The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that where the facts are unchanged from the earlier assessment years and the Revenue fails to establish the existence of a PE in India, receipts from offshore supply cannot be taxed in India on a presumptive basis under section 44BB. The Tribunal held that, following the co-ordinate bench decisions in the assessee’s own case for AY 2020–21 and AY 2021–22, the assessee did not have a PE in India; therefore, section 44BB was not applicable to the offshore supply receipts. Therefore, respectfully following the co-ordinate bench, the ITAT held that the assessee did not have a PE in India and deleted the addition of INR 99.50 crores.
The Division Bench comprising Vikas Awasthy (Judicial Member) and Renu Jauhri (Accountant Member) recorded that the sole substantive issue was the existence of PE and attribution of profits, which it described as a legacy issue. It noted that the DRP itself had recorded that the factual matrix for the year under consideration was similar to the preceding years. The Tribunal further noted that the co-ordinate bench, in the assessee’s own case for AY 2021–22, held that the assessee neither had a project office in India nor carried out installation activity at the ONGC site, that the scope of work assigned to the assessee was only manufacturing and supply of SPS components, and that the Revenue had not brought any evidence to establish any kind of PE in India.
The Tribunal reproduced the earlier order holding that the Assessing Officer had misconceived the facts, that not a single piece of evidence had been brought on record to establish that the assessee had any kind of PE in India, and that the burden of establishing existence of PE was on the Revenue. It also noted the earlier finding that section 44BB could not be invoked in the absence of a PE and that the Revenue had failed to specify how the alleged PE came into existence or how offshore supply became attributable to such PE.
Briefly, the appellant/assessee, a UK-based company, had entered into a contract with ONGC along with other consortium members for offshore supply of goods. For Assessment Year 2022–23, it filed its return declaring income of INR 3.22 crores. In assessment proceedings, the Assessing Officer held that the assessee’s Project Office in India constituted a fixed place PE, that it also had a deemed PE under Article 5 of the India-UK Tax Treaty, and that receipts from offshore supply of goods were taxable under section 44BB of the Income-tax Act. On that basis, the AO treated 10% of the receipts of INR 995.08 crores as profits chargeable to tax in India and finalized the assessment at INR 102.73 crores.
