Dongfang Electric Corporation, Kolkata V. DCIT, International Taxation 1(1), Kolkata, Kolkata

ITA 487/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1301 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 24-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Keywords: Business income; Transfer pricing; Double taxation relief; Principle of natural justice; International transaction; Permanent establishment; Corroborative evidences
• Section: 143(3); 244A; 92B; 27; 148; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA C BENCH, KOLKATA [BEFORE SRI N.V. VASUDEVAN, JUDICIAL MEMBER & SRI J . SUDHAKAR REDDY ACCOUNTANT MEMBER] I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION... ... APPELLANT DONGFANG ELECTRIC CORPORATION KOLKATA PROJECT OFFICE CK-189 & CK-141 SECTOR-II SALT LAKE CITY KOLKATA 700 091. [PAN : AACCD 0559 L] DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TA XATION-1(1), KOLKATA.. RESPONDENT AAYAKAR BHAWAN POORVA 110 SHANTI PALLY KOLKATA 700 107 APPEARANCES BY: SHRI NAGESWAR RAO, AR, APPEARED ON BEHALF OF THE AS SESSEE. SHRI G. MALLIKARJUNA, CIT, DR, APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : AUGUST 11, 2017 DATE OF PRONOUNCING THE ORDER : OCTOBER 25, 2017 O R D E R PER J. SUDHAKAR REDDY :- BOTH THESE APPEALS ARE FILED BY THE ASSESSEE, DIRE CTED AGAINST THE ORDER OF THE ASSESSING OFFICER, PASSED U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (THE ACT), FOR THE ASSESSMENT YEARS 200 9-10 & 2010-11. 2. BACKGROUND AND BRIEF HISTORY OF THE ASSESSEE ARE BROUGHT OUT IN THE ASSESSMENT ORDER, WHICH IS EXTRACTED FOR READY REFE RENCE:- 1. THE ASSESSEE M/S DONGFANG ELECTRIC CORPORATION (DEC), CHINA IS A FOREIGN COMPANY INCORPORATED UNDER THE LAWS OF THE PEOPLES 2 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION REPUBLIC OF CHINA, HAVING ITS REGISTERED OFFICE AT 71-73 FIRST SECTION, WEST YIHYUAN AVENUE, CHENGDU 610041, SICHUAN PROVIN CE, P.R. CHINA. THE ASSESSEE HAS ITS SUFFICIENT PRESENCE IN INDIA I N ORDER TO CARRY ON ITS BUSINESS IN INDIA THROUGH THE PROJECT OFFICE RE FERRED TO AS DONGFANG ELECTRIC CORPORATION KOLKATA PROJECT OFFI CE. ADMITTEDLY, SINCE THE YEAR 2004 THE SAID KOLKATA PROJECT OFFICE HAS SERVED AS THE PERMANENT ESTABLISHMENT (PE) IN INDIA IN THE CONTEX T OF TAXATION UNDER THE INDIAN INCOME-TAX ACT, 1961 AND THE INDIA -CHINA DOUBLE TAXATION AVOIDANCE AGREEMENT [HEREAFTER REFERRED TO AS DTAA] 2. IN THE YEAR 2004, THE ASSESSEE ENTERED INTO TWO SEPARATE CONTRACTS; ONE WITH THE 'THE WEST BENGAL POWER DEVE LOPMENT CORPORATION LIMITED (WBPDCL), FOR SETTING UP UNITS 1 & 2 (2 X 300 MW) FOR THE SAGARDIGHI THERMAL POWER PROJECTS AT MU RSHIDABAD, WEST BENGAL AND THE OTHER WITH 'THE DURGAPUR PROJEC TS LIMITED(DPL)' FOR SETTING UP UNITS 7(1 X 300 MW) FO R THE DURGAPUR PROJECT POWER STATION AT DURGAPUR, WEST BENGAL. EACH CONTRACT WAS DIVIDED INTO TWO DISTINCTLY SEPARATE PARTS, THE DETAILS OF WHICH ARE AS UNDER: WBPDCL (A) CONTRACT NO. SGTPP/1/(SGMP-1 SUPPLY)/03/2004 DA TED AUGUST 26, 2004 FOR SUPPLY OF EQUIPMENT AND MATERIALS OF M AIN PLANT TURNKEY PACKAGE (SGMP-1) UNITS 1 & 2 (2 X 300MW) AL ONGWITH SOME COMMON FACILITIES; AND (B) LETTER OF AWARD ('LOA') DATED JULY 27,2004 ISS UED BY WBPDCL FOR SUPPLY OF EQUIPMENT AND MATERIALS OF MAIN PLANT TURNKEY PACKAGE(SGMP-1) UNITS 1 & 2 (2 X 300 MW) ALONGWITH SOME COMMON FACILITIES; (A) CONTRACT NO. SGTPP/1/(SGMP-1: ERECTION)/04/2004 DATED AUGUST 26, 2004 3 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION FOR ERECTION AND SERVICES OF MAIN PLANT TURNKEY PAC KAGE (SGMP-1) UNITS 1 & 2 (2 X 300MW) ALONGWITH SOME COMMON FACIL ITIES; AND (B) LETTER OF AWARD ('LOA') DATED JULY 27, 2004 ISS UED BY WBPDCL FOR ERECTION AND SERVICES OF MAIN PLANT TURNKEY PAC KAGE (SGMP-,L) UNITS 1 & 2 (2 X 300 MW) ALONG WITH SOME COMMON FAC ILITIES; AS PER THE TERMS OF THE SAID CONTRACTS, THE CONSIDE RATION TO BE RECEIVED BY THE COMPANY FROM WBPDCL IN RESPECT OF T HE AFORESAID ACTIVITIES WILL BE AS UNDER: USD 22,20,56,503 ON ACCOUNT OF OFFSHORE SUPPLY OF E QUIPMENT ( INCLUDING SPARE PARTS, TOOLS AND TACKLES) OUTSIDE I NDIA; AND INR 4,59,33,77,323 AND 1,62,75,326 FOR LOCAL SUPPLIES, DESIGN, ENGINEERING AND CONSTRUCTION, FABRICATION, ERECTION, INSTALLATI ON, TESTING AND COMMISSIONING OF THERMAL POWER UNIT IN INDIA. DPL CONTRACT NO. DPL/UNIT-7/DMP-1(SUPPLY)/2004-05/001 F OR SUPPLY OF PLANT EQUIPMENTS OF THERMAL POWER PLANT ALONGWITH S OME COMMON FACILITIES; AND; CONTRACT NO. DPL/UNIT-7/DMP-1(SERV ICES)/2004- 05/2002 FOR ERECTION AND SERVICES OF THERMAL POWER PLANT ALONGWITH SOME COMMON FACILITIES; AND LOA DATED JULY 27, 2004 ISSUED BY DPL FOR SUPPLY OF PLANT EQUIPMENTS AND ERECTION AND SER VICES OF THERMAL POWER PLANT ALONGWITH SOME COMMON FACILITIES. AS PER THE TERMS OF THE SAID CONTRACTS, THE CONSIDE RATION TO BE RECEIVED BY THE COMPANY FROM DPL IN RESPECT OF THE AFORESAID ACTIVITIES WILL BE AS UNDER: USD 11,40,47,092 ON ACCOUNT OF OFFSHORE SUPPLY OF EQUIPMENT(INCLUDING SPARE PARTS, TOOLS AND TACKLES) OUTSIDE INDIA; AND INR 2,40,91,28,459 AND USD 1,06,82,305 FOR LOCA L SUPPLIES, DESIGN 4 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION ENGINEERING AND CONSTRUCTION, FABRICATION, ERECTION , INSTALLATION, TESTING AND COMMISSIONING OF THERMAL POWER PLANT IN INDIA. 3. IN BOTH THE CASES, THE ORIGINAL TENDER WAS FOR S ETTING UP OF TURN-KEY THERMAL POWER PROJECTS. THE ENTIRE SCOPE OF WORK WA S SPLIT UP INTO TWO CONTRACTS ON MUTUAL ARRANGEMENT. HOWEVER, A 'CR OSS- FALL BREACH CLAUSE' FEATURES VERY PROMINENTLY IN BOTH CASES, BY VIRTUE OF WHICH PERFORMANCE OF THE ENTIRE CONTRACT WAS TREATED AS A SINGLE POINT RESPONSIBILITY OF DEC, CHINA AND NON-PERFORMANCE OF ANY PART OR PORTION OF THE CONTRACT WAS TO BE DEEMED AS A BREAC H OF THE WHOLE CONTRACT. 4. IN FEBRUARY, 2005 THE ASSESSEE MADE SEPARATE APP LICATIONS U/S 197 OF THE INCOME-TAX ACT, 1961 (THE ACT) IN RESPECT OF THE AFORESAID TWO PROJECTS, IN WHICH THE FOLLOWING SUBMISSIONS WERE M ADE: SUPPLY OF EQUIPMENT OVERSEAS IS NOT TAXABLE IN INDI A BOTH UNDER THE DOMESTIC LAW AS WELL UNDER THE INDO-CHINA DTAA AND HENCE, SHOULD NOT BE SUBJECTED TO TAX DEDUCTION AT SOURCE; AND LO CAL SUPPLY AND SERVICES PORTION SHOULD BE SUBJECTED TO TAX DEDUCTI ON AT SOURCE AT NIL RATE SINCE THE COMPANY EXPECTS TO INCUR SUBSTANTIAL LOSS ON SUCH SERVICES. SECTION 44BBB OF THE ACT WILL BE APPLICAB LE TO THE COMPANY'S CASE AND COMPANY WILL OPT FOR TAXATION ON NET INCOM E BASIS UNDER SUB-SECTION (2) OF THE SAID SECTION, WHICH REQUIRES MAINTENANCE OF REGULAR BOOKS OF ACCOUNTS U/S 44AA AS WELL AS PREPA RATION OF ACCOUNTS AND GETTING THE SAME AUDITED AS REQUIRED U /S 44AB, WHICH ARE SUBJECT TO SCRUTINY BY THE ASSESSING OFFICER U/ S 143(3) OF THE ACT. 5. AFTER CONSIDERING THE ASSESSEE'S SUBMISSIONS SEP ARATE ORDERS U/S.197 WERE PASSED ON 28.2.2005. WBPDCL & DPL WERE DIRECTED TO DEDUCT TAX AT SOURCE U/S 195 IN THE FOLLOWING MANNE R: 5 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION OFFSHORE SUPPLY: A SUM EQUIVALENT TO 2.5% OF GROSS RECEIPTS UNDER THIS CONTRACT(S) WAS DEEMED TO BE INCOME FOR THE PURPOSE OF DETERMINATION OF RATE AT WHICH TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE. ACCORDINGLY, THE RATE OF TDS WAS DETERMINED AT 41.8 % (THE RATE PRESCRIBED IN THE FINANCE ACT PLUS SURCHARGE & CESS AS APPLICABLE) OF 2.5% OR @ 1.045%. LOCAL SUPPLY AND SERVICES: A SUM EQUIVALENT TO 10% OF GROSS RECEIPTS UNDER THIS CONTRACT(S) WAS DEEMED TO BE INCOME FOR THE PURPOSE OF DETERMINATION OF RATE AT WHICH TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE. ACCORDINGLY, THE RATE OF TDS WAS DETERMINED AT 41.8 % (THE RATE PRESCRIBED IN THE FINANCE ACT PLUS SURCHARGE & CESS AS APPLICABLE) OF 10% OR @ 4.182%. 6. HAVING NOT BEEN SATISFIED WITH THE ABOVE ORDERS U/S 197, THE ASSESSEE FILED REVISION PETITION U/S 264 OF THE ACT BEFORE THE DIT( INTI. TAXN), KOLKATA ON 25.04.2005. LD. DIT( INTI. TAXN), KOLKATA, AFTER TAKING INTO CONSIDERATION THE FACTUAL MATRIX OF THE CASE(S) AND ALL APPLICABLE LEGAL PROVISIONS, PASSED SEPARATE ORDERS U/S 264 FOR WBPDCL AND DPL ON 17.6.2005. PARAGRAPH NO.8, BEING THE LAST PARAGRAPH OF THE ORDER U/S 264 CONTAINS THE SUMMARY , WHICH IS IDENTICAL IN BOTH THE ORDER. THE SUMMARY IS REPRODU CED BELOW: '8. TO SUM UP OFFSHORE SUPPLY PROFIT FROM OFFSHORE SUPPLY OF EQUIPMENT/MACHINERY IS DEEMED TO ACCRUE OR ARISE TO THE PETITIONER UNDER INDIAN INCO ME TAX ACT, AS IT HAS ARISEN TO THE PETITIONER THROUGH OR FROM BUSINE SS CONNECTION IN INDIA. ONLY SUCH PART OF PROFIT AS IS REASONABLY ATTRIBUTA BLE TO THE OPERATION, RELATING OFFSHORE SUPPLY IS CARRIED OUT BY THE PE I N INDIA, IS TAXABLE IN INDIA. 6 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION ITS TAXABILITY UNDER TREATY LAW WILL BE DECIDED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS . IF THE PETITIONER IS ABLE TO PROVE THAT THE OFFSHOR E SUPPLY COULD NOT HAVE BEEN UNDERTAKEN BY THE PERMANENT ESTABLISHMENT OR HAVE NO RELATION WITH PERMANENT ESTABLISHMENT, THEN NO INCO ME FROM OFFSHORE SUPPLY CONTRACT IS TAXABLE IN INDIA. OTHERWISE, ONLY SUCH PART OF PROFIT AS IS REASONABL Y ATTRIBUTABLE TO THE OPERATION, RELATING OFFSHORE SUPPLY IS CARRIED OUT BY THE PE IN INDIA, IS TAXABLE IN INDIA. THERE WOULD BE NO DEDUCTION OF TAX IN RESPECT OF RE CEIPTS FROM OFFSHORE SUPPLY, BUT THE PETITIONER SHALL MAINTAIN A SEPARATE ACCOUNT OF RECEIPT AND EXPENDITURE IN RESPECT OF OPERATION RELATING TO OFFSHORE SUPPLY CONTRACT CARRIED OUT BY THE PE IN INDIA (WIT H PROPER DOCUMENTATION AND SUPPORTING EVIDENCE), THE PROFIT, FROM WHICH SHALL BE CLUBBED WITH THE PROFITS FROM LOCAL SUPPLY AND S ERVICES PORTION, AND IF THERE IS ANY TAX LIABILITY, AFTER GIVING CRE DIT FOR TDS FROM LOCAL SUPPLY AND SERVICES CONTRACT, THE SAME SHALL BE PAI D BY THE PETITIONER BY WAY OF ADVANCE-TAX. LOCAL SUPPLY, ERECTION AND SERVICES THE ORDER OF THE ASSESSING OFFICER IS CONFIRMED. TH E TAX SHALL CONTINUE TO BE DEDUCTED @ 4.182% OF THE RECEIPTS FOR LOCAL S UPPLIES & SERVICES TILL THE COMPLETION OF THE CONTRACT, EVEN IF, THERE IS ACTUAL LOSS/LESSER INCOME, AFTER EXERCISING OPTION U/S.44BBB(2) OF THE I.T .ACT., BY THE PETITIONER. IT IS CONSIDERED NECESSARY TO DO SO, BE CAUSE, THERE MAY BE SOME PROFIT ATTRIBUTABLE TO OFFSHORE SUPPLY, WHICH CAN, ONLY BE DETERMINED AFTER REGULAR ASSESSMENT. IN THE RESULT, THE REVISION PETITION IS PARTLY ALLO WED.' EFFECT OF SUCH ORDER WAS DULY GIVEN ON 01.07.2005. 7 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION 3. THE ASSESSEE FILED THE FOLLOWING GROUNDS OF APPE AL, FOR BOTH THE ASSESSMENT YEARS;- ASSESSMENT YEAR 2009-10 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DRP AND CONSEQUENTIALLY THE IMPUGNED ORDER ERRED IN REJECTI NG THE APPELLANT'S CLAIM THAT THE REFERENCE MADE BY THE AO TO TRANSFER PRICI NG OFFICER (TPO') IS ERRONEOUS AND BAD IN LAW BEING MADE BEYOND THE TIME LIMIT AS PER THE PROVISO TO SECTION 153(1) OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE AO HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN MAKING REFERENCE UNDER SECTION 92CA OF THE ACT TO THE TPO ON ERRONEOUS ASSUMPTION THAT: (I) THE PROJECT OFFICE AND THE HEAD OFFICE IN CHINA ARE ASSOCIATED ENTERPRISE; (II) DOMESTIC ACTIVITIES CARRIED OUT BY THE PROJECT OFFICE ARE INTERNATIONAL TRANSACTIONS WITHIN THE MEANING OF SECTION 928 OF T HE ACT; 3. THE ASSESSING OFFICER/TPO/DRP VIDE IMPUGNED ORDE R HAVE ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN M AKING AN ADJUSTMENT OF RS236,541,345 BY APPLYING TRANSFER PRICING PROVISIO NS AND THEREBY REJECTING THE BOOK RESULTS OF THE PROJECT OFFICE WH ICH WERE ARRIVED AT IN CONSONANCE WITH ARTICLE 7(1) OF DOUBLE TAXATION AVO IDANCE AGREEMENT BETWEEN INDIA AND CHINA READ WITT1 ARTICLE 5 THEREO F. 4. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ADJU STMENT OF RS 236,541,345 MADE BY THE ASSESSING OFFICER/TPO/DRP V IDE IMPUGNED ORDER IS BAD IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS THE SAME HAS BEEN MADE:- (I) BY APPLYING TRANSACTIONAL NET MARGIN METHOD AND REJECTING COMPARABLE UNCONTROLLED PRICE METHOD OR PROFIT SPLIT METHOD FO R DETERMINING THE AMOUNT OF PROFIT; 8 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION (II) BY TAKING INTO CONSIDERATION THE COMPARABLE WH ICH DIFFER IN MANY ASPECTS IN CONTEXT OF BUSINESS ACTIVITIES OF THE PR OJECT OFFICE OF THE APPELLANT IN INDIA; (III) WITHOUT MAKING ADJUSTMENTS NECESSARY TO ACCOU NT FOR DIFFERENCES IN THE COMPARABLE; (IV) BY ADOPTING THE COST BASE WITHOUT APPRECIATION OF THE SCOPE OF ACTIVITIES UNDERTAKEN BY THE PROJECT OFFICE; (V) WITHOUT APPRECIATING THAT THE TOTAL ADJUSTMENT MADE IS IN EXCESS OF THE REVENUE RECEIVED BY THE APPELLANT FROM THE THIRD PA RTY CONTRACTEES; 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DRP AND CONSEQUENTLY THE IMPUGNED ORDER ERRED IN AFFIRMING TREATMENT OF INTEREST ON INCOME TAX REFUND OF RS 15,493,243 AS INCOME FRO M OTHER SOURCES INSTEAD OF BUSINESS INCOME AND TAXING THE SAME @10% ON THE GROSS BASIS UNDER INDIA-CHINA DOUBLE TAXATION AVOIDANCE AGREEMENT. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE AO ERRED IN GRANTING TDS CREDIT OF RS 34,139,225 INSTEAD OF RS 34,204,21 2 AS CLAIMED BY THE APPELLANT RESULTING INTO A SHORT GRANT OF TDS TO TH E EXTENT OF RS 65,187. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND, THE AO ERRED IN LEVYING INTEREST UNDER SECTION 234D OF THE ACT. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND, THE ASSESSING OFFICER ERRED IN GRANTING SHORT CREDIT OF INTEREST UNDER SECTION 244A OF THE ACT. 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTIONS 271 ( 1 )(C) OF THE ACT. 9 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION ASSESSMENT YEAR 2010-11 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE DRP AND CONSEQUENTIALLY THE IMPUGNED ORDER ERRED IN REJECTI NG THE APPELLANT'S CLAIM THAT THE REFERENCE MADE BY THE AO TO TRANSFER PRICING-OFFICER (TPO') IS ERRONEOUS AND BAD IN LAW AND AGAINST THE INTERES T IF NATURAL JUSTICE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DRP GROSSLY ERRED IN MECHANICALLY AND ROUTINELY FOLLOWING DRP DIRECTI ONS IN EARLIER YEARS WITHOUT ANY INDEPENDENT APPLICATION OF MIND AND ERR ED IN UPHOLDING DRAFT ASSESSMENT ORDER 'AND TRANSFER PRICING ORDER FOR AY 2010- 11 LEADING TO THE IMPUGNED ORDER, WITHOUT APPRECIATING THAT THE S TAND TAKEN BY SAID AUTHORITIES IN EARLIER YEARS HAVE NOT BEEN UPHELD A ND DE NOVO ASSESSMENT HAS BEEN DIRECTED IN THOSE YEARS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DRP COMPLETELY MISINTERPRETED THE DIRECTIONS OF COURTS IN EARLIER YEAR AND ROUTINELY UPHELD DRAFT ASSESSMENT ORDER AND TRANSFER PRICING ORDER P ASSED ON IDENTICAL LINES AS IN EARLIER YEARS. DRP COMPLETELY FAILED TO APPRE CIATE THAT THE WHOLE PURPOSE OF DE NOVO ASSESSMENT WOULD BE LOST BY MERE LY REPEATING THE EARLIER ORDERS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE AO/ TPO/ DRP HAS ERRED IN NOT FOLLOWING THE GUIDELINES LAID DOWN BY THE COURTS INCLUDING HON'BLE INCOME TAX APPELLATE TRIBUNAL IN SIMILAR SI TUATIONS INCLUDING THAT OF THE APPELLANT IN EARLIER YEARS. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE PRESENT IMPUGNED CONCLUSIONS OF AO/ TPO/ DRP IN THE IMPUGNE D ORDER ARE RESULT OF BASELESS, INCONSISTENT AND SELF-CONTRADICTORY PR ESUMPTIONS ON FACTS AND LAW. 10 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DRP FAILED TO CONSIDER ALL RELEVANT ASPECTS AND ROUTINE PROCEEDED TO UPHOLD ASSESSMENT ON THE VERY SAME BASIS AS IN EARLIER YEARS EVEN WHI LE NOTING THAT THE HIGHER COURTS HAVE ALREADY DIRECTED DE NOVO ASSESSMENT IN THOSE EARLIER YEARS. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE AA HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN MAKING REFERENCE UNDER SECTION 92CA OF THE ACT TO THE TPO ON ERRONEOUS ASSUMPTION THAT: (I) THE PROJECT OFFICE AND THE HEAD OFFICE IN CHINA ARE ASSOCIATED ENTERPRISE; (II) DOMESTIC ACTIVITIES CARRIED OUT BY THE PROJECT OFFICE ARE INTERNATIONAL TRANSACTIONS WITHIN THE MEANING OF SECTION 92B OF T HE ACT; AND (III) THE PROJECT OFFICE IS A SUB-CONTRACTOR OF THE HEAD OFFICE IN CHINA AND SHOULD BE REMUNERATED BY THE HEAD OFFICE ON AN ARM' S LENGTH BASIS. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE AO/ TPO/ DRP VIDE IMPUGNED ORDER HAVE ERRED IN LAW AND ON THE FACTS A ND CIRCUMSTANCES OF THE CASE IN MAKING AN ADJUSTMENT OF RS 54,693,572 B Y APPLYING TRANSFER PRICING PROVISIONS AND THEREBY REJECTING THE BOOK R ESULTS OF THE PROJECT OFFICE WHICH WERE ARRIVED AT IN CONSONANCE WITH ART ICLE 7(1) OF DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND CHIN A READ WITH ARTICLE 5 THEREOF. 9. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ADJU STMENT OF RS. 54,693,572 MADE BY THE AO/ TPO/ DRP VIDE IMPUGNED O RDER IS BAD IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS T HE SAME HAS BEEN MADE:- (I) BY APPLYING TRANSACTIONAL NET MARGIN METHOD AND REJECTING COMPARABLE UNCONTROLLED PRICE METHOD OR PROFIT SPLI T METHOD FOR DETERMINING THE AMOUNT OF PROFIT; 11 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION (II) BY TAKING INTO CONSIDERATION THE COMPARABLE WH ICH DIFFER IN MANY ASPECTS IN CONTEXT OF BUSINESS ACTIVITIES OF THE PR OJECT OFFICE OF THE APPELLANT IN INDIA; (III) WITHOUT MAKING ADJUSTMENTS NECESSARY TO ACCOU NT FOR DIFFERENCES IN THE COMPARABLE; (IV) BY ADOPTING THE COST BASE WITHOUT APPRECIATION OF THE SCOPE OF ACTIVITIES UNDERTAKEN BY THE PROJECT OFFICE; (V) WITHOUT APPRECIATING THAT THE APPELLANT IS MAKI NG OVERALL LOSS ON THE SAID PROJECT 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE DRP AND CONSEQUENTLY THE IMPUGNED ORDER ERRED IN AFFIRMING TREATMENT OF INTEREST ON INCOME TAX REFUND OF RS 6,589,064 AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME AND TAXING THE SAME @10% ON THE GROSS BASIS UNDER INDIA-CHINA DOUBLE TAXATION AVOIDANCE AGREEMENT. 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND, THE ASSESSING OFFICER ERRED IN LEVYING INTEREST UNDER SECTION 234 D OF THE ACT. 12. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND, THE ASSESSING OFFICER ERRED IN GRANTING SHORT CREDIT OF INTEREST UNDER SECTION 244A OF THE ACT. 13. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AA HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTIONS 27 1 (1 )(C) OF THE ACT 14. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, WITHD RAW ANY GROUNDS OF APPEAL IN THE INTEREST OF NATURAL JUSTICE EITHER BE FORE OR DURING THE COURSE OF APPEAL PROCEEDINGS. 12 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION 3.1. THE ASSESSEE FILED THE FOLLOWING ADDITIONAL GR OUNDS OF APPEAL FOR BOTH THE ASSESSMENT YEARS:- ASSESSMENT YEAR 2009-10 2(A) WITHOUT PREJUDICE TO GROUND NO 1, THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THERE IS IN FACT NO VALID REFERENCE MADE UNDER SECTION 92CA(1) OF THE INCOME TAX ACT, 1961 BY ASSESSING OFFICER (ASSESSING OFFICER) TO THE T RANSFER PRICING OFFICER (TPO). 2(B) WITHOUT PREJUDICE TO GROUND NO 1, DETERMINATIO N OF EXISTENCE OF SPECIFIC INTERNATIONAL TRANSACTION BEI NG AN EXERCISE WITHIN EXCLUSIVE JURISDICTION OF THE ASSESSING OFFI CER BEFORE MAKING ANY REFERENCE TO THE TPO, DETERMINATION OF EXISTENC E OF INTERNATIONAL TRANSACTION BY TPO AND SUBSEQUENT DET ERMINATION OF ALP IS BEYOND SPECIFIC AND DISTINCT JURISDICTIONS C ONFERRED IN LAW AND CONSEQUENTLY THE RESULTANT DEMAND IN INVALID AN D UNENFORCEABLE IN LAW. 4(I) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEARNED DISPUTE RESOLUTION PANEL ERRED IN ROUTINELY UPHOLDING THE FAR ANALYSIS AND TRANSFER PRICING ADJUSTMENT MADE B Y THE TPO EVEN WHILE FINDING THE FAR TO BE GROSSLY DIFFERENT ON FACTS. FOR ASSESSMENT YEAR 2010-11 1(A) WITHOUT PREJUDICE TO ALL OTHER GROUNDS OF APPEAL TAKEN HEREIN, THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THERE IS IN FACT NO VALID REFERENCE MADE UNDER SECT ION 92CA(1) OF THE 13 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION INCOME TAX ACT, 1961 BY ASSESSING OFFICER (ASSESSI NG OFFICER) TO THE TRANSFER PRICING OFFICER (TPO). 1(B) WITHOUT PREJUDICE TO ALL OTHER GROUNDS OF APP EAL TAKEN HEREIN, THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, DETERMINATION OF EXISTENCE OF SPECIFIC INTERNATIONA L TRANSACTION BEING AN EXERCISE WITHIN EXCLUSIVE JURISDICTION OF THE AS SESSING OFFICER BEFORE MAKING ANY REFERENCE TO THE TPO, DETERMINATI ON OF EXISTENCE OF INTERNATIONAL TRANSACTION BY TPO AND SUBSEQUENT DETERMINATION OF ALP IS BEYOND SPECIFIC AND DISTINCT JURISDICTIONS C ONFERRED IN LAW AND CONSEQUENTLY THE RESULTANT DEMAND IN INVALID AND UN ENFORCEABLE IN LAW. 9(I) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEARNED DISPUTE RESOLUTION PANEL ERRED IN ROUTINELY UPHOLDI NG THE FAR ANALYSIS AND TRANSFER PRICING ADJUSTMENT MADE BY TH E TPO EVEN WHILE FINDING THE FAR TO BE GROSSLY DIFFERENT ON FACTS. 4. THESE ADDITIONAL GROUNDS ARE ADMITTED FOR BOTH T HE ASSESSMENT YEARS AS THEY RAISE LEGAL ISSUES AND AS THEY DO NOT REQUIRE INVESTIGATION INTO ANY FRESH FACTS. ALL THE FACTS ARE ON RECORD. 5. FOR BOTH THE ASSESSMENT YEARS, WE TAKE UP THE FI RST ISSUE, AS TO WHETHER THERE IS VALID REFERENCE MADE U/S 92CA(1) OF THE AC T, BY THE ASSESSING OFFICER TO THE TRANSFER PRICING OFFICER (TPO). 5.1. THE LD. COUNSEL FOR THE ASSESSEE, SHRI NAGESWAR RAO, ARGUED THAT, NO REFERENCE WAS MADE BY THE LD. ASSESSING OFFICER, TO THE LD. TPO FOR 14 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION DETERMINATION OF ARMS LENGTH PRICE OF ANY INTERNATI ONAL TRANSACTION AND HENCE THE ASSESSMENT GETS BARRED BY LIMITATION ON 31/12/2 012, FOR THE ASSESSMENT YEAR 2009-10 AND, 31/12/2013 FOR THE ASSESSMENT YEA R 2010-11. HE REFERRED TO SECTION 92CA(1) AND EMPHASIZED THAT THE ASSESSING OFFICER HAS TO REFER TRANSACTIONS OR A GROUP OF TRANSACTIONS TO THE TPO AND ONE SUCH REFERENCE IS MADE BY THE ASSESSING OFFICER, THE TIME TO COMPLETE THE ASSESSMENT IS EXTENDED BY ONE MORE YEAR. YOU ARE U/S 120, THE CBDT HAD CON FERRED JURISDICTION ON CERTAIN DESIGNATED OFFICERS TO ACT AS TPOS. 5.2.1. THE LD. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE HAS REPEATEDLY REQUESTED THE ASSESSING OFFICER TO PROVI DE COPIES OF REFERENCES MADE BY THE TPO IN TERMS OF PROVISIONS OF THE ACT, ON 11 TH MARCH 2013, 23 RD JUNE 2015 AND ON OTHER OCCASIONS, BUT SUBMITTED THAT IT WAS NOT FURNISHED WITH THE SAME. HE POINTED OUT THAT IT IS THE STATUTORY RIGHT OF THE ASSESSEE TO KNOW AS TO WHAT ARE THE CONTENTS OF THE REFERENCE. HE FURTHER SUBMITTED THAT THE ASSESSEE HAD CONDUCTED INSPECTION OF THE RECORDS FOR BOTH TH E ASSESSMENT YEARS AND FOUND THAT NO REFERENCE WAS MADE BY THE LD. ASSESSI NG OFFICER, TO THE LD. TPO, AS REQUIRED UNDER THE PROVISIONS OF THE ACT. 5.2.2. THE ASSESSING OFFICERS ACT OF SEEKING APPRO VAL FROM DIT(IT) OR THE AO COMMUNICATION TO THE LD. DIT(IT), THAT HE OBTAINED THE APPROVAL FOR REFERRING 15 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION THE TRANSACTIONS TO THE TPO UNDER THE ACT, IS NOT A STATUTORY REFERENCE MADE BY THE ASSESSING OFFICER TO THE TPO AS PRESCRIBED U/S. 92CA OF THE ACT. 5.2.3. HE ARGUED THAT THE LETTER DATED 26/12/2011, FROM THE AO TO THE DIT(IT), SEEKING APPROVAL OF REFERENCE TO TPO UNDER SECTION 92 CA (1) FOR DETERMINATION OF A ALP AND THE APPROVAL GRANTED BY THE DIT (IT) VIDE LETTER DATED 27/12/2011, CANNOT LEAD TO AN INFERENCE THAT THERE WAS A REFERENCE MADE BY THE ASSESSING OFFICER TO THE TPO AND THAT S UCH REFERENCE WAS IN TIME AND IN ACCORDANCE WITH THE PROVISIONS OF THE LAW. 5.2.4. HE SUBMITTED THAT THE LD. DR, IS WRONG IN HI S CONTENTION, THAT THIS ISSUE OF LACK OF REFERENCE WAS NOT DISPUTED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2010-11. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- STRATEGIC CREDIT CAPITAL PVT. LTD. & ORS., VERSUS R ATNAKAR BANK LTD. [395 ITR 391] AMIYA BALA PAUL VS. CIT (2003) 6 SCC 342 SPLS SIDDHARTHA LTD [2012] 345 ITR 223 5.3. HE SUBMITTED THAT THERE IS NO REFERENCE MADE B Y THE AO TO THE TPO, IN TERMS OF SECTION 92 CA OF THE ACT, THE ASSESSMENT O RDER FOR THE ASSESSMENT YEAR 2009-10, WAS REQUIRED TO BE PASSED BY 31/12/ 2012, AND AS THE ASSESSMENT ORDER WAS PASSED ON 31/01/2014, THE ASSESSMENT IS B ARRED BY LIMITATION AND THAT SIMILAR IS THE POSITION FOR ASSESSMENT YEAR 20 10-11. AS IT IS THE DUTY OF THE 16 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION AO UNDER THE LAW, TO DECIDE THE EXISTENCE OF AN INT ERNATIONAL TRANSACTION, AND THEREAFTER TAKE APPROVAL FROM THE COMPETENT AUTHORI TY AND REFER THE PARTICULAR INTERNATIONAL TRANSACTION/S TO THE TPO FOR THE DETE RMINATION OF ALP, WHEREAS IN THE CASE ON HAND, THE TPO WAS TRYING TO DISCOVER TH E EXISTENCE OF AN INTERNATIONAL TRANSACTION, WITHOUT A REFERENCE FROM THE ASSESSING OFFICER. 5.4. HE FURTHER SUBMITTED THAT DEC, CHINA AND THE D EC-PO ARE NOT AES, AND THAT THERE IS NO INTERNATIONAL TRANSACTION. HE FURT HER SUBMITS THAT DEC CHINA IS CARRYING OUT ITS OWN BUSINESS ACTIVITY FROM ITS OWN PROJECT OFFICE AND THE INCOME OF THE PROJECT OFFICE TPO IS BEING OFFERED T O TAX IN INDIA IN ACCORDANCE WITH ARTICLE 7 (2) OF THE INDO-CHINA DTAA. IT WAS S UBMITTED THAT THE PROJECT OFFICE HAD EARNED INCOME FROM TWO UNRELATED INDIAN ENTITIES I.E., WBPDCL & DPL AND TAX ACCOUNTS WERE DRAWN TO REFLECT THE ATTRIBUT ION OF PROFITS. AS THERE IS NO TRANSACTION BETWEEN THE ASSESSEE AND THE PROJ ECT OFFICE, THERE IS NO INTERNATIONAL TRANSACTION REQUIRING A REFERENCE TO THE TPO. ARTICLE 7 (2) OF THE INDO-CHINA DTAA, DOES NOT JUSTIFY TAXATION OF NOTIO NAL INCOME AND IT IS OUTSIDE CHAPTER 10, AND THAT THE TRANSFER PRICING PROVISION S ARE NOT FOR TAXING NOTIONAL INCOME BUT FOR BRINGING REAL INCOME TO TAX. RELIANC E IS PLACED ON THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS PVT. LTD. VS. CIT. THE REVENUE HAS ACCEPTED AND NOT DISPUTED THAT THE PROJECT OFFICE ACTIVITIES ARE WITHIN THE SCOPE OF AGREED ONSHORE SCOPE OF WOR K WITH THE THIRD-PARTY 17 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION CONTRACTEES AND IS NOT JUSTIFIED IN MAKING ADJUSTME NT TO THE PRICE WITH RESPECT TO THE ONSHORE PART OF THE CONTRACT AS NEGOTIATED A ND AGREED BILATERALLY BETWEEN THE ASSESSEE AND THE INDEPENDENT THIRD PART IES. 5.5. WITHOUT PREJUDICE, IT WAS SUBMITTED THAT DEC- CHINA HAS SUFFERED A LOSS ON THE OVERALL PROJECT, BOTH ONSHORE AS WELL AS OFF SHORE SUPPLY OF SERVICES AND HENCE FOR THE ATTRIBUTION OF PROFITS, THE WHOLE CON TRACT HAS TO BE LOOKED INTO AND UNDER THE CIRCUMSTANCES, THERE WOULD BE ATTRIBUTION OF LOSS TO DEC-PO. 6. THE LD. COUNSEL FOR THE ASSESSEE, DISPUTED THE M OST APPROPRIATE METHOD (MAP), SELECTED BY THE TPO I.E., TNMM AND SUBMITTED THAT COMPARABLE UNCONTROLLED PRICE(CUP) METHOD IS THE BEST METHOD. HE ALSO DISPUTED THE SELECTION OF COMPARABLES, ON THE GROUND THAT FULL F ACTS OF THE COMPARABLES WERE NOT AVAILABLE ON RECORD. 6.1 THE LD. DR, SHRI G. MALLIKARJUNA, ON THE OTHER HAND, STRONGLY DISPUTED THE CONTENTIONS OF THE ASSESSEE AND SUBMITTED THAT THE REFERENCE WAS MADE BY THE ASSESSING OFFICER TO THE TPO ON 27/12/2011 AND THIS FACT IS CLEAR FROM THE COPY OF THE DISPATCH REGISTER, WHEREIN IT IS CLEARLY STA TED THAT ON 27/12/2011, REFERENCE TO TPO WAS MADE FOR DETERMINATION OF ALP FOR THE ASSESSMENT YEAR 2009-10. HE FILED A COPY OF THE DISPATCH REGISTER. 6.2. HE POINTED OUT THAT THE ASSESSING OFFICER HAS SOUGHT APPROVAL OF THE DIT(IT), FOR HIS PROPOSAL FOR MAKING A REFERENCE TO THE TPO OF CERTAIN 18 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION TRANSACTIONS OF THE ASSESSEE COMPANY FOR DETERMINAT ION OF THE ALP U/S 92CA OF THE ACT AND THE DIT(IT) VIDE HIS LETTER DT. 27/12/2 011, GRANTED APPROVAL TO THE PROPOSAL AND THIS LETTER FOR DULY FORWARDED TO THE ADIT(IT), RANGE-1, KOLKATA & TO THE DIT(TP), KOLKATA FOR NECESSARY ACTION. HE VE HEMENTLY CONTENDED THAT THERE IS NO DISPUTE THAT THE ORDER WAS PASSED BY TH E TPO ON A REFERENCE BY THE ASSESSING OFFICER ON 27/12/2011 AND THAT NO AUTHORI TY HAS INTERFERED WITH THE JURISDICTION OF EITHER THE AO OR THE TPO. HE SUBMIT TED THAT THE ASSESSEE IS TRYING TO IMPORT THE RESTRICTIONS UNDER SECTION 148 TO A REFERENCE BY THE TPO UNDER SECTION 92CA(3) OF THE ACT. ON THE LETTER DT. 03/01/2012, HE SUBMITTED THAT IT WAS A MERE REMINDER. ON THE MENTIONING BY T HE TPO IN HIS ORDER UNDER SECTION 92 CA (3) OF THE ACT ON 30/01/2013 FOR THE ASSESSMENT YEAR 2009-10, THAT THE REFERENCE WAS RECEIVED ON 03/01/2011, HE S UBMITTED THAT IT WAS THE DATE ON WHICH THE TPO RECEIVED THE REMINDER AND ARG UED THAT BUT THE ASSESSING OFFICERS LETTER WAS DT.27/12/2011, AND I T WAS RECEIVED ON THE SAME DAY BY THE TPO. ON A QUERY FROM THE BENCH, NO LETTE R WRITTEN BY THE ASSESSING OFFICER TO THE TPO REFERRING CERTAIN INTERNATIONAL TRANSACTIONS FOR DETERMINATION OF ALP U/S 92CA(1) OF THE ACT, WAS PR ODUCED FOR BOTH THE ASSESSMENT YEARS. 7. ON THE ISSUE OF WHETHER THERE IS AN INTERNATIONA L TRANSACTION, HE SUBMITTED THAT THE PERMANENT ESTABLISHMENT OF A FOR EIGN COMPANY HAS TO BE 19 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION TREATED AS SEPARATE ENTITY FOR THE PURPOSE OF TRANS FER PRICING AND HENCE IT BECOMES AN ASSOCIATE ENTERPRISE OF THE ASSESSEE. HE RELIED ON THE FOLLOWING DECISION:- DCIT, HYDERABAD VS. M/S IJM (INDIA) INFRASTRUCTURE LTD. HYDERABAD (2014- TII-114-ITAT-HYD-TP) HE MADE DETAILED SUBMISSIONS THAT THERE WAS AN INTE RNATIONAL TRANSACTION AND FOR THE PURPOSE OF ATTRIBUTION OF PROFITS TO PE , THE PRINCIPLE OF ALP HAS TO BE APPLIED. FOR THIS PROPOSITION, HE RELIED ON THE FOL LOWING CASE LAW:- DIT VS. MORGAN STANLEY (2007) 162 TAXMAN 165 CREDIT LYONNAIS V. ITO [2014] 51 TAXMANN.COM 354 (M UMBAI-TRIB.) 7.1. HE RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE ROLLS ROYCE SINGAPORE (P) LTD. V. ADIT [2011] 13 TAXMANN. COM 81 (DELHI), FOR THE PROPOSITION THAT, FOR ATTRIBUTION OF PROFITS TO A P E, A ROBUST TP ANALYSIS IS REQUIRED AND THE ACTIVITIES OF THE PE ARE REMUNERAT ED AT A FAIR VALUE, THE QUESTION OF DOUBLE TAXATION OR DEEMING NOTIONAL INC OME DOES NOT ARISE. FOR THE ARGUMENTS ON COMPARABLES AND MAP, HE RELIED ON THE ORDER OF THE DRP. 8. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERAT ION OF THE FACTS OF THE CASE, PERUSING THE PAPERS ON RECORD, ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAWS CITED, WE HOLD AS FOLLOWS:- 8.1. THE FIRST ISSUE THAT ARISES FOR CONSIDERATION IS WHETHER A REFERENCE WAS MADE BY THE ASSESSING OFFICER TO THE TRANSFER PRICI NG OFFICER UNDER SECTION 92 20 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION CA(1) OF THE ACT. FOR CONVENIENCE, WE EXTRACT PARAG RAPH 24 TO 27 OF THE FINAL ASSESSMENT ORDER FOR ASSESSMENT YEAR 2009-10, FOR R EADY REFERENCE:- 24. THE ASSESSEE VIDE LETTER DT.13.03.2013 FILED A N OBJECTION ALLEGING THAT THE REFERENCE UNDER SECTION 92CA(1) O F THE ACT WAS MADE ON 03 JANUARY 2012 AFTER THE EXPIRY OF TIM E LIMIT FOR PASSING THE ASSESSMENT ORDER FOR AY 2009-10. THE CO NTENTION OF THE ASSESSEE IS BASED UPON THE TPO'S ORDER DATED 30 .01.2013 WHEREIN THERE WAS MENTION OF 3RD JANUARY, 2012 AS T HE DATE OF A LETTER WRITTEN BY THE ASSESSING OFFICER TO THE DI T(TRANSFER PRICING), KOLKATA WHICH THE ASSESSEE HAS CONSTRUED AS THE DATE OF MAKING THE TRANSFER PRICING REFERENCE TO THE TPO . 25. THE CONTENTION OF THE ASSESSEE IS NOT WELL FOUN DED. IN THE INSTANT CASE, THE AO SENT THE PROPOSAL FOR MAKING R EFERENCE TO THE TPO ON 26.12.2011 TO BE APPROVED BY THE LD. DIT (INTERNATIONAL TAXATION), KOLKATA AND THE LD. DIT A CCORDED HIS APPROVAL ON 27.12.2011. THE REFERENCE AS APPROVED B Y THE LD. DIT WAS ALSO COMMUNICATED TO THE DIT(TRANSFER PRICI NG), KOLKATA ON 27.12.2011. THEREAFTER, THE LETTER REFER RED TO ABOVE WAS WRITTEN BY THE AO IN A ROUTINE MANNER JUST TO R EAFFIRM THE FACT THAT THE INTERNATIONAL TRANSACTIONS ENTERED IN TO BY THE ASSESSEE STOOD REFERRED TO THE TRANSFER PRICING OFF ICER IN TERMS OF APPROVAL GRANTED FOR THE SAME BY THE LD. DIT(INT ERNATIONAL TAXATION), KOLKATA ON 27.12.2011. EVEN AT THE COST OF REPETITION, IT IS PLACED ON RECORD THAT THE LD.DIT( INTERNATIONAL TAXATION), KOLKATA ACCORDED HIS APPROVAL FOR MARKIN G THE REFERENCE TO THE TPO ON 27.12.2011 VIDE LETTER NO. 21 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION DIT(IT)/KOL/TP-APPROVAL/SS/2010-11/1760 AND THE COP Y OF THIS LETTER WAS ALSO SENT TO THE LD.DIT(TRANSFER PR ICING), KOLKATA ON THE VERY SAME DAY I.E. 27.12.2011 FOR TA KING NECESSARY ACTION. THE REFERENCE WAS RECEIVED BY THE OFFICE OF THE DIT(TRANSFER PRICING), KOLKATA ON 27.12.2011 IT SELF WHICH MAY BE SEEN FROM THE SCANNED COPY OF THE LD.DIT(INT ERNATIONAL TAXATION), KOLKATA'S LETTER REPRODUCED BELOW: 26. THAT THE REFERENCE TO TPO WAS MADE ON 27.12.201 1 CAN ALSO BE VERIFIED FROM THE ISSUE REGISTER MAINTAINED IN THE OFFICE 22 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION OF THE LD. DIT (INTERNATIONAL TAXATION), KOLKATA, T HE COPY OF WHICH IS SCANNED BELOW: 27. IN VIEW OF THE ABOVE DISCUSSION, THERE IS NO ME RIT IN THE ASSESSEES CLAIM THE REQUISITE REFERENCE TO THE TPO WAS MADE AFTER 31.12.2011. THE ASSESSEES CONTENTION IN THIS REGARD IS, ACCORDINGLY, REJECTED. 8.2. ON A POINTED QUERY, DESPITE REPEATED OPPORTUNI TIES, THE REVENUE WAS NOT ABLE TO PRODUCE BEFORE THIS BENCH ANY LETTER DT . 27/12/2011 OR AN EARLIER DATE TO PROVE THAT THE ASSESSING OFFICER HA S MADE A REFERENCE OF THE INTERNATIONAL TRANSACTIONS TO THE TPO. WHAT IS PROD UCED BEFORE US, IS ONLY AN APPROVAL GRANTED BY THE DIT(IT) ON 27/12/2011, F OR THE ASSESSMENT YEAR 2009-10. THIS LETTER OF APPROVAL SIGNED BY THE I.T.O. (TECH), INTERNATIONAL TAXATION, KOLKATA, WAS SENT TO THE T. P.O. THE GRANT OF APPROVAL DOES NOT MEET THE REQUIREMENTS OF SECTION 92 CA(1) OF THE ACT, WHICH SPECIFICALLY REQUIRES REFERENCE BY THE ASSESSING OF FICER TO THE TRANSFER 23 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION PRICING OFFICER, FOR THE COMPETITION OF ALP IN RELA TION TO INTERNATIONAL TRANSACTIONS. EVEN THE LETTER DT. 03/02/2012, ADDRE SSED TO THE DIT(TP) BEARING REFERENCE NO. ADIT(IT)-1(1)/KOL/TP/REFERENC E/2011-12/730 BY THE ADIT(IT), ONLY SEEKS TO INTIMATE THE FACT OF GR ANT OF APPROVAL BY THE DIT(IT)- KOLKATA, AND IT IS NOT A STATUTORY REFEREN CE. THE PHOTOCOPY OF THE DISPATCH REGISTER DOES NOT DEMONSTRATE THAT THE ASS ESSING OFFICER HAS MADE THE REFERENCE AS REQUIRED BY THE STATUTE TO THE TPO . IN FACT THESE ARE THE ONLY EVIDENCES IN THE ASSESSMENT ORDER. WHICH ARE T HE INTERNATIONAL TRANSACTION/S WHICH HAVE BEEN REFERRED BY THE ASSES SING OFFICER TO THE T.P.O. U/S 92CA[1] OF THE ACT IS NOT STATED. THE SE CTION CLEARLY STATES THAT WHAT IS TO BE REFERRED IS AN INTERNATIONAL TRANSACT ION FOR DETERMINATION OF ALP. THE ASSESSEE HAS THE RIGHT OT KNOW AS TO WHAT ARE THE INTERNATIONAL TRANSACTION THAT HAVE BEEN REFERRED TO. YOU CANNOT DENY THE TERMS OF REFERENCE TO THE ASSESSEE. 8.3. IN THE LETTER DT. 23 RD AUGUST, 2017, BY THE ACIT(IT)-CIRCLE-1(1), KOLKATA, ADDRESSED TO THE JCIT(TP), KOLKATA FOR THE ASSESSMENT YEAR 2009- 10, AT PAGE 1, PARA 7, STATED AS FOLLOWS:- 1. DATE OF REFERENCE BY THE AO CASE RECORDS REVEAL THAT THE APPROVAL FOR REFERENCE TO THE TPO FOR DETERMINATION OF ARMS LENGTH PRICE U/S 92CA OF THE I.T. ACT, 1961 IN THIS CASE FOR A.Y. 2009-10 WAS OB TAINED FROM THE DIT OFFICE ON 27.12.2011 VIDE DIT OFFICE LETTER DIT(IT/KOL/TP-APPROVAL/55/2010-11/760 DATED 27.12.2 011. THE COPY OF APPROVAL FOR REFERENCE WAS ALSO SENT BY THE OFFICE OF DIT(IT), KOLKATA TO THE DIT(TP), KOLKATA FOR NEC ESSARY ACTION AT HIS END. IN THAT ORDER OF APPROVAL, THE A O WAS 24 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION DIRECTED TO SUBMIT THE RELEVANT DOCUMENTS TO THE DI T(TP). THE CHAIN OF EVENTS DO ESTABLISH THAT A REFERENCE W AS DULY MADE TO THE TPO AND THE TPO HAD PASSED HIS ORDER OB SERVING DUE PROCESS OF LAW. CERTIFIED COPY OF THE DOCUMENT I.E. APPROVAL OF THE DIT(IT), KOLKATA, WHICH IS AVAILABL E IN THE FILE IS ENCLOSED. (ANNEXURE-I). COPY OF PAGE OF ISSUE RE GISTER MAINTAINED IN THE OFFICE OF DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) IS ALSO ENCLOSED AS PER AN NEXURE-1A. DRP HAD ALSO CONSIDERED THE MATTER AND WERE OF THE OPINION THAT IT WAS A VALID TP REFERENCE WITHIN THE TIME LI MIT PERMITTED BY STATUTE. 2. DATE OF DISPATCH OF REFERENCE LETTER BY THE ASSESSING OFFICER TO ADDL. CIT(TP) CANNOT BE READILY REPLIED FOR NON-AVAILABILITY OF T HE COPY OF THE LETTER IN THE RECORDS. IT MAY BE MENTIONED THAT THE DIRECTORATE OF INTERNATIONAL TAXATION WAS PREVIOUSL Y SITUATED AT 4 TH FLOOR, AAYAKAR BHAWAN, P-69, CHOWRINGHEE SQUARE, KOLKATA. THE OFFICE HAS SUBSEQUENTLY SHIFTED TO 110 , SHANTIPALLY, KOLKATA. OTHER CORROBORATIVE RECORDS S UCH AS DISPATCH REGISTERS ETC COULD NOT BE LOCATED. HOWEVE R IT COULD NOT BE CORRECT THAT A VALID REFERENCE HAS NOT BEEN MADE AFTER OBTAINING DITS APPROVAL. SIMILARLY, FOR ASSESSMENT YEAR 2010-11, AT PARA 7.2. 2., IT WAS STATED AS FOLLOWS:- 1. DATE OF REFERENCE BY THE AO CASE RECORDS REVEAL THAT THE APPROVAL FOR REFERENCE TO THE TPO FOR DETERMINATION OF ARMS LENGTH PRICE U/S 92CA OF THE I.T. ACT, 1961 IN THIS CASE FOR A.Y. 20 10-11 WAS OBTAINED FROM THE DIT OFFICE ON 06.12.2012 VIDE DIT OFFICE LETTER DIT(IT/KOL/TP-APPROVAL/55/2012-13/243 6 DATED 06/12/2012 . THE AO AFTER OBTAINING APPROVAL FROM DIT(IT), KOLKATA HAS SUBMITTED ALL THE RELEVAN T DOCUMENTS TO THE DIT(TP), KOLKATA FOR NECESSARY ACT ION AT THE END OF DIT(TP), KOLKATA. CERTIFIED COPIES OF THE DOCUMENTS AVAILABLE IN THE FILE ARE ENCLOSED (ANNEX URE- 2&3). 2. DATE OF DISPATCH OF REFERENCE LETTER BY THE ASSESSING OFFICER TO ADDL. CIT(TP) CANNOT BE READILY REPLIED FOR NON-AVAILABILITY OF T HE COPY OF THE LETTER IN THE RECORDS. IT MAY BE MENTIONED T HAT THE DIRECTORATE OF INTERNATIONAL TAXATION WAS PREVIOUSL Y SITUATED AT 4 TH FLOOR, AAYAKAR BHAWAN, P-69, CHOWRINGHEE SQUARE, KOLKATA. THE OFFICE HAS SUBSEQUENTLY SHIFTED TO 110, SHANTIPALLY, KOLKATA. OTHER CORROBORATIVE RECORDS SUCH AS DISPATCH REGISTERS ET C COULD NOT BE LOCATED. HOWEVER IT COULD NOT BE CORRE CT THAT A VALID REFERENCE HAS NOT BEEN MADE AFTER OBTA INING DITS APPROVAL. 25 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION 8.3.1. ANNEXURE 2 & 3, ARE EXTRACTED BELOW FOR READ Y REFERENCE:- 26 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION 27 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION 8.3.2. FROM A PERUSAL OF THE ABOVE RECORDS PRODUCED BY THE LD. DR, WE FIND THAT THE ASSESSING OFFICER HAS NOT MADE A REFERENCE AS PER LAW TO THE T.P.O. U/S 92CA(1) OF THE ACT. THE ASSESSING OFFICER OF TH E ASSESSEE HAS TO ADDRESS A COMMUNICATION TO THE T.P.O. MAKING THE REFERENCE U/S 92CA(1) OF THE ACT BY MENTIONING AS TO WHICH ARE THE INTERNATIONAL TRA NSACTION WHICH REQUIRE DETERMINATION OF ALP. 8.4. FROM THE ABOVE, IT IS CLEAR THE REVENUE COULD NOT DEMONSTRATE THAT THERE WAS A VALID REFERENCE U/S 92CA(1) OF THE ACT, FOR BOTH THE IMPUGNED ASSESSMENT YEARS BY THE ASSESSING OFFICER TO THE T. P.O. ONLY LETTERS OF APPROVAL OBTAINED FOR MAKING THE REFERENCE ARE AVAI LABLE ON RECORD, RIGHT FROM THE STAGE OF ASSESSMENT PROCEEDINGS. 9. IN VIEW OF THE ABOVE DISCUSSION, WE AGREE WITH T HE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSE, THAT THE ASSESSMENT OR DERS PASSED FOR BOTH THE ASSESSMENT YEARS ARE BARRED BY LIMITATION AS THERE IS NO VALID REFERENCE BY THE ASSESSING OFFICER TO THE T.P.O AND CONSEQUENTLY THE LIMITATION SPECIFIED U/S 153(1) OF THE ACT, APPLIES.. AS WE HAVE HELD TH AT BOTH THE ASSESSMENT ARE BARRED BY LIMITATION, WE DO NOT ADJUDICATE THE OTHER ISSUES THAT WERE ARGUED BEFORE US AS IT WOULD BE AN ACADEMIC EXERCIS E. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. KOLKATA, THE 25 TH DAY OF OCTOBER, 2017. SD/- SD/- [N.V. VASUDEVAN] [ J. SUDHAKAR REDDY ] JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED : 25.10.2017 {SC SPS} 28 I.T.A. NO. 572/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 487/KOL/2015 ASSESSMENT YEAR: 2010-11 DONGFANG ELECTRIC CORPORATION COPY OF THE ORDER FORWARDED TO: 1. DONGFANG ELECTRIC CORPORATION DONGFANG ELECTRIC CORPORATION KOLKATA PROJECT OFFICE CK-189 & CK-141 SECTOR-II SALT LAKE CITY KOLKATA 700 091. 2. DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL T AXATION-1(1), KOLKATA AAYAKAR BHAWAN POORVA 110 SHANTI PALLY KOLKATA 700 107 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY HEAD OF OFFICE/ D.D.O. ITAT, KOLKATA BENCHES