DCIT, Dehradun V. M/s. Reed Hycalog Limited Partnership, Noida

ITA 6985/DEL/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8400 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 13-06-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 26-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Assessee Lawyers: DIVYANSH; SSH KAMAL SAWHNEY PRASHANT
• Keywords: Reopening of assessment; Double taxation relief; Additional evidence; Tangible material; Reason to believe
• Section: 234B; 143(1); 195; 147; 148

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH F, NEW DELHI BEFORE : SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 6985/DEL/2014 ASSESSMENT YEAR: 2006-07 D.C.I.T., CIRCLE - II, DEHRADUN. (APPELLANT) VS. REED HYCALOG LIMITED PARTNERSHIP, C/O SRBC & ASSOCIATES LLP, 4 TH AND 5 TH FLOOR, PLOT NO. 2B, TOWER-2, GAUTAM BUDH NAGAR, SEC. 126, NOIDA. PAN AAJFR5191E (RESPONDENT) C.O. NO.164/DEL/2017 (IN ITA NO. 6985/DEL/2014) ASSESSMENT YEAR: 2006-07 REED HYCALOG LIMITED PARTNERSHIP, C/O SRBC & ASSOCIATES LLP, 4 TH AND 5 TH FLOOR, PLOT NO. 2B, TOWER-2, GAUTAM BUDH NAGAR, SEC. 126, NOIDA. (APPELLANT) VS. D.C.I.T., CIRCLE - II, DEHRADUN. (RESPONDENT) REVENUE BY SH. SURENDER PAL, SR. DR ASSESSEE BY S/SH. KAMAL SAWHNEY, PRASHANT AND DIVYANSH, ADVOCATES. ORDER PER L.P. SAHU, A.M.: THE REVENUE HAS FILED THE APPEAL AND THE ASSESSEE HAS FILED THE CROSS- OBJECTION AGAINST THE ORDER PASSED BY THE LD. CIT(A )-II, DEHRADUN DATED 13.10.2014 FOR THE ASSESSMENT YEAR 2006-07 ON THE F OLLOWING GROUNDS : DATE OF HEARING 21.02.2019 DATE OF PRONOUNCEMENT ITA NO. 6985/DEL/2014 2 GROUNDS OF REVENUES APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN HOLDING THAT INCOME OF THE ASSESSEE FR OM THE BUSINESS OF SUPPLYING DRILL BITS MAY BE COMPUTED @ 1.34% OF REC EIPTS ON ACCOUNT OF DIRECT SALES AND @ 10% ON RECEIPTS ON ACCOUNT OF CO NSIGNMENT SALES, AS AGAINST THE ACTION OF THE ASSESSING OFFICER ('AO') IN COMPUTING THE INCOME OF THE ASSESSEE AT A DEEMED PROFIT RATE OF 25% ON GROS S RECEIPTS. 1.1 WHETHER ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN REVERSING THE ACTION OF THE AO IN COMP UTING THE INCOME OF THE ASSESSEE AT A DEEMED PROFIT RATE OF 25% OF THE GROS S RECEIPTS FROM EXECUTION OF THE CONTRACT INVOLVING SALES OF DRILL BITS IN IN DIA ON THE GROUND THAT THE ASSESSEE WAS NOT PUT TO NOTICE REGARDING COMPUTATIO N OF INCOME FROM BOTH TYPES OF REVENUE STREAMS @ 25% OF GROSS RECEIPTS. 1.2 WHETHER ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN ADMITTING AND CONSIDERING ADDITIONAL E VIDENCE IN THE FORM OF PE ATTRIBUTION REPORT FILED BY THE ASSESSEE DURING THE APPELLATE PROCEEDINGS WHEN NONE OF THE CONDITIONS LAID SOWN IN RULE 46A O F THE INCOME TAX RULE,1962 WAS SATISFIED IN THIS CASE. 1.3 WITHOUT PREJUDICE TO THE FORGOING, THE LD CIT(A ) HAS ERRED IN IGNORING THE CONTENTION OF THE AO THAT THE PE ATTRIBUTION AN ALYSIS SUBMITTED DURING THE APPELLATE PROCEEDINGS WAS NOT RELIABLE AS THE A SSESSEE HAD TAKEN AS COMPARABLES A SET OF ENTITIES NOT ENGAGED IN A SIMI LAR LINE OF BUSINESS. 1.4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN HOLDING THAT ONLY 35% OF THE CONTRACTUAL R EVENUE FROM DIRECT SALES OF DRILL BITS IS ATTRIBUTABLE TO THE ASSESSEE'S PE IN INDIA, IGNORING THE FACT THAT THE INCOME OF THE ASSESSEE HAS BEEN EARNED FROM EXE CUTION OF CONTRACT IN INDIA AND THEREFORE, THE ENTIRE INCOME FROM THESE C ONTRACTS IS LIABLE TO TAX IN INDIA, PARTICULARLY IN VIEW OF THE FACTS THAT THE A SSESSEE HAD FAILED TO PRODUCE COPIES OF CONTRACTS/PURCHASE ORDERS DURING THE ASSE SSMENT PROCEEDINGS. GROUNDS IN CROSS OBJECTION: 1. THAT OIL THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. COMMISSIONER OF INCOME TAX APPEALS ('CIT(A)') ERRED IN NOT APPRECI ATING THE FACT THAT THE ITA NO. 6985/DEL/2014 3 ASSESSMENT PROCEEDINGS WERE REOPENED BY THE LEARNED ASSESSING OFFICER ('AO') UNDER SECTION 147 OF THE INCOME TAX ACT. 196 1 ('THE ACT') WITHOUT ANY 'REASON TO BELIEVE' THAT INCOME HAS ESCAPED ASSESSM ENT. THUS THE REASSESSMENT NOTICE ISSUED UNDER SECTION 148 OF THE ACT BY THE TD. AO IS ILLEGAL, BAD IN LAW AND IS LIABLE TO BE QUASHED. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE CIT(A) ERRED IN NOT APPRECIATING THAT THE REASONS FURNISHE D BY THE TD. AO AMOUNT TO REVIEW OF FACTS SUBMITTED ALONG WITH THE RETURN OF INCOME. REOPENING OF ASSESSMENT IN ORDER TO REVIEW RETURN OF INCOME IS B AD IN LAW AND LIABLE TO BE QUASHED. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE CIT(A) ERRED IN NOT APPRECIATING THAT THE LD. AO HAS REOPE NED THE ASSESSMENT WITHOUT ANY NEW TANGIBLE MATERIAL BEING BROUGHT ON RECORD AND THAT REOPENING ASSESSMENT WITHOUT ANY NEW TANGIBLE MATER IAL IS BAD IN LAW AND LIABLE TO BE QUASHED. 4. THAT THE LD. CIT(A) AS WELL AS THE LD. AO HAS ERR ED IN LAW AND IN FACT, IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT A ND THEREBY DISREGARDING THE FACT THAT THE APPELLANT IS A NON-RESIDENT, WHOSE IN COME IS SUBJECT TO TAX DEDUCTION AT SOURCE. ACCORDINGLY, INTEREST UNDER SE CTION 234B IS NOT LEVIABLE TO A NON-RESIDENT. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED IN LAW AND IN FACTS, BY LEVYING INTEREST UNDER SECTION 234 C OF THE ACT AND THEREBY DISREGARDING THE FACT THAT THE APPELLANT IS A NON-R ESIDENT, WHOSE INCOME IS SUBJECT TO TAX DEDUCTION AT SOURCE. ACCORDINGLY, IN TEREST UNDER SECTION 234C OF THE ACT IS NOT LEVIABLE TO A NON-RESIDENT. RELIEF: YOUR RESPONDENT RESPECTFULLY PRAYS THAT: A) THE IMPUGNED ORDER OF THE LD. CIT(A) MAY BE MODIF IED TO THE ABOVE EXTENT AND B) GRANT ANY OTHER RELIEF AS MAY BE DEEMED NECESSA RY. ITA NO. 6985/DEL/2014 4 2. THE BRIEF FACTS OF THE CASE ARE THAT REED HYCOLO G LTD. PARTNERSHIP (RHLP) IS A FIRM FORMED IN THE UNITED STATE OF AMERICA (USA). RHLP ULTIMATELY OWNED BY GRAND PRIDECO INC., A US BASED COMPANY REGISTERED O N US STOCK EXCHANGE. THE ASSESSEE IS A TAX RESIDENT OF USA AND IS ELIGIBLE T O CLAIM BENEFITS UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT ENTERED INTO BETWEEN I NDIA AND USA (INDIA-USA DTAA). THE ASSESSEE IS ENGAGED IN THE BUSINESS OF M ANUFACTURE AND SALE OF DRILL- BITS USED IN THE EXTRACTION AND PRODUCTION OF MINER AL OIL. THE ASSESSEE FILED ITS RETURN OF INCOME ALONGWITH COMPUTATION OF INCOME AN D NOTES TO COMPUTATION, GIVING THE BASIS FOR OFFERING ITS INCOME TO TAX ON 06.03.2007 DECLARING TOTAL INCOME AT RS.62,12,620/- AS INCOME FROM OFFSHORE DI RECT SALE AND OFFSHORE CONSIGNMENT SALES. DURING THE IMPUGNED YEAR, THE TO TAL OFFSHORE DIRECT SALES WAS MADE BY ASSESSEE IN USD 10,33,302 AND CONSIGNMENT S ALES AMOUNT TO USD 12,94,334 AND HAS OFFERED INCOME FROM DIRECT SALES AT 1% OF THE GROSS RECEIPTS OF RS.4,54,70,972/- AND ON CONSIGNMENT SALES 10% OF GR OSS RECEIPTS OF RS.5,17,79,849/-. THE RETURN OF INCOME WAS PROCESSE D U/S. 143(1) ON 29.03.2008. SUBSEQUENTLY, THE CASE WAS REOPENED BY ISSUING NOTI CE U/S. 148 AFTER RECORDING THE REASONS ON 29.03.2012. IN RESPONSE, THE ASSESSE E VIDE LETTER DATED 14.05.2012 STATED THAT THE RETURN FILED ORIGINALLY MAY BE TREATED AS RETURN FILED IN RESPONSE TO NOTICE U/S. 148. THE REASONS WERE PROVI DED TO THE ASSESSEE AND THE ASSESSEE FILED OBJECTIONS WHICH WERE DISPOSED OF BY THE ASSESSING OFFICER. THE ASSESSEE COMPANY ALSO FILED WRIT PETITION BEFORE UT TARAKHAND HIGH COURT CHALLENGING THE REOPENING OF ASSESSMENT WHICH WAS R EJECTED. THE REASONS RECORDED FOR REOPENING READ AS UNDER : THE ASSESSEE WAS ENGAGED IN SALES OF EQUIPMENT I.E. DRILL BITS USED IN EXTRACTION AND PRODUCTION OF MINERAL OIL TO ONGC, C AIRN ENERGY INDIA PTY LIMITED, OIL INDIA, RELIANCE INDUSTRIES LIMITED, GSPC NIKO R ESOURCES LTD., HINDUSTAN OIL EXPLORATION COMPANY LTD, PREMIER OIL, ABAN LLYOD CH ILES OFFSHORE LTD., ETC. DURING ITA NO. 6985/DEL/2014 5 THE YEAR UNDER CONSIDERATION ASSESSEE HAS SHOWN GRO SS REVENUES ON ACCOUNT OF DIRECT SALES AMOUNTING TO USD 10,33,302 AND CONS IGNMENT SALES AMOUNTING TO USD 12,94,334. IN COMPUTATION OF INCOME ASSESSEE HA S ONLY OFFERED DIRECT SALES @ 1% OF GROSS REVENUES UNDER THE CLAIM THAT IT INVOLV ED OFFSHORE SALES COMPUTED OUTSIDE INDIA AND CONSIGNMENT SALES @ 10% OF GROSS REVENUES. HOWEVER, NO JUSTIFICATION OR BASIS OF COMPUTATION OF INCOME THE REOF IS AVAILABLE ON RECORDS. THE INCOME HAS THEREFORE NOT BEEN OFFERED TO TAX IN FUL L AND THEREFORE INCOME HAS ESCAPED ASSESSMENT. IN VIEW OF THIS RECEIPTS OF RS. 4,54,70,972/- ON ACCOUNT OF DIRECT SALES AND GROSS RECEIPTS ON ACCOUNT OF CONSIGNMENT SALES RS. 5,17,79,849/- HAS ESCAPED ASSESSMENT. ON THE BASIS OF MATERIAL AVAILABLE BEFORE THE ASSES SING OFFICER, IT WAS CONCLUDED THAT THE CONTRACT ENTERED WAS IN RELATION TO ACTIVI TIES PERFORMED IN INDIA. THEREFORE, AS PER THE PROVISIONS OF SECTION 9(1) OF THE ACT, THE INCOME IS ACCRUING OR ARISING IN INDIA. ACCORDINGLY, GROSS RECEIPTS WH ETHER ALLEGED OUTSIDE INDIA SALES ARE INSIDE INDIA AND ARE TAXABLE IN INDIA. TH E ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASKED THE ASSESSEE TO FILE COPY OF CONTRACT/POS WHICH WAS NOT PROVIDED. THEREFORE, TH E ASSESSEES CLAIM THAT NATURE OF ACTIVITIES INVOLVED ONLY SALES OF EQUIPME NTS WAS NOT MAINTAINABLE. THE ASSESSEE WAS ALSO UNABLE TO PROVIDE ANY OTHER BASIS FOR PROFIT COMPONENT IN RESPECT OF CONTRACTUAL REVENUE EARNED BY THE ASSESS EE. THE ASSESSEE HAD EXECUTED MULTIPLE CONTRACTS WITH VARIOUS COMPANIES IN INDIA. FINALLY, FOR WANT OF REQUISITE DOCUMENTS, THE ASSESSING OFFICER COMPUTED 25% OF PROFIT ON THE BASIS OF ESTIMATE. THE ASSESSEE HAS NOT MAINTAINED BOOKS OF ACCOUNT NOR HAS IT PRODUCED ANY DOCUMENTARY EVIDENCE/STATEMENT OF COMP UTATION OF INCOME FROM THE TOTAL SALES. ACCORDINGLY, HE MADE ADDITION OF R S.1,94,50,164/- TO THE INCOME OF THE ASSESSEE. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND ALSO FILED ADDITIONAL EVIDENCES BEFORE HIM. THE LD. CIT (A) CALLED FOR REMAND REPORT FROM THE ASSESSING OFFICER WHO SUBMITTED THE SAME ON 11.06.2014 ITA NO. 6985/DEL/2014 6 OBJECTING TO ADMISSION OF ADDITIONAL EVIDENCE BECAU SE AMPLE OPPORTUNITIES WERE PROVIDED IN THE ASSESSMENT PROCEEDINGS. THE COMPARA BLES CITED IN THE ATTRIBUTION REPORT ARE NOT SPECIFICALLY SIMILAR TO THE LINE OF BUSINESS OF APPELLANT AND THUS CANNOT BE RELIED UPON AS APPROPRIATE COMPA RABLES AND LASTLY IT HAS BEEN AVERRED THAT THE ASSESSEE HAS BEEN SHIFTING ITS STA ND, AS AT ONE TIME (DURING PROCEEDINGS FOR RECOVERY OF DEMAND) HE HAD PRESENTE D A STUDY TO SHOW ONLY 2.38% PROFIT MARGIN. THE COPY OF REMAND REPORT WAS PROVIDED TO THE ASSESSEE AND THE ASSESSEE FILED REJOINDER WHICH HAS BEEN DUL Y INCORPORATED BY THE CIT(A) IN HIS ORDER. DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE ALSO FILED STUDY REPORT AFTER SELECTING SOME COMPANIES. THE LD. CIT( A) AFTER CONSIDERING THE REJOINDER, PARTLY ALLOWED THE APPEAL OF THE ASSESSE E. AGGRIEVED, THE REVENUE IS IN APPEAL AND THE ASSESSEE HAS FILED CROSS-OBJECTION. 3. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT IN THE RE-ASSESSMENT PROCEEDINGS, THE ASSESSEE DID NOT SUBMIT THE DOCUMENTS AS REQUIRED BY THE ASSESSING OFFICER FOR DETERMINING T HE PROFITS AS PER PROVISIONS OF THE IT ACT. THEREFORE, THE ASSESSING OFFICER WAS JU STIFIED FOR APPLYING 25% OF THE PROFIT ON THE TOTAL SALES. THE ASSESSEE WAS GIVEN A MPLE OPPORTUNITIES FOR SUBMISSIONS OF DOCUMENTS AND THEREFORE, THE ADDITIO NAL EVIDENCE SUBMITTED BEFORE THE CIT(A) HAVE WRONGLY BEEN ACCEPTED. THE L D. CIT(A) HAS GIVEN THE RELIEF TO THE ASSESSEE AFTER FOLLOWING THE INSTRUCTION OF CBDT WHICH WAS PREVAILING ONLY FOR THREE YEARS. THEREFORE, THE ORDER OF THE LD. CI T(A) IS NOT CORRECT. FURTHER IN RESPECT OF CROSS OBJECTION OF THE ASSESSEE, THE LD. DR SUBMITTED THAT THE CIT(A) HAS RIGHTLY REJECTED THE PLEA OF THE ASSESSEE ON VA LIDITY OF REOPENING OF ASSESSMENT AFTER CONSIDERING THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS, 291 ITR 500 (SC) A ND ALSO THE FACT THAT THE WRIT ITA NO. 6985/DEL/2014 7 PETITION OF ASSESSEE ON THIS ISSUE ALSO STOOD DISMI SSED BY HONBLE JURISDICTIONAL HIGH COURT. IT WAS ALSO SUBMITTED THAT THE INTEREST U/S. 234B AND 234C IS APPLICABLE WHEN THE PAYMENT OF TAXES IS NOT MADE WI THIN THE STIPULATED TIME. 4. THE LD. AR OF THE ASSESSEE SUBMITTED THAT ALL TH E INFORMATION WERE PROVIDED IN THE RETURN OF INCOME ALONG WITH NOTES TO COMPUTA TION OF INCOME. THEREFORE, THE REOPENING OF THE CASE WAS NOT JUSTIFIED. HE REI TERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). FURTHER, IN RESPECT OF ADDIT ION ON MERITS, HE SUPPORTED THE ORDER OF THE LD. CIT(A). HE ALSO FILED A WRITTEN SY NOPSIS ON LEVY OF INTEREST U/S. 234B & 234C WHICH IS AS UNDER : PROVISIONS OF SECTIONS 234B AND 234C OF THE ACT ARE APPLICABLE IN CASES WHERE AN ASSESSEE WHO IS LIABLE TO PAY ADVANCE TAX UNDER PRO VISIONS OF SECTION 208 OF THE ACT, DEFAULTS / DEFERS PAYMENT OF SUCH ADVANCE TAX. FURT HER, AS PER THE PROVISIONS OF SECTION 208 READ WITH SECTION 209(1 )(D) OF THE ACT, ADVANC E TAX PAYABLE HAS TO BE COMPUTED AFTER REDUCING FROM THE ESTIMATED TAX LIABILITY THE AMOUNT OF TAX DEDUCTIBLE AT SOURCE ON INCOME WHICH IS INCLUDED IN COMPUTING THE ESTIMATED TAX LIABILITY. IT IS PERTINENT TO NOTE THE USE OF THE WORDS 'TAX DEDUCTIBLE AT SOURCE' AND NOT 'TAX DEDUCTED AT SOURCE' IN SECTION 209(1 )(D) OF THE ACT. ON PERUSAL OF PROVISIONS OF SECTION 195 OF THE ACT, TAX IS DEDUCTIBLE AT SOURCE FROM PAYMENTS MADE TO NON-RESIDENTS. SINCE THE ASSESSEE IS A NON-RESIDENT, TAX IS DEDUCTIBLE AT SOURCE FROM THE PAYMENTS MADE TO THE ASSESSEE UN DER SECTION 195 OF THE ACT. ACCORDINGLY, SINCE TAX WAS DEDUCTIBLE AT SOURCE ON ALL THE PAYMENTS MADE TO THE APPELLANT, NO ADVANCE TAX WAS PAYABLE BY THE ASSESS EE AS PER THE PROVISIONS OF SECTION 208 READ WITH SECTION 209(1 )(D) OF THE ACT. HENCE, IN THE ABSENCE OF ANY LIABILITY FOR PAYMENT OF ADVANCE TAX, THE PROVISIONS OF SECTION 2 34B AND 234C OF THE ACT WOULD NOT BE APPLICABLE IN APPELLANT'S CASE. JUDICIAL PRONOUNCEMENTS DIT V. JACABS CIVIL INCORPORATED/MITSUBISHI CORPORA TION (330 ITR 578) (HONBLE JURISDICTIONAL DELHI HC) THE HONBLE DELHI HC RELYING ON THE DECISION OF HON BLE UTTARANCHAL HC IN THE CASE OF CIT V. SEDCO FOREX INTERNATIONAL DRILLING CO. LTD ( 264 ITR 320) AND HON'BLE BOMBAY HC ITA NO. 6985/DEL/2014 8 IN THE CASE OF DIT V. NGC NETWORK ASIA LLC (222 CTR 85) HAS HELD IN PARA 8 OF THE DECISION AS UNDER: THIS CLAUSE CATEGORICALLY USES THE EXPRESSION 'DEDU CTIBLE OR COLLECTIBLE AT SOURCE ' AND IT IS THIS CLAUSE WHICH IS INCORPORATED BY THE UTTARANCHA L HIGH COURT IN THE SAID JUDGMENT (SUPRA) IN THE MANNER ALREADY POINTED ABOVE. THE SCH EME OF THE ACT IN RESPECT OF NON- RESIDENTS IS CLEAR. SECTION 195 OF THE ACT PUTS AN OBLIGATION ON THE PAYER, I.E., ANY PERSON RESPONSIBLE FOR PAYING TO A NONRESIDENT, TO DEDUCT I NCOME-TAX AT SOURCE AT THE RATES IN FORCE FROM SUCH PAYMENTS EXCLUDING THOSE INCOMES WH ICH ARE CHARGEABLE UNDER THE HEAD 'SALARIES'. THEREFORE, THE ENTIRE TAX IS TO BE DEDUC TED AT SOURCE WHICH IS PAYABLE ON SUCH PAYMENTS MADE BY THE PAYEE TO THE NON-RESIDENT. SEC TION 201 OF THE ACT LAYS DOWN THE CONSEQUENCES OF FAILURE TO DEDUCT OR PAY. THESE CON SEQUENCES INCLUDE NOT ONLY THE LIABILITY TO PAY THE AMOUNT WHICH SUCH A PERSON WAS REQUIRED TO DEDUCT AT SOURCE FROM THE PAYMENTS MADE TO A NON-RESIDENT HUT ALSO PENALTIES, ETC. ONCE IT IS FOUND THAT THE LIABILITY WAS THAT OF THE PAYER AND THE SAID PAYER HAS DEFAUL TED IN DEDUCTING THE TAX AT SOURCE, THE DEPARTMENT IS NOT REMEDY-LESS AND, THEREFORE, CAN T AKE ACTION AGAINST THE PAYER UNDER THE PROVISIONS OF SECTION 201 OF THE INCOME-TAX ACT AND COMPUTE THE AMOUNT ACCORDINGLY. NO DOUBT, IF THE PERSON (PAYER) WHO HAD TO MAKE PAYMENT S TO THE NON-RESIDENT HAD DEFAULTED IN DEDUCTING THE TAX AT SOURCE FROM SUCH PAYMENTS, THE NON-RESIDENT IS NOT ABSOLVED FROM PAYMENT OF TAXES THEREUPON. HOWEVER, IN SUCH A CASE , THE NON-RESIDENT IS LIABLE TO PAY TAX AND THE QUESTION OF PAYMENT OF ADVANCE TAX WOULD NO T ARISE. THIS WOULD BE CLEAR FROM THE READING OF SECTION 191 OF THE ACT ALONG WITH SECTIO N 209(1)(D) OF THE ACT. FOR THIS REASON, IT WOULD NOT BE PERMISSIBLE FOR THE REVENUE TO CHARGE AN Y INTEREST UNDER SECTION 234B OF THE ACT. 9. WE THUS, ANSWER THE AFORESAID QUESTION IN FAVOUR OF THE ASSESSEE AS WE ARE OF THE OPINION THAT THE TRIBUNAL HAS RIGHTLY HELD THAT THE ASSESSEE WAS NOT LIABLE TO PAY ANY INTEREST UNDER SECTION 234B OF THE ACT FOLLOWING THE JUDGMEN TS OF THE UTTARANCHAL AND BOMBAY HIGH COURTS. DIT (IT) V. GE PACKAGED POWER INC (373 ITR 65) (HON BLE JURISDICTIONAL DELHI HC) THE DELHI HC FOLLOWING THE DECISION OF DIT V. JACAB S CIVIL INCORPORATED/MITSUBISHI CORPORATION (SUPRA) HAS HELD IN PARA 23 OF THE DECI SION AS UNDER: ... NO INTEREST IS LEVIABLE ON THE RESPONDENT ASSESS EES UNDER SECTION 234B. EVEN THOUGH THEY FILED RETURNS DECLARING NIL INCOME AT THE STAGE OF REASSESSMENT. THE PAYERS WERE OBLIGED TO DETERMINE WHETHER THE ASSESSEES WERE LIABLE TO TA X UNDER SECTION 195(1). AND TO WHAT EXTENT, BY TAKING RECOURSE TO THE MECHANISM PROVIDE D IN SECTION 195(2) OF THE ACT. THE FAILURE OF THE PAYERS TO DO SO DOES NOT LEAVE THE R EVENUE WITHOUT REMEDY; THE PAYER MAY BE REGARDED AN ASSESSEE IN- DEFAULT UNDER SECTION 20 1, AND THE CONSEQUENCES DELINEATED IN THAT PROVISION WILL VISIT THE PAYER. CIT V. SEDCO FOREX INTERNATIONAL DRILLING CO. LTD. (134 TAXMAN 109) (HONBLE UTTARANCHAL HC) THE HONBLE UTTARANCHAL HC IN PARA 15 OF ITS DECISI ON HAS HELD AS UNDER: ITA NO. 6985/DEL/2014 9 ALTHOUGH WE AGREE WITH THE CONCLUSIONS OF THE TRIBUN AL, WE PREFER TO GIVE OUR OWN REASONS IN SUPPORT OF OUR CONCLUSION THAT ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, LEVY OF INTEREST UNDER SECTION 234B ON THE ASSESSEE IS NOT JUSTIFIED. FIRSTLY, THE DECISIONS OF THE TRIBUNAL ON THE INTERPRETATION OF THE CONTRACTS REGA RDING ON PERIOD AND OFF PERIOD SALARY WERE CONFLICTING. ULTIMATELY, THE LEGISLATURE HAS S TEPPED IN TO CLARIFY THE POSITION BY THE FINANCE ACT. 1999. IN THIS CONNECTION, IT IS IMPORT ANT TO NOTE THAT SECTION 234B IMPOSES INTEREST, WHICH IS COMPENSATORY IN NATURE AND NOT A S A PENALTY - UNION HOME PRODUCTS LTD. V. UNION OF INDIA [1995] 215 ITR 758, 7661 (KAR). S ECONDLY, ALTHOUGH SECTION 191 OF THE ACT IS NOT OVERRIDDEN BY SECTIONS 192,208 AND 209(1 )(A)( D) OF THE ACT, THE SCHEME OF SECTIONS 208 AND 209 OF THE ACT INDICATES THAT IN O RDER TO COMPUTE ADVANCE TAX THE ASSESSEE HAS TO, INTER ALIA, ESTIMATE HIS CURRENT I NCOME AND CALCULATE THE TAX ON SUCH INCOME BY APPLYING THE RATES IN FORCE. THAT UNDER S ECTION 209(1)(D) THE INCOME- TAX CALCULATED IS TO BE REDUCED BY THE AMOUNT OF TAX WHI CH WOULD BE DEDUCTIBLE AT SOURCE OR COLLECTIBLE AT SOURCE, WHICH IN THIS CASE HAS NOT BEE N DONE BY THE EMPLOYER COMPANY ACCORDING TO THE LAW PREVAILING FOR WHICH THE ASSES SEE CANNOT BE FAULTED. AS SLATED ABOVE AT THE RELEVANT TIME THERE WERE CONFLICTING DECISIO NS OF THE TRIBUNAL. A BONA FIDE DISPUTE WAS PENDING. TIM ASSESSEE HAD TO ESTIMATE HIS CURRE NT INCOME. THE WORDS USED UNDER SECTION 209(1)(A) MAKE THE ASSESSEE ESTIMATE HIS CU RRENT INCOME AND SINCE A BONA FIDE DISPUTE WAS PENDING, IMPOSITION OF INTEREST UNDER S ECTION 234B WAS NOT JUSTIFIED WITHOUT HEARING AND WITHOUT REASONS. ACCORDINGLY, WE ANSWER THIS QUESTION IN THE AFFIRMATIVE, I.E. IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMEN T. DIT V. NGC NETWORK ASIA LLC 222 CTR 85 (HONBLE BOM BAY HC) THE HON'BLE BOMBAY HC FOLLOWING THE DECISION OF C1T V. SEDCO FOREX INTERNATIONAL DRILLING CO. LTD. (SUPRA) HAS IN PARA 7 AND 8 OF IT S DECISION HELD THAT WHEN A DUTY IS CAST ON THE PAYER TO PAY THE TAX AT SOURCE, ON FAILURE, NO INTEREST UNDER SECTION 234B CAN BE IMPOSED ON THE PAYEE ASSESSEE. DCIT V. SMS MEVAC UK LTD (ITA NO. 3841/DEI/2015) (H ONBLE DELHI TRIBUNAL) (DECISION OF HON'BLE MEMBER SHRI L P SAHU AND SHRI AMIT SHUKLA) THE HON'BLE DELHI TRIBUNAL FOLLOWING THE HON'BLE DE LHI HC DECISION IN THE CASE OF D1T (IT) V. GE PACKAGED POWER INC (SUPRA) HAS HELD IN P ARA 4 OF ITS DECISION AS UNDER: ...IT IS WELL SETTLED PROPOSITION OF THE JURISDICTI ONAL HIGH COURT THAT WHERE ASSESSEE IS A NON RESIDENT COMPANY AND IF THE ENTIRE TAX WHICH WAS TO BE DEDUCTED AT SOURCE ON PAYMENTS MADE BY THE PAYER TO IT. THEN THERE IS WAS NO QUEST ION OF PAYMENT OF ADVANCED TAX BY THE ASSESSEE AND CONSEQUENTLY NO INTEREST U/S 234B CAN BE CHARGED. HON'BLE HIGH COURT AFTER DETAILED REASONING AND REFERENCE TO VARIOUS JUDGMEN TS HAS CONCLUDED THAT INTEREST U/S 234B CANNOT BE CHARGED FROM NON-RESIDENT WHERE THE E NTIRE TAX WAS DEDUCTED AT SOURCE BY THE PAYER. DCIT V. ANDRITZ AG (ITA NO. 3413/DEI/2015) (HONBLE DELHI TRIBUNAL) (DECISION OF HON'BLE MEMBER SHRI L P SAHU) ITA NO. 6985/DEL/2014 10 THE DELHI TRIBUNAL FOLLOWING THE HONBLE DELHI HC D ECISION IN THE CASE OF DIT V. JACABS CIVIL INCORPORATED/MITSUBISHI CORPORATION (SUPRA) A ND HON'BLE BOMBAY HC DECISION IN THE CASE OF DIT V. NGC NETWORK ASIA LLC (SUPRA) HAS HELD IN PARA 5 OF ITS DECISION AS UNDER: WE FIND THAT THE CONCLUSION REACHED BY THE ID. CIT( A) IS BASED ON THE DECISION RENDERED BY HONBLE JURISDICTIONAL HIGH COURT ON THE ISSUE OF IN TEREST WHETHER LEVIABLE ON THE NON- RESIDENT ASSESSEE OR NOT. AS PER PROVISIONS OF SECT ION 234B OF THE ACT. AS THE ASSESSEE WAS SUBJECT TO WITHHOLDING LAX U/S. 195 OF THE ACT. NO COUNTER DECISION IS PLACED ON RECORD ON BEHALF OF THE REVENUE. WE. THEREFORE, FINDING NO INF IRMITY IN THE IMPUGNED ORDER, ARE NOT INCLINED TO INTERFERE WITH THE SAME. ACCORDINGLY. T HE APPEAL OF THE REVENUE DESERVES TO BE DISMISSED. DDIT V. SOCIETE INTERNATIONAL DE TELECOMMUNICATION (153 TTJ 55) (HONBLE MUMBAI TRIBUNAL) (DECISION OF HONBLE MEMBER SHRI AMIT SHUKLA) THE MUMBAI TRIBUNAL FOLLOWING THE HONBLE BOMBAY HC DECISION IN THE CASE OF D1T V. NGC NETWORK ASIA LLC (SUPRA) HAS HELD IN PARA 4.2 A S UNDER: AS THE ASSESSEE BEFORE US IS A NON-RESIDENT, NATURAL LY ANY AMOUNT PAYABLE TO IT WHICH IS CHARGEABLE TO TAX UNDER THE ACT IS OTHERWISE LIABLE F OR DEDUCTION OF TAX AT SOURCE. IN THAT VIEW OF THE MATTER AND RESPECTFULLY FOLLOWING THE A BOVE PRECEDENTS, WE HOLD THAT NO INTEREST CAN BE CHARGED UNDER SECTIONS 234B AND 234C OF THE ACT. IN VIEW OF ABOVE, SINCE ALL PAYMENTS TO THE APPELLA NT WERE SUBJECT TO WITHHOLDING OF TAXES AS PROVIDED IN SECTION 195 OF THE ACT, IT IS MOST RESPECTFULLY PRAYED BEFORE YOUR GOODSELF THAT NO INTEREST UNDER SECTION 234B AND 23 4C OF THE ACT SHALL BE LEVIED TO THE APPELLANT. 5. AFTER HEARING BOTH THE PARTIES AND GOING THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE LD. CIT(A) HA S DONE GOOD REASONED ORDER IN RESPECT OF PROFIT DETERMINED BY THE LD. CIT(A) @ 1. 34% ON DIRECT SALES AND 10% ON CONSIGNMENT SALES. THE FINDINGS REACHED BY THE L D. CIT(A) READ AS UNDER : 4.3 THE FINDINGS LD.AO AND THE ASSESSMENTS OF LD. AR S HAVE BEEN CAREFULLY CONSIDERED. IT IS NOT IN DOUBT THAT THE PROFIT ATTR IBUTION REPORT SHOULD BE ITA NO. 6985/DEL/2014 11 ACCEPTED SIMPLY BECAUSE THERE IS NO REASON TO BELIE VE THAT THE LD. AO, AT THE TIME OF IMPUGNED PROCEEDINGS, EVER REVEALED HIS MIN D ABOUT TAXING BOTH TYPES OF REVENUE STREAMS @ 25% OF GROSS RECEIPTS. A LSO THERE IS A DUTY CAST TO DETERMINE THE CORRECT TAX LIABILITY OF AN ASSESSEE AND TOWARDS THIS END THE ATTRIBUTION REPORT WOULD COME IN HANDY. FURTHERMORE, INSTRUCTION NUMBER 1767 (SUPRA) THOUGH IS NO LONGER IN FORCE, HAS SOME PERSUASIVE VALUE EVEN IN THE PRESENT MATTE R. THUS THE LD.AR WAS ASKED TO WORK OUT MARGINS UNDER VARIOUS SCENARIOS D ISCUSSED WITH HIM. THE POSITION THAT EMERGES FROM THIS EXERCISE MAY BE SUM MARIZED AS UNDER: - PARTICULARS ARM IN $ PROFIT ATTRIBUTABLE TO INDIA AS PER RETURN AS PER ORDER COMPARABLE MARGIN DEEMED PROFIT C @1% / 10% @25% @3.83% @3.83% ON DIRECT SALES @10% @3.5% ( 10% X 35%) @3.5% ON DIRECT SALES @8.75% (25% X 35%) @8.75% ON DIRECT SALES @134% (3.83% X 35% @134% ON DIRECT SALES DIRECT SALES IN USD $1,033,302 $ 10,333 $ 258,326 $ 39,575 $ 39,575 $ 103,330 $ 36,166 $ 36,166 $ 90,414 $ 90,414 $ 13.151 $ 13,851 CONSIGNMENT SALES IN USD $1,294,334 $ 129,433 $ 323,584 $ 49,573 $ 129,433 $ 129,433 $ 45,302 $ 129,433 $ 113,254 $ 129,433 S 45302 $ 129,433 TOTAL REVENUES IN USD $2,327,636 $ 139,766 $ 581,909 $ 89,148 $ 169,009 $ 232,764 $ 81,467 $ 165,599 $ 203,668 $ 219,847 $59,153 $ 143,285 TAX @ 33.66% IN USD $ 47,045 $ 195,871 $ 30,007 $ 56,888 $ 78,348 $ 27,422 $ 55,741 $ 68,555 $ 74,001 $ 19,911 $ 48,230 EXCHANGE RATE $44.45 44.45 44.45 44.45 44.45 44.45 4445 44.45 44.45 44 45 44.45 TAX IN INR 20,91,167 87,06,447 13,33,828 25,28,689 34,82,579 12,18,903 24,77,670 30,47,256 32 ,8 9327 8,85,041 21,43309 4.4.1 FOLLOWING THE CASE OF ROLLS ROYCE (SUPRA) IT IS HELD THAT ON DIRECT SALES PROFITS BE ATTRIBUTED @ 35 % OF 3.83% = 1.34% OF GROSS RECEIPT S. HOWEVER, ON CONSIGNMENT SALES THE ORIGINALLY OFFERED 10% OF GROSS RECEIPTS NEEDS TO B E ACCEPTED SINCE THERE IS A PRECEDENT IN THE SHAPE OF SECTION 44BB OF THE ACT WHICH DETERMINES S UCH PROFITS FOR OIL AND GAS INDUSTRY WHERE BOOKS OF ACCOUNT ARE NOT MAINTAINED. THE LD. AO IS DIRECTED ACCORDINGLY. 6. IT IS CLEAR FROM THE ABOVE ORDER OF THE LD. CIT( A) THAT THE LD. CIT(A) HAS FOLLOWED THE ORDER OF TRIBUNAL IN THE CASE OF M/S. ROLLS ROYCE PLC VS. DDIT (2008) 113 TTJ 446 WHILE WORKING OUT THE PROFIT ATTRIBUTIO N AGAINST THE DIRECT SALES @ 35% OF 3.83% WHICH COMES TO 1.34%. THE PROFIT ON CO NSIGNMENT SALES HAS ALSO ITA NO. 6985/DEL/2014 12 BEEN RIGHTLY ACCEPTED @ 10%.THE LD. DR COULD NOT BE ABLE TO SUBSTANTIATE THE PROFIT @ 25% AS WORKED OUT BY THE ASSESSING OFFICER ON ENTIRE SALES. NO COUNTER AUTHORITY HAS BEEN CITED BY THE REVENUE AGAINST THE AFORESAID DECISION OF THE TRIBUNAL. WE, THEREFORE, DO NOT FIND ANY JUSTIFICAT ION TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THIS SCORE. AS REGARDS THE ADMISS ION OF ADDITIONAL EVIDENCE, THE LD. CIT(A) HAD GIVEN REASONABLE OPPORTUNITY TO THE AO TO CONTROVERT AND COMMENT ON THE SAME BY CALLING FOR THE REMAND REPOR T ESPECIALLY WHEN THERE WAS NO EVIDENCE WITH THE AO TO SUPPORT THE PROFIT @ 25% ON ENTIRE SALES OF THE PRODUCT IN INDIA WHICH WERE MANUFACTURED OUTSIDE IN DIA. FURTHER, THE ASSESSING OFFICER DID NOT GIVE ANY GOOD REASON TO DISCARD THE PROFIT ATTRIBUTION CALCULATED BY THE ASSESSEE ON THE BASIS OF STUDY REPORT SUBMIT TED BEFORE THE LD. CIT(A). WE ACCORDINGLY, DO NOT FIND ANY SUBSTANCE IN THE CONTE NTION OF THE LD. DR THAT THE ADDITIONAL EVIDENCES HAVE BEEN WRONGLY ADMITTED. 7. ADVERTING TO THE CROSS OBJECTION OF ASSESSEE, IT IS SEEN THAT THE CROSS OBJECTION FILED BY THE ASSESSEE IS DELAYED BY 25 DA YS, FOR WHICH THE ASSESSEE HAS FILED AN APPLICATION TO CONDONE THE DELAY STATING T HAT THE NOTICE OF TRIBUNAL REGARDING FILING OF APPEAL BY THE REVENUE DID NOT C ONTAIN THE GROUNDS OF REVENUE, WHICH WERE LATER ON PROVIDED TO THE ASSESSEE ON 13 TH JUNE, 2017 CAUSING DELAY IN FILING THE CROSS-OBJECTION. THIS REASON BEING BONA FIDE, THE DELAY OF 25 DAYS IN FILING OF CROSS OBJECTION IS CONDONED. 8. THE LEGAL GROUND RAISED BY THE ASSESSEE AGAINST VALIDITY OF REOPENING APPEARS TO HAVE BEEN RIGHTLY REJECTED BY THE LD. CI T(A) AFTER FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RA JESH JHAVERI STOCK BROKERS PVT. LTD. (SUPRA) AND THAT THE RETURN OF ASSESSEE W AS PROCESSED U/S. 143(1) AND ITA NO. 6985/DEL/2014 13 ALSO KEEPING IN VIEW THE FACT THAT THE VALIDITY OF IMPUGNED REOPENING PROCEEDINGS WAS CHALLENGED BY THE ASSESSEE IN WRIT PETITION BEF ORE THE HONBLE JURISDICTIONAL HIGH COURT ALSO, WHICH STOOD REJECTED BY HONBLE CO URT, AS MENTIONED BY THE CIT(A) IN HIS ORDER. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE CONCLUSION REACHED BY THE LD. CIT(A) ON THIS SC ORE. 9. WE, HOWEVER, FIND THAT NO INTEREST U/S. 234B & 2 34C IS EXIGIBLE IN THE HANDS OF THE ASSESSEE IN VIEW OF VARIOUS DECISIONS RELIED BY THE ASSESSEE IN THE WRITTEN SUBMISSIONS AS REPRODUCED ABOVE. ACCORDINGL Y, THE CROSS OBJECTION OF THE ASSESSEE DESERVES TO BE PARTLY ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE CROSS- OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.04.2019. SD/- SD/- (AMIT SHUKLA) (L.P. S AHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 12.04.2019 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI