Dolphin Geophysical AS, New Delhi V. CIT Central Circle-05, New Delhi

ITA 3584/DEL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1179 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 24-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAMILA M. BISWAS
• Assessee Lawyers: ABHIMANYU JHAMBA
• Section: 263; 44BB; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI O.P. KANT, ACCOUNTANT MEMBER ITA. NO.3584/DEL/2019 ASSESSMENT YEARS 2015-16 M/S. DOLPHIN GEOPHYSICAL AS C/O-SHILPI AGRAWAL & CO, CHARTERED ACCOUNTANTS, 62 LGF, POCKET-2, JASOLA, NEW DELHI-110025 V. CIT(IT)-3, E-2 BLOCK, 4 TH FLOOR, ROOM NO.405, PRATAYAKSHKAR BAHWAN, CIVIC CENTRE, JAWAHAR LAL NEHRU MARG, NEW DELHI-110002 TAN/PAN: AAECD1246J (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ABHIMANYU JHAMBA, MS. R.A. THONPINAO THANGAL & MS. HEMLATA RANGA RESPONDENT BY: MS. PRAMILA M. BISWAS DATE OF HEARING: 08 01 2020 DATE OF PRONOUNCEMENT: 20 03 2020 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 26.02.2019 PASSED BY LD. C IT (INTERNATIONAL TAX)-3, NEW DELHI AGAINST REVISIONARY ORDER PASSED U/S.263 FOR THE ASSESSMENT YEAR 2015-16. THO UGH VARIOUS GROUNDS HAVE BEEN RAISED IN THE GROUNDS OF APPEAL, WHERE ASSESSEE HAS CHALLENGED ENTIRE OBSERVATIONS A ND FINDING GIVEN BY THE CIT FOR CANCELLING THE ASSESSM ENT ORDER DATED 15.03.2017 AS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVENUE. ITA NO.3584/DEL/2019 2 2. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, SHR I ABHIMANYU JHAMBA, AT THE OUTSET INFORMED THAT MOST OF THE ISSUES GOT SETTLED IN SET-ASIDE PROCEEDINGS AND SUB MITTED A CHART TO POINT OUT THAT THE LD. CIT IN HIS SHOW CAU SE NOTICE ISSUED U/S. 263 HAD RAISED AS MANY AS TWELVE ISSUES AND SET- ASIDE ALL THOSE ISSUES TO THE FILE OF THE AO FOR PA SSING A FRESH ASSESSMENT. NOW, OUT OF THE TWELVE ISSUES ELEVEN IS SUES STAND SETTLED IN THE CONSEQUENT ASSESSMENT ORDER PASSED B Y THE AO U/S.143(3)/144C VIDE ORDER DATED 02.12.2019. HE SU BMITTED THAT ON ALL THE ISSUES, THE ASSESSEE WAS ABLE TO RE CONCILE AND WHATEVER DETAILS WERE ASKED FOR GOT VERIFIED AS PER THE DIRECTIONS OF THE LD. CIT AND NO ADVERSE INFERENCE HAS BEEN DRAWN BY THE ASSESSING OFFICER. HOWEVER, THE ISSUE OF TREATING THE ENTIRE VALUE OF RS.4,14,36,624/- OF CONTRACT TO BE TAXED AS FTS INSTEAD OF ASSESSED U/S. 44 BB BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER. 3. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESS EE HAS ENTERED INTO A COMPOSITE CONTRACT WITH ONGC FOR SUP PLY OF FIELD PROCESSING UNITS, INSTALLATION, COMMISSIONING , TRAINING AND COMPREHENSIVE AMC WHICH WAS INEXTRICABLY LINKED WITH PROSPECTING, EXTRACTION AND PRODUCTION OF MINERAL O IL FOR ONGC. THE ASSESSEE OFFERED TO TAX ONLY AMOUNT OF RS.15,95,100/- AS FTS OUT OF THE TOTAL VALUE OF CON TRACT OF RS.4,14,36,624/- AND FOR BALANCE IT EXPLAINED THAT IT WAS PURE OFF-SHORE SUPPLY. DURING THE COURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS, THE AO TOOK THE ENTIRE REVENUE OF RS.4,14,36,624/- AS ASSESSABLE UNDER THE ACT AND HE LD THAT IT ITA NO.3584/DEL/2019 3 IS TAXABLE U/S. 44BB OF THE ACT. HOWEVER, THE LD. C IT HELD THAT THE ENTIRE CONTRACT WAS A COMPOSITE ONE AND WH EN ASSESSEE ITSELF HAS CONSIDERED A SMALL PART OF ITS CONTRACT TO BE IN THE NATURE OF FTS THEN IT IS NOT UNDERSTOOD W HY THE REMAINING PART OF THE CONTRACT SHOULD NOT BE CONSID ERED AS FTS. THUS, HE DIRECTED THE ASSESSING OFFICER TO TRE AT THE ENTIRE AMOUNT OF RS.4,14,36,624/- AS FTS. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDING S, THE ASSESSEE HAS PRODUCED THE ENTIRE CONTRACT WITH THE ONGC WHICH WAS THOROUGHLY EXAMINED BY THE ASSESSING OFFI CER AND WHILE CONCLUDING THE ASSESSMENT, HE HAD CONSIDERED THE ENTIRE REVENUES EARNED FROM THE SUPPLY CONTRACT AS PART OF THE GROSS RECEIPTS TAXABLE U/S. 44BB OF THE ACT AND ASS ESSED THE ENTIRE AMOUNT OF RS.4,14,36,624/-. THUS, THE ENTIRE AMOUNT STOOD TAXED AND ASSESSED VIDE ASSESSMENT ORDER DATE D 23.02.2017. APART FROM THAT, FROM THE PAPER BOOK HE POINTED OUT THAT THE AO DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, HAS ASKED FOR CONTRACT AND OTHER DETAILS AND IN RES PONSE ASSESSEE HAS FILED DETAIL REPLY AND DREW OUR ATTENT ION TO PAGE- 7 OF THE REPLY DATED 23.12.2016 FILED BEFORE THE AO WHEREIN THE ASSESSEE HAS GIVEN THE CONTRACT WITH THE ONGC F OR SUPPLY OF 10 NOS. OF FIELD PROCESSING UNITS (FPU), ITS INS TALLATION, COMMISSIONING, TRAINING AND COMPREHENSIVE AMC. THER EAFTER, AO AGAIN RAISED QUERY SPECIFICALLY ON THIS POINT AN D ASSESSEE VIDE REPLY DATED 13.02.2017 GAVE FOLLOWING REPLY:- ITA NO.3584/DEL/2019 4 2. DETAILS OF REVENUE FROM OFFSHORE SUPPLY CONTRAC T IT IS RESPECTFULLY SUBMITTED THAT DURING THE YEAR U NDER CONSIDERATION, DGAS HAS EARNED REVENUES FROM OFFSHO RE SUPPLY OF FPU UNITS TO ONGC. THE TOTAL CONTRACT VALUE IS FOR US$ 675,413,.60 (EQUIVALENT TO RS.4,14,36,624/-) OUT OF WHICH US$26 ,000 (EQUIVALENT TO RS.15,95,100/-) HAS BEEN OFFERED TO TAX @ 10% AS FEES FOR TECHNICAL SERVICES UNDER ARTICLE-12 OF THE INDIA NORWAY TAX TREATY. COPY OF DETAILS OF REVENUE EARNED FROM THE OFFSHORE SUPPLY CONTRACT IS ENCLOSED AS ANNEXURE 3. IT IS RESPECTFULLY SUBMITTED THAT WITH REGARD TO TH E SUBJECT CONTRACT THE TITLE IN THE GOODS IS PASSED TO ONGC OUTSIDE IN DIA AND ALSO THAT: (A) NO PORTION OF INCOME IS RECEIVED DIRECTLY OR INDIRE CTLY BY IT IN INDIA (B) NO PORTION OF INCOME ACCRUES OR ARISES TO IT IN IND IA, AND (C) NO PORTION OF INCOME COULD BE DEEMED TO ACCRUE OR A RISE TO IT IN INDIA. IN VIEW OF THE ABOVE, NO REVENUES PERTAINING TO OFF SHORE SUPPLY OF GOODS CAN BE HELD AS TAXABLE IN INDIA. THE LEGAL AN D FACTUAL SUBMISSIONS IN SUPPORT OF ITS CONTENTION I ARE ENCL OSED HEREWITH AS ANNEXURE-4. 5. THUS, HE SUBMITTED THAT THE AO HAS NOT ONLY EXAMINED THIS ISSUE BUT HAS ALSO MADE ADDITION AND ASSESSED THE ENTIRE REVENUE OUT OF THE SAID CONTRACT U/S. 44BB OF THE A CT. NOW, WHETHER RECEIPTS FROM SUCH ACTIVITIES ARE COVERED U /S 44BB OR FTS STANDS SQUARELY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ONGC VS CIT REPORTED IN (2015) 59 TAXMANN.COM 1(SC) . THE HONBLE SUPREME COURT HELD THAT SUPPLY, INSTALLATION, ETC FOR THE PURPOSE OF SEISMIC SURVEY AND SEISMIC DATA IS TO BE TAXED UNDER PROVIS ION OF 44BB AND NOT U/S. 44D OR AS FTS. THUS, THE VIEW TAK EN BY THE AO WAS A CONSONANCE WITH THE LAW OF THE LAND AN D THEREFORE THE DIRECTION AND OBSERVATIONS OF THE LD. CIT CANNOT ITA NO.3584/DEL/2019 5 BE HELD TO BE CORRECT AND THE ASSESSMENT ORDER ON T HIS POINT CANNOT BE HELD TO BE ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF THE REVENUE. 6. ON THE OTHER HAND, THE LD. DR STRONGLY RELIED UPON THE ORDER OF THE LD. CIT. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE RELEVANT OBSERVATIONS AND FINDINGS OF THE LD . CIT, WE FIND THAT THE ONLY ISSUE WHICH SURVIVES DURING THE COURSE OF HEARING BEFORE US, IS THAT, WHETHER THE REVENUE ON OFFSHORE SUPPLY OF EQUIPMENT AND INSTALLATION FOR THE VALUE OF RS.4,14,36,624/- IS TO BE TAXED AS FTS OR U/S.44B. THE MAIN OBSERVATIONS AND FINDING OF THE LD. CIT IS THAT, SI NCE ASSESSEE HAS TREATED PART OF CONTRACT VALUE AS FTS AS RS.15, 95,100/- AND SINCE IT IS A COMPOSITE CONTRACT, THEREFORE, TH E ENTIRE CONTRACT VALUE SHOULD BE TREATED AS FTS. IT IS WELL SETTLED LAW THAT THE LD. CIT CAN EXERCISE REVISIONARY JURISDICTI ON U/S. 263 ONLY WHEN HE IS SATISFIED THAT THE ORDER PASSED BY THE AO IS NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTE REST OF THE REVENUE AND IF ONE OF THE CONDITION IS LACKING, THE N RECOURSE CANNOT BE TAKEN U/S. 263 FOR CANCELLING/SETTING ASI DE THE ASSESSMENT ORDER. IN THIS CASE, DURING COURSE OF AS SESSMENT PROCEEDINGS, THE ASSESSEE HAS FILED THE ENTIRE CONT RACT BEFORE THE AO WHICH WAS EXAMINED THREADBARE AND ALSO THE A O HAS RAISED SPECIFIC QUERY REGARDING THE TAXABILITY OF T HE SAID AMOUNT AND THE ASSESSEE HAS SUBMITTED THE DETAILS A ND EXPLAINED THAT, MAJOR REVENUE EARNED WAS FROM OFFSHO RE SUPPLY OF FPU UNITS TO ONGC AND OUT OF THE TOTAL CO NTRACT ITA NO.3584/DEL/2019 6 VALUE OF RS.4,14,36,624/-, ONLY PART OF THE AMOUNT CAN AT BEST, COULD HAVE BEEN TREATED AS FTS, I.E., RS.15,9 5,100/- WHICH WAS OFFERED TO TAX @10% AS FTS IN TERMS OF AR TICLE-12 OF THE INDIA-NORWAY TAX TREATY. IT HAS BEEN FURTHER SUBMITTED THAT THE OFFSHORE SUPPLY OF GOODS AS PER THE CONTRA CT, TITLE IN THE GOODS WERE PASSED TO ONGC OUTSIDE INDIA AND THE REFORE, NO PORTION OF INCOME WAS RECEIVED DIRECTLY OR INDIR ECTLY BY IT IN INDIA AND NO INCOME ACCRUED OR ARISES IN INDIA AND THEREFORE, NO REVENUE PERTAINING TO ELEMENT OF OFFSHORE SUPPLY OF GOODS CAN BE HELD TO BE TAXABLE IN INDIA. HOWEVER, THE LD . AO TAXED THE ENTIRE AMOUNT OF THE CONTRACT RECEIPTS U/S 44BB OF THE ACT. UNDISPUTEDLY, THE ASSESSEE HAS ENTERED INTO A CONTRACT WITH ONGC IN CONNECTION WITH PROSPECTING, EXTRACTIO N AND PRODUCTION OF MINERAL OIL. THE CONTRACT WITH THE ON GC WAS COMPOSITE OF OFFSHORE SUPPLY OF EQUIPMENT, INSTALLA TION, COMMISSIONING, ETC. THE AO HAS TREATED THE ENTIRE R EVENUE AS A PART OF THE COMPOSITE CONTRACT INEXTRICABLY LINKE D WITH PROSPECTING, EXTRACTION AND PRODUCTION OF MINERAL O IL WITH ONGC AND THEREFORE, HE HAS TAXED THE ENTIRE AMOUNT U/S 44BB OF THE ACT. THIS VIEW OF THE AO IS CONSONANCE WITH JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ONGC VS. CIT (SUPRA) , WHEREIN, HONBLE SUPREME COURT AFTER DETAILED DISCUSSION AND BY GIVING VARIOUS ILLUSTRAT IONS, HELD THAT SUPPLY, INSTALLATION, COMMISSIONING ETC. FOR T HE PURPOSE OF SEISMIC SURVEY AND SEISMIC DATA WHICH IS INEXTRI CABLY LINKED WITH THE PROSPECTING, EXTRACTION OR PRODUCTI ON OF MINERAL OIL THEN IT IS ASSESSABLE U/S 44BB. HONBLE COURT HELD ITA NO.3584/DEL/2019 7 THAT IF THE DOMINANT PURPOSE OF AGREEMENT IS TO BE SEEN AND EVEN THOUGH THERE MAY BE CERTAIN ANCILLARY WORKS CONTEMPLATED THEREUNDER AND THE PAYMENT MADE BY THE ONGC IS MADE IN THIS REGARD AND IS RECEIVED BY THE NON- RESIDENT OR FOREIGN COMPANY UNDER THE SAID CONTRACT S, IS ASSESSABLE U/S. 44BB AND NOT U/S. 44D OF THE ACT OR FTS. THUS, THE VIEW TAKEN BY THE AO IS CONSONANCE WITH L AW OF THE LAND AND THE LD. CIT WITHOUT POINTING OUT AS TO HOW THE ENTIRE AMOUNT IS TAXABLE AS FTS HAS SET- ASIDE THE ORDER T O TREAT THE ENTIRE AMOUNT AS FTS. NO WHERE HE HAS GIVEN ANY SPE CIFIC REASON WHY AND HOW THE ENTIRE AMOUNT IS TAXABLE AS FTS AND HIS ENTIRE OBSERVATION IS BASED ON THE FACT THAT IS SMALL PORTION OF THE CONTRACT HAS BEEN TREATED AS FTS BY ASSESSEE, THEREFORE THE RECEIPTS MUST BE TAXED AS FTS. SUCH H YPOTHESIS CANNOT BE THE GROUND TO HOLD THAT ORDER OF THE AO I S ERRONEOUS IN LAW AND DIRECTED THE AO TO TAX ENTIRE AMOUNT AS FTS. SUCH A DIRECTION IS DE-HORS ANY VALID REASON N OR IN ACCORDANCE WITH THE LAW AS LAID DOWN BY THE HONBLE SUPREME COURT. ACCORDINGLY, SUCH OBSERVATION AND DIRECTION OF THE LD. CIT IS QUASHED AND ORDER OF THE AO IS UPHELD. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH MARCH, 2020. SD/- SD/- [O. P. KANT] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20.03.2020 SHEKHAR, SR. PS