DONGFANG ELECTRIC CORPORATION,KOLKATA vs. DCIT, INTERNATIONAL TAXATION 1(1), KOLKATA, KOLKATA

Per J. Sudhakar Reddy :- Both these appeals are filed by the assessee, directed against the order

of the Assessing Officer, passed u/S 143(3) r.w.s. 144C(13) of the Income Tax

Act, 1961 (the ‘Act’), for the Assessment Years 2009-10 & 2010-11.

Assessment order, which is extracted for ready reference:-

“1. The assessee M/s Dongfang Electric Corporation (DEC), China is a foreign company incorporated under the laws of the People’s

2 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation Republic of China, having its registered office at 71-73 First Section, West Yihyuan Avenue, Chengdu 610041, Sichuan Province, P.R. China. The assessee has its sufficient presence in India in order to carry on its business in India through the project office referred to as “Dongfang Electric Corporation Kolkata Project Office”. Admittedly, since the year 2004 the said Kolkata Project Office has served as the Permanent Establishment (PE) in India in the context of taxation under the Indian Income-tax Act, 1961 and the India-China Double Taxation Avoidance Agreement [hereafter referred to as ‘DTAA’] 2. In the year 2004, the assessee entered into two separate contracts; one with the 'The West Bengal Power Development Corporation Limited (WBPDCL), for setting up Units 1 & 2 (2 X 300 MW) for the Sagardighi Thermal Power Projects at Murshidabad, West Bengal and the other with 'The Durgapur Projects Limited(DPL)' for setting up units 7(1 x 300 MW) for the Durgapur Project Power Station at Durgapur, West Bengal. Each contract was divided into two distinctly separate parts, the details of which are as under: WBPDCL (a) Contract No. SgTPP/1/(SgMP-1 Supply)/03/2004 dated August 26, 2004 for supply of equipment and materials of Main Plant Turnkey Package (SgMP-1) Units 1 & 2 (2 X 300MW) alongwith some common facilities; and (b) Letter of Award ("LOA") dated July 27,2004 issued by WBPDCL for supply of equipment and materials of Main Plant Turnkey Package(SgMP-1) Units 1 & 2 (2 X 300 MW) alongwith some common facilities; (a) Contract No. SgTPP/1/(SgMP-1: ERECTION)/04/2004 dated August 26, 2004

3 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation for erection and services of Main Plant Turnkey Package (SgMP-1) Units 1 & 2 (2 X 300MW) alongwith some common facilities; and (b) Letter of Award ("LOA") dated July 27, 2004 issued by WBPDCL for Erection and Services of Main Plant Turnkey Package (SgMP-,l) Units 1 & 2 (2 X 300 MW) along with some common facilities;

As per the terms of the said contracts, the consideration to be received by the company from WBPDCL in respect of the aforesaid activities will be as under: USD 22,20,56,503 on account of offshore supply of equipment ( including spare parts, tools and tackles) outside India; and INR 4,59,33,77,323 and 1,62,75,326 for local supplies, design, engineering and construction, fabrication, erection, installation, testing and commissioning of thermal power unit in India.

DPL Contract No. DPL/Unit-7/DMP-1(Supply)/2004-05/001 for supply of plant equipments of thermal power plant alongwith some common facilities; and; Contract No. DPL/Unit-7/DMP-1(SERVICES)/2004- 05/2002 for erection and services of thermal power plant alongwith some common facilities; and LOA dated July 27, 2004 issued by DPL for supply of plant equipments and Erection and services of thermal power plant alongwith some common facilities. As per the terms of the said contracts, the consideration to be received by the company from DPL in respect of the aforesaid activities will be as under: USD 11,40,47,092 on account of offshore supply of equipment(including spare parts, tools and tackles) outside India; and INR 2,40,91,28,459 and USD 1,06,82,305 for local supplies, design

4 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation engineering and construction, fabrication, erection, installation, testing and commissioning of thermal power plant in India. 3. In both the cases, the original tender was for setting up of turn-key thermal power projects. The entire scope of work was split up into two contracts on mutual arrangement. However, a "cross- fall breach clause" features very prominently in both cases, by virtue of which performance of the entire contract was treated as a single point responsibility of DEC, China and non-performance of any part or portion of the contract was to be deemed as a breach of the whole contract.

5 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation Offshore supply: A sum equivalent to 2.5% of gross receipts under this contract(s) was deemed to be income for the purpose of determination of rate at which tax was required to be deducted at source. Accordingly, the rate of TDS was determined at 41.8 % (the rate prescribed in the Finance Act plus surcharge & cess as applicable) of 2.5% or @ 1.045%. Local supply and services: A sum equivalent to 10% of gross receipts under this contract(s) was deemed to be income for the purpose of determination of rate at which tax was required to be deducted at source. Accordingly, the rate of TDS was determined at 41.8 % (the rate prescribed in the Finance Act plus surcharge & cess as applicable) of 10% or @ 4.182%. 6. Having not been satisfied with the above orders u/s 197, the assessee filed revision petition u/s 264 of the Act before the DIT( IntI. Taxn), Kolkata on 25.04.2005. Ld. DIT( IntI. Taxn), Kolkata, after taking into consideration the factual matrix of the case(s) and all applicable legal provisions, passed separate orders u/s 264 for WBPDCL and DPL on 17.6.2005. Paragraph No.8, being the last paragraph of the order u/s 264 contains the summary, which is identical in both the order. The summary is reproduced below: "8. To sum up OffShore supply Profit from offshore supply of equipment/machinery is deemed to accrue or arise to the petitioner under Indian Income tax Act, as it has arisen to the petitioner through or from business connection in India. Only such part of profit as is reasonably attributable to the operation, relating offshore supply is carried out by the PE in India, is taxable in India.

6 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation Its taxability under Treaty Law will be decided by the assessing officer during the course of assessment proceedings. If the petitioner is able to prove that the offshore supply could not have been undertaken by the permanent establishment or have no relation with permanent establishment, then no income from offshore supply contract is taxable in India. Otherwise, only such part of profit as is reasonably attributable to the operation, relating offshore supply is carried out by the PE in India, is taxable in India. There would be no deduction of tax in respect of receipts from offshore supply, but the petitioner shall maintain a separate account of receipt and expenditure in respect of operation relating to offshore supply contract carried out by the PE in India (with proper documentation and supporting evidence), the profit, from which shall be clubbed with the profits from local supply and services portion, and if there is any tax liability, after giving credit for TDS from local supply and services contract, the same shall be paid by the petitioner by way of advance-tax. Local supply, erection and services The order of the assessing officer is confirmed. The tax shall continue to be deducted @ 4.182% of the receipts for local supplies & services till the completion of the contract, even if, there is actual loss/lesser income, after exercising option u/s.44BBB(2) of the I.T .ACT., by the petitioner. It is considered necessary to do so, because, there may be some profit attributable to offshore supply, which can, only be determined after regular assessment. In the result, the revision petition is partly allowed." Effect of such order was duly given on 01.07.2005.”

7 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation 3. The assessee filed the following grounds of appeal, for both the

Assessment Years;-

Assessment Year 2009-10

8 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation (ii) By taking into consideration the comparable which differ in many aspects in context of business activities of the Project Office of the Appellant in India; (iii) Without making adjustments necessary to account for differences in the comparable; (iv) By adopting the cost base without appreciation of the scope of activities undertaken by the Project Office; (v) Without appreciating that the total adjustment made is in excess of the revenue received by the appellant from the third party contractees; 5. On the facts and in the circumstances of the case, the DRP and consequently the impugned order erred in affirming treatment of interest on income tax refund of Rs 15,493,243 as income from other sources instead of business income and taxing the same @10% on the gross basis under India-China Double Taxation Avoidance Agreement.

9 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation

Assessment Year 2010-11

“1. On the facts and in the circumstances of the case, the DRP and consequentially the impugned order erred in rejecting the Appellant's claim that the reference made by the AO to Transfer Pricing-Officer (TPO') is erroneous and bad in law and against the interest if natural justice. 2. On the facts and in the circumstances of the case, the DRP grossly erred in mechanically and routinely following DRP directions in earlier years without any independent application of mind and erred in upholding draft assessment order 'and transfer pricing order for AY 2010- 11 leading to the impugned order, without appreciating that the stand taken by said authorities in earlier years have not been upheld and de novo assessment has been directed in those years. 3. On the facts and in the circumstances of the case, the DRP completely misinterpreted the directions of courts in earlier year and routinely upheld draft assessment order and transfer pricing order passed on identical lines as in earlier years. DRP completely failed to appreciate that the whole purpose of de novo assessment would be lost by merely repeating the earlier orders. 4. On the facts and in the circumstances of the case, the AO/ TPO/ DRP has erred in not following the guidelines laid down by the Courts including Hon'ble Income Tax Appellate Tribunal in similar situations including that of the Appellant in earlier years. 5. On the facts and in the circumstances of the case and in law, the present impugned conclusions of AO/ TPO/ DRP in the impugned order are result of baseless, inconsistent and self-contradictory presumptions on facts and law.

10 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation 6. On the facts and in the circumstances of the case, the DRP failed to consider all relevant aspects and routine proceeded to uphold assessment on the very same basis as in earlier years even while noting that the higher courts have already directed de novo assessment in those earlier years. 7. On the facts and in the circumstances of the case and in law, the Aa has erred in law and on the facts of the case in making reference under section 92CA of the Act to the TPO on erroneous assumption that: (i) the Project office and the Head Office in China are Associated Enterprise; (ii) domestic activities carried out by the Project Office are international transactions within the meaning of section 92B of the Act; and (iii) the project office is a sub-contractor of the Head Office in China and should be remunerated by the Head Office on an arm's length basis. 8. On the facts and in the circumstances of the case, the AO/ TPO/ DRP vide impugned order have erred in law and on the facts and circumstances of the case in making an adjustment of Rs 54,693,572 by applying Transfer Pricing provisions and thereby rejecting the book results of the Project Office which were arrived at in consonance with Article 7(1) of Double Taxation Avoidance Agreement between India and China read with Article 5 thereof. 9. Without prejudice to the above grounds, the adjustment of Rs. 54,693,572 made by the AO/ TPO/ DRP vide impugned order is bad in law and on the facts and circumstances of the case as the same has been made:- (i) By applying Transactional Net Margin Method and rejecting Comparable Uncontrolled Price method or Profit Split Method for determining the amount of profit;

11 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation (ii) By taking into consideration the comparable which differ in many aspects in context of business activities of the Project Office of the Appellant in India; (iii) Without making adjustments necessary to account for differences in the comparable; (iv) By adopting the cost base without appreciation of the scope of activities undertaken by the Project Office; (v) Without appreciating that the appellant is making overall loss on the said project 10. On the facts and in the circumstances of the case, the DRP and consequently the impugned order erred in affirming treatment of interest on income tax refund of Rs 6,589,064 as income from other sources instead of business income and taxing the same @10% on the gross basis under India-China Double Taxation Avoidance Agreement. 11. On the facts and in the circumstances of the case and, the Assessing Officer erred in levying interest under section 234D of the Act. 12. On the facts and in the circumstances of the case and, the Assessing Officer erred in granting short credit of interest under section 244A of the Act. 13. On the facts and circumstances of the case and in law, the Aa has erred in initiating penalty proceedings under sections 271 (1 )(c) of the Act 14. The appellant craves leave to add, amend, withdraw any grounds of appeal in the interest of natural justice either before or during the course of appeal proceedings.”

12 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation 3.1. The assessee filed the following additional grounds of appeal for both the

Assessment Years:-

Assessment Year 2009-10

“2(a) Without prejudice to ground no 1, that on the facts and in the circumstances of the case and in law, there is in fact no valid reference made under section 92CA(1) of the Income Tax Act, 1961 by Assessing Officer (‘Assessing Officer’) to the Transfer Pricing Officer (‘TPO’). 2(b) Without prejudice to ground no 1, determination of existence of specific international transaction being an exercise within exclusive jurisdiction of the Assessing Officer before making any reference to the TPO, determination of existence of international transaction by TPO and subsequent determination of ALP is beyond specific and distinct jurisdictions conferred in law and consequently the resultant demand in invalid and unenforceable in law. 4(i) That on the facts and in the circumstances of the case, Learned Dispute Resolution Panel erred in routinely upholding the FAR analysis and transfer pricing adjustment made by the TPO even while finding the FAR to be grossly different on facts.”

For Assessment Year 2010-11

“1(a) Without prejudice to all other grounds of appeal taken herein, that on the facts and in the circumstances of the case and in law, there is in fact no valid reference made under section 92CA(1) of the

13 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation Income Tax Act, 1961 by Assessing Officer (‘Assessing Officer’) to the Transfer Pricing Officer (‘TPO’). 1(b) Without prejudice to all other grounds of appeal taken herein, that on the facts and in the circumstances of the case and in law, determination of existence of specific international transaction being an exercise within exclusive jurisdiction of the Assessing Officer before making any reference to the TPO, determination of existence of international transaction by TPO and subsequent determination of ALP is beyond specific and distinct jurisdictions conferred in law and consequently the resultant demand in invalid and unenforceable in law. 9(i) That on the facts and in the circumstances of the case, Learned Dispute Resolution Panel erred in routinely upholding the FAR analysis and transfer pricing adjustment made by the TPO even while finding the FAR to be grossly different on facts.”

they raise legal issues and as they do not require investigation into any fresh

facts. All the facts are on record.

there is valid reference made u/s 92CA(1) of the Act, by the Assessing Officer to

the Transfer Pricing Officer (TPO).

5.1. The ld. Counsel for the assessee, Shri Nageswar Rao, argued that, no

reference was made by the ld. Assessing Officer, to the ld. TPO for

14 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation determination of Arms Length Price of any international transaction and hence

the assessment gets barred by limitation on 31/12/2012, for the Assessment

Year 2009-10 and, 31/12/2013 for the Assessment Year 2010-11. He referred

to Section 92CA(1) and emphasized that the Assessing Officer has to refer

transactions or a group of transactions to the TPO and one such reference is

made by the Assessing Officer, the time to complete the assessment is extended

by one more year. You are u/s 120, the CBDT had conferred jurisdiction on

certain designated officers to act as TPOs.

5.2.1. The ld. Counsel for the assessee, submitted that the assessee has

repeatedly requested the assessing officer to provide copies of references made

by the TPO in terms of provisions of the Act, on 11th March 2013, 23rd June

2015 and on other occasions, but submitted that it was not furnished with the

same. He pointed out that it is the statutory right of the assessee to know as to

what are the contents of the reference. He further submitted that the assessee

had conducted inspection of the records for both the assessment years and

found that no reference was made by the ld. Assessing Officer, to the ld. TPO, as

required under the provisions of the act.

5.2.2. The Assessing Officer’s act of seeking approval from DIT(IT) or the AO

communication to the ld. DIT(IT), that he obtained the approval for referring

15 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation the transactions to the TPO under the Act, is not a statutory reference made by

the Assessing Officer to the TPO as prescribed u/s. 92CA of the Act.

5.2.3. He argued that the letter dated 26/12/2011, from the AO to the DIT(IT),

seeking approval of reference to TPO under section 92 CA (1) for

determination of a ALP and the approval granted by the DIT (IT) vide letter

dated 27/12/2011, cannot lead to an inference that there was a reference

made by the Assessing Officer to the TPO and that such reference was in time

and in accordance with the provisions of the law.

5.2.4. He submitted that the ld. DR, is wrong in his contention, that this issue of

lack of reference was not disputed by the assessee for the Assessment Year

2010-11.

Reliance was placed on the following case laws:- • Strategic Credit Capital Pvt. Ltd. & Ors., Versus Ratnakar Bank Ltd. [395 ITR 391] • Amiya Bala Paul vs. CIT (2003) 6 SCC 342 • SPL’s Siddhartha Ltd [2012] 345 ITR 223

5.3. He submitted that there is no reference made by the AO to the TPO, in

terms of section 92 CA of the Act, the assessment order for the Assessment Year

2009-10, was required to be passed by 31/12/ 2012, and as the assessment

order was passed on 31/01/2014, the assessment is barred by limitation and

that similar is the position for assessment year 2010-11. As it is the duty of the

16 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation AO under the law, to decide the existence of an international transaction, and

thereafter take approval from the competent authority and refer the particular

international transaction/s to the TPO for the determination of ALP, whereas in

the case on hand, the TPO was trying to discover the existence of an

international transaction, without a reference from the Assessing Officer.

5.4. He further submitted that DEC, China and the DEC-PO are not AEs, and

that there is no international transaction. He further submits that DEC China is

carrying out its own business activity from its own project office and the

income of the Project Office TPO is being offered to tax in India in accordance

with Article 7 (2) of the Indo-China DTAA. It was submitted that the project

office had earned income from two unrelated Indian entities i.e., WBPDCL &

DPL and tax accounts were drawn to reflect the attribution of profits. As there

is no transaction between the assessee and the project office, there is no

international transaction requiring a reference to the TPO. Article 7 (2) of the

Indo-China DTAA, does not justify taxation of notional income and it is outside

chapter 10, and that the transfer pricing provisions are not for taxing notional

income but for bringing real income to tax. Reliance is placed on the judgement

of the Hon’ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. vs.

CIT. The revenue has accepted and not disputed that the project office activities

are within the scope of agreed onshore scope of work with the third-party

17 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation contractees and is not justified in making adjustment to the price with respect

to the onshore part of the contract as negotiated and agreed bilaterally

between the assessee and the independent third parties.

5.5. Without prejudice, it was submitted that DEC- China has suffered a loss

on the overall project, both onshore as well as offshore supply of services and

hence for the attribution of profits, the whole contract has to be looked into and

under the circumstances, there would be attribution of loss to DEC-PO.

(MAP), selected by the TPO i.e., TNMM and submitted that comparable

uncontrolled price(CUP) method is the best method. He also disputed the

selection of comparables, on the ground that full facts of the comparables were

not available on record.

6.1 The ld. DR, Shri G. Mallikarjuna, on the other hand, strongly disputed the

contentions of the assessee and submitted that the reference was made by the

assessing officer to the TPO on 27/12/2011 and this fact is clear from the copy

of the dispatch register, wherein it is clearly stated that on 27/12/2011,

reference to TPO was made for determination of ALP for the Assessment Year

2009-10. He filed a copy of the Dispatch Register.

6.2. He pointed out that the assessing officer has sought approval of the

DIT(IT), for his proposal for making a reference to the TPO of certain

18 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation transactions of the assessee company for determination of the ALP u/S 92CA of

the Act and the DIT(IT) vide his letter dt. 27/12/2011, granted approval to the

proposal and this letter for duly forwarded to the ADIT(IT), Range-1, Kolkata &

to the DIT(TP), Kolkata for necessary action. He vehemently contended that

there is no dispute that the order was passed by the TPO on a reference by the

assessing officer on 27/12/2011 and that no authority has interfered with the

jurisdiction of either the AO or the TPO. He submitted that the assessee is

trying to import the restrictions under section 148 to a reference by the TPO

under section 92CA(3) of the Act. On the letter dt. 03/01/2012, he submitted

that it was a mere reminder. On the mentioning by the TPO in his order under

section 92 CA (3) of the Act on 30/01/2013 for the Assessment Year 2009-10,

that the reference was received on 03/01/2011, he submitted that it was the

date on which the TPO received the reminder and argued that but the

Assessing Officer’s letter was dt.27/12/2011, and it was received on the same

day by the TPO. On a query from the Bench, no letter written by the Assessing

officer to the TPO referring certain international transactions for

determination of ALP u/s 92CA(1) of the Act, was produced for both the

Assessment Years.

submitted that the permanent establishment of a foreign company has to be

19 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation treated as separate entity for the purpose of transfer pricing and hence it

becomes an Associate Enterprise of the assessee. He relied on the following

decision:- • DCIT, Hyderabad vs. M/s IJM (India) Infrastructure Ltd. Hyderabad (2014- TII-114-ITAT-HYD-TP) He made detailed submissions that there was an international transaction

and for the purpose of attribution of profits to PE, the principle of ALP has to be

applied. for this proposition, he relied on the following case law:- • DIT vs. Morgan Stanley (2007) 162 Taxman 165 • Credit Lyonnais v. ITO [2014] 51 taxmann.com 354 (Mumbai-Trib.)

He relied on the decision of the Hon’ble Delhi High Court in the case Rolls 7.1.

Royce Singapore (P) Ltd. v. ADIT [2011] 13 taxmann.com 81 (Delhi), for the

proposition that, for attribution of profits to a PE, a robust TP analysis is

required and the activities of the PE are remunerated at a fair value, the

question of double taxation or deeming notional income does not arise. For the

arguments on comparables and MAP, he relied on the order of the DRP.

case, perusing the papers on record, orders of the Authorities below and the

case laws cited, we hold as follows:-

8.1. The first issue that arises for consideration is whether a reference was

made by the Assessing Officer to the transfer pricing officer under section 92

20 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation CA(1) of the Act. For convenience, we extract paragraph 24 to 27 of the final

Assessment Order for Assessment Year 2009-10, for ready reference:-

“24. The assessee vide letter dt.13.03.2013 filed an objection alleging that the reference under section 92CA(1) of the Act was made on 03 January 2012 after the expiry of time limit for passing the assessment order for AY 2009-10. The contention of the assessee is based upon the TPO's Order dated 30.01.2013 wherein there was mention of 3rd January, 2012 as the date of a letter written by the Assessing Officer to the DIT(Transfer Pricing), Kolkata which the assessee has construed as the date of making the transfer pricing reference to the TPO. 25. The contention of the assessee is not well founded. In the instant case, the AO sent the proposal for making reference to the TPO on 26.12.2011 to be approved by the Ld. DIT (International Taxation), Kolkata and the Ld. DIT accorded his approval on 27.12.2011. The reference as approved by the Ld. DIT was also communicated to the DIT(Transfer Pricing), Kolkata on 27.12.2011. Thereafter, the letter referred to above was written by the AO in a routine manner just to reaffirm the fact that the international transactions entered into by the assessee stood referred to the Transfer Pricing Officer in terms of approval granted for the same by the Ld. DIT(International Taxation), Kolkata on 27.12.2011. Even at the cost of repetition, it is placed on record that the Ld.DIT(International Taxation), Kolkata accorded his approval for marking the reference to the TPO on 27.12.2011 vide letter No.

21 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation DIT(IT)/Kol/TP-Approval/SS/2010-11/1760 and the copy of this letter was also sent to the Ld.DIT(Transfer Pricing), Kolkata on the very same day i.e. 27.12.2011 for taking necessary action. The reference was received by the office of the DIT(Transfer Pricing), Kolkata on 27.12.2011 itself which may be seen from the scanned copy of the Ld.DIT(International Taxation), Kolkata's letter reproduced below:

22 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation of the Ld. DIT (International Taxation), Kolkata, the copy of which is scanned below:

not able to produce before this bench any letter dt. 27/12/2011 or an

earlier date to prove that the assessing officer has made a reference of the

international transactions to the TPO. What is produced before us, is only

an approval granted by the DIT(IT) on 27/12/2011, for the Assessment

Year 2009-10. This letter of approval signed by the I.T.O. (tech),

International Taxation, Kolkata, was sent to the T.P.O. The grant of approval

does not meet the requirements of section 92 CA(1) of the Act, which

specifically requires reference by the Assessing Officer to the Transfer

23 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation Pricing Officer, for the competition of ALP in relation to international

transactions. Even the letter dt. 03/02/2012, addressed to the DIT(TP)

bearing reference no. ADIT(IT)-1(1)/Kol/TP/reference/2011-12/730 by

the ADIT(IT), only seeks to intimate the fact of grant of approval by the

DIT(IT)- Kolkata, and it is not a statutory reference. The photocopy of the

dispatch register does not demonstrate that the assessing officer has made

the reference as required by the statute to the TPO. In fact these are the

only evidences in the assessment order. Which are the International

Transaction/s which have been referred by the Assessing Officer to the

T.P.O. u/s 92CA[1] of the Act is not stated. The section clearly states that

what is to be referred is an international transaction for determination of

ALP. The assessee has the right ot know as to what are the International

Transaction that have been referred to. You cannot deny the terms of

reference to the assessee.

8.3. In the letter dt. 23rd August, 2017, by the ACIT(IT)-Circle-1(1),

Kolkata, addressed to the JCIT(TP), Kolkata for the Assessment Year 2009-

10, at page 1, para 7, stated as follows:-

24 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation directed to submit the relevant documents to the DIT(TP). The chain of events do establish that a reference was duly made to the TPO and the TPO had passed his order observing due process of law. Certified copy of the document i.e. approval of the DIT(IT), Kolkata, which is available in the file is enclosed. (Annexure-I). Copy of page of issue register maintained in the office of Director of Income Tax (International Taxation) is also enclosed as per annexure-1A. DRP had also considered the matter and were of the opinion that it was a valid TP reference within the time limit permitted by Statute. 2. Date of Dispatch of reference Cannot be readily replied for non-availability of the copy of letter by the Assessing Officer the letter in the records. It may be mentioned that the to Addl. CIT(TP) Directorate of International Taxation was previously situated at 4th Floor, Aayakar Bhawan, P-69, Chowringhee Square, Kolkata. The office has subsequently shifted to 110, Shantipally, Kolkata. Other Corroborative records such as Dispatch Registers etc could not be located. However it could not be correct that a valid reference has not been made after obtaining DIT’s approval.

Similarly, for Assessment Year 2010-11, at para 7.2.2., it was stated as follows:- 1. Date of reference by the AO Case records reveal that the approval for reference to the TPO for determination of Arms Length Price u/s 92CA of the I.T. Act, 1961 in this case for A.Y. 2010-11 was obtained from the DIT office on 06.12.2012 vide DIT office letter DIT(IT/Kol/TP-approval/55/2012-13/2436 dated 06/12/2012. The AO after obtaining approval from DIT(IT), Kolkata has submitted all the relevant documents to the DIT(TP), Kolkata for necessary action at the end of DIT(TP), Kolkata. Certified copies of the documents available in the file are enclosed (Annexure- 2&3). 2. Date of Dispatch of reference Cannot be readily replied for non-availability of the copy letter by the Assessing of the letter in the records. It may be mentioned that the Officer to Addl. CIT(TP) Directorate of International Taxation was previously situated at 4th Floor, Aayakar Bhawan, P-69, Chowringhee Square, Kolkata. The office has subsequently shifted to 110, Shantipally, Kolkata. Other Corroborative records such as Dispatch Registers etc could not be located. However it could not be correct that a valid reference has not been made after obtaining DIT’s approval.

25 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation

8.3.1. Annexure 2 & 3, are extracted below for ready reference:-

26 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation

27 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation 8.3.2. From a perusal of the above records produced by the ld. DR, we find

that the Assessing Officer has not made a reference as per law to the T.P.O.

u/s 92CA(1) of the Act. The Assessing Officer of the assessee has to address

a communication to the T.P.O. making the reference u/s 92CA(1) of the Act

by mentioning as to which are the international transaction which require

determination of ALP.

8.4. From the above, it is clear the revenue could not demonstrate that there was a valid reference u/s 92CA(1) of the Act, for both the impugned assessment years by the Assessing Officer to the T.P.O. Only letters of approval obtained for making the reference are available on record, right from the stage of assessment proceedings. 9. In view of the above discussion, we agree with the contentions of the ld. Counsel for the assesse, that the assessment orders passed for both the assessment years are barred by limitation as there is no valid reference by the Assessing Officer to the T.P.O and consequently the limitation specified u/s 153(1) of the Act, applies.. As we have held that both the assessment are barred by limitation, we do not adjudicate the other issues that were argued before us as it would be an academic exercise. 10. In the result, both the appeals of the assessee are allowed.

Kolkata, the 25th day of October, 2017. Sd/- Sd/- [N.V. Vasudevan] [J. Sudhakar Reddy] Judicial Member Accountant Member Dated : 25.10.2017 {SC SPS}

28 I.T.A. No. 572/Kol/2014 Assessment Year: 2009-10 & I.T.A. No. 487/Kol/2015 Assessment Year: 2010-11 Dongfang Electric Corporation

Copy of the order forwarded to: 1. Dongfang Electric Corporation Dongfang Electric Corporation Kolkata Project Office CK-189 & CK-141 Sector-II Salt Lake City Kolkata – 700 091.