Decided on May 28,2014

Pirelli Cavi E Sistemi Telecom S.P.A. (India Project Office) Hyderabad Appellant
Acit, Hyderabad Respondents


B.Ramakotaiah, Member (A) - (1.) THESE two cross -appeals are by Assessee and Revenue against the Orders of the CIT(A) -V, Hyderabad dated 29.12.2005. The issues in this appeal are with reference to reopening of assessment and consequent re -determination of incomes on the assessee's activities in India.
(2.) WE have heard Ld. Counsel and Ld. DR in detail and perused the paper book filed in this regard. The grounds raised by assessee (ITA. No. 160/Hyd/2006) which are summarized and filed as revised grounds in the course of hearing are as under : 1. (a) The learned CIT(A) erred in confirming the action of the A.O. in charging the amounts received by the appellant from the off -shore supply of equipment to tax in India. He further erred in holding/observing as under : (i) The dispute is only regarding the quantum of income to be taxed in India (para 5.3 page 5 of order) (ii) All the three contracts viz. Contract for Offshore supply, Onshore supply and Onshore services were to be treated as one composite contract (para 5.2 page 5 of order). (b) Without prejudice to the above, the learned CIT(A) erred in observing in para 5.11 page 10 of the order that the only aspects of the off -shore contract that can be related to the business operations of the project office are training in India, other services rendered and the signing of the contract in India. He further erred in estimating the profit attributable to offshore contract at Rs. 45,41,300/ - 2. The learned CIT(A) erred in confirming the addition made by the A.O. in respect of the onshore contracts at Rs. 58,70,409/ -. He erred in confirming the action of the A.O. in rejecting the books of accounts of the project office under section 145(3) of the ITA and in estimating the profits from the onshore contract at 10% of the gross receipts. 3. Each one of the above grounds of appeal is without prejudice to the other.
(3.) THE appellant reserves the right to add, alter or amend the above grounds of appeal 3.1. Assessee also filed additional grounds vide letter dated 02.11.2006 which are as under : 1. The appellant submits that the reopening of assessment under section 147 of the ITA is contrary to the provisions of law, without jurisdiction and therefore ought to be set aside. The appellant further submits that it had not been furnished the reasons on the basis of which the assessment was sought to be reopened. Moreover a notice for initiating assessment proceedings under section 143(2) had not been issued to the appellant and the learned DCIT had therefore taken recourse under section 147 for the purposes of making a regular assessment. 2. The appellant submits that interest under section 234B at Rs. 46,47,581/ - and under section 234D of the ITA at Rs. 6,49,558/ - is not leviable. The DCIT may be directed to delete interest under section 234B and 234D. 3. Each one of the above grounds of appeal is without prejudice to the other. 4. The appellant reserves the right to amend, alter or add to the grounds of appeal. 3.2 After discussion with the learned D.R. since additional grounds are legal and does not require any examination of facts, these are admitted. 4. Briefly stated, assessee company, Pirelli Cavi e Sistemi Telecom S.P.A. (Formerly Firelli Cavi e Sistemi S.P.A.) Milan, Italy had entered into three different contracts with Power Grid Corporation of India Limited (PGCI) on February 6, 1998 for setting up a Fiber Optic system for Southern Region. a. Off -shore supply contract Number C -50901 -9/546/I for all works to be performed in countries outside India covering, inter alia, the offshore supply of equipments required for the complete execution of the Project. b. On -shore supply contract Number C -50901 -S859 -9/547/II for the supply of equipments from within India required for the complete execution of the Project. c. On -shore services contract Number C -50901 -S858 -9/548/III for all the services including port clearance (in case of supplies from Offshore) inland transit insurance, handling and transportation to site, unloading at site, storage, preservation, insurance, erection, installation, testing, commissioning and integration at site of the complete Fiber Optic System including associated civil works etc., cables and other electrical and mechanical c. auxiliary systems for complete execution of the project. 4.1. The assessee obtained requisite permission from RBI for execution of onshore supply contract and onshore services contract with PGCI. The Registrar of Companies NCT of Delhi and Haryana had issued a certificate for the establishment of Place of Business in India to Pirelli Cavi e Systemi S.P.A. Milan Italy. The assessee offered income only from the contracts No. 2 and 3 relating to onshore supplies and onshore services contract while maintaining that the income from offshore contract No. 1 was not taxable in India. The A.O. held that all the three contracts are to be treated as a single or composite contract and for the reasons elaborated in the assessment order, held that the profit from the offshore contract was also taxable in India. The A.O. relied on the decision of the Authority for Advance Rulings in the case of Ishikawajima -Harima Heavy Industries Co. Ltd. and the provisions of DTAA between India and Italy for arriving at this finding. Consequent to the finding that offshore contract was taxable in India, A.O. proceeded to estimate the income of the assessee from the offshore contract at 5% of the gross contract value in the absence of production of the books of accounts and supporting evidence relating to the offshore contract No. 1. Similarly, the income from onshore contract and onshore services contract was estimated at 10% of the contract value after recording a finding that the books of accounts of contract Nos. 2 and 3 produced by the assessee were unreliable and need to be rejected.;

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