Relief to Hitachi: ITAT Deletes Addition as Activity related to Offshore Portion of Contract not Attributable to PE's in India [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has granted relief to Hitachi by deleting the addition holding that the activity related to the offshore portion of the contract was not attributable to Permanent Establishment in India.

The assessee, Hitachi Ltd a was japanese multinational engineering and electronics conglomerate company, headquartered in Chiyoda, Tokyo, Japan. It was one of the largest electronic companies in the world. Hitachi, Ltd. was the parent company of Hitachi Group which operates through several business segments including Social Infrastructure & Industrial Systems having Rail Systems Business Unit as part of the segment.

The assessee filed its return of income and it was selected for complete scrutiny. In response to the statutory notices issued by the Assessing Officer (AO), the assessee filed the reply regarding details of off-shore supply made by the assessee during the year under consideration. After considering the submissions of the assessee the AO passed a draft assessment order, whereby he proposed addition of Rs. 50,42,987/- to the returned income.

Ajay Vohra,on behalf of the assessee submitted that the Offshore portion of the contract related to supply of equipment manufactured by Hitachi, Ltd., at their manufacturing facility in Japan. As per the contract terms, Hitachi Ltd. delivered the equipment outside India to Mitsui & Co. Ltd., up to storage at seaport or Airport in Japan, who took delivery ex-works Japan. Mitsui & Co. Ltd. was the transporter and shipper of the goods and was directly paid by the customer DFCCIL for its shipping and transportation activities. After collection of equipment from Hitachi Ltd., Japan, Mitsui & Co. Ltd. shipped the equipment to India and delivered the goods at site in India.

He further placed strong reliance on the decision of Delhi High Court rendered in CIT Vs. Nokia Solutions and NetWorks which held that no addition could have been made as no profit on offshore supplies could, in any case, be attributed to the PE as the offshore portion of the contract was already a loss at operational level.

Vijay Vasanta, on behalf of the revenue supported the orders of the lower authorities and submitted that there was no dispute with regard to the fact that the assessee had PE in the form of multiple Project Offices for which these offshore supplies of equipment were made, hence there was nothing wrong to attribute revenue from offshore supply as directly attributable to the PE.

The two-member Bench of Shamim Yahya, (Accountant Member) and Kul Bharat, (Judicial Member) allowed the appeal filed by the assessee referring to the decision submitted by assessee.

The Bench also observed that the moot question that arises was the role of the Project Office. Lower authorities had not specified the role of the Project Office. What was the role of the Project Office for the transaction in question and what was the basis for attributing the profit at 35% to the PE. Moreover, before AO it was stated by the assessee company that the goods were passed through the Project Offices purely for the purpose of customs duty compliances.

To Read the full text of the Order CLICK HERE

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