DCIT (INTERNATIONAL TAXATION), NEW DELHI vs. M/S. ANDRITZ AG, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘D’ NEW DELHI

BEFORE SHRI SAKTIJIT DEY, VICE-PRESIDENT AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER

ITA No.5991/Del/2015 Assessment Year: 2011-12 With ITA No.288/Del/2017 Assessment Year: 2012-13 With ITA No.7850/Del/2017 Assessment Year: 2014-15

Andritz AG, Vs. DDIT (International Taxation), C/o- Mohinder Puri & Co., Circle-1(1), CAs, 1A-D Vandhna New Delhi Building, 11 Tolstoy Marg, New Delhi PAN :AAFCA6700M (Appellant) (Respondent)

With ITA No.2622/Del/2017 Assessment Years: 2012-13 DCIT (International Vs. Andritz AG, Taxation), C/o- Mohinder Puri & Co., Circle-1(1)(1), CAs, 1A-D Vandhna Building, New Delhi 11 Tolstoy Marg, New Delhi PAN :AAFCA6700M (Appellant) (Respondent)

Assessee by Shri Percy Pardiwalla, Sr. Advocate Ms. Ritu Theraja, CA Department by Sh. Ved Prasash, Sr. DR Date of hearing 11.06.2024 Date of pronouncement 27.06.2024

ITA No.5991/Del/2015; 288/Del/2017; 7850/Del/2017 & 2622/Del/2017

ORDER PER SAKTIJIT DEY, VICE-PRESIDENT

Captioned appeals, three by the assessee and one by

Revenue, arise out of three separate orders of learned

Commissioner of Income Tax (Appeals), New Delhi, pertaining to

assessment years 2011-12, 2012-13 and 2014-15. Since, the

appeals involve common issues, they have been clubbed together

and disposed of in a consolidated order, for the sake of

convenience.

ITA No.5991/Del/2015 (Assessee’s Appeal) Assessment Year: 2011-12

require specific adjudication

amount received towards offshore supply of design and

engineering as Fees for Technical Services (FTS), both under

section 9(1)(vii) of the Income-tax Act, 1961 (in short ‘the Act’) as

well as Article 12 of India – Austria Double Taxation Avoidance

Agreement (DTAA).

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entity and a tax resident of Austria on the strength of Tax

Residency Certification (TRC) issued in its favour. As stated by the

Assessing Officer, the assessee is engaged in the business of

supplying plants and services for hydropower, pulp and paper,

metals and other specialized industries. The assessee had entered

into contracts with Steel Authority of India Limited (SAIL) for its

plants located at Salem and Bokaro. Further, the assessee had

also entered into a contract with Jindal Stainless Limited. The

contracts entered into with SAIL have the following three

components:

(i) Offshore supply of design and engineering.

(ii) Offshore supply of plants and equipments.

(iii) Onshore supply of supervisory services.

three sources. In the return of income filed for the impugned

assessment year on 26.03.2013, the assessee declared nil income

and claimed refund of Rs.17,71,634/- In course of assessment

proceedings, the Assessing Officer, while examining the details

available on record, noticed the aforesaid sources of revenue

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earned from India. As far as receipts from offshore supply of

plants and equipments, the Assessing Officer accepted assessee’s

claim of non-taxability of such receipts. Insofar as offshore supply

of drawings and designs, the Assessing Officer, after negating

assessee’s claim of non-taxability, observed that the contracts

under which the assessee had received the amount, are composite

contracts involving supply and services. He observed that the

nature of services provided by the assessee to the Indian client

are technical, hence, have to be treated as FTS under section

9(1)(vii) of the Act read with Article 12 of India – Austria DTAA. He

observed that provision of design and engineering services is an

intrinsic part of the contract and cannot be seen in isolation.

the initial works that would kick-start the implementation of the

contract. Referring to the decision of Hon’ble Delhi High Court in

case of CIT Vs. Mitsui Engineering and Ship Building, 174 CTR

66 (Del.), he observed that the design and engineering part cannot

be seen in isolation to the entire contract and the payments

received for rendering the same shall be taxable in India, as, the

source of such income is in India. He further observed that the

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provision of such services require some sort of technical skill,

knowledge and expertise. Therefore, the payments received

towards rendition of services would fall within the purview of FTS.

Accordingly, he held that the amount of Rs.3,18,12,309/-

received by the assessee towards design and engineering services,

being in the nature of FTS, is taxable on gross basis at the rate of

10% in terms with Article 12 of India – Austria DTAA.

Accordingly, he brought the receipts to tax.

first appellate authority. However, the submission of the assessee

regarding non-taxability of the receipts, did not find favour with

the first appellate authority. Though, he held that the decision

rendered by the Hon’ble Delhi High Court in case of CIT Vs.

Mitsui Engineering and Ship Building is not applicable to the

assessee’s case, however, he held that, the very fact that the

assessee separately paid fees towards design and engineering

indicates that the supplier otherwise was not obliged to furnish

the drawings and designs and the customers are required to pay

for them independent of supply of equipment. Thus, holding that

design and engineering is independent of offshore supply of

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equipment, learned first appellate authority upheld the decision of

the Assessing Officer. While doing so, he relied upon a decision of

the Karnataka High Court in case of AEG

AKTIENGESELLSCHAFT Vs. CIT [2004-TII-05-HC-KAR-INTL].

assessee drew our attention to a copy of the contract agreement

placed in the paper-book and submitted that design and

engineering services are inextricably linked to supply of plant and

equipment. He submitted, the Assessing Officer has accepted the

fact that the contract with the assessee is a composite contract.

In that scenario, the Assessing Officer cannot disassociate

offshore supply of design and engineering from onshore supply of

plants and equipments. He submitted, when the receipt from

offshore supply of plant and equipment is held as non-taxable,

the receipts from offshore supply of design and engineering

cannot be taxed. He submitted, not only in the year under dispute

but in all subsequent years, the Assessing Officer has accepted

assessee’s claim that receipts from offshore supply of plant and

equipment are not taxable. He submitted, receipts from offshore

supply of design and engineering, being identical to offshore

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supply of plant and equipment, cannot be made taxable. He

submitted, the issue is otherwise squarely covered by the decision

of the Coordinate Bench in the following cases:

(i) SMS Concast AG Vs. DDIT, [2023] 153 taxmann.com 718 (Delhi – Trib.) (ii) DSD Noell GMBH Vs. DCIT, [2023] 157 taxmann.com 64 (Delhi – Trib.)

upon the observations of the Assessing Officer and learned first

appellate authority, submitted that the very fact that the payers

have withheld tax on the payments towards design and

engineering in terms with the contract, establish that both parties

have accepted that the receipts are taxable in India. In reply,

learned counsel for the assessee submitted that merely because

payer has deducted tax at source to safeguard its own interest,

does not make the receipts taxable in India.

materials on record. We have also applied our mind to the

decisions relied upon. It is an agreed and proven fact on record

that the contracts under which the assessee has received the

amounts towards design and engineering services, are composite

contracts. The contracts require the assessee to not only supply 7 | P a g e

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design and engineering, but also supply plants and equipments

manufactured based on such design and engineering. Further,

the assessee is required to provide supervisory services, which is

on site. So far as provision of design and engineering services and

supply of plants and equipments, both were made on offshore

basis. It is a fact on record that the Assessing Officer has

accepted assessee’s claim of non-taxability of receipts from supply

of plant and equipment, since, it was on offshore basis and the

transaction was completed outside territory of India. Only

because the contracts provided for payment of separate amounts

towards design and engineering services, the departmental

authorities have held that such services are independent to the

supply of plant and equipment. This, in our view, is untenable as

on a reading of the contract as a whole it does not appear that the

offshore supply is a completely separate transaction having no

relation to the supply of plant and equipments.

that the design and engineering services inextricably linked with

the manufacturing and supply of equipments. It is not the case of

the department that the offshore supply of design and engineering

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would have enabled the contractee to manufacture the plant and

equipment through any other party independent of the assessee.

Thus, it has to be held that offshore supply of design and

engineering, being closely linked to the offshore supply of plant

and equipment, it cannot be segregated from the offshore supply

of plant and machinery, as the basic nature and character of both

the transactions are identical. Therefore, when offshore supply of

plant and equipment is not taxable, offshore supply of design and

engineering cannot be made taxable.

Concast AG Vs. DDIT (supra), wherein, the non-resident entity

had entered into a separate contract with JSW Steel Ltd. and an

Indian entity for offshore supply of plant and equipment, offshore

supply of drawings and design and supervision of erection and

commissioning of equipment and its supply. While deciding the

issue, whether the receipt towards design and engineering is

taxable as FTS, the Coordinate Bench has held as under:

ITA No.5991/Del/2015; 288/Del/2017; 7850/Del/2017 & 2622/Del/2017

no dispute that the designs and drawings were made outside India in Switzerland and were supplied to the contractee from Switzerland. It is a fact that the sale transaction qua the drawings and designs was completed in Switzerland and amounts were received in Switzerland. It is also a fact on record that both the supply of equipments and supply of designs and drawings are in relation to a single project of the contractee, viz., 1 X 8 Strand Billet Caster for Long Product Plants required for contractee’s project located in the state of Karnataka.

ITA No.5991/Del/2015; 288/Del/2017; 7850/Del/2017 & 2622/Del/2017

plant and equipment within the stipulated time period can also determine the contract for supply of drawing and design and the purchaser can terminate the contract for supply of design and drawing in that eventuality. Thus, the aforesaid fact makes it clear that the contract for supply of drawings and designs is inextricably linked to the contract for supply of plant and equipment.

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High Court in case of CIT Vs. Mitsui Engineering and Ship Building (supra).

the fact involved in case of SMS Concast AG (supra), it would be

clear that assessee’s case stands on a better footing as the

contracts under which the assessee has received the payment are

composite contracts. Therefore, the ratio laid down in case of SMS

Concast AG (supra) squarely applies to assessee’s case. Identical

view has been expressed by the Coordinate Bench in case of DSD

Noell GMBH (supra). Therefore, respectfully following the

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decisions of the Coordinate Bench, as noted above, we hold that

the amount in dispute is not taxable in India.

taxability of amount received towards onshore supervisory

services as FTS by applying the rate of 10% on gross basis.

with SAIL, the assessee, in addition to providing offshore design

and engineering services and offshore supply of plants and

equipments was also required to provide onshore supervisory

services. For provision of onshore supervisory services, the

assessee received Revenue from SAIL in India. In course of

assessment proceedings, the Assessing Officer observed that

though, the assessee admitted that it had a supervisory

Permanent Establishment (PE) in India for providing onshore

supervisory services, however, it has not offered the revenue

received from such services in the return of income. Therefore, he

concluded that the amount received towards onshore supervisory

services, being attributable to the supervisory PE, has to be

treated as FTS and taxed on gross basis by applying the rate of

10%. Though, the assessee contested the aforesaid decision of the

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Assessing Officer before learned first appellate authority, however,

it was unsuccessful.

assessee did not dispute the fact that the assessee had

supervisory PE in India in respect of onshore supervisory services

provided to SAIL. However, he submitted, the assessee, being a

tax resident of Austria, is entitled to the benefits provided under

India – Austria DTAA. Drawing our attention to India – Austria

Tax Treaty, he submitted that as per Article 7(5) & (6) read with

Article 12(5) of the treaty, even assuming that onshore

supervisory charges received by the assessee are in the nature of

FTS, since they are effectively connected with the supervisory PE,

they have to be taxed as business profits under Article 7 of the

DTAA. He submitted, in that event, it has to be taxed on net basis

after deduction of all expenses. Proceeding further, he submitted,

the assessee followed accountancy policy of recognizing revenue

from onshore supervisory services through project completion

method. He submitted, since all the projects with SAIL were

ongoing during the year under consideration, the assessee offered

the income to tax on completion of projects in assessment year

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2014-15 and the Assessing Officer, while completing the

assessment, has also accepted such income. Therefore, he

submitted, there is no reason to tax such income again in the

impugned assessment year, as; it would amount to double

addition of the same income.

observations of the Assessing Officer and learned first appellate

authority.

materials on record. Before we proceed to decide the issue, we

must observe that the assessee has admitted that onshore

supervisory services were provided to SAIL through supervisory

PE in India. Thus, it is established on record that the assessee

had a supervisory PE. There is also no dispute to the fact that,

being a tax resident of Austria, the assessee is entitled to avail

benefit under India - Austria DTAA. The Assessing Officer,

undoubtedly, has treated the receipts as FTS and taxed it at the

rate of 10% on gross basis. Learned first appellate authority

endorsed the view of the Assessing Officer on the reasoning that

in terms of Article 12(4) of the treaty, the amount received

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towards onshore supervisory services has to be taxed as FTS at

the rate of 10%.

clear that business profits of an Austrian entity, having PE in

India, is taxable under Article 7 of the treaty in the source

country, after allowing expenses relating to the PE. Paragraph 5 of

Article 7 of the treaty provides that the profit attributable to the

PE shall be determined by same method followed year by year,

unless there is good and sufficient reason to depart from such

method. Whereas, paragraph 6 of Article 7 of the treaty provides

that where the profits include items of income, which are also

dealt with separately in other Articles of the treaty, then the

provisions of those Articles shall not be affected by the provisions

of this Article. It is a fact that the departmental authorities have

treated the amount received from onshore services as FTS. Article

12(4) of the treaty deals with FTS and paragraph 2 of Article 12

provides that both royalty and FTS shall be taxed on gross basis

by applying the rate of 10%. However, paragraph 5 of Article 12

carves out an exception by providing that in a case where royalty

and FTS are connected with PE in the source country, then the

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provisions of Article 7 or Article 14 would apply. In other words,

even though, the receipts are in the nature of FTS, however, if it is

connected to the PE, it has to be treated as business profit under

Article 7. Therefore, in our view, the departmental authorities fell

into error in taxing the receipts from onshore supervisory services

as FTS under Article 12(4) of the treaty on gross basis. We hold

that the receipts from onshore services, being attached to the

supervisory PE in India, have to be taxed on net basis under

Article 7 of the treaty.

issue. It is the case of the assessee that the revenue from onshore

supervisory services, is recognized based on project completion

method followed year by year. It is the specific case of the

assessee that since the project in respect of which it has received

the supervisory charges were completed in financial year 2013-

14, relevant to assessment year 2014-15, the assessee has offered

the entire receipts in assessment year 2014-15 on net basis in

terms of Article 7 of the treaty. In this context, learned counsel

appearing for the assessee had drawn our attention to the return

of income filed for assessment year 2014-15, the details of

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amount received towards supervisory services, copies of invoices

etc. We have already discussed earlier that as per Article 7(5) of

the treaty, the business profits of the PE has to be determined by

the same method year by year, unless there is good and sufficient

reasons to depart from the said method.

submitted that the assessee has followed project completion

method year by year and the department has also accepted it in

all other assessment years. In fact, it is his submission that in

assessment year 2014-15, the entire receipts from onshore

supervisory services has been offered by the assessee and the

Assessing Officer has assessed it.

direct the Assessing Officer to factually verify, whether the

receipts in dispute were offered to tax by the assessee in

assessment year 2014-15 and, in case, it is found to be so, no

further addition can be made in the impugned assessment year.

Ground is allowed for statistical purposes.

of certain other supervisory fee in India. Briefly the facts are,

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during the year under consideration, the assessee has provided

supervisory services to two other Indian entities, which are

Pragati Papers Industries Ltd. and Andritz Hydro Pvt. Ltd.

fee received towards provision of supervisory services to these two

entities are not taxable in India, as, they are business profits and

in absence of any PE qua the services provided to the aforesaid

two entities, receipts cannot be taxed in India. The Assessing

Officer, however, rejected assessee’s contention and taxed the

receipts as FTS on gross basis by applying the rate of 10%.

Though, the assessee raised the issue before learned first

appellate authority, however, learned first appellate authority

failed to adjudicate the ground.

record. Before us, learned counsel appearing for the assessee

reiterated that since the supervisory activities did not continue for

a period of more than six months, there was no PE in terms of

Article 5(2)(i) of the tax treaty. Thus, he submitted that the

receipts, being in the nature of business profit, are not taxable in

India in absence of PE. However, he fairly submitted that identical

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issue has been decided against the assessee in the case of SMS

Concast AG (supra).

observations of the Assessing Officer and learned first appellate

authority.

materials on record, we find that the contracts, under which the

assessee carried out onshore supervisory activities, are composite

contracts involving both supply of plant and equipment, drawings

and design, provision of supervisory services, erection,

commissioning etc. Therefore, the services provided by the

assessee, being technical in nature, receipts have to be treated as

FTS under Article 12(4) of India – Austria DTAA. That being the

fact on record, the supervisory fee received by the assessee is

taxable in India in terms of Article 12(4) of tax treaty, irrespective

of the fact whether the assessee had a PE in India or not. While

deciding identical issue in case of SMS Concast AG (supra), the

Coordinate Bench has held as under:

“21. We have considered rival submissions and perused the materials on record. From the facts on record, it is observed, the assessee had entered into a contract for supply of electromagnetic stirrer. As per the scope of the contract, the assessee shall engineer, manufacture and deliver the plant and equipment. The scope of 20 | P a g e

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contract also included supervision, erection and commissioning of plant and equipment. As per assessee’s own admission, technical personnel were deputed to supervise the erection and commissioning of the plant and equipment. Thus, it is quite clear, in course of such supervisory activity, the qualified technical personnel deputed by the assessee must have imparted technical services for erection and commissioning of the plant and equipment. Therefore, in our considered opinion, the amount received clearly falls within the definition of FTS, both under the domestic law as well as under the treaty provision. Once the receipts fall within the definition of FTS under Article 12(4) of the DTAA as well as the domestic law, it becomes immaterial whether the assessee has a PE in India or not. Therefore, in our view, the amount in dispute having qualified as FTS, has rightly been brought to tax at the hands of the assessee. This ground is dismissed.”

would squarely apply to the present case. Therefore, we decide the

issue against the assessee. Accordingly, ground is dismissed.

of reimbursement of expenses from Indian group companies as

FTS.

materials on record. The assessee had entered into a cost

contribution contract with other group entities for group

information and business services. The agreement was entered

into with a view to cost efficient organization with the group in

terms of which group information and business services shall be

provided by the assessee to other group companies for its own as

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well as benefits of the group companies. The scope of group information and business services include activities related to: • Development of the strategic orientation of the group information and business services within the whole group and the overall responsibility that the strategic targets are achieved. • Support in compiling the yearly GIS budgets in line with the strategic targets. • Involvement in all relevant decisions processes withing the GIS to ensure the achievement of the strategic/budgeted targets, with respect to o The organizational structure o Personnel o Investments o Projects • Consulting an monitoring the process of projects through project reviews • Consulting with regard to new IS activities. • Provision of all services listed in appendix 2 • All additional services ordered from the assessee.

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allocated by way of specific allocation key to all the group

companies, including the Indian entities. The cost incurred for

providing such services was invoiced to all the entities including

Indian entities and the assessee received the reimbursement of

cost without any market up. The issue arising before us is,

whether such cost reimbursement would be taxable as FTS. In

our view, what the assessee has done is, shared the expenditure

incurred for running the business with all its group entities. The

cost has been recovered without any markup. Therefore, there is

no profit element embedded in the payments received. That being

the case, the receipts cannot be treated as FTS and brought to tax

in India. For coming to such conclusion, we rely upon the

following decisions:

i. DIT Vs. A.P. Moller Maersk AS, [2017] 78 taxmann.com 287 (SC) ii. CIT Vs. Expeditors International (India) Pvt. Ltd. [2012] 24 taxmann.com 76 (Delhi)

of interest under section 234D of the Act and withdrawal of

interest under section 244A of the Act. 23 | P a g e

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was computed, however, it was never granted to the assessee.

Therefore, there is no question of levy of interest under section

234D and withdrawal of interest under section 244A of the Act.

Keeping in view the nature of dispute, we direct the Assessing

Officer to factually verify assessee’s claim and decide it in

accordance with law. The grounds are allowed for statistical

purposes.

ITA No.288/Del/2017 (Assessee’s Appeal) Assessment Year: 2012-13

adjudication.

taxability of amount received towards offshore supply of design

and engineering. The issue raised in this ground is identical to

the issue raised in ground no. 3 of ITA No.5991/Del/2015

decided by us in earlier part of the order.

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mutatis mutandis. Ground is allowed.

of amount received from onshore supervisory services as FTS on

gross basis at the rate of 10%. The issue raised is identical to the

issue raised in ground no. 4 of ITA No. 5991/Del/2015 decided by

us in earlier part of the order. Following our decision therein, we

direct the Assessing Officer to factually verify assessee’s claim

that the income has already offered in assessment year 2014-15

and decide in accordance with law. Ground is allowed for

statistical purposes.

of fees received from onshore commissioning services as FTS. The

issue raised in this ground is identical to the issue raised in

ground no. 5 of ITA No. 5991/Del/2015 decided by us in the

earlier part of the order. Following our decision therein, we

dismiss the ground.

the amount received towards reimbursement of cost as FTS. This

ground is identical to the ground no. 6 of ITA No.5991/Del/2015

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decided by us in the earlier part of the order. Hence, following our

decision therein, we allow the ground.

ITA No. 2622/Del/2017 (Revenue’s Appeal) Assessment Year: 2012-13

under section 234B of the Act.

assessment year 2011-12, the Tribunal, in ITA No.

6394/Del/2015, order dated 23.08.2018, has decided the issue in

favour of the assessee. Considering the above, we uphold the

decision of learned first appellate authority by dismissing the

ground.

ITA No. 7850/Del/2017 (Assessee’s Appeal) Assessment Year: 2014-15

adjudication.

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amount received towards offshore supply of design and

engineering. This issue is identical to the issue raised in ground

no. 3 of ITA No. 5991/Del/2015 decided by us in the earlier part

of the order. Following our decision therein, we allow the ground.

taxability of receipts from onshore support services on gross basis

as FTS by contending that in absence of PE, it cannot be taxed in

India. This ground is identical to the ground no. 5 of ITA

No.5991/Del/2015 decided by us in the earlier part of the order.

Following our decision therein, we dismiss the ground.

taxability of reimbursement of expenses from Indian group

companies. This issue is identical to the issue raised in ground

no. 6 of ITA No.5991/Del/2015 decided by us in the earlier part

of the order. Thus, following our decision therein, we delete the

addition. Ground is allowed.

5991/Del/2015; 288/Del/2017 & 7850/Del/2017 are partly

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allowed, whereas, Revenue’s appeal, i.e., ITA No. 2622/Del/2017

is dismissed.

Order pronounced in the open court on 27th June, 2024

Sd/- Sd/- (M. BALAGANESH) (SAKTIJIT DEY) ACCOUNTANT MEMBER VICE-PRESIDENT Dated: 27th June, 2024. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi

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