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1.1 That learned Commissioner of Income Tax (Appeals) has erred in law in subjecting the 'Business Income' arising to the PO of the Appellant under O&M contract with APGPCL as 'Fees for Technical Services'. 1.2 That learned Commissioner of Income Tax (Appeals) has erred in law bring to tax 'Business Income' arising to the PO of the Appellant under O&M contract with APGPCL as 'Fees for Technical Services' under section 44D of the Act, without appreciating that this method of taxation causes discrimination and thus violates the spirit and intent of Article 24 of the Double Taxation Avoidance Agreement between India and Japan ('DTAA'). Vijjeswaram Project - Erection, Procurement and Construction ('EPC) Contract

2. That learned Commissioner of Income Tax (Appeals) has erred in law and on facts in bringing to tax the gross receipt of Rs. 1,70,00,000/- being the additional consideration for the additional work in relation to the Erection, Procurement and construction contract with M/s Andhra Pradesh Gas Power Corporation Ltd (APGPCL for 160MW Gas Turbine Cycle Power Station at Vijjeswaram as against the business income of Rs 966,870 (NET) declared by the Project Office ('PO') of Appellant under the Erection, Procurement and Construction ('EPC) contract with 'APGPCL'.

2.1. That learned Commissioner of Income Tax (Appeals) has completely failed to appreciate that additional compensation of Rs 1,70,00,000 received from APGPCL, was specifically towards the EPC contract, and there was no material what so ever to conclude that the additional compensations was towards O&M contract.

2.2. That learned Commissioner of Income Tax (Appeals) has grossly erred in holding that even if the additional consideration was towards EPC contract, it has the nature of fee for technical services failing to appreciate that there is no material or evidence brought on record to hold that additional work done under the EPC contract was in the nature of technical services as provided under Explanation-2 to section 9(1)(vii).

26. As regards to Ground No. 2 to 2.5 of the assessee's appeal, the Ld. AR submitted that during the year, the assessee and APGPCL entered into an agreement to execute two contracts. As per terms of the contract, the assessee has made an extra claim to APGPCL additional work done in the course of the Erection and Commissioning and additional resource used to ensure timely completion of the project in spite of delays caused by APGPCL. The extra claim was accepted by APGPCL and they made a partial settlement of Rs. 1,70,00,000. Accordingly, the assessee offered the income to tax on Net basis claiming the relevant expenses pertaining to such contracts. However, the Assessing Officer held that receipts are in nature of FTS and hence taxable on gross basis u/s 44D. The Assessing Officer erroneously considered EPC contract similar to its finding for O&M contract and taxed income on gross basis as per AY 1999-00 assessment order. The CIT(A) held that it is not clear that the extra amount was paid for EPC contract or O&M project. The CIT(A) further held that if the said amount was paid for EPC contract it has the nature of FTS. The CIT(A) observed that no cogent evidences were filed to prove that income was from EPC or O&M. Therefore, it should be assessed to tax @ 20% of gross receipts. Accordingly, the ground of appeal was dismissed. The CIT(A) further held that amount paid to Delta Mechons was not clear, hence not allowed as deduction. The Ld. AR submitted that the EPC contract was completed during the accounting period relating to AY 1998-99. During the previous years, the incomes of the project were offered to tax by Sumitomo Corporation on a 'Net Income basis' which was accepted by the Assessing Officer. At the time of the completion of the EPC contract, Sumitomo Corporation claimed compensation for some additional work carried out by it in course of the construction. The claim for additional work was filed for an amount of Rs. 2.47 crores of which Sumitomo Corporation got a partial acceptance and payment amounting to Rs. 1.70 crores during the accounting year relevant to AY 2001-02 and the balance was accepted during the accounting year relevant to AY 2003-04. The assessee in turn had agreed on 28/12/98 with their principal sub-contractor M/s Delta Mechons Limited that assessee would pay Delta Mechons Ltd. The additional sums claimed by them, for the additional work done by them in case of acceptance by APGPCL of assessee's claim for such payments. The Assessing Officer erroneously treated the entire gross amount received by SC by way of additional compensation for the EPC contract as receipts from O&M project and considered it as "fees for technical services: and assessed it to tax at 20% of the gross receipts (1,70,00,000 @ 20%) without deduction of expenses without appreciating that the aforesaid sum did not represent fee for technical services, but represented business receipts. The Ld. AR further reiterated that the receipt of Rs. 1.7 crores was for the Erection, Procurement and Construction contract, income from which has been treated by the Assessing Officer as business income subject to tax after deduction of expenses as allowable under the Law in earlier years. In addition, the Tribunal in assessee's own case for AY 1999-00, wherein after going through the facts of O&M contract, held that the services received by the assessee does not fall under FTS and has to be considered as service in relation to construction, assembly of project i.e. business income. Thus, the amount received under O&M agreement is business income and taxable under article 7(3) of DTAA on net basis.