPLETION ARE ALL INEXTRICABLY AND ORGANICALLY LINKED AND HENCE, THE TURNKEY CONTRACT IS A SINGLE COMPOSITE CONTRACT BETWEEN FORD INDIA AND DURR SYSTEMS GMBH (ASSESSEE) . THESE FACTS HAVE FURTHER BEEN CONFIRMED BY THE DOCUMENTARY EVIDENCE GATHERED BY THE ASSESSING OFFICER DURING 133A CONDUCTED IN THE PREM ISES OF THE ASSESSEE ON 08.09.2017. AS PER DTAA, IF THE ACTIVITIES OF THE FOREIGN COMPA NY IN INDIA EXTENDS BEYOND SIX MONTHS PE IS DEEMED TO HAVE BEEN CONSTITUTED IN INDIA AND TAX IMPLICATIONS FOLLOW. AS PER THE NOTES TO FINANCIAL STATEMENTS AS ON 31.03.2014 UNDER CORPORATE INFORMATION IT IS STATED THAT, THE PERMANENT ESTABLISHMENT OF DURR SYSTEMS GMBH WAS SETUP IN INDIA AS THE SUPERVI SION ACTIVITIES IN 22 ITA NO.3109/CHNY/2017 RELATION TO THE CONTRACT WITH FORD INDIA PRIVATE LI MITED, INDIA, CONTINUED FOR A PERIOD EXCEEDING SIX MONTHS, IN RESPECT OF AN ASSEM BLY PROJECT IN INDIA THE ASSESSEE IS INTRICATELY CONNECTED TO THE CLIENT ACTIVITIES IN INDIA FROM SUPPLY OF EQUIPMENT TILL CERTIFICATION OF SUCCESSFU L INSTALLATION AND COMMISSIONING AS PER THE AGREEMENT. EVEN THOUGH THE INSTALLATION ACTIVITIES ARE UNDERTAKEN BY THE INDIAN SUBSIDIARY, THE PRESEN CE AND CONTINUED SUPERVISION OF ASSESSEE IS WELL ESTABLISHED. IT IS THE RESPONSIBILITY OF ASSESSEE TO GIVE FINAL PROOF OF PERFORMANCE. HENCE THE PE IS CLEARLY CONSTITUTED AS BROUGHT OUT BY THE AO IN THE DAO AND THESE FACTS ARE FURTHER FORTIFIED BY THE EVIDENCE GATHERED DURING REMAND RE PORT. THE REMAND REPORT SUBMITTED BY THE AO DETAILS THE EVIDENCE GATHERED A ND THE SAME IS CAPTURED IN EARLIER PARAS. VARIOUS DOCUMENTS, AGREEMENTS, IN VOICES OBTAINED AND ENCLOSED TO THE REMAND REPORT CONFIRMS THESE FACTS. AS PER THE GROUND 1(A), IT IS CLAIMED BY THE ASSESS EE THAT IT HAS NOT PARTICIPATED IN THE EXECUTION OF THE INSTALLATION A ND COMMISSIONING OF THE PLANT AND HENCE THERE CAN BE NO QUESTION OF ATTRIBU TING ANY PORTION OF INCOME TO THE ASSESSEE. HOWEVER AS PER THE DOCUMENTS OBTAI NED DURING SURVEY IT IS SEEN THAT THE ASSESSEE WAS DIRECTLY INVOLVED IN THE INSTALLATION AND COMMISSIONING IN INDIA AND THE TECHNICAL PERSONNEL ON THE ROLLS OF THE ASSESSEE WERE STATIONED IN THE CLIENT PREMISES IN I NDIA TO OVERSEE THE OPERATIONS. HENCE THE CONTENTIONS OF THE ASSESSEE A RE FOUND TO BE WRONG AND ACCORDINGLY THEY ARE REJECTED. ACCORDINGLY, THE ASSESSEES CONTENTIONS ARE PROVED TO BE FALSE. ACCORDINGLY, THE OBJECTION RAISED BY THE ASSESSEE IS REJECTED. 4.2 VALIDITY AND LEGITIMACY OF AO PROPOSING ENHANCE MENTS AND CASE LAWS QUOTED BY THE ASSESSEE: IN ITS EXPLANATION THE ASS ESSEE CHALLENGED THE LEGAL VALIDITY AND LEGITIMACY OF AOS ACTION OF PROPOSING ENHANCEMENTS TO THE DAO AND CLAIMS THAT THE AO HAS EXCEEDED HIS JURISDICTIO N. IT IS THE CONTENTION OF THE ASSESSEE THAT WHEN DRP REQUIRED TO CONVEY AOS OBJECTION FOR THE ADMISSION OF ADDITIONAL EVIDENCE THE SCOPE OF THE A OS ACTION IS LIMITED ONLY TO PROVIDING HIS OBJECTIONS/ ACCEPTANCE OF THE ADMI SSION OF ADDITIONAL EVIDENCE. THE ASSESSEE FURTHER STATES THAT THE AO I N HIS REMAND REPORT SHOULD DISCUSS ONLY THE REASONS FOR ACCEPTANCE OR R EJECTION OF AN ITEM OF ADDITIONAL EVIDENCE AND ANY MATTER DISCUSSED IN THE REMAND REPORT THAT IS NOT CONNECTED WITH THE ADDITIONAL EVIDENCE IS NULL AND VOID. IT IS THE VIEW OF THE ASSESSEE THAT AO HAS NOT PROVIDED HIS COMMENTS AS T O WHY THE ADDITIONAL EVIDENCE MAY OR MAY NOT BE ADMITTED THEREBY DEFEATI NG THE VERY PURPOSE OF THE REMAND REPORT. IT IS ALSO STATED BY THE ASSESSE E THAT AS PER THE PROVISION OF SECTION 144C THE AO CANNOT INDEPENDENTLY GATHER/ INCLUDE/ UTILIZE ANY DOCUMENT UNLESS DIRECTIONS ARE ISSUED BY HONBLE DR P. THE ASSESSEE RELIED ON VARIOUS CASE LAWS TO SUPPORT ITS ARGUMENTS. THE CONTENTION OF THE ASSESSEE ARE CAREFULLY C ONSIDERED. IN THIS REGARD, AS DISCUSSED ABOVE, THE AO CONDUCTED SURVEY AND GATHER ED FACTUAL INFORMATION AS PER THE DIRECTIONS OF THE DRP WHICH DIRECTED THE AO TO VERIFY AND SEND A REMAND REPORT. IN RESPECT OF CERTAIN ITEMS FORMING PART OF THE ADDITIONS IN THE DAO WHICH ARE OBJECTED TO BY THE ASSESSEE THE AO HA S CONCEDED THESE 23 ITA NO.3109/CHNY/2017 MISTAKES IN THE REMAND REPORT. HENCE, IT IS NOT COR RECT TO STATE THAT THE AO, HAS NOT RESPONDED TO THE ISSUES CONTAIN IN THE LETT ER SEEKING REMAND REPORT. THE ARGUMENT OF THE ASSESSEE THAT THE AOS SCOPE IS LIMITED TO PROVIDING HIS OBJECTIONS ARE ACCEPTANCE IS INCORRECT. WHEN THE RE MAND REPORT IS SOUGHT ESSENTIALLY WHAT IS EXPECTED FROM THE AO IS VERIFIC ATION OF FACTS. TO VERIFY THE FACTS IF A SURVEY AT ASSESSEES PREMISES IS REQUIRE D THE AO IS NOT LEGALLY PREVENTED FROM GATHERING EVIDENCE BY USING THE POWE RS VESTED IN HIM UNDER THE ACT. NO ILLEGALITY CAN BE ADDUCED TO THE AO ON THIS ISSUE. HENCE, THE ARGUMENT OF THE ASSESSEE THAT THE ASSESSING OFFICER EXCEEDED HIS JURISDICTION FAILS. THE CASE LAWS QUOTED BY THE ASS ESSEE RELATE TO THE SITUATIONS WHERE THERE WERE NO DIRECTIONS CALLING F OR REMAND REPORT BY THE DRP AND ALSO WHERE THE ASSESSING OFFICER SENT DRAFT ASSESSMENT ORDER FOR THE SECOND TIME. IN THIS CASE THE DRAFT ASSESSMENT ORDER IS NOT SENT SECOND TIME BUT ONLY ONCE. THE ENQUIRIES CONDUCTED BASED O N THE DRP S DIRECTIONS ARE VALID AND DRP U/S 144C(6) & (7) IS EMPOWERED TO UTILIZE THE ADDITIONAL INFORMATION GATHERED BY THE AO. HENCE, THE ARGUMENT S OF THE ASSESSEE ARE NOT ACCEPTED. THE ASSESSEE RAISED OBJECTION TO THE AO S ACTION UNDER SECTION 133A AND ALSO FOR THE FACT THAT SUFFICIENT OPPORTUNITY IS NO T PROVIDED TO EXPLAIN ITS POSITION. THE CONTENTIONS OF THE SSESSEE ARE NOT AC CEPTABLE. THE AO IS WITHIN HIS RIGHT TO CONDUCT SURVEY UNDER SECTION 133A TO O BTAIN INFORMATION. EVEN IF SUCH ENQUIRY RESULTS IN ADDITIONAL INFORMATION WHIC H IS NOT PART OF THE DRAFT ASSESSMENT ORDER, THE DRP WHICH ORDERED THE REMAND REPORT IS EMPOWERED UNDER SECTION 144C TO UTILIZE SUCH INFORMATION IN T HE PROCEEDINGS. THE PROVISIONS OF SEC 144C (6) AND (7) ARE REPRODUC ED AS UNDER: 144C (6) THE DISPUTE RESOLUTION PANEL SHALL ISSUE THE DIRECTIONS REFERRED TO IN SUB-SECTION (5), AFTER CONSIDERING THE FOLLOWING , NAMELY:- (A) DRAFT ORDER; (B) OBJECTIONS FILED BY THE ASSESSEE; (C) EVIDENCE FURNISHED BY THE ASSESSEE; (D) REPORT, IF ANY, OF THE ASSESSING OFFICER, VALUA TION OFFICER OR TRANSFER PRICING OFFICER OR ANY OTHER AUTHORITY; (E) RECORDS RELATING TO THE DRAFT ORDER; (F) EVIDENCE COLLECTED BY, OR CAUSED TO BE COLLECT ED BY IT; AND (G) RESULT OF ANY ENQUIRY MADE BY; OR CAUSED TO BE MADE BY, IT. (7) THE DISPUTE RESOLUTION PANEL MAY, BEFORE ISSUIN G ANY DIRECTIONS REFERRED TO IN SUB-SECTION (5),- (A) MAKE SUCH FURTHER ENQUIRY, AS IT THINKS F IT; OR (B) CAUSE ANY FURTHER ENQUIRY TO BE MADE BY ANY INCOME-TAX AUTHORITY AND REPORT THE RESULT OF THE SAME TO IT. (EMPHASIS ADDED) AS SEEN FROM THE ABOVE, DRP IS EMPOWERED TO CAUSE E NQUIRIES AND ALSO TO USE THE EVIDENCE CAUSED TO BE COLLECTED OR THE RESULT OF AN Y ENQUIRY CAUSED TO BE MADE IN THE PROCEEDINGS BEFORE FINALIZING ORDER U/S 144C(5) . 24 ITA NO.3109/CHNY/2017 AS CAN BE SEEN FROM THE FACTS OF THE CASE, THE AO O NLY ACTED ON THE DIRECTIONS OF THE DRP AND HENCE THERE IS NO INFIRMITY ON THE PART OF AO. WITH REFERENCE TO PROVISION OF SUFFICIENT OPPORTUNITY, THE ASSESSEE IS GIVEN SUFFI CIENT OPPORTUNITY BY THE DRP. THE ORAL AND WRITTEN SUBMISSIONS ARE CONSIDERED. THE AS SESSEE ALSO GOT SUFFICIENT OPPORTUNITY BEFORE THE AO DURING THE ASSESSMENT PRO CEEDINGS. THE FACTS GATHERED BY THE AO DURING SURVEY RELATE TO THE TRANSACTIONS WHI CH ARE ALREADY IN THE DOMAIN AND KNOWLEDGE OF ASSESSEE. THE ASSESSEE HAS NOT DENIED ANY DOCUMENT AS UNRELATED TO THE ASSESSEE AND NONE OF THE DOCUMENTS ARE QUESTION ED ON THE ISSUE OF GENUINENESS. HENCE THERE IS NO MERIT IN THE CONTENT IONS OF THE ASSESSEE WITH REFERENCE TO THE PROCESS OF DAO OR REMAND REPORT ON THE GROUNDS F NATURAL JUSTICE AND HENCE THEY DESERVE TO BE DISMISSED. 4.3 COLLECTION OF INFORMATION UNDER SEC.131/133(6) AND OPPORTUNITY: IT IS THE CONTENTION OF THE ASSESSEE THAT THE AO HAS NOT PROV IDED COMPLETE INFORMATION GATHERED BY HIS BY EXERCISING THE POWER S UNDER THE SECTIONS 131/133(6) OF THE IT ACT AND THERE BY VIOLATED THE PRINCIPLES OF NATURAL JUSTICE AS SUFFICIENT OPPORTUNITY IS NOT PROVIDED. THE CONT ENTIONS OF THE ASSESSEE ARE CAREFULLY CONSIDERED. THE AO PROVIDED SUFFICIENT OP PORTUNITY TO THE ASSESSEE BY ISSUE OF LETTERS AND SHOE CAUSE NOTICE. ISSUE OF SHOW CAUSE INVOLVES PRESENTING A SET OF FACTS TO THE ASSESSEE AND ALLOW ING THE ASSESSEE TO EXPLAIN/ REBUT/CLARIFY ETC. WHAT IS PUT TO THE ASSE SSEE IS WHAT IS DISCUSSED IN THE FINAL ORDER. WHAT IS NOT PUT TO THE ASSESSEE IS NOT USED OR AT LEAST ASSESSEE IS UNABLE TO SHOW WHICH PART OF THE ASSESS MENT ORDER IS PREPARED ON ITS BACK WITHOUT GIVING ANY OPPORTUNITY. HENCE T HE PANEL IS OF THE CONSIDERED OPINION THAT THERE IS NO MERIT IN THE CO NTENTIONS RAISED BY THE ASSESSEE. GROUNDS REJECTED. 4.4 DUPLICATION OF INCOME: THE ASSESSEE HAS RAISED OBJECTION ON THE ISSUE OF SAME INCOME BEING TAXED TWICE. THIS ISSUE IS PART O F THE MATTER REMANDED TO THE AO. AS PER THE REMAND REPORT REPRODUCED ABOVE T HE DUPLICATE ADDITIONS ARE APPROPRIATELY EXCLUDED EXCEPT THE TWO ITEMS DIS CUSSED BELOW. 1. IN RESPECT OF SUPERVISORY SERVICES TO MAHINDRA A ND MAHINDRA THE ASSESSEE CONTENDED THAT THE SUPERVISORY INCOME OF RS. 24,58, 400/- IS OFFERED IN THE RETURN OF INCOME AS FEE FOR TECHNICAL SERVICES BUT THE AO IN THE REMAND REPORT HAS CONSIDERED THIS AMOUNT ONCE AGAIN AT THE RATE O F 9% AND TAXED RS. 2,23,815/- HENCE THERE IS AN ADDITIONAL INCOME OF R S. 2,23,815/- BROUGHT TO TAX. THE CONTENTIONS OF THE ASSESSEE ARE VERIFIED A ND FOUND TO BE CORRECT. HENCE, THE AO IS DIRECTED NOT TO INCLUDE RS. 2,23,8 15/- AS PER PROPOSED. 2. IN RESPECT OF RECEIPT FROM DURR INDIA PVT LTD IT IS STATED THAT THE ASSESSEE HAS OFFERED TO TAX RS. 55,93,048/- AS PART OF INCOM E FROM OTHER SOURCES. HOWEVER, THE AO HAS ONCE AGAIN PROPOSED TO TAX THE SAME AT THE RATE OF 18% AMOUNTING TO RS. 10,06,749/- UNDER THE HEAD SUP ERVISORY INCOME. THE CONTENTION OF THE ASSESSEE ARE VERIFIED AND FOUND T O BE CORRECT. ACCORDINGLY, IT IS DIRECTED RS.10,06,749/- SHOULD NOT BE CONSIDE RED FOR ADDITION AS PROPOSED. 25 ITA NO.3109/CHNY/2017 4.5 AD HOC RATE OF PROFIT ADOPTED: THE ASSESSEE O BJECTED TO THE ADOPTION OF RATE AT 7.33% ADOPTED BY THE AO IN THE DAO. DURING THE REMAND PROCEEDINGS THE AO OBTAINED ADDITIONAL EVIDENCE IN SURVEY THAT THE ASSESSEE HAS HIGHER PROFIT MARGINS AT 18% AND 9% RESPECTIVEL Y IN DIFFERENT PROJECTS UNDERTAKEN BY IT. THE NECESSARY DOCUMENTARY EVIDENC E GATHERED BY THE AO IS PART OF REMAND REPORT WHICH IS DISCUSSED IN DETA IL AS PART OF REMAND REPORT. IN THIS REGARD THE COMMENTS OF AO ON THE IS SUE ARE REPRODUCED: IN RESPECT OF THE INCOME ATTRIBUTABLE TO THE PE ON ACCOUNT OF SUPPLY OF MATERIALS AND SUPERVISORY INCOME, THE PROFITABILITY IN RESPECT OF FORD CONTRACT HAS BEEN COMPUTED AT 18% AS AGAINST THAT ADOPTED AT 7.33% IN THE DRAFT ASSESSMENT ORDER BASED ON COST CONTROL REPORT FOR T HE PROJECT OBTAINED DURING THE COURSE OF FURTHER ENQUIRY. THE INCOME ON ACCOUN T OF SUPPLY OF MATERIALS HAS BEEN ENHANCED BASED ON INVOICES RAISED ON ACCOU NT OF DELAY IN ACCESS COST ALLOWED BY FORD. IN RESPECT OF THE INCOME ATTRIBUTABLE TO THE PE O N ACCOUNT OF SUPPLY OF MATERIALS AND SUPERVISORY INCOME, THE PROFITABILITY IN RESPECT OF MAHINDRA CONTRACT HAS BEEN COMPUTED AT 9% AS AGAINST THAT AD OPTED AT 7.33% IN THE BASED ON PROJECT OUTLOOK REPORT FOR THE PROJECT OBT AINED DURING THE COURSE OF FURTHER ENQUIRY. IN RESPECT OF THE INCOME ATTRIBUTABLE TO THE PE O N ACCOUNT OF SUPPLY OF MATERIALS AND SUPERVISORY INCOME, THE PROFITABILITY IN RESPECT OF VOLKSWAGEN CONTRACT HAS BEEN COMPUTED AT 18% AS AGAINST THAT A DOPTED AT 7.33% IN THE DRAFT ORDER ASSESSMENT ORDER BASED ON PROFITABILITY OF FORD PROJECT OBTAINED DURING THE COURSE OF FURTHER ENQUIRY. * IN RESPECT OF THE INCOME ATTRIBUTABLE TO THE PE O N ACCOUNT OF SUPPLY OF MATERIALS AND SUPERVISORY INCOME, THE PROFITABILITY IN RESPECT OF TATA MOTORS CONTRACT HAS BEEN COMPUTED AT 18% AS AGAINST THAT A DOPTED AT 7.33% IN THE DRAFT ORDER ASSESSMENT ORDER BASED ON PROFITABILITY OF FORD PROJECT OBTAINED DURING THE COURSE OF FURTHER ENQUIRY. AS SEEN FROM ABOVE THE BASIS FOR ADOPTION OF THESE RATES IS CLEARLY BROUGHT OUT BY THE AO. THE PANEL AFTER CAREFUL CONSIDERATIO N OF THE EVIDENCE GATHERED BY THE AO DURING SURVEY CONCLUDES THAT THE RE IS SUFFICIENT MATERIAL TO SHOW THAT THE MARGINS WERE IN FACT VERY HIGH AND ACCORDINGLY THE RATES OF 18% AND 9% ADOPTED FOR DIFFERENT PROJECTS ARE APPRO VED AND THEY SHOULD BE TAKEN IN THE FINAL ASSESSMENT ORDER. GROUND REJECTE D. ASSESSEES CONTENTION WITH REGARD TO FEE FOR TECHN ICAL SERVICES IS CONSIDERED. IT IS THE CONTENTION OF THE ASSESSEE TH AT FTS SHOULD NOT BE ASSESSED UNDER THE HEAD BUSINESS AND IT IS TO BE AS SESSED AS FEE FOR TECHNICAL SERVICES. FURTHER, IT IS CONTENDED BY THE ASSESSEE THAT UNDER SECTION 9(1)(I)(A) OF THE IT ACT ONLY THAT PART OF THE INCOME THAT IS ATTRIBUTABLE TO THE OPERATIONS OF THE ASSESSEE IN INDIA SHOULD B E TAXABLE IN INDIA. AFTER CAREFUL CONSIDERATION OF ASSESSEES CONTENTION THE DRP FINDS NO MERIT IN THE SAME AND REJECTS THE CONTENTION. THE AO HAS ESTABLI SHED WITH FACTS THAT ALL 26 ITA NO.3109/CHNY/2017 THE OPERATIONS FOR THOSE DEPOSITS OR ATTRIBUTABLE T O PE IN INDIA AND ARE ACCORDINGLY TAXABLE IN INDIA. GROUND REJECTED. WITH REFERENCE TO THE R&D INCOME IT IS A CONTENTION OF THE ASSESSEE THAT THE SAME IS NOT OFFERED TO TAX IN INDIA AS ITS PROCEEDI NGS FOR EARLIER YEARS ARE PENDING BEFORE THE HIGH COURT IN AAR NO. 1030 DATED 22.03.2012. THIS EXPLANATION OF THE ASSESSEE IS NOT ACCEPTAB1E AS CO NCEDED BY THE ASSESSEE THE HONBLE AAR HAS REJECTED THE CONTENTIONS OF THE ASSESSEE AND HENCE R&D FEES IS TAXABLE IN THE HANDS OF THE ASSESSEE. G ROUND REJECTED. WITH REFERENCE TO THE INFORMATION GATHERED DURING T HE SURVEY, THE AO HAS OBTAINED ADDITIONAL INFORMATION WHICH EITHER REDUCE S THE RECEIPTS OF ASSESSEE OR ENHANCES THE RECEIPTS OF THE ASSESSEE AS DISCUSS ED BELOW WITH REFERENCE TO THE INCOME: A) INCOME FROM SUPPLY OF EQUIPMENT: S.NO . RECEIPTS AS PER DAO AS PER REMAND REPORT RATE OF PROFIT DRP COMMENTS 1. FORD INDIA PVT.LTD 13,02,53,055 44,47,12,429 18% 8,00,48,237 THESE REVISED RECEIPTS AND PROFIT RATES ARE BASED ON AOS ENQUIRY DURING SURVEY IN RESPONSE TO REMAND REPORT CALLED FOR. HENCE, THEY ARE ACCEPTED. THE DUPLICATION OR WRONG ENTRIES WITH REFERENCE TO SUPERVISORY SERVICES AND INSTALLATION & COMMISSIONING CHARGES ARE CORRECTLY EXCLUDED. TO THIS EXTENT THE OBJECTION OF THE ASSESSEE IS ACCEPTED BY THE AO. RS. 14,32,06,73 61- SHOULD BE THE ADDITION IN PLACE OF RS. 5,32,72,645/- PROPOSED IN THE DAO. THIS IS IN THE NATURE OF ENHANCEMENT AS APPROVED BY DRP. THE AO IS DIRECTED ACCORDINGLY. 2. MAHINDRA & MAHINDRA LTD. 3,34,91,323 3,34,91,323 9% 30,14,219 3. VOLKSWAGEN INDIA P.LTD 28,80,63,330 17,63,88,577 18% 6,01,44,280 4. HYUNDAI MOTORS 51,79,950 51,79,950 18% 5. DURR INDIA PVT. LTD 4,98,84,812 4,98,84,812 18% 6 TATA MOTORS LTD 10,26,81,519 18% 7. RECEIPTS OF SUPERVISORY SERVICES 13,38,14,046 0 (REDUCED AS THEY ARE CONSIDERED UNDER THE HEAD OF SUPERVISORY SERVICES) NA NA 8 RECEIVED FROM DURR INDIA TOWARDS INSTALLATION & COMMISSIONI NG 8,60,89,000 0 (REDUCED AS IT IS IN THE NATURE OF EXPENDITURE OF THE ASSESSEE ) NA NA B. INCOME FROM SUPERVISORY ACTIVITIES: AS PER DURR GERMANY AS PER DRAFT ORDER AS PER DEPARTMENT BASED ON NEW EVIDENCE OBTAINED DRP COMMENTS TOTAL COST (A) 15,50,80,318 4,21,16,618 12,50,80,318 12,50,80,318 THE EVIDENCE 27 ITA NO.3109/CHNY/2017 8,29,63,700 (A) (THE ASSESSEE COMPANY HAS REDUCED EXCHANGE LOSS DIFFERENCE) GATHERED BY THE AO DURING THE REMAND REPORT STAGE IS CONSIDERED BY THE DRP. AFTER TAKING INTO CONSIDERATION THE OBJECTIONS RAISED BY THE ASSESSEE THE DRP PROPOSES ENHANCEMENT FOR INCOME FROM SUPERVISORY ACTIVITIES AS PER THE TABLE. THE RATES OF PROFIT ADOPTED ARE ALSO APPROVED. AS DISCUSSED IN PARA 4.4 ABOVE RS. 2,23,815/- FROM MAHINDRA AND MAH INDRA AND RS.10,06,749/- FROM DURR INDIA PVT LTD ARE DUPLICATE IN NATURE AND ARE NOT CONSIDERED FOR ADDITION NOW SINCE THE ASSESSEE HAS ALREADY OFFERED THE INCOMES UNDER THE HEAD INCOME FROM OTHER SOURCES. ACCORDINGLY, RS. 2,27,72,940/- SHOULD BE THE ADDITION IN PLACE OF RS. 91,68,387/-. THIS IS IN THE NATURE OF ENHANCEMENT AS APPROVED BY DRP. THE AO IS DIRECTED ACCORDINGLY. MARGIN 34,26,401 @ 4.13@ 91,68,387 @ 7.33% 2,25,14,457 @ 18% TOTAL RECEIPT RECOGNIZED IN PROFIT & LOSS (A + B) 8,63,90,101 13,42,48,705 14,75,94,775 TOTAL EXPENDITURE 12,50,80,318 12,50,80,318 12,50,80,318 FINAL PROFIT / LOSS REPORTED 3,86,90,217 LOSS 91,68,387 2,25,14,457 ADDITIONAL INCOME COMPUTED IN THE REMAND REPORT NAME OF THE COMPANY INCOME PROFIT RATE PROFIT MAHINDRA & MAHINDRA TATA MOTORS LTD DURR INDIA PVT.LTD 24,86,837.50 14,36,020 55,93,048 9% 18% 18% 2,23,815 2,58,483 10,06,749 C. INCOME IN THE NATURE OF FEE FOR TECHNICAL SERVIC ES: S.NO. RECEIPTS AS PER DAO AS PER REMAND REPORT DRP COMMENTS 1. MATERIAL 14,46,60,501 0 AFTER CAREFUL CONSIDERATION OF THE EVIDENCE GATHERED BY THE AO AND AFTER GIVING OPPORTUNITY TO THE ASSESSEE THE ADDITION OF RS. 2. ERECTION / ENGINEERING SERVICES 0 3. R & D FEES 12,84,36,600 4. REIMBURSEMENT 70,31,921 28 ITA NO.3109/CHNY/2017 13,54,68,521/- IS CONFIRMED. THIS IS IN THE NATURE OF REDUCTION/ RELIEF AS APPROVED BY DRP. THE AO IS DIRECTED ACCORDINGLY. AS PER THE ABOVE DISCUSSION THE REVISED INCOME RE SULTS IN ENHANCEMENT. THE ASSESSEE IS PROVIDED SUFFICIENT OPPORTUNITY DURING DRP PROCEEDINGS. HENCE THE AO IS DIRECTED TO ADOPT THE REVISED INCOME UNDER VARIO US HEADS AS PER THE ABOVE TABLE. AS PER THE ABOVE DISCUSSION ALL THE OBJECTIONS RAIS ED BY THE ASSESSEE IN FORM 35A (4 GROUNDS) WITH REFERENCE TO THE DAO AND ALL THE O BJECTIONS RAISED WITH REFERENCE TO REMAND REPORT AND THE PROPOSAL FOR ENHANCEMENT ARE CONSIDERED BY THE PANEL AND DIRECTIONS GIVEN AS ABOVE. IN THE RESULT, SOME OF T HE ITEMS OF INCOME PROPOSED FOR ADDITION IN THE DAO ARE REDUCED, SOME OF THE ITEMS OF ADDITION ARE CONFIRMED AND SOME OF THE ITEMS OF ADDITION ARE ENHANCED AS PER T HE DISCUSSIONS ABOVE. DIRECTED ACCORDINGLY. 7.1 FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE WAS AWARDED TURNKEY PROJECTS BY AUTOMOBILE MANUFACTURERS LI KE FORD INDIA, MAHINDRA AND MAHINDRA, HUYNDAI MOTORS, VOLKSWAGEN AND TATA MOTORS. AFTER THE AWARD OF THE CONTRACT , THE CONTRACT WA S SPILT INTO THREE PARTS AT THE INSTANCE OF DURR GERMANY AND THREE PURCHASE OR DERS ARE ISSUED. AT THE TIME OF MAKING THE DRAFT ASSESSMENT, THE A O AFTER ANALYSING THE IMPORTANT PORTIONS OF THE AVAILABLE MATERIAL, VIZ CONTRACT / APPENDICES, THE VARIOUS FACTS AND STATEMENTS RECORDED FROM SIT E MANAGERS AND PROJECT MANAGERS HEADING THIS PROJECT AND AFTER C ONSIDERING THE ASSESSEES SUBMISSIONS, HELD THAT ALL THE ACTIV ITIES RIGHT FROM ENGINEERING STAGE TO COMMISSIONING STAGE WERE INEX TRICABLY AND ORGANICALLY LINKED AND HENCE, THE TURNKEY CONTRACT IS A SINGLE 29 ITA NO.3109/CHNY/2017 COMPOSITE CONTRACT BETWEEN FORD INDIA AND DURR S YSTEMS GMBH (ASSESSEE). AGAINST THE DRAFT ASSESSMENT ORDER (DAO), THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DISPU TE RESOLUTION PANEL . THE DRP REQUIRED THE AO TO VERIFY AND SEND REMAND REPOR T WITH REFERENCE TO THE ASSESSEES CONTENTIONS. THE A O AFTER CON DUCTING ENQUIRIES, WHICH INCLUDED A TDS SURVEY IN THE CASE OF DU RR INDIA PRIVATE LIMITED, WHOLLY OWNED SUBSIDIARY OF ASSESSEE COMP ANY , WHICH RESULTED IN UNEARTHING OF VARIOUS FACTS HITHERTO NOT DISCLO SED BY THE ASSESSEE TO THE DEPARTMENT, SUBMITTED A DETAILED REMAND REP ORT AND AN ENHANCEMENT PROPOSAL TO THE DRP. THE DRP FURNISHE D A COPY OF THE REMAND REPORT TO THE ASSESSEE AND AFTER PROVID ING SUFFICIENT OPPORTUNITY TO THE ASSESSEE ETC , THE DRP ISS UED ITS DIRECTIONS TO THE A O IN WHICH , SOME OF THE ITEMS OF INCOME P ROPOSED FOR ADDITION IN THE DAO ARE REDUCED, SOME OF THE ITEMS OF ADDITI ON ARE CONFIRMED AND SOME OF THE ITEMS OF ADDITION ARE ENHANCED. THE AO GAVE EFFECT TO IT. THE ASSESSEE PLEADED, INTER ALIA, THAT (I) IT WAS NOT PROVIDED WITH FULL INFORMATION OBTAINED FROM THIRD-PARTIES, THE AO HAS USED INFORMATION OBTAINED FROM ANOTHER ASSESSEES PREMISES, AND THE Y WERE USED AGAINST THE ASSESSEE WITHOUT PROVIDING SUFFICIENT OPPORTUNITY ETC, (II) ON MERITS OF THE CASE AND (III) ON THE ISSUE OF COMPU TATION AS EXTRACTED SUPRA. 30 ITA NO.3109/CHNY/2017 7.2 ON THE FIRST ISSUE, THE LD STANDING COUNSE L SUBMITTED, INTER ALIA, THAT THE ASSESSEE DID NOT PROVIDE THE REQUIRED D ETAILS CALLED BY THE A O, THE AO MADE THE DRAFT ASSESSMENT ORDER ON THE BASIS OF AVAILABLE MATERIALS. THEREAFTER, THE ASSESSEE FILED IT S OBJECTIONS BEFORE THE DRP. THE DRP SOUGHT THE REMAND REPORT. EVEN DURING THE REMAND PROCEEDINGS, THE ASSESSEE DID NOT FURNISH THE RE QUIRED DETAILS/ EVIDENCE. SINCE TRUE FACTS WERE NOT FORTHCOMING FRO M THE ASSESSEE , THE AO COLLECTED THE DETAILS, DATA AND MATERIAL FR OM THE ASSESSEES CUSTOMERS . MEANWHILE A SURVEY WAS CONDUCTED W HICH RESULTED IN UNEARTHING OF VARIOUS EVIDENCES AND ON DUE CON SIDERATION OF ALL OF THEM INCLUDING THOSE MATERIALS SUPPLIED BY THE AS SESSEE, THE AO FURNISHED A REMAND AND ENHANCEMENT REPORT TO THE D RP. THE DRP FURNISHED A COPY OF THAT REPORT TO THE ASSESSEE. BEFORE THE DRP , THE ASSESSEE SOUGHT A COPY OF THE STATEMENT RECORD ED FROM SHRI K SURESH WHICH WAS FURNISHED TO THE ASSESSEE. THE DR P AFTER OFFORDING ADEQUATE OPPORTUNITIES TO THE ASSESSEE PASSED I TS DIRECTIONS. ULTIMATELY, THE FACTS KNOWN TO THE ASSESSEE WE RE ONLY IN THE REMAND REPORT AND HENCE THERE CANNOT BE ANY GRIEVANCE TO THE ASSESSEE ETC, AS EXTRACTED SUPRA. 7.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RE LEVANT MATERIAL. WE FIND MERIT IN THE SUBMISSIONS OF THE LD STANDI NG COUNSEL. THE FACT 31 ITA NO.3109/CHNY/2017 THAT THE REMAND PROCEEDINGS WAS PENDING BEFORE THE AO IS NOT DISPUTED. DURING THE REMAND PROCEEDINGS , THE A O ON THE BASIS OF APPROPRIATE PROCEEDINGS COLLECTED VARIOUS DETAI LS , DATA AND MATERIAL FROM THE ASSESSEES CUSTOMERS, ITS WHOLLY OWNE D INDIAN SUBSIDIARY, AND AFTER CONSIDERING THOSE MATERIALS SUPPLIED BY THE ASSESSEE FURNISHED A REMAND AND ENHANCEMENT REPORT TO THE D RP. THE DRP FURNISHED A COPY OF THAT REPORT TO THE ASSESSEE . BEFORE THE DRP , THE ASSESSEE SOUGHT A COPY OF THE STATEMENT RECORD ED FROM SHRI K SURESH WHICH WAS ALSO FURNISHED TO THE ASSESSEE. THE DRP AFTER AFFORDING ADEQUATE OPPORTUNITIES TO THE ASSESSEE , PASSED ITS DIRECTIONS. BEING AN APPELLATE AUTHORITY, THE DR P IS BOUND TO TAKE COGNIZANCE OF FACTS, IF ANY, BROUGHT TO ITS NOTIC E WHILE THE APPEAL IS PENDING WHICH IS INTEGRAL TO THE PENDING APPEAL. T HE ASSESSEE HAS BEEN GIVEN OPPORTUNITY TO MEET THE REMAND AND ENHAN CE REPORT AND AFTER DUE CONSIDERATION, THE DRP ISSUED APPROPRIATE DIR ECTIONS. SINCE, THE ASSESSEE HAS NOT POINTED OUT SPECIFIC GRIEVA NCE ON THE DIRECTIONS OF THE DRP FOR WANT OF OPPORTUNITY, WE DISMISS THE CORRESPONDING GROUNDS OF THE ASSESSEE. 7.4 NOW ON THE ISSUE WHETHER THE INCOME ON ACCOUN T OF SUPPLY OF PAINT SHOP MATERIAL/ EQUIPMENT ON ACCOUNT OF THE CO MPOSITE CONTRACT IS TAXABLE IN INDIA IN THE HANDS OF THE PE, THE LD AR SUBMITTED THE SAME 32 ITA NO.3109/CHNY/2017 PLEA TAKEN BEFORE THE AO/DRP AND ON THE GROUNDS AB OVE . PER CONTRA, THE LD STANDING COUNSEL RELIED ON THE ORDERS OF T HE LOWER AUTHORITIES, HIS COUNTER, SUPRA. IT IS CLEAR FROM THE ELABORAT E FACTS VIZ IN CASE OF FORD CONTRACT, EXAMINATION OF RFQ, PROPOSAL BY DURR GERM ANY IN RESPONSE TO RFQ, LETTER OF INTENT, PROPOSAL GIVEN TO FORD BY DU RR GERMANY, PURCHASE ORDER, ORGANISATIONAL CHART, PROJECT PROGR ESS/FINAL REPORT, TRANSFER OF RISK ON SUPPLY AND ACCEPTANCE, STATEMEN T FROM PAINT SHOP MANAGER, FORD INDIA ETC, IT WAS PROVED BEYOND DOUBT THAT THE CONTRACT WAS A SINGLE COMPOSITE CONTRACT AND THAT AT THE RF Q STAGE WHAT WAS ENVISAGED WAS A SINGLE COMPOSITE, TURNKEY CONTRACT. IT IS DURR GERMANY BY ITS PROPOSAL INSISTED THAT THE CONTRACT SHOULD B E SPLIT INTO SUPPLY AND SUPERVISORY. THUS, THE ASSESSEE COMPANY HAS NOT EN TERED INTO TWO DIFFERENT CONTRACTS NATURALLY. IT IS AT THE INSTAN CE OF DURR GERMANY, FORD INDIA HAS SPLIT THE CONTRACT AND ISSUED THREE PUR CHASE ORDERS. SINCE THE RISKS AND RESPONSIBILITIES OF THE ENTIRE CONTRACT VEST WITH DURR GERMANY, ON SUCCESSFUL EXECUTION OF THE ENTIRE PROJECT (BEI NG A TURNKEY PROJECT), ONLY, THE LIABILITY CEASES TO EXIST. THE SITUS HAS TO BE DETERMINED ON THE BASIS OF THE SITE WHERE THE PLANT IS TO BE ERECTED. FROM THE PROJECT MASTER SCHEDULE PREPARED FOR THE PROJECT AND ON THE RELATED FACTS, IT IS SEEN THAT THE ASSESSEE WAS MAINTAINING A STORAG E AREA ON SITE SINCE 10.08.2012. SUBSEQUENT TO THAT FROM 11.09.2012, T HE SHIPMENT OF GOODS BY IMPORT ORDER HAS COMMENCED AND HAS CONTINU ED TILL 33 ITA NO.3109/CHNY/2017 02.04.2013. AFTER ALL THE GOODS HAVE BEEN RECEIVED AT SITE, THE INSTALLATION WAS TO COMMENCE ONLY ON 02/05/2013 TO BE COMPLETED ON 17.01.2014. TILL SUCH TIME, THE IMPORTED GOODS HAVE BEEN STORED IN THE STORAGE AREA ON SITE. HENCE, THE IMPORTED MATERIAL WAS ALWAYS IN THE CUSTODY OF ASSESSEE AND THE PASSING OF RISK ON EQU IPMENT TO CUSTOMER IS TO HAPPEN ONLY ON 17.01.2014 POST WHICH THE WARR ANTY FOR THE EQUIPMENT SUPPLIED STARTS FROM 31.03.2014, POST INS TALLATION OF ALL THE EQUIPMENTS AT SITE. THERE ARE TWO STAGES OF PASSING OF RISK ASSOCIATED WITH THIS PROJECT VIZ., PASSING OF RISK OVER EQUIPM ENT AND PASSING OF RISK OVER COMPLETED PROJECT TO THE CUSTOMER, WHICH WOU LD HAPPEN ONLY POST COMMISSIONING OR WHEN THE PILOT PRODUCTION START A ND PRE-ACCEPTANCE OF THE CUSTOMERS.. THEREFORE, THE ASSESSEE HAD A PE IN INDIA IN RESPECT OF OFFSHORE SUPPLIES BY VIRTUE OF PRESENCE OF SITE OFFICE/STORAGE AREA AT THE FORD SITE IN INDIA FOR A PERIOD MORE THAN THE T HRESHOLD. IT IS THEREFORE CLEAR THAT THE INCOME TO THE ASSESSEE ACCRUED IN INDIA AND THE SOURCE OF INCOME IS IN INDIA AND THEREFORE TAXA BLE IN INDIA. FROM THE STATEMENT RECORDED FROM GENERAL MANAGER SALES & SER VICE DURR INDIA PRIVATE LIMITED, THE PROCESS MENTIONED IN FORD CONTRACT IS COMMON FOR ALL THE CONTRACTS EXECUTED BY DURR GERMANY IN INDIA. FURTHER, THE FACTS RECORDED BY THE DRP IN THE FOLLOWING PORTION OF ITS ORDER STAND UNDISPUTED:- 34 ITA NO.3109/CHNY/2017 THE ASSESSEE IS INTRICATELY CONNECTED TO THE C LIENT ACTIVITIES IN INDIA FROM SUPPLY OF EQUIPMENT TILL CERTIFICATION OF SUCC ESSFUL INSTALLATION AND COMMISSIONING AS PER THE AGREEMENT. EVEN THOUGH THE INSTALLATION ACTIVITIES ARE UNDERTAKEN BY THE INDIAN SUBSIDIARY, THE PRESENCE AND CONTINUED SUPERVISION OF ASSESSEE IS WELL ESTABLISH ED. IT IS THE RESPONSIBILITY OF ASSESSEE TO GIVE FINAL PROOF O F PERFORMANCE. HENCE THE PE IS CLEARLY CONSTITUTED AS BROUGHT OUT BY THE AO IN THE DAO AND THESE FACTS ARE FURTHER FORTIFIED BY THE EVIDENCE G ATHERED DURING REMAND REPORT. THE REMAND REPORT SUBMITTED BY THE A O DETAILS THE EVIDENCE GATHERED AND THE SAME IS CAPTURED IN EARLI ER PARAS. VARIOUS DOCUMENTS, AGREEMENTS, INVOICES OBTAINED AND ENCLOS ED TO THE REMAND REPORT CONFIRMS THESE FACTS. AS PER THE GROUND 1(A), IT IS CLAIMED BY THE ASSESS EE THAT IT HAS NOT PARTICIPATED IN THE EXECUTION OF THE INSTALLATION A ND COMMISSIONING OF THE PLANT AND HENCE THERE CAN BE NO QUESTION OF ATTRIBU TING ANY PORTION OF INCOME TO THE ASSESSEE. HOWEVER AS PER THE DOCUMENT S OBTAINED DURING SURVEY IT IS SEEN THAT THE ASSESSEE WAS DIRE CTLY INVOLVED IN THE INSTALLATION AND COMMISSIONING IN INDIA AND THE TEC HNICAL PERSONNEL ON THE ROLLS OF THE ASSESSEE WERE STATIONED IN THE CLI ENT PREMISES IN INDIA TO OVERSEE THE OPERATIONS. HENCE THE CONTENTIONS OF TH E ASSESSEE ARE FOUND TO BE WRONG AND ACCORDINGLY THEY ARE REJECTED . ACCORDINGLY, THE ASSESSEES CONTENTIONS ARE PROVED TO BE FALSE. ACCO RDINGLY, THE OBJECTION RAISED BY THE ASSESSEE IS REJECTED. 7.5 THEREFORE, IT IS CLEAR THAT ALL THE ACTIVITIES OF THE ASSESSEE FROM ENGINEERING STAGE TO SUPPLY ERECTION, INSTALLATION, COMMISSIONING AND COMPLETION ARE ALL INEXTRICABLY AND ORGANICALLY LIN KED AND HENCE, THE TURNKEY CONTRACT IS A SINGLE COMPOSITE CONTRACT BET WEEN FORD INDIA AND DURR SYSTEMS GMBH (ASSESSEE). FURTHER, IT IS CLEA R THAT THE ASSESSEE HAS NOT PLACED ANY MATERIAL BEFORE US TO DISLODGE THE FINDINGS RECORDED BY THE DRP. FURTHER, WE FIND THAT THE F ACTS AND CIRCUMSTANCES OF THIS CASE ARE IDENTICAL WITH THE FACTS OF THE C ASE RELIED ON BY THE LD COUNSEL IN ANSALDO ENERGIA SPA V ITAT, CHENNAI IN TC NO 1303 OF 35 ITA NO.3109/CHNY/2017 2007 DT 12.01.2009 , REPORTED IN (2009) 178 TAXMAN 57 (MADRAS) OF WHICH , THE RELEVANT PORTIONS OF THE DECISION OF T HE JURISDICTIONAL HIGH COURT IS EXTRACTED AS UNDER : 36. THE TRIBUNALS FACTUAL FINDINGS ALSO ARE IN FAV OUR OF THE REVENUE AS REGARDS THE CONTRACT BEING A COMPOSITE ONE, ASPL BE ING A MERE FACADE, EXISTENCE OF CLOSE RELATIONSHIP BETWEEN THE FOREIGN PERSON AND THE INDIAN OPERATIONS. 37. .IT HAD SECURED THE DUE PERFORMANCE OF THE WHOLE CONTRACT B Y INSISTING THAT THE ASSESSEE SHOULD GUARANTEE ITS PERFORMANCE EVEN IF T HE CONTRACT WAS SPLIT UP INTO FOUR CONTRACTS, NLC DID NOT STAND TO LOSE SINC E THE VALUE OF THE CONTRACT WAS FIXED EVEN FROM THE BEGINNING. IT MUST BE REMEM BERED THAT IT WAS OPEN ONLY FOR A SINGLE BIDDER. IT WAS ONLY FOR THE CONVE NIENCE OF AND AT THE INSTANCE OF THE ASSESSEE THAT IT WAS DIVIDED INTO F OUR. THEREFORE, THE QUESTION AS TO WHETHER NLC WOULD HAVE AGREED TO SUCH A COURS E OF ACTION IS REALLY NOT RELEVANT. NLC DID NOT SUFFER IN ANY WAY BY SPLI TTING UP AND NLC WAS BOUND TO PAY THE ENTIRE PAYMENT REGARDLESS OF WHETH ER IT WAS EQUALLY DISTRIBUTED AMONG ALL THE FOUR CONTRACTS OR WHETHER THE PRICE WAS LOADED ON TO CONTRACT OR 11. 40. FOR THE REASONS GIVEN ABOVE, WE CONFIRM THE FIN DINGS THAT, (A) THE FOREIGN COMPANY AND THE ACTIVITIES RENDERED BY IT UNDER CONTRACT NO. I AND THE OTHER THREE CONTRACTS ARE INEXTRICABLY LI NKED AND IT WAS A COMPOSITE CONTRACT, (B) ALL RESPONSIBILITY FROM THE BEGINNING TO THE EN D RESTED ON THE ASSESSEE. (C) THERE IS AN INTIMATE, REAL AND CONTINUOUS RELAT IONSHIP WITH THE SUBSIDIARY COMPANY, AND (D) THAT THE PRICE OF THE OTHER CONTRACT WAS LOADED ON TO CONTRACT NO. I. IN THESE CIRCUMSTANCES, WE DO NOT THINK THAT THE FI RST QUESTION ARISES FOR CONSIDERATION. THEREFORE, WE DO NOT FIND MERIT IN THE SUBMISSIO NS OF THE LD AR AND HENCE THE CORRESPONDING GROUNDS FAIL. 36 ITA NO.3109/CHNY/2017 8. ON THE ISSUE OF MISTAKES IN THE COMPUTATION, THE LD AR SUBMITTED THAT SUPPLIES ARE ADDED TO THE TOTAL INCOME BY APPL YING AN AD-HOC MARK- UP RATE. ON THE TRANSACTIONS WITH FORD INDIA, THE L D AR SUBMITTED THAT DOWN PAYMENT INVOICES CONSIDERED AS SUPPLIES AS PER THE RR, A BASIC ERROR WHICH LEADS TO SAME PAYMENT BEING COUNTED TWI CE RESULTING IN DOUBLE TAXATION. THE AO ALSO ERRED IN DETERMINING TAXABLE INCOME OF THE PE ON A CASH BASIS WHEREAS THE APPELLANT HAS DETERMINED TAXABLE INCOME ON A MERCANTILE BASIS, IN CONTRAVENTION OF S . 145 OF THE ACT. ADDITIONS TO SUPPLIES MADE ON INFORMATION OBTAINED UNDER 133(6) FROM CUSTOMERS WHICH IS ON PAYMENT BASIS. PER CONTRA, T HE LD STANDING COUNSEL SUBMITTED THAT THE ASSESSEE HAS NOT QUAN TIFIED THE DOUBLE ADDITIONS, IF ANY. IF THE ASSESSEES CLAIM IS PR OVED, SUITABLE REMEDIAL ACTION CAN BE TAKEN. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THOUGH , THE ASSESSEE HAS NOT FURNISHED THE DETAILS IN RESPECT OF THE AB OVE SUBMISSIONS, IN THE INTERESTS OF JUSTICE, WE DEEM IT FIT TO REMIT T HIS ISSUE BACK TO THE AO/TPO FOR A FRESH EXAMINATION. THE ASSESSEE SHAL L PLACE ALL MATERIALS IN ITS SUPPORT BEFORE THE AO/TPO AND COMPLY TO THE REQUIREMENTS OF THE AO/TPO IN ACCORDANCE WITH LAW. THE AO/TPO IS FREE T O CONDUCT APPROPRIATE ENQUIRY AS DEEMED FIT. HOWEVER, HE S HALL AFTER AFFORDING EFFECTIVE OPPORTUNITY TO THE ASSESSEE, WOULD PASS APPROPRIATE ORDER IN 37 ITA NO.3109/CHNY/2017 ACCORDANCE WITH LAW. THE ASSESSEES ABOVE GROUND S ARE TREATED AS ALLOWED TO THE ABOVE EXTENT. 10. IN THE RESULT, THE ASSESSEES APPEAL IS TREATE D AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 27 TH MARCH, 2019 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) (S.JAYARAMAN) ( ! / JUDICIAL MEMBER) ( ! / ACCOUNTANT MEMBER) /CHENNAI, $ /DATED 27 TH MARCH, 2019 SOMU () *) /COPY TO: 1. APPELLANT 2. RESPONDENT 3. + () /CIT(A) 4. /CIT 5. /DR 6. /GF