O/TAXAP/623/2017 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 623 of 2017 COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION AND TRANSFER PRICING)....Appellant(s) Versus SHANDONG TIEJUN ELECTRIC POWER ENGINEERING CO. LTD.....Opponent(s) Appearance: MR NITIN K MEHTA, ADVOCATE for Appellant(s) No. 1 MR B S SOPARKAR, CAVEATOR for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV Date : 18/09/2017 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Revenue is in appeal against judgement of Income Tax Appellate Tribunal dated 18.01.2017 raising following questions for our consideration: [A] Whether, Hon ble ITAT has erred in law and on facts of case, in holding that A.O. has no power to assess income on presumptive basis u/s 44BBB(1) of Act, if assessee has maintained books of account as prescribed u/s 44BBB(2) of Act although books of account maintained by assessee are not proper and do not reflect Page 1 of 6 HC-NIC Page 1 of 6 Created On Sat Nov 04 12:28:51 IST 2017 O/TAXAP/623/2017 ORDER correct income of assessee? [B] Whether, Hon ble ITAT has erred in law and on facts of case, in holding that A.O. has erred in rejecting books of accounts of assessee relying on decision of Hon ble Gujarat High Court decision in case of CIT vs. Advanced Construction Co. (P) Ltd. reported in 275 ITR 30, although ratio laid down by Hon ble Gujarat High Court is squarely applicable in present facts of case and in favour of revenue? 2. Respondent assessee is foreign company engaged in execution of turnkey projects. In terms of section 44BBB of Act, income of assessee would be taxed at presumptive rate of 10% of amount paid or payable to assessee or any person on behalf of assessee under sub- section (2) of section 44BBB of Act if assessee satisfies certain conditions therein. Assessee could claim lower profit and gain than what is referred in sub-section (1). Assessee availed of such provision of sub-section (2) of section 44BBB of Act while filing return before Assessing Officer. Assessing Officer was not satisfied on various grounds, principally, that assessee had followed accounting system of AS-7 which was not applicable, assessee should have offered tax in terms of section 44BBB of Act and lastly that in any case assessee had not followed correct method of determining stage of completion of contract and accounts of assessee were not reliable. Assessing Officer after putting assessee to notice rejected assessee's accounts and taxed Page 2 of 6 HC-NIC Page 2 of 6 Created On Sat Nov 04 12:28:51 IST 2017 O/TAXAP/623/2017 ORDER assessee under sub-section (1) of section 44BBB of Act. 3. assessee carried matter in appeal before Commissioner. Commissioner held in favour of assessee. Commissioner held that accounting standard AS-7 was applicable to assessee. assessee had pointed out to Assessing Officer that true cost of project was estimated on basis of experience of assessee in executing similar works in past. assessee had also submitted detailed break-up of estimated profit and loss account for entire project for five financial years. assessee had also submitted details of budgeted costs to revenue. assessee had produced audited financial statements during all financial years. Commissioner had benefit of further developments by time appeal was disposed of and noted that financial statements of financial years 2009-10 and 2010-11 were available which were submitted before him by assessee which matched estimated costs presented by assessee before Assessing Officer. Commissioner also noted that entire project was completed and total income was offered to tax. Commissioner therefore relied and referred to decision of this Court in case of Commissioner of Income-Tax vs. Advanced Construction Co. (P) Ltd. reported in 275 ITR 30 and reversed order of Assessing Officer. 4. Tribunal on somewhat similar grounds rejected Revenue's appeal. Hence, present appeal. Page 3 of 6 HC-NIC Page 3 of 6 Created On Sat Nov 04 12:28:51 IST 2017 O/TAXAP/623/2017 ORDER 5. Section 44BBB of Act reads as under: 44BBB. Special provision for computing profits and gains of foreign companies engaged in business of civil construction, etc., in certain turnkey power projects.- (1) Notwithstanding anything to contrary contained in sections 28 to 44AA, in case of assessee, being foreign company, engaged in business of civil construction or business of erection of plant or machinery or testing or commissioning thereof, in connection with turnkey power project approved by Central Government in this behalf , sum equal to ten per cent of amount paid or payable (whether in or out of India) to said assessee or to any person on his behalf on account of such civil construction, erection, testing or commissioning shall be deemed to be profits and gains of such business chargeable to tax under head Profits and gains of business or profession . (2) Notwithstanding anything contained in sub- section (1), assessee may claim lower profits and gains than profits and gains specified in that sub-section, if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes report of such audit as required under section 44AB, and thereupon Assessing Officer shall proceed to make assessment of total income or loss of assessee under sub-section (3) of section 143 and determine sum payable by, or refundable to, assessee. 6. Under sub-section (1) of section 44BBB of Act therefore in case of assessee being foreign company engaged in business of civil construction or business of erection of plant or machinery or testing or commissioning thereof in connection with turnkey power project approved by Central Government would be taxed at rate of 10% of amount paid or payable to assessee or to any person Page 4 of 6 HC-NIC Page 4 of 6 Created On Sat Nov 04 12:28:51 IST 2017 O/TAXAP/623/2017 ORDER on behalf of assessee on account of such civil construction, erection etc work. Sub-section (2) of section 44BBB of Act would however give option to assesee to claim lower profit if assessee keeps and maintains books of accounts and other documents as provided in sub- section (2) of section 44AA of Act and gets accounts audited and furnishes audit report as required under section 44AB. AO thereupon would frame assessment of total income of assessee under sub section (3) of section 143 of Act. In present case, CIT (Appeals) as well as Tribunal both held that assessee had fulfilled all requirements of sub-section (2) of section 44BBB of Act. It is not case of revenue that assessee had not maintained books of accounts and documents as required under sub-section (2) of section 44AA or that assessee's accounts were not audited or audit report not furnished before Assessing Officer. Commissioner and Tribunal also held that Assessing Officer was wrong in holding that accounting standard AS- 7 did not apply to assessee. 7. Such being facts, we see no reason to interfere since no question of law arises. Learned counsel for Revenue, however, strenuously urged that Assessing Officer was authorised to examine books of accounts and other documents and if found that assessee had not recorded details correctly he could have rejected such accounts. We may not dispute this proposition. However, Assessing Officer, as recorded by Tribunal has not found any major defects in such accounts. Commissioner (Appeals) in fact elaborated that assessee had past experience from Page 5 of 6 HC-NIC Page 5 of 6 Created On Sat Nov 04 12:28:51 IST 2017 O/TAXAP/623/2017 ORDER which it could estimate total cost and had presented figures to show percentage completion of project. These figures match with actual income and expenditure statements of subsequent financial years. In fact entire project was completed by time Commissioner (Appeals) decided appeal. 8. In result, tax appeal is dismissed. (AKIL KURESHI, J.) (BIREN VAISHNAV, J.) divya Page 6 of 6 HC-NIC Page 6 of 6 Created On Sat Nov 04 12:28:51 IST 2017 Commissioner of Income-tax (International Taxation and Transfer Pricing) v. Shandong Tiejun Electric Power Engineering Co. Ltd