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Judgment
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
The present appeal arises from order dated 30.06.2025, passed u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”), by Ld. CIT(A)-42, Delhi. In this case, the assessee is a company incorporated in Canada and is engaged in several business activities, including consultancy for the oil and gas sector. During the year, under consideration, the assessee had provided consultancy services to M/s Cairn Energy India Pty. Ltd. Such services were in relation to the extraction of oil and gas in India.
It is seen that the Ld. AO’s order dated 22.10.2019 has been passed in an ex parte manner due to the non-compliance to opportunity of hearing provided by the Ld. AO. However, before the Ld. CIT(A) the assessee presented considerable new evidence in the shape of documents etc. under Rule 46A of the IT Rules, which was admitted and a remand report was called from the Ld.AO. Thereafter, the Ld. CIT(A) considered the remand report of Ld. AO and granted relief to the assessee.
The Department is now in appeal before the ITAT with the following grounds: -
1.“That the Ld. CIT(A) has erred in law and on facts in admitting additional evidences under Rule 46A of the Income Tax Rules, 1962, despite the fact that the assessee was provided adequate opportunities during assessment proceedings but deliberately failed to file any details or submissions before the Assessing Officer. Thus, the admission of fresh contracts and invoices at the appellate amounts to converting appellate proceedings into assessment proceedings, which is contrary to law.
2.That the Ld. CIT(A) has erred in holding that assessee’s consultancy services rendered to Cairn Energy India Pvt. Ltd. fall within the ambit of presumptive taxation u/s 44BB of the Income Tax Act, 1961, ignoring the fact that the services were in the nature of technical/managerial consultancy liable to be taxed as “fees for technical services” u/s 9(1)(vii) read with Sections 44DA/115A of the Act.
3.That the Ld. CIT(A) has erred in treating the TDS deducted by the payer @4% as conclusive evidence of the nature of income u/s 44BB, whereas the settled law is that TDS deduction by payer does not determi9ne the ultimate taxability in the hands of the recipient.
4.That the Ld. CIT(A) has erred in law in holding that the assessment order was bad on account of duplication of entries in Form 26AS, whereas at best it was a curable error rectifiable u/s 154 of the act. The said clerical error could not render the entire reassessment order invalid.
5.That the Ld. CIT(A) has erred in law and on facts in holding that there was no effective service of notices, despite categorical findings in the remand report that notices were duly issued at the last known address and through speed post, and the assessee chose not to comply.
6.That the Ld. CIT(A) failed to appreciate that reassessment was validly initiated on the basis of information available in Form 26AS, that the assessee had not filed return of income despite having taxable receipts, and that the reassessment order dated 22.10.2019 was passed well within the limitation period prescribed u/s 153(2) of the Act.”
Before us, the Ld. DR read out extensively from the remand report and stated that during the assessment proceedings the assessee was totally non-compliant and thus, there was no opportunity to examine the factual records. It was the submission that the matter may be allowed to be examined in-depth by the Ld. AO.
The Ld. AR supported the order of Ld. CIT(A) and stated that the assessee presented considerable documents before the Ld. CIT(A) and the same were duly examined by the Ld. AO through a remand report. It was the submission that following the case of Oil & Natural Gas Corporation Ltd. reported in 376 ITR 306 (SC), once it was established that the assessee was providing services to the Oil & Gas Industry then it had the option of being assessed u/s 44BB of the Act.
We have considered the rival submission and have gone through the documents before us. It deserves to be mentioned that any lacuna in fact finding at the Ld. AO’s level has been duly taken care of by the Ld. CIT(A), when documents have been admitted under Rule 46A and a remand report has been called thereon. At this stage, we find no reason to differ with the findings of Ld. CIT(A) in as much as the same are within the four corners of law. For the sake of reference, the relevant portions from the CIT(A) order deserve to be extracted as under: -
“10.2Further, it is noted that the AO in the Remand Report has also accepted that in the absence of any explanation by the appellant during assessment proceedings, the assessment was completed based on the details available on record at that time. However, pursuant to the examination of the additional evidence filed by the appellant during the remand proceedings, the AO has admitted that as per the evidence, Cairn carries on business of exploration and production of hydrocarbon in India and the appellant has provided consultancy services to Cairn in relation to exploration and extraction of oil and natural gas at various sites in India. The AO has also examined the invoices and work order submitted by the appellant to collaborate its version. After such examination during the remand proceedings, no adverse comments have been made by the AO on the appellant's claim of being covered u/s 44BB and regarding applicability of the Hon'ble Supreme Court's judgment in the case of Oil & Natural Gas Corporation Ltd. vs. CIT (376 ITR 306) relied upon by the appellant. Para 7 8 9 of the Remand Report of the AO, as already reproduced at para 5 above, particularly needs to be noted in this regard.
10.3The case of the appellant is found to be squarely covered by the judgment of the Hon'ble Supreme Court in the case of Oil & Natural Gas Corporation Ltd. vs. CIT (376 ITR 306) wherein the Court has held that when pith and substance of the contract is directly or inextricably connected with prospecting, extraction or production of mineral oil and dominant purpose of each of such agreement is for prospecting, extraction or production of mineral oils though there may be certain ancillary works contemplated thereunder, the payment for providing various services in connection with prospecting, extraction or production of mineral oil, would be assessed under section 44BB of the Act and not u/s 44D. Further, the Hon'ble Apex Court also held that these services would not be taxable as 'Fees for Technical services' ('FTS') u/s 9(1)(vii) of the Act as the Explanation 2 thereto specifically excludes from consideration for the purposes of the expression, i.e., 'fees for technical services' any payment received for construction, assembly, mining or like project undertaken by the recipient. The Hon'ble Court further held that the extraction of mineral oils amount to a mining activity or a mining operation. Hon'ble Court also took cognizance of the CBDT Circular No. 1862 dated 22.10.1990 whereby after taking opinion of the Attorney General of India to the effect that prospecting for, or extraction or production of mineral oil amount to 'mining operations and that the expressions 'mining project or like projects' occurring in Explanation 2 to Section 9(1)(vii) of the Income Tax Act would cover rendering of services like imparting of training and carrying out drilling operations for exploration or exploitation of oil and natural gas, CBDT clarified that the consideration for such services will not be treated as fees for technical services for the purpose of Explanation 2 to Section 9(1)(vii) of the Income-tax Act, 1961 and that payments for such services to a foreign company, therefore, will be income chargeable to tax under the provisions of section 44BB of the Income-tax Act, 1961 and not under the special provision for the taxation of fees for technical services contained in section 115A read with section 44D of the Income-tax Act, 1961. The relevant part of the judgment of the Hon'ble Supreme Court in the Oil & Natural Gas Corporation Ltd. vs. CIT (supra) is quoted below for ready reference: ……………………
10.4From the above, the case of the appellant is found to be squarely covered by the judgment of the Hon'ble Supreme Court in the ONGC case (supra). There are a plethora of other judgments, including the Hon'ble Jurisdictional Delhi High Court, as referred by the appellant in its written submissions reproduced at para 8.1 above, which have held that the services which are inextricably connected with prospecting, extraction or production of mineral oils shall qualify under Section 44BB of the Act. It is a well settled position of law that specific provisions of the statute prevail over the general provisions. Accordingly, specific provisions of section 44BB are found applicable to the instant case in view of the services provided by the appellant to Cairn which are inextricably linked to prospecting, extraction or production of mineral oils.
10.5Further, the proviso to section 44BB is also not found attracted in this case as none of the sections mentioned therein viz. sections 42, 44D, 44DA, 115A or 293A are applicable in the instant case as explained by the appellant in detail at para 3.3.15 & 3.3.16 of its written submissions dated 21.10.2020 as reproduced above at para 8.1 above.
10.6In view of the above discussions, I am of the considered opinion that the facts of the Appellant fall within the ambit of presumptive taxation under Section 44BB of the Act which provides that profits from the services provided in relation to prospecting, extraction or production of mineral oil shall be deemed to be 10% of the receipts. The services provided by the Appellant are inextricably connected with such prospection, extraction or exploration of mineral oils and therefore, the amount received in consideration thereof qualifies for presumptive taxation under Section 44BB of the Act. Accordingly, the action of the AO in assessing 100% of the receipts from Cairn as taxable income of the appellant is not found justified. The, AO is directed to re-compute taxable income of the appellant in India taking 10% of the correct amount of receipts (1.e 10% of 3,56,22,405 = 35,62,240) as deemed profits from business and charge tax thereon at the applicable rate of 40% plus applicable surcharge and cess. Further, in accordance with Section 199, the AO is also directed to give credit of the TDS done by Cairn on the above amount of Rs. 3,56,22,405 as reflected in 26AS statement after due verification. With this, Grounds of appeal no. 5, 5.1, 6 & 7 stand allowed.”
In the result, the Revenue’s appeal is dismissed.