Baker Hughes Energy Technology UK Ltd. vs ACIT

Tenability o f the impugne d Final Asse ssment Or de r

“1 . On t he fact s and circumst ances of the case & i n law, t he final as sessment ord er under section 143(3) r.w.s. 1440(13) of t he Income -tax A ct, 1961 (“the Act”) dat ed 16 January 2025 (‘Fi nal Assessment order’) pass ed by the Learned Ass essi ng Officer (‘Ld. AO’) and directio ns under section 1440(5) of the Act dated 30 December 2024 (‘DRP dir ecti ons ’) pass ed by the Learned Dispute R es ol ution Panel (‘Ld. DR P’) are er rone ous and bad i n law.

2.

On t he fact s and circumst ances of the case & i n law, the L d. AO grossly erred in assessi ng t he total income of the Appellant f or t he relevant AY at INR 1,02,73,52,436 as agai nst the returned i nco me of INR 3,22,67,490.

3.

On t he fact s and circumst ances of the case & i n law, the Fi nal Ass essme nt Order pa ssed by t he Ld. A O is contrary to the pri nciples of nat ural justic e, in absence of proper opportunit y of bei ng heard a nd accordi ngly, the order is void-ab-i nitio, a nulli ty in the eyes of law and is li able to be set aside.

Impugned Final Asse ss me nt Order is barred by limitation

4.

On t he fact s and circumst ances of the case & i n law, the Final Assess ment Order passed by the Ld. AO and DRP di rections issued by the L d. DRP are barred by limitation i n vi ew of the provisio ns o f secti on 153 of the Act, maki ng it illegal, void-ab-i niti o and, t hus li able to be quas hed.

Supply o f Goods from outside India no t taxa ble under the Ac t and India-UK Tax Trea ty (‘ Tax

Treaty’)

5.

On t he fact s and circumst ances of the case & i n law, the Ld. AO/Ld. DRP grossl y er red i n t axi ng the consideratio n from suppl y of goods in relation to contract no . EOA/MM/SURF -S PS/KO7NL17OO2 dated November 05, 2018, under the Tax Tre aty r ead wit h the provisions of the Act without appr eciati ng t hat the Appellant has not carri ed out any s ubstantive ac ti vity in Indi a i n relati on to such supply of goods and the same was not t axabl e in India either under the Tax Treaty or the Ac t.

Fixed Place Perma nent Es tablishment (‘PE’) and Deemed PE unde r Ar ticle 5 of the Tax Treaty

6.

On t he fact s and circumst ances of the case & i n law, the Ld. AO /Ld. DRP grossly erre d i n holdi ng t hat Project Office (‘PO’) of the Appella nt is a fixed plac e PE of t he A ppell ant in India under Article 5 of the Tax Treaty by relyi ng on the fact ually i ncorr ect findi ngs .

7.

On t he fact s and circumst ances of the case & i n law, t he Ld. AO / Ld. DRP gr ossly erred i n holdi ng t hat the Appellant has a de emed PE in India as per the proviso to Article 5(2) of the Tax Treaty.

8.

Witho ut prejudice to t he above, on the facts and circumstances o f t he case & i n law, the Ld. AO/ Ld. DRP grossly erred in holdi ng t hat the al leged servicing/ repair functi on i s an i ntegral part of the co ntract awarded to the Appellant and carri ed o ut by i ts PO which cannot be claimed as a uxiliary or miscellaneous wor k under Ar ticle 5(3 ) of the Tax Tr eaty.

Attribution o f r eceipts from supply of goods fr om outside India - Applicability o f Section 44BB o f the

Ac t

9.

Witho ut prejudice to t he above, on the facts and circumstances o f t he case & i n law, the Ld. AO/ Ld. DRP grossly erred i n coveri ng s upply of e quipment from outside India ma de by the Appell ant under sectio n 44 BB of t he Act and attr ibut e 10% of the s upply of goods f rom outside India t o alleged Fix ed Place P E and D eemed P E of the App ellant in India wi t hout el aborati ng how suppl y of goods from outside India wo uld be cover ed under the provisions of s ecti on 44BB of the Act .

10.

On t he fact s and circumst ances of the case & i n law, the Ld. AO/ Ld. DR P gr ossly erred in applyi ng a n adhoc rate of 10% of the total re venues as alleged pr ofit of the A ppella nt in India, which is hi ghly arbitrary, unj usti fied and wit hout any s ound supporti ng basis consideri ng the specific facts of the Appellant.

11.

On t he fact s and circumst ances of the case & i n law, the Ld. A O/Ld. DRP grossly erred i n not applying any specific attri bution f or the alleged functions bei ng performed in India and i nstead consideri ng the e ntire alleged profits of the Appellant as attributable i n India, whic h is hi ghly arbitr ary, unj ustifi ed a nd wit hout any basis.

Hon’ble Tribunal Orders in Appe lla nt o wn case for AY 2020-21 and AY 20 21-22 no t follo wed

12.

On t he fact s and circumst ances of the case & i n law, the Ld. AO / Ld. DR P grossly err ed i n not followi ng the order of Hon’ble Del hi ITAT i n its own case for AY 2020-21 and AY 2021-22 whe rei n the additi on made on acco unt of al leged PE a nd taxability of i nc ome under section 44BB of the Act was del et ed by ITAT.

Ld. DRP’s spe cific directions not followed in fin al AO order

13.

On t he fact s and circumst ances of the case & i n law, the Fi nal Assessment Order has bee n passed without complyi ng wi th t he speci fic bi ndi ng mandates and directi ons issue d by Ld. DRP, is e rroneous, wit hout jurisdictio n and deser ves t o be held as null and void-ab-initio .

PO a lre ady rem uner ate d at Ar m le ngth price; no fur ther attribution warr anted

14.

Witho ut pr ejudice to the c ont ention of the Appellant that it has no PE in India, on the f acts and in the circumstanc es of the case & i n law, t he Ld. AO/ Ho n’bl e DRP gr ossly err ed i n not appreciati ng t hat no further income is attributabl e to the Appellant on acco unt of activities carri ed o ut by PO for which it has bee n adequately rem unerat ed as per the arm’s length basis.

Miscellaneo us Gr ounds

15.

Witho ut prejudice to t he above, on the facts and circumstances o f t he case & i n law, the Ld. AO/ Ld. DRP grossly erred i n not allo wi ng the de ducti on of the ar m’ s lengt h re muneration which has already be en offered to tax i n t he ha nds of App ellant’s PO in India whil e calculati ng the total assess ed i ncome of the Appellant duri ng the i ns tant ye ar under consider ati on.

16.

On t he fact s and circumsta nces of the case & i n law, the L d. AO grossly erred i n l evyi ng i nt eres t under section 234B of t he Act.

17.

On t he fact s and circumst ances of the case & i n law, the Ld. AO grossly err ed in initiating t he pena lty proc eedi ngs under section 274 r.w.s. 270A of t he Act for underreporti ng of income i n consequence of misrep or ting of i nc ome.

That t he a bove gr ounds of appeal are i ndep endent and without prejudice to each other.”

“9 .1 To co nclude, t he ass essee has a fi xed place P E i n Indi a i n the fo rm of its declared project office . The sa me is established for executi ng the contract a warded t o t he assessee by O NGC. The sale of goods to ONGC, for whic h logistic sup port is provided by the PO, is thereby attributabl e to the PE.

9.2

Further, t he assesse e has a de emed PE owi ng t o t he proviso to Ar ticle 5(2), and the service s provided by it linke d t o the prospec ti ng, expl oration, a nd e xtractio n of mineral oil.

9.3

Under t he provisions of S ecti on 44BB, an amo unt of 10% of Rs. 9950849464/-, t hat is Rs. 995084946/-becomes t he profi t of the as sesse char geabl e t o tax in Indi a.”

“8 .3 The factual matri x is si milar to the precedi ng years, theref ore, the P anel her eby rejec ts obj ecti ons for AY 2021-22 as well. With rega rd t o t he orders of t he DRP for previ ous year's, assessee has submi tted that the addition cover ed in thes e obj ec tions has been co nsidered by t he Ho n'bl e ITA T for ea rlier years and similar addition has bee n deleted. The assess ee has further submi tt ed t hat no further appeal has bee n file d by the Department. Bei ng a fact ual issue, t he AO is hereby direc ted t o verify t he contention of t he ass esse e. If no further appe al has been preferr ed by t he Depar tment on merits of t he case against order of the H on'bl e Tri bunal, the n, addition prop osed in t hes e grounds of objectio n shall no t be made. I f not, then, the addition s hall stand confirmed. The Panel directs accor di ngl y.”

18.1.

The fi ndi ngs of t he curre nt y ear can be summarized as bel ow:

a. The ass essee’ Proj ect Offi ce c onstitutes a Fixed plac e PE of the assesse e in India, as it is providi ng services and facilities whic h ar e non-auxiliar y i n nature.

b. By virt ue of providi ng services and facilities in connecti on with t he pr ospecti ng, extr acti on, and pr oducti on of mineral oil in India, the pr oviso to Article 5 of the India-UK DTAA will de em a PE i n t he case of the assessee i n India.

c. Secti on 44BB of the Act will be applied in the cas e of t he assesse e.

d. The assessee’s reli ance on E-funds Vs ADIT and Morgan Sta nl ey and Co. Inc. j udgeme nts is erroneo us

18.2

De tailed fi ndi ngs vis-à -vis each o f these poi nts are a part of t he draft assessment order , upheld by the D RP, and not repr oduced for the sake of brevity.

18.3

Thes e facts and f indi ngs are disti nguishabl e from the fi ndi ngs of the pr evi ous years, wher ei n t he H on'ble ITAT had categorically held that Sectio n 44BB of the Act cannot be i nv oked in absenc e of a PE i n India, and that the AO has failed to establish the existence of PE i n Indi a.

19.

To co nclude, t he ass essee has a fi xed place P E i n Indi a i n the fo rm of its declared project office . The sa me is established for executi ng the contract a warded to t he assessee by O NGC. The sale of goods to ONGC, for whic h logistic sup port is provided by the PO, is thereby attributabl e to the PE.

Further, t he ass essee has a d eemed PE owi ng t o t he proviso to Ar ticle 5(2) of t he I ndia-UK D TAA to which t he said income is a ttri butable in the same manner.

20.1

Under the provisi ons of S ection 44BB of the Act, an amo unt of 10% of Rs . 9,95,0 8,49,464/- that is Rs.99,50,84,946/- becomes the profit of the assessee chargeabl e t o tax i n India.”

“10.

We have co nsidered rival submissions and perused mat erial on record. The allegation of the Assessing Officer i n t he show-c ause notice i ssued to the ass essee was, the project office o f t he ass essee in Indi a has to be considered as fixed placed PE i n terms of Article – 5 of the India – UK D TAA. He has furt her obs erved that the gas well of ONGC in Krishna Godavari basi n has to be considered as installation of PE of the assessee as t he assessee has carried out i ns tallation activities . H owever , whil e concl udi ng, the Assessing Offi cer has obs erve d that the cons ortium member is working on behalf of t he assessee, henc e, constitutes PE. Unfort unately , l ear ned DRP has not given any fi ndi ng on existenc e or otherwi se of PE by holdi ng t hat the iss ue is academic as existenc e of PE is not relevant for applicability of sec tion 44BB of the Ac t.

11.

Be t hat as it may, it is necessary to exami ne whet her the assess ee had any ki nd of PE in India. F rom t he submissi ons of the assessee made befor e t he Assess ing Officer it becomes very muc h cl ear t hat the assesse e has ve ry cl early and c ategoricall y stated tha t nei ther it had any project office in India nor had carri ed out any installation activi ty at the gas well o f ONGC at Krishna Godavari Basi n. The scope o f work as per the MOU with ONGC a nd particular ly Annexure – 1 & 2 of MOU reproduc ed i n par agraph – 6 of fi nal ass essment or der clearly indicates t hat the only work assi gned to t he assessee under the contract is manufac turing and s upply of S ubs ea Produc ti on System (S PS ) c omponents i ncl uding Subsea Trees, Manifolds and S ubsea and Topside Control System. All ot her activiti es s uch as Proj ect Manageme nt and Desi gn and Engineeri ng, Pr ocurement, construction, fabricati on, transpo rtatio n, t esti ng, suppor t and S PS Services, Onshore fabricati on, proc urem ent of l ine pipes, life and fi eld support etc. are to be undertak en by ot her consorti um membe rs.

12.

In fact , the i nfor mati on gi ven by ONGC i n purs uanc e to notice under s ecti on 133(6 ) of t he Ac t mak es it very clear t hat t he assessee was o nly enga ged in manufacturi ng and s upply a nd s upport of components incl udi ng manufacture and s upply of subsea and t op side control system. Thus t he material on rec ord clearly indicate tha t the assessee was not i n any way involved in ons hore activiti es incl udi ng installation at the site of ONGC. It appear s, just to show t hat facts in t he impugned assess ment y ear ar e differ ent from A .Y. 2020-21, the Assessi ng Officer has atte mpted to project t he facts i n a di fferent manner. In the proc ess, has compl et el y misconceived the facts . Not a singl e pi ece of evidence has been b rought o n r ecord by the Assessing Officer t o establish t hat t he assessee had any ki nd of P E in India in t he year under co nsideration.

13.

In fact, while de aling with identical nature of dispute in assess ee’s case i n A.Y. 2020-21, the C o-ordi nat e Bench having examined the r el evant facts incl udi ng t he te rms a nd cond iti ons of contra ct with ONG C has concluded t hat section 44BB will no t be applicabl e in abs ence of PE. Further, the Co ordinate Bench has held tha t the Ass essi ng Offic er has failed to specify how t he PE c ame i nto exis tenc e and made the offshore suppl y of components attri butable to PE. The Co-ordi nat e B ench has further held that the Ass essi ng Officer has failed to establ is h how the consorti um member constitute s P E in Indi a. Referri ng to t he decision of the Hon’bl e Supreme Court in the c ase of ADIT vs. E-Funds (2018) 13 SCC 294, the C oordi nate Bench has further held that burden of establishi ng exi stence of PE i s on the R eve nue, whi ch has not been dis charged. Thus ultimately, C oordi nate Bench has held that si nce there is no PE of the ass ess ee in India, s ection 4 4BB of the Act wo uld not apply.

14.

In our co nsidered opi nion, t he facts i nvolve d relating to the iss ue i n disputes ar e mor e or less identical to A.Y . 2020-21. In fact , DRP has merely r elied upon t he directio ns issued in A.Y. 2020-21. Since, the issue has bee n decided i n fav our of the assess ee by Tribunal in A.Y. 2020-21 vi de ITA No.5 21/Del/2023 dated 06.06.2023 and t her e is no discerni ble fac tual differenc e in t he assessment year under dispute , we ar e incli ned to follow t he decis ion o f the Co-ordi nate Benc h in assessee’s own ca se (s upra) and hold that secti on 44BB of the Act cannot be i nvoked to t ax the r eceipts from offs hore s upply on pres umptiv e basi s as the R evenue has fail ed to es tablish existence of PE in India. Assessing Officer is direct ed to d el ete the addition.”