M/s. Rolls Royce Industrial Power (India) Ltd, New Delhi V. DDIT, New Delhi

ITA 801/DEL/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4085 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 28-01-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 11-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANAND KEDIA
• Assessee Lawyers: R K KAPOOR; PALLAVI DINODIA
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Double taxation relief; Opportunity of being heard; Permanent establishment; Question of law; Right to appeal; Capital receipt; Unabsorbed depreciation
• Section: 44AD; 143(3); 234B; 194C; 148; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 2 , NEW DELHI BEFORE SH. N. K. SAINI, A M AND MS. SUCHITRA KAMBLE , JM ITA NO. 801/DEL/2014 : ASSTT. YEAR : 2006 - 0 7 M/S ROLLS ROYCE INDUSTRIAL POWER (INDIA) LTD., C - 37, CONNAUGHT PLACE, NEW DELHI - 110001 VS D Y . DIRECTOR OF INCOME TAX, CIRCLE - 2 (1), INTERNATIONAL TAXATION, NEW DELHI - 110002 (APPELLANT) (RESPONDENT) PAN NO. AA A CR7629B ASSESSEE BY : SH. PRADEEP DINODIA , ADV. & SH. R.K. KAPOOR, CA & MS. PALLAVI DINODIA, CA REVENUE BY : SH. ANAND KEDIA , CIT DR DATE OF HEARING : 13.05 .201 6 DATE OF PRONOUNCEMENT : 11 .08 .201 6 ORDER PER N. K. SAINI, AM: THIS IS AN APPEAL BY THE ASSES SEE AGAINST THE ORDER DATED 15.01.2014 PASSED BY THE AO U/S 144C ( 13) R.W.S. 143(3) /147 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1.0 THAT THE ORDER PASSED U/S 143(3) READ WITH SECTION 144C OF THE INCOME - TAX ACT, IS BAD IN LAW. 2.0 THE COMPUTATION OF THE TOTAL INCOME OF THE ASSESSEE BY THE AO AT THE INSTANCE OF THE DRP AT ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 2 RS. 386,356,928/ - AS AGAINST RETURNED INCOME OF 9,66,73,030/ - IS WHOLLY ILLEGAL, UNTENABLE AND ON ERRONEOUS GROUNDS. 3.0 THAT THE CONTENTIONS OF THE LD. AO/TPO/DRP ARE BAD IN LAW AND AGAINST THE JURISDICTIONAL HIERARCHY TO BE FOLLOWED BY THE LD. AO/TPO. THE LD. TPO AND CONSEQUENTLY THE LD. DRP AND LD. AO HAVE ERRED IN NOT FOLLOWING THE HON'BLE DELHI ITAT'S RUL ING OF THE PREVIOUS YEARS IN THE ASSESSEE'S OWN CASE ON THE SOLE GROUND THAT THE TAX DEPARTMENT IS IN APPEAL BEFORE THE HON'BLE DELHI HIGH COURT. GROUNDS OF APPEAL AGAINST TRANSFER PRICING ADJUSTMENTS LIAISON OFFICE 4.0 THE LD. TPO HAS ERRED IN LAW IN A PPLYING THE TRANSFER PRICING REGULATIONS ON THE LO OF THE ASSESSEE. 5.0 THAT THE LD. TPO AND CONSEQUENTLY DRP/AO ERRED IN LAW IN HOLDING THAT LO IS PROVIDING SERVICES TO ITS HEAD OFFICE AND IS REQUIRED TO RECEIVE A MARKUP ON TOTAL COST OF 16.21% BASED ON CERTAIN COMPARABLES FOUND BY THE TPO. 6.0 WITHOUT PREJUDICE TO GROUND 5 ABOVE, THE LD. AO HAS GROSSLY ERRED IN LAW IN APPLYING A MARKUP OF 27.08% INSTEAD OF 16.21% AS PROPOSED BY THE LD. TPO IN ITS ORDER. ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 3 7.0 THE TPO AND CONSEQUENTLY, THE AO AND DRP HAVE GROSSLY ERRED IN LAW AND IN THE FACTS OF THE ASSESSEE'S CASE IN NOT APPRECIATING THE FUNCTIONS, ASSETS AND RISKS (FAR) OF THE LO OF THE ASSESSEE WHICH ARE NOT EQUIVALENT TO A COMMERCIAL ESTABLISHMENT PROVIDING SERVICES AS ALLEGED BY LD. TPO. 8.0 THE TPO AND CONSEQUENTLY, THE AO AND DRP HAVE GROSSLY ERRED IN LAW AND IN THE FACTS IN CONDUCTING AN ERRONEOUS SEARCH PROCESS AND AS A RESULT CHOOSING INAPPROPRIATE COMPARABLES FOR THE PURPOSE OF BENCHMARKING THE TRANSACTIONS OF THE LO. 9.0 WITHOUT PREJUDICE TO T HE ABOVE GROUNDS NO. 8, THE TPO AND CONSEQUENTLY, THE AO AND DRP HAVE GROSSLY ERRED IN LAW AND IN THE FACTS BY NOT PROVIDING THE DETAILS OF THE SEARCH PROCESS APPLIED BY THE LD. TPO AND THE PLI OF THE COMPARABLES SELECTED BY HIM TO THE ASSESSEE FOR ITS OBJ ECTIONS. 10.0 THAT THE HON'BLE DRP HAS GROSSLY ERRED ON THE FACTS AND CIRCUMSTANCES IN DISREGARDING THE OBJECTIONS FILED BY THE ASSESSEE TO THE COMPARABLES CHOSEN BY THE TPO AND PROCEEDING TO UPHOLD THE SELECTION OF COMPARABLES WITHOUT GIVING ANY COGENT R EASONS. 11.0 TH AT THE ADDITION OF RS. 1,12,009/ - TO THE TAXABLE INCOME OF THE ASSESSEE UNDER THE TP REGULATIONS IS PRAYED TO BE DELETED, FOLLOWING THE ORDER OF THE HON'BLE ITAT DELHI BENCH IN THE ASSESSEE'S OWN CASE. ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 4 GROUNDS OF APPEAL FOR ADJUSTM ENTS OTHER THAN TRANSFER PRICING GROUNDS FOR O&M GODAVARI PROJECT 12.0 THE LD. AO/DRP HAS GROSSLY ERRED IN LAW AND IN FACTS OF THE CASE IN TREATING THE RECEIPTS OF THE ASSESSEE UNDER THE OPERATION AND MAINTENANCE AGREEMENT (O&M) AS FE ES FOR TEC HNICAL SERVICE U/S 9(1 )(VII) OF THE ACT AND ARTICLE 13(4)(C) OF THE DTAA BETWEEN INDIA AND UK AND TAXING THE SAME ON A GROSS BASIS. 13.0 THAT THE OPINION OF THE LD. AO/DRP THAT THE ASSESSEE IS MAKING AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW OR PROCESSES AS PER THE PROVISIONS OF ARTICLE 13(4)(C) OF THE DTAA TO M/S SPGL UNDER THE O&M IS UNREASONABLE, ERRONEOUS, FACTUALLY INCORRECT AND ILLEGAL. 14.0 THE TAXATION OF RECEIPTS OF THE ASSESSEE UNDER THE GODAVARI O&M PROJECT OF RS. 349,470,079/ - ON A GROSS BASIS AT THE RATE OF 30% U/S 44D READ WITH SECTION 115A OF THE ACT BY THE LD. AO AND UPHELD BY DRP IS ERRONEOUS AND BAD IN LAW. 15.0 THAT THE LD. AO AT THE INSTANCE OF DRP HAS GROSSLY ERRED IN LAW IN PROPOSING TAX ON A GROSS BASIS ON ALL THE F OLLOWING OTHER INCOMES OF THE ASSESSEE FROM GODAVARI OPERATION & MAINTENANCE PROJECT INSTEAD OF ON NET BASIS BY NOT FOLLOWING THE ORDER OF THE HON'BLE DELHI ITAT IN THE ASSESSEE'S OWN CASE: ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 5 I. INTERE ST FROM FOREIGN BANKS 3,250,114/ - II. INTERES T FROM INDIAN BANKS 676,473/ - III. PROFIT ON SALE OF FIXED ASSETS 122,643/ - IV. LIABILITIES NO LONGER REQUIRED WRITTEN BACK 222 ,756/ - V. EXCHANGE GAIN 3,601,893/ - VI. INTEREST ON INCOME TAX REFUND 1 0,554,212/ - VII. INCOME FROM I NSURANCE DEDUCTIBLES 13,724,655/ - VIII. MISCELLANEOUS 159,171/ - -------- --------- 3,23,11,917/ - 16.0 WITHOUT PREJUDICE TO THE GROUND 15 ABOVE - A) INTEREST ON FOREIGN BANK OF RS.32,50,114/ - IS INTEREST ON DEPOSITS IN UK BANK ACCOUNTS AND IS NOT LIABLE TO BE TAXED IN IND IA. B) INTEREST ON INDI AN BANK ACCOUNTS OF RS.6,76,476/ - HAS ALREADY BEEN CONSIDERED AS OTHER INCOME AS PER COMPUTATION OF INCOME AND TAXED ACCORDINGLY. C) PROFIT ON SA LE OF FIXED ASSETS RS. 1,22,643/ - HAS ALREADY BEEN CONSI DERED UNDER HEAD CAPITAL GAIN IN COMPU TATION OF INCOME AND CANNOT BE HELD TO BE OTHER INCOME & TAXED ON GROSS BASIS. GROUNDS FOR EPC GODAVARI PROJECT 17.0 THAT THE LD. AO/DRP HAS GROSSLY ERRED IN LAW IN PROPOSING TAX ON A GROSS BASIS ON THE OTHER INCOME OF THE ASSESSEE FROM ITS EPC GODAVA RI PROJECT OF RS. 44,59,4667 - FROM WHICH RS. 1,72,320 / - HAS ALREADY BEEN SHOWN AS INCOME FROM OTHER SOURCES IN COMPUTATION OF INCOME. ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 6 18.0 THAT THE LD. AO7 DRP HAS GROSSLY ERRED IN LAW IN PROPOSING TAX ON GROSS BASIS ON THE INTEREST INCOME ON THE FOREIGN BA NK DEPOSITS OF RS. 42,87,146/ - (INCLUDED IN OTHER INCOME OF RS. 44,59,466/ - ), WHICH DOES NOT ACCRUE OR ARISE IN INDIA. THE SAME HAS BEEN UPHELD BY THE DELHI ITAT IN THE ASSESSE'S OWN CASE. GROUNDS FOR RIH AND PROJECT 19.0 THAT THE LD. AO7DRP HAS GROSSLY E RRED IN LAW IN PROPOSING TAX ON A GROSS BASIS ON THE OTHER INCOME OF THE ASSESSEE FROM ITS RIHAND PROJECT OF RS.3,457/ - WHICH IS INTEREST ON FOREIGN BANK DEPOSITS AND IS NOT TAXABLE IN INDIA. OTHER GROUNDS 20.0 THE AFORESAID GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER. 21.0 THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, CHANGE VARY OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OR RAISE AN ADDITIONAL GROUND IF IT BECOMES NECESSARY TO DO SO IN THE INTEREST OF JUSTICE. 3. THE ASSESSEE HAS ALSO R AISED FOLLOWING ADDITIONAL GROUNDS: 22 . THAT THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE ASSESSEE'S CASE IN NOT ALLOWING THE ADJUSTMENT OF UNABSORBED BROUGHT FORWARD LOSSES AND UNABSORBED ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 7 DEPRECIATION OF T HE INCOME TAX ACT WHILE DETERMINING THE TAXABLE INCOME FOR THE CURRENT YEAR. 2 3 . THAT THE LEARNED ASSESSING OFFICER FAILED TO GIVE THE ADJUSTMENT OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION AS PER LAW ALTHOUGH THE SAME WAS CLAIMED IN THE RETURN OF INCOME AND ALL THE DETAILS/INFORMATION FOR THE SAME WAS AVAILABLE BEFORE HIM IN THE RETURN OF INCOME AND TAX AUDIT REPORT FILED BY THE ASSESSEE. 24 . THAT THE LEARNED DRP AND CONSEQUENTLY ASSESSING OFFICER HAVE ERRED IN LAW AND ON FACTS AND IN THE CIRCU MSTANCES OF THE CASE IN ERRONEOUSLY CHARGING THE INTEREST U/S 234B WHILE COMPUTING DEMAND. 4. AS REGARDS TO THE ADMISSION OF THE ADDITIONAL GROUNDS THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE GROUNDS ARE PURELY LEGAL GROUNDS FOR WHICH NO INVEST IGATION IS REQUIRED TO BE MADE AS ALL THE RELEVANT MATERIAL IS AVAILABLE ON THE RECORD. THEREFORE, THESE GROUNDS MAY BE ADMITTED. THE RELIANCE WAS PLACED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS CIT REP ORTED AT 229 ITR 383. 5. IN HIS RIVAL SUBMISSIONS THE LD. DR ALTHOUGH OPPOSED THE ADMISSION OF THE ADDITIONAL GROUND BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 8 6. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PA RTIES, WE ARE OF THE VIEW THAT THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE ARE PURELY LEGAL GROUND AND GO TO THE ROOT OF THE MATTER SO THESE DESERVE TO BE ADMITTED IN VIEW OF THE RATIO LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF NATIONAL THERMA L POWER COMPANY LTD. VS CIT (1998) 229 ITR 383 (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER: THE POWER OF THE TRIBUNAL IN DEALING WITH APPEALS IS THUS EXPRESSED IN THE WIDEST POSSIBLE TERMS. THE PURPOSE OF THE ASSESSMENT PROCEEDINGS BEFORE THE TAXING AUTHOR ITIES IS TO ASSESSEE CORRECTLY THE TAX LIABILITY OF AN ASSESSEE IN ACCORDANCE WITH LAW. IF, FOR EXAMPLE, AS A RESULT OF A JUDICIAL DECISION GIVEN WHILE THE APPEAL IS PENDING BEFORE THE TRIBUNAL, IT IS FOUND THAT A NON - TAXABLE ITEM IS TAXED OR A PERMISSIBLE DEDUCTION IS DENIED, THERE IS NO REASON WHY THE ASSESSEE SHOULD BE PREVENTED FROM RAISING THAT QUESTION BEFORE THE TRIBUNAL FOR THE FIRST TIME, SO LONG AS THE RELEVANT FACTS ARE ON RECORD IN RESPECT OF THE ITEM. THERE IS NO REASON TO RESTRICT THE POWER OF THE TRIBUNAL UNDER SECTION 254 ONLY TO DECIDE THE GROUNDS WHICH ARISE FROM THE ORDER OF THE COMMISSION OF INCOME - TAX (APPEALS). BOTH THE ASSESSEE AS WELL AS THE DEPARTMENT HAVE A RIGHT TO FILE AN APPEAL/CROSS - OBJECTIONS BEFORE THE TRIBUNAL. THE TRIBUNAL S HOULD NOT BE PREVENTED FROM CONSIDERING QUESTIONS OF LAW ARISING IN ASSESSMENT PROCEEDINGS, ALTHOUGH NOT RAISED EARLIER. THE VIEW THAT THE TRIBUNAL IS CONFINED ONLY TO ISSUES ARISING OUT OF THE APPEAL BEFORE THE COMMISSIONER (APPEALS) ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 9 IS TOO NARROW A VIEW TO TAKE OF THE POWERS OF THE TRIBUNAL. IT HAS FURTHER BEEN HELD THAT: UNDOUBTEDLY, THE TRIBUNAL HAS THE DISCRETION TO ALLOW OR NOT TO ALLOW A NEW GROUND TO BE RAISED. BUT WHERE THE TRIBUNAL IS ONLY REQUIRED TO CONSIDER THE QUESTION OF LAW ARISING FROM FACTS WHICH ARE ON RECORD IN THE ASSESSMENT PROCEEDINGS, THERE IS NO REASON WHY SUCH A QUESTION SHOULD NOT BE ALLOWED TO BE RAISED WHEN IT IS NECESSARY TO CONSIDER THAT QUESTION IN ORDER TO CORRECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. 7 . GROUND NO S. 1 TO 3, 20 & 21 ARE GENERAL IN NATURE, GROUND NOS. 9 & 19 WERE NOT PRESSED SO THESE GROUND DO NOT REQUIRE ANY ADJUDICATION ON OUR PART. 8. VIDE GROUND NOS. 4, 5, 7, 8, 10 & 11, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE APPLICATION OF TRANSFER PRICIN G REGULATIONS ON THE LIAISON OFFICE OF THE ASSESSEE AND THE ADDITION MADE ON ACCOUNT OF ARM S LENGTH PRICE. 9. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE LAWS OF UNITED KINGDOM AND IS ONE OF THE GROUP CO MPANIES OF ROLLS ROYCE GROUP. THE PRINCIPLE ACTIVITIES OF THE ASSESSEE ARE RELATING TO ERECTION, COMMISSIONING, SUPERVISION, INSTALLATION AND OPERATIONS & ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 10 MAINTENANCE OF HUGE POWER PLANTS AND OTHER PROJECT S . THE STYLE OF FUNCTIONING OF THE ASSESSEE I S THAT IT NEGOTIATES AN AGREEMENT AND THEREAFTER T O EXECUTE THE SAME SETS PROJECT OFFICES. THE ASSESSEE FILED THE RETURN OF INCOME ON 20.11.2006 DECLARING AN INCOME OF RS.9,66,73,030/ - WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT , 1961 . LATER ON, THE CAS E WAS REOPENED BY ISSUING THE NOTICE U/S 148 OF THE ACT ON 22.03.2011. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE SUBMITTED THAT ITS ORIGINAL RETURN FILED MIGHT BE TREATED AS RETURN FILED IN RESPONSE TO THE NOTICE U/S 148 OF THE ACT. THEREAFTER, T HE AO R EFERRED THE MATTER TO THE TPO U/S 92CA OF THE ACT FOR DETERMINATION OF ARM S LENGTH PRICE IN RESPECT OF THE AC TIVITIES OF THE LIAISON OFFICES (LO) OF THE ASSESSEE. THE AO HELD THAT THE LO S OF THE ASSESSEE ARE PE WITHIN THE MEANING OF ARTICLE 5 OF DTAA. 10. NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE AT THE VER Y OUTSET STATED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 04.05.2012 OF THE ITAT DELHI BENCH F , NEW DELHI IN ITA NOS. 1410 TO 1413/DEL/2007, 1682 & 1683/DEL/2008 AND 1297/DEL/2008 FOR THE ASSESSMENT YEARS 1998 - 99 TO 2004 - 05 RESPECTIVELY IN ASSESSEE S OWN CASE. ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 11 11. IN HIS RIVAL SUBMISSIONS THE LD. DR SUPPORTED THE ORDER OF THE AO. 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSE D THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT THE ISSUE UNDER CONSIDERATION HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE VIDE PARAS 53 & 54 OF THE ORDER DATED 04.05.2012 IN ITA NOS. 1410 TO 1413/DEL/2007 FOR THE ASSESSMENT YEARS 1998 - 99 TO 2001 - 02 RESPECTIVELY , ITA NOS. 1682 & 1683/DE/2008 FOR THE ASSESSMENT YEARS 2002 - 03 & 2003 - 04 RESPECTIVELY AND ITA NO. 1297/DEL/2008 FOR THE ASSESSMENT YEAR 2004 - 05 AND RELEVANT FINDINGS GIVEN THEREIN READ AS UNDER: 53. IN ADDITION TO OUR HOLDING THAT THE ASS ESSEE IS LIABLE TO TAX ON NET BASIS, UNDER ART. 26 OF THE INDO - UK TREATY, THE ASSESSEE WHICH IS A NON - RESIDENT COMPANY AND IS UNDERTAKING THE WORKS CONTRACT IS BEING DISCRIMINATED AGAINST AND SUBJECTED TO TAX ON GROSS BASIS @ 30% BY ARTIFICIALLY INVOKING S ECTION 44D READ WITH SECTION 115A OF THE INCOME TAX ACT, WHEREAS A DOMESTIC COMPANY DOING EXACTLY THE SAME WORKS CONTRACT WOULD BE TAXED @ 2% UNDER SECTION 194C OF THE ACT AND ALSO WOULD BE SUBJECT TO TAX ON ITS NET PROFITS WITHOUT THE APPLICATION OF SECTI ON 44D. IF THE CASE OF THE ASSESSEE IS CAREFULLY SEEN, THEN THE TAX THAT HAS BEEN LEVIED BY THE AO BY MIS - INTERPRETING ART. 7.5 OF THE TREATY AND APPLYING SECTION 44D, WITHOUT ALLOWING THE EXPENDITURE ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 12 ALLOWABLE UNDER SECTIONS 29 - 44 OF IT ACT, WOULD AMOUNT TO MORE THAN 100% OF ITS REVENUE. IF WE SEE ASSESSMENT YEAR 2000 - 01 AT PAGE 308, THE TOTAL COST IS 81% OF THE REVENUE AND THE ASSESSEE IS LEFT WITH 19% OF THE REVENUE TO INCUR INDIRECT COST ETC., WHEREAS BY INVOKING SECTION 44D, THE REVENUE HAS TAXED 30% O F GROSS RECEIPTS. SO, IN EFFECT AT LEAST 11% IN EXCESS OF GROSS RECEIPTS HAS TO BE PAID BY THE ASSESSEE WHICH IS A NON - RESIDENT COMPANY, AND WHICH IS NOT THE CASE WITH A DOMESTIC COMPANY SIMILARLY OR IDENTICALLY PLACED. A DOMESTIC COMPANY, EVEN IF IT MAKES A PROFIT OF 19% IN THE EXAMPLE GIVEN ABOVE, IT WILL BE SUBJECTED TO 35% TAX WHICH WILL BE 6.65% OF ITS REVENUE AS AGAINST 30% IN THE ASSESSEE S CASE. THUS THE ASSESSEE HAD BEEN DISCRIMINATED AGAINST AND THE PROTECTION UNDER ART. 26 OF THE DTAA BE PROVIDED TO THE ASSESSEE. WE HAVE ALSO CONSIDERED THE OTHER ASPECTS OF THE CASE THAT THE AGREEMENT DID NOT ENVISAGE ANY TRAINING OF PERSONNEL OR MAKING AVAILABLE ANY SKILL, KNOW - HOW, DEVELOPMENT AND TRANSFER OF ANY DESIGN ETC. AS ENVISAGED U/S 9(1)(V II) EXPLANATIO N 2 OR ARTICLE 13( 4 ) (C) OF THE DTAA BETWEEN INDIA AND UK BY THE ASSESSEE TO SPECTRUM. THE TRAINING IN THE PRE - OPERATIONAL STAGE WAS OF THE ASSESSEE OWN WORK FORCE. THAT WAS DONE PRIOR TO FEBRUARY 1997 WHICH DOES NOT FALL WITHIN THIS PERIOD. THE TRAINING AS CITED BY THE CIT DR ON PLANT OF SPECTRUM PERSONNEL AT THE SECOND STAGE WAS ONLY AT THE TIME THE CONTRACT WAS GO COME TO AN END AFTER 10 YEARS, I.E. FEBRUARY 2007. WE DO NOT KNOW WHETHER ANY SUCH TRAINING WAS ACTUALLY CONDUCTED BY THE ASSESSEE FOR SPECTRUM . FOR THE YEARS UNDER OUR REVIEW, I.E. ASSESSMENT YEARS 1998 - 99 TO 2004 - 05, THERE IS NO PROVISION AND THE CIT DR HAS NOT BEEN ABLE TO POINT OUT ANY PROVISION IN THE CONTRACT ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 13 WHEREIN THE ASSESSEE WAS TO TRAIN SPECTRUM PERSONNEL. IN THE ABSENCE OF ANY SUCH T RAINING TO BE PROVIDED, IT CANNOT BE SAID THAT ANYTHING WAS MADE AVAILABLE BY THE ASSESSEE TO SPECTRUM. WHAT TO TALK OF TRAINING, WE HAVE ALSO SEEN FROM THE CONTRACT THAT THERE WAS NO PERSONNEL ENVISAGED TO BE PRESENT IN THE FACILITY DURING ITS OPERATION B Y THE ASSESSEE. THERE WAS NO CLOSE COORDINATION OF THE PERSONNEL OF THE ASSESSEE AND SPECTRUM AS WAS THE CASE BEFORE THE SUPREME COURT IN CONTINENTAL CONSTRUCTION AND OBEROI HOTELS. THE BASIC ELEMENT OF PASSING OF TECHNICAL KNOWLEDGE, SKILL TO THE CLIENT I S WHOLLY ABSENT IN THIS CASE. THE ERICSSON S CASE PROCEEDED ON COMPLETELY DIFFERENT LINE WHEREIN IN THAT CASE 214 ITR PAGE 211 PARA 2, THE CASE PROCEEDED ON THE BASIS THAT ERICSSON WAS RENDERING CONSULTANCY AND TECHNICAL SERVICES TO INDIAN COMPANIES IN THE FIELD OF ITS SPECIALTY AND RECEIVING REMUNERATION THEREFOR. THERE WAS NO DISPUTE IN THAT CASE BEFORE AAR THAT IT WAS FEES FOR TECHNICAL SERVICES. THE DISPUTE WAS AS IT WAS FEES FOR TECHNICAL SERVICES, WOULD IT UNDER THE SWEDISH TREATY BE TAXED ON GROSS BA SIS OR NET BASIS. THE SWEDISH TREATY DID NOT CONTAIN ANY PROVISION AVAILABLE FOR FTS OF MAKING AVAILABLE THE TECHNICAL SKILLS TO THE CLIENT. WE, THEREFORE, DO NOT SEE ERICSSON S CASE TO HAVE ANY BEARING ON THE CASE AT HAND. SIMILARLY, IN THE TRI - STAR S CAS E, THE QUESTION WAS COMPLETELY DIFFERENT WHERE TECHNICAL SERVICES WERE BEING RENDERED AND MADE AVAILABLE TO THE CLIENT AND AS RIGHTLY POINTED OUT BY SHRI DINODIA THE QUESTION IN ALL THE THREE JUDGEMENTS OF CONTINENTAL CONSTRUCTION, OBEROI HOTELS AND TRI - ST AR WAS DEDUCTION UNDER CHAPTER VIA AND NOT INTERPRETATION OF A DEEMING FICTION ENVISAGED BY SECTION 9(1)(VII) AND THE INTERPRETATION OF OVER - RIDING PROVISIONS ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 14 UNDER THE DOUBLE TAX AVOIDANCE AGREEMENT BETWEEN INDIA AND UK. THE NUMEROUS JUDGEMENTS CITED BY T HE ASSESSEE CLEARLY POINT OUT TO THE FACT THAT MAKING AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW, A PROCESS OR DEVELOPMENT AND TRANSFER OF TECHNICAL PLANT OF A TECHNICAL DESIGN IS ESSENTIAL TO FALL WITHIN THE DEFINITION OF FEES FOR TECHNICA L SERVICES UNDER THE INDO - UK TREATY. RESPECTFULLY FOLLOWING THESE DECISIONS, WE HOLD THAT IN ANY CASE AS PER ARTICLE 13.4(C) OF THE INDO - UK TREATY, THE ASSESSEE HAS NOT MADE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW, OR PROCESS OR DEVE LOPMENT AND TRANSFER OF ANY TECHNICAL PLAN, A TECHNICAL DESIGN TO SPECTRUM. WE HAVE ALSO CAREFULLY CONSIDERED THE MATTER. ART.26 OF THE DTAA, SUB - CLAUSES (1) AND (2) OF THE SAME READ AS UNDER: - ART. 26 NON DISCRIMINATION: 1. THE NATIONALS OF A CONTRAC TING STATE SHALL NOT BE SUBJECTED IN THE OTHER CONTRACTING STATE TO ANY TAXATION OR ANY REQUIREMENT CONNECTED THEREWITH WHICH IS OTHER OR MORE BURDENSOME THAN THE TAXATION AND CONNECTED REQUIREMENTS TO WHICH NATIONALS OF THAT OTHER STATE IN THE SAME CIRCUM STANCES ARE OR MAY BE SUBJECTED. 2. THE TAXATION ON A PERMANENT ESTABLISHMENT WHICH AN ENTERPRISE OF A CONTRACTING STATE HAS IN THE OTHER CONTRACTING STATE SHALL NOT BE LESS FAVOURABLY LEVIED IN THAT OTHER STATE THAN THE TAXATION LEVIED ON THE ENTERPRISE S OF THAT OTHER STATE ON THE SAME ACTIVITIES IN THE SAME CIRCUMSTANCES OR UNDER THE SAME CONDITIONS. THIS PROVISION SHALL NOT BE CONSTRUED AS PREVENTING A CONTRACTING STATE FROM CHARGING THE PROFITS OF A PERMANENT ESTABLISHMENT WHICH AN ENTERPRISE OF THE ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 15 O THER CONTRACTING STATE HAS IN THE FIRST MENTIONED STATE AT A RATE OF TAX WHICH IS HIGHER THAN THAT IMPOSED ON THE PROFITS OF A SIMILAR ENTERPRISE OF THE FIRST MENTIONED CONTRACTING STATE, NOR AS BEING IN CONFLICT WITH THE PROVISIONS OF PARAGRAPH 4 OF ARTIC LE 7 OF THE CONVENTION. 54. IN VIEW OF THE ABOVE PROVISION TAXING OF A NON - RESIDENT U.K. COMPANY IN A MANNER WHICH IS MORE BURDENSOME VIS - - VIS AN INDIAN COMPANY WOULD LEAD TO DISCRIMINATION. THIS WOULD ALSO AMOUNT TO UNFAVOURABLE TREATMENT BEING METED OUT TO A U.K. COMPANY VIS - - VIS THE INDIAN COMPANY DOING IDENTICAL BUSINESS IN INDIA. ACCORDINGLY THE ASSESSEE IS ENTITLED TO PROTECTION OF ART. 26 OF THE INDO - UK TREATY AND SHOULD NOT HAVE BEEN SUBJECTED TO TAX ON GROSS BASIS, BUT ON NET BASIS. THE NET PR OFIT WAS TO BE DETERMINED IN ACCORDANCE WITH THE INDIAN INCOME TAX ACT PROVISIONS FOR DETERMINING PROFITS AND GAINS OF BUSINESS FROM SECTIONS 28 TO 43 B OF THE INCOME TAX ACT I.E. LIMITS LAID DOWN IN THE DOMESTIC LAW OF ALLOWANCE OF EXPENDITURE U/S. 30,31 ,32,36,37,40,43B ETC WOULD HAVE TO BE TAKEN IN TO ACCOUNT. IN OUR VIEW THIS IS THE PURPORT OF ARTICLE 7.5 READ WITH ARTICLE 26 OF THE DTAA BETWEEN INDIA AND UK. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER, THIS ISSUE IS DECIDED IN FAVOUR O F THE ASSESSEE. 13 . VIDE GROUND NO. 6, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE APPLICATION OF MARK - UP OF 27.08% INSTEA D OF 16.21% PROPOSED BY THE TPO. ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 16 14. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE MATTER RELATING TO THE DETERMINATION OF ARM S LENGTH PRICE OF THE SERVICES RENDERED BY THE LIAISON OFFICES WAS REFERRED BY THE AO TO THE TPO WHO PASSED THE ORDER DATED 18.01.2013 U/S 92CA(3) OF THE ACT HOLDING THAT ARM S LENGTH MARGIN SHOULD BE TAKEN AT 16.21% AS AGAINST 15% IN THE EARLIER YEAR OF THE COST INCURRED BY THE LO. HOWEVER, T HE AO WORKED OUT THE ARM S LENGTH PRICE BY APPLYING THE MARK - UP OF 27.08% INSTEAD OF @ 16.21% OF THE COST AND MADE THE ADDITION OF RS. 1,12,009 / - BY HOLDING THAT INCOME WAS TO BE ADDED TO THE LIAISON OFFICES COSTS INCURRE D BY THE ASSESSEE , UNDER TRANSFER PRICING PROVISIONS FOR THE REASON THAT THE LIAISON OFFICES HAD PROVIDED SERVICES TO ITS HEAD OFFICE. THIS ISSUE IS CO - RELATED WITH THE ISSUES RAISED IN GROUND NOS. 4, 5 AND 7 TO 11 WHICH WE HAVE ALREADY ADJUDICATED IN THE FORMER PART OF THIS ORDER IN FAVOUR OF THE ASSESSEE, SO IT BECOMES ACADEMIC IN NATURE AND HENCE DISMISSED. 15 . VIDE GROUND NOS. 12 & 14, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE TREATING OF THE RECEIPTS FROM OPERATION & MAINTENANCE AGREEMENT (O&M) PRO JECT OF GODAVARI AS FTS WITHIN THE MEANING OF EXPLANATION - II TO SECTION 9(1)(VII) OF THE ACT AND ARTICLE 13(4)(C) OF THE DTAA BETWEEN INDIA AND UK AND TAXING THE SA ME ON GROSS BASIS U/S 44 D OF THE ACT. ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 17 16 . AS REGARDS TO THIS ISSUE THE LD. COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE AO HAD FOLLOWED HIS ORDER FOR THE ASSESSMENT YEAR 2005 - 06 WHICH HAS BEEN ADJUDICATED BY THE ITAT IN FAVOUR OF THE ASSESSEE. A REFERENCE WAS MADE TO PARA 6 AT PAGE NO. 5 OF THE ORDER DATED 04.05.2012 IN ITA NO. 1599/DEL/2011 AND S UBSEQUENTLY FOR THE ASSESSMENT YEARS 2007 - 08 & 2008 - 09 IN ITA NOS. 5437 & 5438/DEL/2011 RESPECTIVELY WHEREIN IT HAS BEEN HELD THAT THE INCOME MUST BE TAXABLE ON A NET BASIS AFTER ALLOWING DEDUCTION IN RESPECT OF COSTS INCURRED , AS IT IS NOT FTS BUT BUSINES S INCOME AR I SING OUT OF WORKS CONTRACT ON O&M MAINTENANCE OF POWER PLANT. 17 . THE LD. DR IN HIS RIVAL SUBMISSIONS SUPPORTED THE ORDER OF THE AO BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 18 . AFTER CONSIDERING T HE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL ON RECORD, IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS ALREADY BEEN DECIDED BY THE ITAT DELHI BENCH F , NEW DELHI IN ASSESSEE S OWN CASE VIDE AFORESAID REFERRED TO ORDER DATED 04.05.20 12 IN ITA NOS. 5437 & 5438/DEL/2011 FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 RESPECTIVE LY WHEREIN RELEVANT FINDINGS HAVE BEEN ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 18 GIVEN IN PARA 62 AT PAGE NO. 28 OF THE SAID ORDER AND READ AS UNDER: 62. APROPOS GROUND NO. 3(D), IT HAS BEEN OBSERVED BY TH E TRIBUNAL THAT INCOME OF GODAVARI (O&M) PROJECT IS TO BE ASSESSED ON A NET BASIS AND THEREFORE, SUCH INCOMES GET NETTED FROM EXPENSES AND ARE, THEREFORE, ALLOWED IN THE RELEVANT YEAR. THE FINDINGS OF THE TRIBUNAL ARE AS UNDER: - IN THE INSTANT CASE, THE ASSESSEE HAS UNDERTAKEN A WORK CONTRACT FOR OPERATION AND MAINTENANCE OF POWER PLANT FOR ITS OWNER M/S SPECTRUM VIDE CONTRACT DATED 14.3.1995. FOR UNDERTAKING THE WORK CONTRACT, THE ASSESSEE GOT A PRICE FOR PRODUCING POWER BY OPERATING AND MAINTAINING THE POWER PLANT. IT HAS NOT RENDERED ANY TECHNICAL SERVICES TO M/S SPECTRUM SO AS TO COME WITHIN THE MEANING OF FTS. THE INCOME SO RECEIVED FOR EXECUTING THE WORK CONTRACT DID NOT FALL WITHIN THE DEFINITION OF FTS U/S 9(1)(VII) EXPLANATION 2 OF THE IT ACT NOR AS DEFINED IN ARTICLE 13(4) OF DTAA BETWEEN INDIA AND UK. THE ASSESSEE HAD ALSO NOT MAKE AVAILABLE ANY KNOWLEDGE, SKILL ETC. TO M/S SPECTRUM WITHIN THE MEANING ASSIGNED TO IT UNDER ARTICLE 13(4)(C) OF THE DTAA TO FTS UNDER THE TREATY. ACCORDINGLY, ASSES SEE CANNOT BE TAXED ON GROSS BASIS AND SECTION 44AD HAS NO APPLICATION TO THE FACTS OF THE INSTANT CASE. FURTHERMORE, ARTICLE 13(4)(C) READ WITH ARTICLE 26 OF DTAA DOES NOT PERMIT THE REVENUE AUTHORITIES TO DISCRIMINATE AGAINST THE ASSESSEE, A UK REGISTERE D COMPANY AND ACCORD IT LESS FAVOURABLE TREATMENT THAN A DOMESTIC COMPANY AND THEREFORE, SECTION 44AD CANNOT BE ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 19 INVOKED IN ASSESSEE S CASE. THUS, LOOKING FROM ANY ANGLE, THE INCOME RECEIVED BY THE ASSESSEE FROM M/S SPECTRUM WAS NOT A FEE FOR TECHNICAL SERV ICES, WE THEREFORE DIRECT THE AO TO COMPUTE ASSESSEE S INCOME AND PROFIT AND GAINS OF BUSINESS FROM OPERATION AND MAINTENANCE OF POWER PLANT OF NET PROFIT AND LOSS BASIS. WE DIRECT ACCORDINGLY. 19 . SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORD ER IN ASSESSEE S OWN CASE , THE AO IS DIRECTED TO DECIDE THE ISSUE AS PER THE AFORESAID DIRECTIONS GIVEN FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09, SINCE THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS INVOLVED IN THE CASE PERTAININ G TO THE SAID ASSESSMENT YEARS. 20 . NEXT ISSUE VIDE GROUND NO. 13 RELATES TO THE ACTION OF THE AO IN HOLDING THAT THE ASSESSEE WAS MAKING AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW OR PROCESSES AS PER THE PROVISIONS OF ARTICLE 13(4)(C) OF THE DTAA TO M/S SPGL UNDER THE O&M. 21 . AS REGARDS TO THIS ISSUE THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET THAT IT IS COVERED IN FAVOUR OF THE ASSESSEE VIDE AFORESAID REFERRED TO ORDER DATED 04.05.2012 FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 0 9 WHEREIN RELEVANT FINDINGS HAS BEEN GIVEN IN PARA 81 AT PAGE NO. 37 OF THE SAID ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 20 ORDER. THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE WAS NOT CONTROVERTED BY THE LD. DR. 22 . IT IS NOTICED THAT IN THE AFORESAID REFERRED TO ORDER DATED 04.05 .2012 THE ITAT DELHI BENCH F , NEW DELHI IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 HAS HELD AS UNDER: 81. COMING TO GROUND NO. 1(C), THE TRIBUNAL HAS HELD THAT INCOME OF GODAVARI (O&M) PROJECT IS TO BE ASSESSED ON A NET BASIS A ND THEREFORE, SUCH INCOMES ARE TO BE NETTER FROM EXPENSES AND THEREFORE, ALLOWED IN THE RELEVANT YEAR. THE FINDINGS OF THE TRIBUNAL ARE AS UNDER: - IN THE INSTANT CASE, THE ASSESSEE HAS UNDERTAKEN A WORK CONTRACT FOR OPERATION AND MAINTENANCE OF POWER PL ANT FOR ITS OWNER M/S SPECTRUM VIDE CONTRACT DATED 14.3.1995. FOR UNDERTAKING THE WORK CONTRACT, THE ASSESSEE GOT A PRICE FOR PRODUCING POWER BY OPERATING AND MAINTAINING THE POWER PLANT. IT HAS NOT RENDERED ANY TECHNICAL SERVICES TO M/S SPECTRUM SO AS TO COME WITHIN THE MEANING OF FTS. THE INCOME SO RECEIVED FOR EXECUTING THE WORK CONTRACT DID NOT FALL WITHIN THE DEFINITION OF FTS U/S 9(1)(VII) EXPLANATION 2 OF THE IT ACT NOR AS DEFINED IN ARTICLE 13(4) OF DTAA BETWEEN INDIA AND UK. THE ASSESSEE HAD ALSO N OT MAKE AVAILABLE ANY KNOWLEDGE, SKILL ETC. TO M/S SPECTRUM WITHIN THE MEANING ASSIGNED TO IT UNDER ARTICLE 13(4)(C) OF THE DTAA TO FTS UNDER THE TREATY. ACCORDINGLY, ASSESSEE CANNOT BE TAXED ON ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 21 GROSS BASIS AND SECTION 44AD HAS NO APPLICATION TO THE FACT S OF THE INSTANT CASE. FURTHERMORE, ARTICLE 13(4)(C) READ WITH ARTICLE 26 OF DTAA DOES NOT PERMIT THE REVENUE AUTHORITIES TO DISCRIMINATE AGAINST THE ASSESSEE, A UK REGISTERED COMPANY AND ACCORD IT LESS FAVOURABLE TREATMENT THAN A DOMESTIC COMPANY AND THER EFORE, SECTION 44AD CANNOT BE INVOKED IN ASSESSEE S CASE. THUS, LOOKING FROM ANY ANGLE, THE INCOME RECEIVED BY THE ASSESSEE FROM M/S SPECTRUM WAS NOT A FEE FOR TECHNICAL SERVICES, WE THEREFORE DIRECT THE AO TO COMPUTE ASSESSEE S INCOME AND PROFIT AND GAINS OF BUSINESS FROM OPERATION AND MAINTENANCE OF POWER PLANT OF NET PROFIT AND LOSS BASIS. WE DIRECT ACCORDINGLY. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER IN ASSESSEE S OWN CASE, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 23 . VIDE GROUND NOS. 15 (I) TO (VIII), 16(A), (B) & (C), THE ISSUE RELATES TO THE TREATING THE OTHER INCOME S FROM GODAVARI OPERATION & MAINTENANCE PROJECT AS FTS AND TAXING THE SAME ON GROSS BASIS INSTEAD OF NET BASIS U/S 44 D OF THE ACT. 2 4 . AS REGARDS TO THE AFOR ESAID ISSUES THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT AN IDENTICAL ISSUE HAS ALREADY BEEN DECIDED BY THE ITAT IN FAVOUR OF THE ASSESSEE WHEREIN DIRECTION HAS BEEN GIVEN TO TAX THE INCOME ON NET BASIS. A REFERENCE WAS MADE TO PARA 56 ON PAGE 54 OF THE ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 22 ORDER DATED 15.10.2010 FOR THE ASSESSMENT YEARS 1998 - 99 TO 2004 - 05 IN ITA NOS. 1410 TO 1413/DEL/2007, 1682 & 1683/DEL/2008 AND 1297/DEL/2008 RESPECTIVELY. SUBSEQUENTLY, THE SAID ORDER HAS BEEN FOLLOWED FOR THE ASSESSMENT YEARS 2005 - 06 & 2 007 - 08 AND 2008 - 09 IN ITA NOS. 1599/DEL/2011 AND 5437 & 5438/DEL/2011 RESPECTIVELY. IT WAS ALSO POINTED OUT THAT VARIOUS RECEIPTS MENTIONED IN THE AFORESAID GROUND NO. 15 RELATING TO THE YEAR UNDER CONSIDERATION WERE CREDITED TO THE PROFIT AND LOSS ACCOUNT IN T HE SCHEDULE OF OTHER INCOME WHICH COMPRISES OF INTEREST ON FOREIGN BANK ACCOUNT ACCRUING OUTSIDE INDIA (RS.32,50,114), INTEREST FROM INDIAN BANK ACCOUNT (RS.6,76,473/ - ), PROFIT ON SALE OF FIXED ASSETS (RS.1,22,643/ - ), LIABILITIES NO LONGER REQUIRED WR ITTEN BACK (RS.2,22,756/ - ), EXCHANGE GAIN (RS.36,01,893/ - ), INTEREST ON INCOME TAX REFUND (RS.1,05,54,212/ - ), INCOME FROM INSURANCE DEDUCTIBLE (RS.1,37,24,625/ - ) AND MISCELLANEOUS INCOME (RS.1,59,171/ - ). 2 5 . IN HIS RIVAL SUBMISSIONS THE LD. DR STRONGLY S UPPORTED THE ORDER OF THE AO. 2 6 . AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL ON RECORD, IT IS NOTICED THAT THE IDENTICAL ISSUE RELATING TO THE TREATMENT OF THE OTHER INCOME AS FTS AND ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 23 TAX ING AS BUSINESS INCOME ON NET BASIS U/S 44D OF THE ACT HAS BEEN DECIDED VIDE PARAS 40 TO 42 AT PAGE NOS. 19 & 20 IN ITA NOS. 5437 & 5438/DEL/2011 FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 RESPECTIVELY (SUPRA) WHICH READ AS UNDER: 40. WITH REGARD TO THE GROUNDS TAKEN BY THE ASSESSEE FOR TAXI NG OF INTEREST INCOME IN VARIOUS YEARS THE AO S FINDING IS THAT INTEREST INCOME IS CHARGEABLE UNDER ART. 12(2) OF THE DTAA HAS BEEN UPHELD BY THE CIT(A) AND THE FINDING GIVEN BY HIM IS THAT THESE INCOMES WERE NOT RELATED TO EXECUTION OF ANY PROJECTS AS REL EVANT PROJECTS ARE STATED TO HAVE BEEN COMPLETED AND ART. 12(2) OF DTAA GIVES TAXING RIGHTS TO THE SOURCE STATE IN RESPECT OF INCOME THAT ARISES IN THAT STATE AND PROFITS ON SUCH INTEREST MAY BE TAXED ON GROSS BASIS AT A RATE NOT EXCEEDING 15%. THE STAND O F THE ASSESSEE IS THAT THE INTEREST HAS MAINLY ARISEN IN RESPECT OF BANK BALANCES IN U.K., VIZ., IN NAT WEST BANK AND CHASE MANHATTAN BANK. THEREFORE, APPLYING THE SOURCE RULE AS OPINED BY THE CIT(A) UNDER ART. 12(2), THE INTEREST RECEIVED BY THE ASSESSEE IN U.K. ON BANK ACCOUNTS MAINTAINED IN U.K. CANNOT BE TAXED IN INDIA. WE FIND FORCE IN THE SUBMISSIONS OF THE ASSESSEE AS ON THE POINT OF LAW THERE IS NO DISPUTE BETWEEN THE ASSESSEE AND THE REVENUE. THE ASSESSEE HAS ONLY CURRENT ACCOUNT IN INDIA AND ALL T HE INTEREST AMOUNT HAS ARISEN OUT OF BANK ACCOUNTS IN U.K. AND, THEREFORE, THE SAME SHOULD NOT HAVE BEEN SUBJECTED TO TAX IN INDIA AT ALL. WE ALLOW THIS GROUND OF APPEAL. THE AO IS DIRECTED TO EXCLUDE INTEREST EARNED OUTSIDE INDIA UNDER ARTICLE 12(2) OF TH E DTAA AND TAX INTEREST EARNED IN INDIA AS NORMAL INCOME. AO IS AT LIBERTY TO EXAMINE SUCH ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 24 INTEREST INCOME WHETHER TAXABLE AS INCOME FROM OTHER SOURCES OR AS BUSINESS INCOME. WE DIRECT ACCORDINGLY. 41. THEREFORE, THE ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE BY THE AFORESAID TRIBUNAL ORDER AND ACCORDINGLY, GROUND NO. 2 IS REJECTED. THE TRIBUNAL HAS, IN EFFECT, HELD THAT THE INTEREST EARNED IN THE U.K. BANKS IS NOT TAXABLE IN INDIA, WHEREAS OTHER INTEREST EARNED IN INDIA IS TAXABLE AS OTHER INCOME. 42. THE ASSESSEE HAD, DURING THE YEAR, CREDITED THE RECEIPTS TO THE PROFIT AND LOSS ACCOUNT, IN THE SCHEDULE OF OTHER INCOME AND IT WAS MAINLY INTEREST ON FOREIGN BANK ACCOUNTS AMOUNTING TO RS.58,65,222/ - ACCRUING OUTSIDE INDIA AND LIABILITIES AMOUNTING TO RS. 33,29,254/ - NO LONGER REQUIRED WRITTEN BACK, PROFIT ON SALE OF FA, OF RS.6,25,000/ - AND PROVISION WRITTEN BACK AND MISC. INCOME OF RS.7,83,618/ - . ALL THESE ITEMS HAVE BEEN DEALT WITH BY THE TRIBUNAL (SUPRA) FOR ASSESSMENT YEAR 2004 - 05. IN ACCORDANCE WITH T HE TRIBUNAL ORDER, THE INTEREST EARNED ON FOREIGN BANK ACCOUNTS IS NOT CHARGEABLE TO TAX IN INDIA AND THE BALANCE OTHER INCOME REQUIRES TO BE TAXED ON NET BASIS. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER, THE AO IS DIRECTED TO DECIDE TH IS ISSUE IN ACCORDANCE WITH THE AFORESAID DIRECTIONS GIVEN BY THE ITAT IN THE ORDER PERTAINING TO THE EARLIER ASSESSMENT YEARS. ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 25 2 7 . IN THE PRESENT CASE, IT IS NOTICED THAT T HE ISSUE S RAISED BY THE ASSESSEE IN G ROUNDS 16(A), 16(B) & 18 ARE COVERED VIDE PARA 83 AT PAGE NO. 38 OF THE AFORESAID REFERRED TO ORDER DATED 04.05.2012 WHICH READ AS UNDER: 83. WITH REGARD TO GROUND NO. 2, THE TRIBUNAL HAS HELD THAT THE INTEREST EARNED IN THE U.K. BANKS IS NOT TAXABLE AND THE OTHER INTEREST EARNED IN INDIA IS TAXABLE IN INDIA AS OTHER INCOME. THE FINDINGS OF THE TRIBUNAL ARE AS UNDER: - WITH RESPECT TO THE GROUNDS TAKEN BY ASSESSEE FOR TAXING OF INTEREST INCOME IN VARIOUS YEARS THE AO S FINDING IS THAT INTEREST INCOME IS CHARGEABLE UNDER ART. 12(2) OF THE DTAA HAS B EEN UPHELD BY THE CIT(A) AND THE FINDING GIVEN BY HIM IS THAT THESE INCOMES WERE NOT RELATED TO EXECUTION OF ANY PROJECTS AS RELEVANT PROJECTS ARE STATED TO HAVE BEEN COMPLETED AND ART. 12(2) OF DTAA GIVES TAXING RIGHTS TO THE SOURCE STATE IN RESPECT OF IN COME THAT ARISES IN THAT STATE AND PROFITS ON SUCH INTEREST MAY BE TAXED ON GROSS BASIS AT A RATE NOT EXCEEDING 15%. THE STAND OF THE ASSESSEE IS THAT THE INTEREST HAS MAINLY ARISEN IN RESPECT OF BANK BALANCES IN U.K. VIZ., IN NAT WEST BANK AND CHASE MANHA TTAN BANK. THEREFORE, APPLYING THE SOURCE RULE AS OPINED BY THE CIT(A) UNDER ART. 12(2), THE INTEREST RECEIVED BY THE ASSESSEE IN U.K. ON BANK ACCOUNTS MAINTAINED IN U.K. CANNOT BE TAXED IN INDIA. WE FIND FORCE IN THE SUBMISSIONS OF THE ASSESSEE AS ON THE POINT OF LAW THERE IS NO DISPUTE BETWEEN THE ASSESSEE AND THE REVENUE. THE ASSESSEE HAS ONLY CURRENT ACCOUNT IN INDIA AND ALL ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 26 THE INTEREST AMOUNT HAS ARISEN OUT OF BANK ACCOUNTS IN U.K. AND, THEREFORE, THE SAME SHOULD NOT HAVE BEEN SUBJECTED TO TAX IN INDI A AT ALL. WE ALLOW THIS GROUND OF APPEAL. THE AO IS DIRECTED TO EXCLUDE INTEREST EARNED OUTSIDE INDIA UNDER ARTICLE 12(2) OF THE DTAA AND TAX INTEREST EARNED IN INDIA AS NORMAL INCOME. AO IS AT LIBERTY TO EXAMINE SUCH INTEREST INCOME WHETHER TAXABLE AS INC OME FROM OTHER SOURCES OR AS BUSINESS INCOME. WE DIRECT ACCORDINGLY. 2 8 . IN VIEW OF THE ABOVE THESE ISSUES ARE DECIDED IN FAOUR OF THE ASSESSEE. 29 . IT IS ALSO NOTICED THAT T HE ISSUE AGITATED BY THE ASSESSEE VIDE GROUND NO. 16(C) IS COVERED VIDE PARAS 4 6 & 47 OF THE AFORESAID REFERRED TO ORDER DATED 04.05.2012 FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09. THE RELEVANT FINDINGS GIVEN THEREIN READ AS UNDER: 46. APROPOS GROUND NO. 1(D), THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER(SUPRA), WHEREIN IT HAS BEEN HELD AS FOLLOWS: - GROUND TAKEN WITH REGARD TO PROFIT ON SALE OF ASSETS UNDER ART. 14 OF DTAA AS PER LOCAL LAWS IN INDIA ARISES ONLY IN ASSESSMENT YEAR 2000 - 01. THE ASSESSEE HAS SUBMITTED THAT PROFIT ON SALE OF ASSETS CA N ONLY BE TAXED IF THE GROSS BLOCK OF THE PARTICULAR ASSETS OF THE ASSESSEE CEASES TO EXIST. TILL SUCH TIME PROFIT OR LOSS ON THE SALE OF SUCH ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 27 ASSETS IS IRRELEVANT AS ACCORDING TO THE ASSESSEE, THE GROSS BLOCK CONTINUES TO EXIST EVEN AFTER CREDITING THE SA LE TO THE WDV OF THE ASSETS, NO PROFIT OR LOSS SHOULD HAVE BEEN RECOGNIZED. THE AO IS DIRECTED TO VERIFY THIS POSITION. IF THE GROSS BLOCK EXISTS OF THE PARTICULAR ASSETS EVEN AFTER CREDITING THE SALE AMOUNT, WDV OF THAT BLOCK OF ASSETS WOULD GET REDUCED A ND THAT WOULD NOT BE SUBJECTED TO TAX SEPARATELY. IN CASE IT EXCEEDS THE WDV OF THE BLOCK OF ASSETS, THEN IT WOULD BE BROUGHT TO TAX U/S 50 OF THE INCOME TAX ACT. WE DIRECT ACCORDINGLY. 47. THE TRIBUNAL, WITH REGARD TO EPC PROJECT, HELD THAT TAX IS TO B E LEVIED IF THE BLOCK CEASES TO EXIST. UNDENIABLY, THE SAME PRINCIPLE IS APPLICABLE HERE ALSO. HOWEVER, UNDISPUTEDLY, THE BLOCK HAS NOT CEASED TO EXIST AND, THEREFORE, TAX IS NOT EXIGIBLE. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER, THIS ISSUE IS SET ASIDE TO THE AO TO BE DECIDED IN ACCORDANCE WITH THE AFORESAID DIRECTIONS GIVEN BY THE ITAT IN EARLIER YEARS. 3 0 . THE ISSUE S RAISED BY THE ASSESSEE VIDE GROUND NOS. 15(IV), 15(VII), 15(VIII) & 17 ARE COVERED VIDE PARAS 42 & 49 TO 51 OF THE A FORESAID ORDER DATED 04.05.2012 FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 WHICH READ AS UNDER: 42. THE ASSESSEE HAD, DURING THE YEAR, CREDITED THE RECEIPTS TO THE PROFIT AND LOSS ACCOUNT, IN THE SCHEDULE OF OTHER INCOME AND IT WAS MAINLY INTEREST ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 28 ON F OREI GN BANK ACCOUNTS AMOUNTING TO RS. 58,65,222/ - ACCRUING OUTSIDE INDIA AND LIABILITIES A MOUNTING TO RS. 33,29,254/ - NO LONGER REQUIRED WRITTEN B ACK, PROFIT ON SALE OF FA, OF RS. 6,25,000/ - AND PROVISION WRI TTEN BACK AND MISC. INCOME OF RS. 7,83,618/ - . ALL TH ESE ITEMS HAVE BEEN DEALT WITH BY THE TRIBUNAL (SUPRA) FOR ASSESSMENT YEAR 2004 - 05. IN ACCORDANCE WITH THE TRIBUNAL ORDER, THE INTEREST EARNED ON FOREIGN BANK ACCOUNTS IS NOT CHARGEABLE TO TAX IN INDIA AND THE BALANCE OTHER INCOME REQ UIRES TO BE TAXED ON N ET BASIS. 49. WITH REGARD TO GROUND NO. 1(E), THE TRIBUNAL HAS HELD THAT INCOME OF GODAVARI (O&M) PROJECT IS TO BE ASSESSED ON A NET BASIS AND THAT THEREFORE, SUCH INCOMES GET NETTED FROM THE EXPENSES, DUE TO WHICH, THEY ARE ALLOWED IN THE RELEVANT YEAR. 50. THE TRIBUNAL S FINDINGS IN THIS REGARD ARE AS FOLLOWS: - IN THE INSTANT CASE, THE ASSESSEE HAS UNDERTAKEN A WORK CONTRACT FOR OPERATION AND MAINTENANCE OF POWER PLANT FOR ITS OWNER M/S SPECTRUM VIDE CONTRACT DATED 14.3.1995. FOR UNDERTAKING THE WOR K CONTRACT, THE ASSESSEE GOT A PRICE FOR PRODUCING POWER BY OPERATING AND MAINTAINING THE POWER PLANT. IT HAS NOT RENDERED ANY TECHNICAL SERVICES TO M/S SPECTRUM SO AS TO COME WITHIN THE MEANING OF FTS. THE INCOME SO RECEIVED FOR EXECUTING THE WORK CONTRAC T DID NOT FALL WITHIN THE DEFINITION OF FTS U/S 9(1)(VII) EXPLANATION 2 OF THE IT ACT NOR AS DEFINED IN ARTICLE 13(4) OF DTAA BETWEEN INDIA AND UK. THE ASSESSEE HAD ALSO NOT MAKE AVAILABLE ANY KNOWLEDGE, SKILL ETC. TO M/S ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 29 SPECTRUM WITHIN THE MEANING ASSI GNED TO IT UNDER ARTICLE 13(4)(C) OF THE DTAA TO FTS UNDER THE TREATY. ACCORDINGLY, ASSESSEE CANNOT BE TAXED ON GROSS BASIS AND SECTION 44AD HAS NO APPLICATION TO THE FACTS OF THE INSTANT CASE. FURTHERMORE, ARTICLE 13(4)(C) READ WITH ARTICLE 26 OF DTAA DOE S NOT PERMIT THE REVENUE AUTHORITIES TO DISCRIMINATE AGAINST THE ASSESSEE, A UK REGISTERED COMPANY AND ACCORD IT LESS FAVOURABLE TREATMENT THAN A DOMESTIC COMPANY AND THEREFORE, SECTION 44AD CANNOT BE INVOKED IN ASSESSEE S CASE. THUS, LOOKING FROM ANY ANGL E, THE INCOME RECEIVED BY THE ASSESSEE FROM M/S SPECTRUM WAS NOT A FEE FOR TECHNICAL SERVICES, WE THEREFORE DIRECT THE AO TO COMPUTE ASSESSEE S INCOME AND PROFIT AND GAINS OF BUSINESS FROM OPERATION AND MAINTENANCE OF POWER PLANT OF NET PROFIT AND LOSS BAS IS. WE DIRECT ACCORDINGLY. 51. THE MATTER BEING COVERED BY THE TRIBUNAL ORDER AS ABOVE, THE OTHER INCOME SHOULD BE TAXED ON NET BASIS. ACCORDINGLY, GROUND NO. 1(E) IS ACCEPTED. 31. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER OF THE TRIB UNAL, THE ISSUES UNDER CONSIDERATION ARE DE CIDED IN FAVOUR OF THE ASSESSEE IN THE SAME MANNER AS HAS BEEN DONE BY THE ITAT WHILE DECIDING THE CASES OF THE ASSESSEE FOR THE OTHER YEARS. 3 2 . IT IS NOTICED THAT T HE ISSUE RAISED BY THE ASSESSEE VIDE GROUND N O. 15(V) IS COVERED VIDE PARAS 57 & 58 AT PAGE NO. ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 30 26 OF THE AFORESAID REFERRED TO ORDER DATED 04.05.2012 WHICH READ AS UNDER: 57. CONCERNING GROUND NO. 3(B), IT HAS BEEN HELD BY THE TRIBUNAL THAT IF FOREIGN EXCHANGE IS EARNED ON TRADING BASIS, ONLY THEN IT IS TAXABLE, BUT IT IS EARNED ON CAPITAL ASSETS, IT IS NOT TAXABLE. WITH REGARD TO THE GROUND TAKEN FOR TAXATION OF FOREIGN EXCHANGE FLUCTUATION IN ASSESSMENT YEAR 2002 - 03, THERE IS NO DISPUTE TO THE WELL SETTLED LEGAL PROPOSITION THAT IF PROFIT OR L OSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION ARISES OUT OF CAPITAL ASSETS, THEN IT WILL BE CAPITAL RECEIPT AND IN CASE IT ARISES OUT OF TRADING BUSINESS, THEN IT SHOULD BE TREATED AS TRADING INCOME. THE AO IS DIRECTED TO VERIFY THE SAME AND ACT ACCORDING LY. 58. IT IS SEEN THAT AS CONTENDED THAT THE FLUCTUATION IS ON THE DEPOSITS IN THE U.K. BANK ACCOUNTS. IT IS EXEMPT, AS SUCH. THE TRIBUNAL HAS HELD THAT THE INTEREST IS EXEMPT AS PER THE DTAA BETWEEN INDIA AND U.K. AND THEREFORE, THE FLUCTUATION WILL F OLLOW THE SAME PRINCIPLE, AS HAS ALSO BEEN HELD IN WOODWARD GOVERNOR INDIA PVT. LTD. , 312 ITR 254 (SC). SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER, THE AO IS DIRECTED TO DECIDE THIS ISSUE AS PER THE AFORESAID DIRECTIONS GIVEN IN THE SAI D ORDER DATED 04.05.2012. ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 31 3 3 . OTHER ISSUE AGITATED BY THE ASSESSEE VIDE GROUND NO. 15(VI) RELATES TO THE TAXING THE INTEREST ON INCOME TAX REFUND @ 40% OF GROSS BASIS. 3 4 . THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE EARNED AN INCOME OF RS.3,23,11,917/ - WHICH ALSO INCLUDED INTEREST ON INCOME TAX REFUND. THE AO WAS OF THE VIEW THAT NO EXPENSES AS CLAIMED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT FOR O&M PROJECT OFFICE CAN BE ATTRIBUTED TO THE ABOVE INCOME. HENCE, THE ENTIRE AMOUNT OF RS.3,23,11,917/ - WAS INCOME OF THE ASSESSEE. THE AFORESAID VIEW TAKEN BY THE AO WAS AFFIRMED BY THE DRP. 3 5 . NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INTEREST INCOME WAS CHARGEABLE UNDER ARTICLE 12(2) OF THE DTAA AS SAME INCOME NOT RELATED TO EXECUTION OF ANY PROJECT CONDUCTED DURING THE YEAR. THEREFORE, PROFIT ON SUCH INTEREST MAY BE TAXED ON GROSS BASIS AT THE RATE NOT EXCEEDING 15% AS PER DTAA BETWEEN INDIA AND UK. IT WAS FURTHER SUBMITTED THAT THE INTEREST ON INCOME TAX REFUND MAY BE TAXED AS BUSINESS INCOME ON A NET BASIS, SINCE PE EXISTED IN THE CURRENT YEAR. HOWEVER, IN THE FUTURE YEARS W H ERE NO BUSINESS INCOME ACCRUES TO THE ASSESSEE S PE IN INDIA, THE SAME MAY BE TREATED AS INCOME FROM OTHER ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 32 SOURCES AND WH ERE TAXED AS PER SECTION 115A OF THE ACT READ WITH THE BENEFIT OF DTAA WHICH SHOULD BE GRANTED SINCE IT IS NOT CONNECTED TO THE PE OF THE ASSESSEE IN THE YEAR IN WHICH IT ARISES. THE RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON BLE UTTRAKHAN HIGH COURT I N THE CASE OF B J SERVICES COMPANY MIDDLE EAST LTD. VS ACIT, RANGE - 1, DEHRADUN REPORTED AT 2015 - TII - 55 - HC - UKHAND - INTL (COPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON THE RECORD). 36. IN HIS RIVAL SUBMISSIONS THE LD. DR SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT THE DECISION GIVEN BY THE HON BLE UTTRAKHAND HIGH COURT WAS ON A DIFFERENT ISSUE AND RELATED TO THE REOPENING OF THE ASSESSMENT, SO THE FACTS OF THE SAID CASE ARE DISTINGUISHABLE FROM THE FACTS INVOLVED IN THE CASE OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE REVENUE BY THE DECISION OF THE ITAT DELHI BENCH B (SPECIAL BENCH) IN THE CASE OF ACIT, RANGE - 1, DEHRADUN VS CLOUGH ENGINEERING LTD. REPORTED AT 130 ITD 137. 37. WE HAVE CONSIDERED THE SUB MISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, NOTHING IS CLEAR FROM THE ORDERS OF THE AUTHORITIES BELOW THAT WHAT WERE THE CLAUSES IN THE ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 33 DTAA BETWEEN INDIA AND UK. THE CLAIM OF THE ASSES SEE THAT THE SAID INCOME WAS NOT CONNECTED TO EXECUTION OF ANY PROFIT CONDUCTED DURING THE YEAR AND WAS NOT CONNECTED TO THE PE OF THE ASSESSEE , H OWEVER , IN THE ABSENCE OF THE CLEAR FACT S ON RECORD, IT IS DIFFICULT TO TAKE A JUST DECISION. THEREFORE, W E DE EM IT APPROPRIATE TO REMAND THIS ISSUE BACK TO THE FILE OF THE AO TO BE ADJUDICATED AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . THE AO WHILE DECIDING THIS ISSUE SHALL ALSO CONSIDER THE JUDGME NTS CITED BY LD. COUNSEL FOR THE ASSESSEE AND THE LD. CIT DR. ACCORDINGLY, THIS ISSUE IS REMANDED BACK TO THE FILE OF THE AO. 38. AS REGARDS TO THE ADDITIONAL GROUNDS FIRST TIME RAISED BY THE ASSESSEE VIDE GROUND NOS. 22 TO 24 RELATING TO THE ADJUSTMENT OF UNABSORBED BROUGHT FORWARD LOSS ES, UNABSORBED DEPRECIATION AND THE INTEREST CHARGED U/S 234B OF THE ACT, W E DEEM IT AP PROPRIATE TO REMAND THESE ISSUES TO THE FILE OF THE AO TO BE ADJUDICATED AFTER CONSIDERING THE RELEVANT FACTS ALREADY AVAILABLE ON THE RECORD AND AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN OUR OPINION, THE ISSUES NOW AGITATED BY THE ASSESSEE VIDE ADDITIONAL GROUNDS REQUIRE FRESH ADJUDICATION BECAUSE IT IS NOT CLEAR THAT AS TO WHY THE ADJUST MENT OF UNABSORBED BROUGHT ITA NO. 801 /DEL /201 4 ROLLS ROYCE IN DUSTRIAL POWER (INDIA) LTD. 34 FORWARD LOSSES AND UNABSORBED DEPRECIATION WAS NOT ALLOWED BY THE AO. IT IS ALSO NOT CLEAR AS TO WHETHER CHARGING OF INTEREST U/S 234B OF THE ACT WAS APPLICABLE IN THIS CASE OR NOT BECAUSE THERE IS NO SUCH DISCUSSION EITHER IN TH E ASSESSMENT ORDER OR THE ORDER O F THE DRP. ACCORDINGLY, THE ISSUES RAISED BY THE ASSESSEE IN THE ADDITIONAL GROUND ARE RESTORED TO THE AO FOR ADJUDICATION IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . 39. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES . ( ORDER PRON O UNCE D IN THE COURT ON 11 /08 /2016) SD/ - SD/ - (SUCHITRA KAMBLE ) (N. K. SAINI) JUDICIAL ME MBER ACCOUNTANT MEMBER DAT ED: 11 /08 /2016 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR