Shri. Rajiv Gupta, New Delhi V. ACIT, New Delhi

CO 12/DEL/2011

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8693 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-06-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 10-08-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 11-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA SENIOR
• Assessee Lawyers: MRS PRAVESH SHARMA S; SD KAPILA M S CHARU KAPOOR
• Keywords: Opportunity of being heard; Principle of natural justice; Additional evidence; Permanent establishment
• Section: 143(3); 142(1); 133A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI G.D. AGRAWAL, HONBLE VICE-PRESIDENT AND SHRI RAJPAL YADAV, HONBLE JUDICIAL MEMBER ITA NOS. 12 TO 17/DEL/2011 ASSESSMENT YEARS: 2002-03 TO 2007-08 HITACHI HIGH-TECHNOLOGIES (SINGAPORE) VS. ADDITIONA L CIT, PTE. LTD., C/O ASA & ASSOCIATES, CA, RANGE-1, KS HOUSE, 118 SHAHPUR JAT, NEW DELHI NEW DELHI. (PAN: AABCH7717H) (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI SD KAPILA, M S. CHARU KAPOOR & MRS. PRAVESH SHARMA, ADVOCATES REVENUE BY: SHRI SAMEER SH ARMA, SENIOR DR ORDER PER BENCH: THE PRESENT SIX APPEALS ARE DIRECTED AT THE INSTAN CE OF ASSESSEE AGAINST THE SEPARATE ASSESSMENT ORDERS DATED 26.10.2010 PAS SED UNDER SECTION 143(3) READ WITH SECTION 144C(1) OF THE INCOME-TAX ACT, 19 61 (HEREINAFTER REFERRED TO ACT). 2. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE IN A LL THE ASSESSMENT YEARS ARE VERBATIM SAME EXCEPT VARIATION IN QUANTUM AND GROUND NO. 5 TAKEN IN ASSESSMENT YEAR 2004-05. GROUND NO. 5 IN ASSESSM ENT YEAR 2004-05 IS AN EXTRA GROUND OF APPEAL FROM OTHER YEAR. IN THIS GRO UND, ASSESSEE HAS PLEADED THAT LEARNED DRP HAS ERRED IN NOT EXCLUDING PRICE A DJUSTMENT/SALE RETURN 2 EQUIVALENT TO 3.6 MILLION SINGAPORE DOLLARS RECEIVE D FROM M/S. MOSERBEAR INDIA BEFORE QUANTIFYING THE TOTAL SALES. THEREFORE , FOR THE FACILITY OF REFERENCE, WE ARE TAKING NOTE OF GROUNDS OF APPEAL FROM ASSESSMENT YEAR 2004-05. THEY READ AS UNDER: THE HONBLE DISPUTE RESOLUTION PANEL-II, NEW DELHI (DRP) ERRED IN CONFORMING THE ADDITION OF RS.1,42,42,854 PROPOS ED BY THE LEARNED ADDL. DIRECTOR OF INCOME-TAX, RANGE-1, INTERNATIONA L TAXATION, NEW DELHI (LD. A.O.). IN MAKING THE SAID ADDITION, TH E LEARNED A.O. HAS ERRED IN 1. DEPRIVING THE APPELLANT COMPANY RIGHT TO NATURAL JU STICE BY NOT PROVIDING A SHOW-CAUSE NOTICE PRIOR TO ATTRI BUTING THE INCOME AT 50% OF GLOBAL NET PROFIT RATIO. THE ASSESSMENT PROCEEDINGS WERE CONCLUDED IN HASTE AND ARE THUS BAD IN LAW. 2. CONCLUDING THAT THE APPELLANT COMPANY HAS ESTABLISH ED A BUSINESS CONNECTION/PERMANENT ESTABLISHMENT (PE ) IN INDIA BY VIRTUE OF FUNCTIONS RENDERED BY ITS LIA ISON OFFICE (LO) IN INDIA. 3. CONCLUDING THAT 50% OF THE GLOBAL NET PROFIT RATIO EARNED BY THE APPELLANT COMPANY IS INCOME ATTRIBUTABLE TO ITS PE IN INDIA SINCE I) DETERMINATION OF INCOME ATTRIBUTION AT 50% IS BASED ON INCORRECT FACTS. 3 II) THE LEARNED A.O. HAS NEITHER UNDERTAKEN AN ANALYSIS OF FUNCTIONS PERFORMED BY THE ALLEGED PE NOR REBUTTED THE ANALYSIS PROVIDED BY APPELLANT COMPANY AND THUS, THE ATTRIBUTION AT 50% IS HIGHLY SUPERFICIAL. 4. NOT RESTRICTING THE MAXIMUM PROFIT, WHICH COULD HAV E BEEN ATTRIBUTED TO THE ACTIVITIES OF ALLEGED PE OF APPELLANT COMPANY, TO SUCH A PERCENTAGE AS WOULD REPRESENT I) THE CORRECT RATIO COMPUTED IN ACCORDANCE WITH THE MECHANISM ADOPTED BY THE LEARNED A.O. OR II) A RATIO MENTIONED IN ACCORDANCE WITH PROVISIONS OF RULE 10 OF THE INCOME-TAX RULES, 1962. 5. DETERMINING THE AMOUNT OF SALES PROCEEDS BY NOT EXCLUDING PRICE ADJUSTMENT/SALES RETURN EQUIVALENT TO S$ 3.6 MILLION BY APPELLANT COMPANY TO ONE CUSTOMER NAMELY MOSER BAER INDIA ON ACCOUNT OF SALES MADE DURING FY 2003-04 THROUGH 2007-08. 6. CONCLUDING THAT THE ALLEGED P.E. (I.E. L.O.) WAS INSTRUMENTAL IN SUPPLY OF MACHINERY LINES BY APPELL ANT COMPANY TO ITS CUSTOMERS IN INDIA AND THUS INCOME I S ATTRIBUTABLE AT 50% ON SUCH SALES. THE DETERMINATIO N OF ROLE PERFORMED BY THE ALLEGED PE IN SALE OF MACHINE RY LINES IS PURELY BASED ON SURMISE, LACKS SUBSTANCE A ND OPPOSED TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. CONCLUDING THAT THE ALLEGED PE (I.E. LO) WAS INSTRUMENTAL IN EXECUTING SALES THROUGH INDEPENDENT 4 AGENTS OF APPELLANT COMPANY IN INDIA AND HENCE INCO ME IS ATTRIBUTABLE AT 50% ON SUCH SALES. THE DETERMINA TION OF ROLE PERFORMED BY THE ALLEGED PE IN SALE THROUGH AG ENTS IS ARBITRARY, LACKS SUBSTANCE AND OPPOSED TO THE EV IDENCE PLACED ON RECORD DURING THE ASSESSMENT PROCEEDINGS. 8. CONCLUDING THAT THE ALLEGED PE (I.E. LO) WAS INSTRUMENTAL IN EXECUTING SALES OF ELECTRONIC COMPO NENTS TO VIDEOCON INDIA AND HENCE INCOME IS ATTRIBUTABLE AT 50% ON SUCH SALES. THE DETERMINATION OF ROLE PERFOR MED BY LO IN SALE TO VIDEOCON INDIA IS HIGHLY SUPERFICI AL, LACKS SUBSTANCE AND OPPOSED TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THE GROUNDS OF APPEAL, AS ABOVE, ARE NOTWITHSTANDIN G EACH OTHER. THE APPELLANT CRAVES LEAVE TO AMEND, ALTER OR ADD F RESH GROUNDS OF APPEAL DURING THE COURSE OF PROCEEDINGS BEFORE Y OUR GOOD SELF. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E I.E. HITACHI HIGH TECHNOLOGY (SINGAPORE) PVT. LTD. IS A COMPANY INCOR PORATED IN SINGAPORE ON 13.3.1973. IT IS ENGAGED IN MANUFACTURE AND SALE OF VARIOUS PRODUCTS, NAMELY, ELECTRONIC MICROSCOPE, ANALYTICAL INSTRUMEN TS, MANUFACTURING EQUIPMENTS FOR OPTICAL DISC AND ALSO MATERIAL FOR O PTICAL DISC. IT HAS ESTABLISHED A LIAISON OFFICE AT NEW DELHI ON 16.8.1 988 AFTER AN APPROVAL 5 FROM RBI. IT WAS ALSO HAVING LIASONING OFFICE IN BA NGALORE AND MUMBAI. ACCORDING TO THE ASSESSING OFFICER, A NOTICE UNDER SEC. 142(1) OF THE ACT WAS ISSUED TO THE ASSESSEE IN FEBRUARY 2007, HOWEVE R, IT DID NOT FILE ANY REPLY. IT APPLIED TO THE RBI FOR CLOSURE OF THE LIA ISON OFFICE AND CONVERSION OF THE SAME TO A BRANCH OFFICE FROM JULY 2007 ONWARDS . THE INCOME-TAX DEPARTMENT CARRIED OUT A SURVEY UNDER SEC. 133A AT THE OFFICE PREMISES OF THE COMPANY AT NEW DELHI ON 24.4.2008. DURING THE C OURSE OF SURVEY, THE STATEMENT OF EMPLOYEES ALONG WITH DEPUTY MANAGING D IRECTORS WERE RECORDED AND LOTS OF DOCUMENTS WERE FOUND AND SEIZE D, WHICH WERE INVENTORIZED AS ANNEXURE A TO I. ON AN ANALYSIS OF THESE MATERIAL, LEARNED ASSESSING OFFICER HAD FORMED AN OPINION THAT INCOME HAS ESCAPED ASSESSMENT. THEREFORE, HE RECORDED THE REASONS FOR REOPENING OF ALL THE SIX ASSESSMENT YEARS. HE ISSUED NOTICE UNDER SEC. 148 O F THE ACT ON 25.8.2009. IN RESPONSE TO THE NOTICE, ASSESSEE HAS FILED RETUR NS IN ALL THE ASSESSMENT YEARS ON 20 TH OCTOBER 2008 DECLARING NIL INCOME. THE STAND OF TH E ASSESSEE IS BASICALLY THAT IT HAS NO PERMANENT ESTABLISHMENT IN INDIA, THEREFORE, IT IS NOT TAXABLE IN INDIA. LEARNED ASSESSING OFFICER IN THE IMPUGNED ASSESSMENT ORDERS HAS FIRST MADE REFERENCE TO THE STATEMENT OF VARIOUS EMPLOYEES. THEREAFTER, HE REFERRED THE CORRESPONDENCE BETWEEN THE EMPLOYEES AT PE VIS- -VIS THE HEAD OFFICE IN THEIR EMAIL ETC. ON A DETA ILED ANALYSIS OF ALL THESE 6 FACTORS, LEARNED ASSESSING OFFICER HAS HELD THAT AS SESSEE HAS A PERMANENT ESTABLISHMENT IN INDIA. HE HAS ATTRIBUTED 50% OF GL OBAL NET PROFIT RATIO TO PE OF THE ASSESSEE IN INDIA AND THEREAFTER DETERMINED THE TAX LIABILITY IN A DRAFT ASSESSMENT ORDER PASSED IN ALL THE ASSESSMENT YEARS . HE ORDERS WERE SERVED UPON THE ASSESSEE. 4. THE ASSESSEE HAS FILED OBJECTIONS ON THE PROPOSE D DRAFT ASSESSMENT ORDER OF THE ASSESSING OFFICER. LEARNED DRP HAS DIS POSED OF THE OBJECTIONS BY A COMMON ORDER DATED 27.9.2010. 5. WHILE IMPUGNING THE ORDER OF THE LEARNED DRP, LE ARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT ASSESSEE HAS FILED OBJECTIONS BEFORE THE DRP RUNNING INTO MORE THAN 100 PAGES. LEARNED DRP DID N OT CONSIDER FACTUAL SUBMISSIONS RAISED BY THE ASSESSEE IN THE IMPUGNED ORDER. HE POINTED OUT THAT FOR HOLDING THAT ASSESSEE HAS A PE IN INDIA, L EARNED ASSESSING OFFICER IS HARPING UPON THE STATEMENTS OF THE EMPLOYEES AND MO RE PARTICULARLY STATEMENT OF MISS CARDOZA. ON THE STRENGTH OF HER S TATEMENT, IT WAS HELD THAT L.O. WAS INVOLVED IN TRADING ACTIVITY. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, BOTH THE AUTHORITIES HAVE IGNORED THE FACT THAT PRICE FOR EXPORT OF SPARES AND CONSUMABLES WERE ALREADY FIXED IN TER MS OF AGREEMENT DATED 7 01.10.2002. HE FURTHER CONTENDED THAT BEFORE ATTRIB UTING THE PROFIT AT 50% OF GLOBAL NET PROFIT RATIO TO THE PERMANENT ESTABLISHM ENT IN INDIA, LEARNED ASSESSING OFFICER HAS NOT GRANTED ANY OPPORTUNITY O F HEARING TO THE ASSESSEE. SIMILARLY, LEARNED DRP HAS ALSO NOT CONSIDERED THE OBJECTIONS RAISED BY THE ASSESSEE. HE DREW OUR ATTENTION TOWARDS PAGE NOS. 1 91 TO 200 AND 222 TO 227 OF THE APPEAL PAPER BOOK AND POINTED OUT THAT O BJECTIONS OF THE ASSESSEE ARE RUNNING INTO MORE THAN 10 PAGES ON EACH OBJECTI ON RAISED BEFORE THE LEARNED DRP. LEARNED DRP HAS NOT ATTRIBUTED EVEN TE N LINES ON THIS ISSUE. IN A SUMMARY WAY, LEARNED DRP HAS CONCURRED WITH TH E CONCLUSIONS OF THE ASSESSING OFFICER. 6. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER CON TENDED THAT ASSESSEE HAS APPLIED FOR PERMISSION TO ADDUCE ADDITIONAL EVI DENCE UNDER RULE 9 OF THE DRP RULES. LEARNED DRP FAILED TO ADJUDICATE THIS AP PLICATION OF THE ASSESSEE. HE POINTED OUT THAT THIS APPLICATION WAS FILED ON 02.02.2010. THE COPY OF THE APPLICATION IS PLACED ON PAGE NO. 1192 OF THE PAPER BOOK. THE DOCUMENTS SOUGHT TO BE PLACED ON RECORD ARE PLACED ON PAGE NOS. 1197 TO 1254. THESE ARE MINUTES OF MEETINGS, COPY OF INVOIC ES, COPY OF SURVEY OF DELIVERY, INSTALLATION AND COMMISSIONING, MONTHLY P ROFIT ALLOCATION SHEETS, LETTER FROM FOUR VISION INSTRUMENTS. ACCORDING TO T HE LEARNED COUNSEL FOR 8 THE ASSESSEE, THESE ARE ESSENTIAL DOCUMENTS TO DEMO NSTRATE THAT L.O. DID NOT PLAY ANY ROLE AT ANY STAGE OF TRANSACTION INVOLVING SALE OF MACHINERY LINES. THEREFORE, WITHOUT ADJUDICATING THIS APPLICATION, L EARNED DRP HAS ERRED IN DISPOSING OF THE OBJECTIONS OF THE ASSESSEE. ON THE STRENGTH OF ALL THESE DETAILS, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ORDER OF THE LEARNED DRP IS NOT SUSTAINABLE, BECAUSE IT IS NOT A SPEAKING ORDER. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT IN CASE THE ITAT FINDS THAT ORDER OF THE DRP IS NOT A SPEAKING ORDER AND THE SAME DESERVES TO BE SET ASIDE THEN THE ISSUES BE SET ASIDE TO THE FI LE OF THE ASSESSING OFFICER INSTEAD OF DRP, BECAUSE IT IS THE ASSESSING OFFICER WHO WILL COMMENT UPON THE PAPERS SOUGHT TO BE PRODUCED BY WAY OF ADDITION AL EVIDENCE. 7. LEARNED DR ON THE OTHER HAND WAS UNABLE TO CONTR OVERT THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT ORDER OF THE LEARNED DRP IS NOT A SPEAKING ORDER. HOWEVER, HE SUBMITTED THAT DRP HAS CONCURRED WITH THE CONCLUSIONS OF THE ASSESSING OFFICER DRAWN IN THE DRAFT ASSESSMENT ORDER. IF THE LEARNED DRP IS CONCURRING WITH SUCH CONCLUSION THEN THE REASONS ASSIGNED IN THE DRAFT ASSESSMENT ORDER WOUL D BE READ AS THE REASONS OF THE DRP FOR HOLDING THAT ASSESSEE HAS A PERMANEN T ESTABLISHMENT IN INDIA AND PART OF THE GLOBAL PROFIT HAS TO BE ATTRIBUTED ON A REASONABLE BASIS TO THE 9 OPERATIONS OF THE PERMANENT ESTABLISHMENT IN INDIA. HE ALSO SUBMITTED THAT ASSESSEE OUGHT TO HAVE SUBMITTED THE PAPERS SOUGHT TO BE FILED BY WAY OF ADDITIONAL EVIDENCE BEFORE THE ASSESSING OFFICER. L EARNED DR HAS NO REPLY AS TO WHY THE APPLICATION OF THE ASSESSEE FOR PERMI SSION TO LEAD ADDITIONAL EVIDENCE WAS NOT DECIDED. HE SIMPLY SUBMITTED THAT ONCE NO ORDERS WERE PASSED ON THE APPLICATION THEN IT IS TO BE ASSUMED THAT APPLICATION WAS REJECTED, BECAUSE THE DRP HAS DECIDED THE CONTROVER SY FINALLY. ON THE REQUEST OF THE LEARNED COUNSEL FOR THE ASSESSEE THA T IN CASE DRPS ORDER IS NOT SUSTAINABLE, THEN, PROCEEDINGS BE SET ASIDE TO THE ASSESSING OFFICER, LEARNED DR SUBMITTED THAT ASSESSING OFFICER HAS PAS SED A WELL REASONED DRAFT ORDER RUNNING INTO 62 PAGES. THERE IS NO PROC EDURAL IRREGULARITY IN THE ORDER OF THE ASSESSING OFFICER, THEREFORE, THE ISSU ES SHOULD NOT BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. THE LIMITED IRRE GULARITY EVEN IF IT IS PRESUMED, THEN, THAT HAS CREPT IN THE ORDER OF DRP AND NOT IN THE ASSESSING OFFICER. THEREFORE, THE ISSUES BE SET ASIDE ONLY TO THE FILE OF THE DRP. 8. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. BEFORE LEARNED DRP, ASSESSEE HAS RAISED FOLLOWING GROUNDS OF OBJECTIONS: 10 3. THE VARIOUS GROUNDS OF OBJECTION RAISED BY THE ASSESSEE ARE AS BELOW: I. THE A.O. ERRED IN HOLDING THAT THE LIAISON OFFI CE (L.O) OF HTS IN INDIA WAS INSTRUMENTAL IN NEGOTIATING, PR ICING AND FINALIZATION OF SALES MADE TO INDIAN CUSTOMERS AND THEREFORE ESTABLISHES A BUSINESS CONNECTION IN TERMS OF EXPLA NATION 2 TO SEC. 9(1) OF THE INCOME-TAX ACT, 1961. II) NOT PROVIDING TO HTS, AN OPPORTUNITY OF BEING HEARD PRIOR TO ATTRIBUTING 50% OF GLOBAL NET PROFIT RATIO TO THE FUNCTIONS RENDERED BY PE OF HTS THEREBY DEPRIVING H TS OF NATURAL JUSTICE AND RENDERING THE ASSESSMENT PROCEE DINGS ILLEGAL AND BAD IN LAW. III. ATTRIBUTING 50% OF GLOBAL NET PROFIT RATIO TO PE OF HTS IN INDIA IN AN ARBITRARY MANNER AND WITHOUT ANY BASIS, JUSTIFICATION OR CORROBORATIVE EVIDENCE. IV. CONCLUDING THAT THE L.O. WAS INSTRUMENTAL IN E XECUTING SALE OF MACHINERY LINES BY HTS TO ITS CUSTOMERS IN INDIA AND ALLOCATING 50% OF GLOBAL NET PROFIT RATIO TO PE OF HTS IN INDIA IN AN ARBITRARY MANNER AND WITHOUT ANY BASIS, JUSTI FICATION OR CORROBORATIVE EVIDENCE. V. CONCLUDING THAT THE L.O. WAS INSTRUMENTAL IN EX ECUTING SALES THROUGH DEPENDENT AGENTS IN INDIA AND ALLOCAT ION 50% OF GLOBAL NET PROFIT RATIO TO PE OF HTS IN INDIA IN AN ARBITRARY MANNER AND WITHOUT ANY BASIS, JUSTIFICATION OR CORR OBORATIVE EVIDENCE. VI. CONCLUDING THAT THE LO WAS INSTRUMENTAL IN EXE CUTING SALE OF ELECTRONIC COMPONENT TO VIDEOCON INDIA AND ALLOCATING 11 50% OF GLOBAL NET PROFIT RATIO TO PE OF HTS IN INDI A IN AN ARBITRARY MANNER AND WITHOUT ANY BASIS, JUSTIFICATI ON OR CORROBORATIVE EVIDENCE. 9. LEARNED DRP HAS RECORDED THE FOLLOWING FINDINGS ON THE SUBMISSIONS WHILE ADJUDICATING UPON THE OBJECTIONS OF THE ASSES SEE: 5. THE SUBMISSIONS OF THE ASSESSEE, THE DRAFT ASSE SSMENT ORDER AND RECORD OF THE CASE HAVE BEEN GONE THROUGH PROPERLY AND CONSIDERED ACCORDINGLY. IT IS SEEN FROM THE RECORDS AND SUBMISSIONS MADE BY THE ASSESSEE BE FORE THE PANEL THAT THE SAME SUBMISSIONS WERE MADE BEFORE- THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS. THE AO HAS REPRODUCED IN THE ORDER (PA RA 4), A VERY EXHAUSTIVE REASONS RECORDED BEFORE REOPENING OF THE ASSESSMENT IN WHICH STATEMENTS RECORDED, ANALYSIS OF IMPOUNDED PAPERS DURING SURVE Y ETC ARE DISCUSSED. THE ASSESSING OFFICER HAS DEALT AT LENGTH THE OBJECTION S RAISED BY THE ASSESSEE AND FACTS OF THE CASE BOTH IN THE DRAFT ASSESSMENT ORDE R, THE ORDER FOR DISPOSAL OF OBJECTIONS AND REASONS RECORDED FOR REOPENING THE C ASE. 5.1 REGARDING THE FIRST TWO GROUNDS RAISED BY THE A SSESSEE BEFORE THE PANEL IT IS HELD THAT BUSINESS CONNECTION IN TERMS OF EXPLANATI ON TO SECTION 9( 1) OF THE INCOME TAX ACT 1961, IS CLEARLY ESTABLISHED IN CASE OF ASSESSEE BY FACTS BROUGHT OUT BY SURVEY REPORT, AND AS DISCUSSED IN DRAFT ASS ESSMENT ORDER. SIMILARLY, OPPORTUNITY TO BE HEARD BEFORE PASSING OF ORDER DET ERMINING OF TAX LIABILITY BY THE AO AGAINST THE ASSESSEE HAS BEEN ACCORDED TO THE AS SESSEE BOTH BEFORE THE AO AND BEFORE THIS BENCH. ASSESSEE'S CONTENTION THAT PRINC IPLES OF NATURAL JUSTICE HAVE NOT BEEN COMPLIED WITH AND HENCE THE ASSESSMENT PROCEED INGS ARE ILLEGAL AND BAD IN LAW IS THEREFORE NOT ACCEPTABLE. HAVING REGARD TO F ACTS OF THE CASE, NO INTERFERENCE IS CALLED FOR ORDER OF THE AG. 5.2 REGARDING OTHER GROUNDS RAISED BY THE ASSESSEE IT IS HELD THAT THE ISSUES BEEN CONSIDERED, DISCUSSED AND DULY DISPOSED OFF BY THE ASSESSING OFFICER. PARA THE 12 DRAFT ASSESSMENT ORDER MAY BE REFERRED IN THIS REGA RD. THE FOLLOWING POINTS HAVE BEEN NOTICED BY THE PANEL WHICH IS RELEVANT FOR DET ERMINATION OF ISSUES BEFORE HAND: A. A NOTICE U/S 142(1) OF THE ACT WAS ISSUED TO TH E COMPANY IN FEBRUARY 200 NO PROPER REPLY TO WHICH WAS SUBMITTED. LATER ON THE C OMPANY FILED A\ APPLICATION TO THE RB FOR CLOSURE OF THE LO AND CONVERTED THE SAME TO A BRANCH OFFICE FROM JULY 2007 ONWARDS. B. THE ASSESSEE HAS ADMITTED THAT BRANCH OFFICE IS A FULL FLEDGED PE WHEREAS LO IS NOT. HOWEVER FROM THE STATEMENT RECORDED DURING THE COURSE OF SURVEY IT IS APPARENT THAT THERE HAS NOT BEEN ANY MAJOR CHANGE I N THE WORK PROFILE OF THE BRANCH OFFICE AS COMPARED TO THE WORK PROFILE OF TH E LO OFFICE. C. THE FINDING OF THE AO THAT THE SEGMENTAL BREAKUP DONE BY THE ASSESSEE IS ARTIFICIAL AND WITHOUT ANY BASIS AND IS DONE TO LIM IT THE TAXABLE EXPOSURE IN INDIA WHEN IT WAS FACED WITH EVENTUAL REALITY OF EXISTENC E OF PE BEING ESTABLISHED ON RECORD. D. IN RESPECT OF VIDEOCON SALE SEGMENT THE ASSESSEE COULD PRODUCE ONLY AN INVOICE ISSUED BY SINGAPORE OFFICE IN THE NAME OF VIDEOCON INTERNATIONAL WHEREIN A CONTACT AND TELEPHONE NUMBER IS MENTIONED BELONGING TO SINGAPORE AND NOTHING ELSE. E. NO AGREEMENT HAS BEEN PRODUCED REGARDING VIDEOC ON SALES EVEN THOUGH IT WAS SPECIFICALLY ASKED. THE AR ACCEPTED THAT THERE IS A N AGREEMENT BUT THE SAME IS NOT AVAILABLE. F. FROM THE STATEMENT OF MS LEENA CARDOZA, IT IS AP PARENT THAT THE ILO WAS ACTIVELY INVOLVED IN PRICE NEGOTIABLE AND CONCLUDIN G THE PURCHASE ORDER IN GENERAL AND PARTICULARLY FOR MOSER HAER BUSINESS SINCE BEGI NNING TILL DATE. 13 G. THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO E STABLISH THAT THE LO DID NOT RENDER SERVICES IN RESPECT OF SALES THROUGH AGENT O R EVEN WHETHER THE AGENT WAS OF INDEPENDENT NATURE. 5.3 ATTRIBUTION: THE ISSUE HAS BEEN. DISCUSSED IN PARAS 8 & 9 OF THE DRAFT ASSESSMENT ORDER. TAKING THE NET PROFIT (GLOBAL) RATIO AS THE BASIS) THE AO ATTRIBUTED 50% OF THE PROFIT TO THE PE. THE PANEL IS OF THE VIEW THAT ATTRIBUTION OF 50 % OF GLOBAL PROFIT AT NET PROFIT RATIO TO THE PE OF HTS IN INDIA IS FAIR AND JUST ON FACTS BROUGHT OUT BY ACTION TAKEN U/S.133A OF THE ACT AS DISCUSSED IN THE ASSESSMENT ORDER. HENCE NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE AG. DIRECTIONS UNDER SECTION 144C(5) OF THE I. T. ACT IN VIEW OF DISCUSSION ON EACH OF THE GROUNDS OF OBJ ECTIONS ABOVE, THE ASSESSING OFFICER IS DIRECTED TO COMPLETE THE ASSESSMENT AS P ER THE DRAFT ORDER FORWARDED BY HIM TO THE ASSESSEE. THE ASSESSING OFFICER MAY INCO RPORATE THE REASONS GIVEN BY THE PANEL AT APPROPRIATE PLACES IN RESPECT OF THE V ARIOUS OBJECTIONS WHILE PASSING THE FINAL ORDER. HE IS ALSO DIRECTED TO APPEND A CO PY OF THESE DIRECTIONS TO THE ASSESSMENT ORDER. THE OBJECTIONS OF THE ASSESSEE ARE DISPOSED OF AS ABOVE. SD/- SD/- SD/- S.G. JOSHI HARI KRISHAN VIRENDAR SINGH MEMBER, DRP II MEMBER, DRP-II MEMBER, DRP- II NEW DELHI. NEW DELHI. NEW DEL HI 10. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES, WE FIND THAT IMPUGNED ORDER OF THE LEARNED DRP IS RUNNING INTO S IX PAGES, OUT OF THAT THE LEARNED DRP HAS REPRODUCED THE GROUNDS OF OBJECTION S RAISED BY THE ASSESSEE AND THEREAFTER IN PARAGRAPH 4 IN 10-15 LIN ES, IT HAS NOTICED THE 14 SUBMISSIONS OF THE ASSESSEE IN BRIEF. WE FIND THAT THE ASSESSEE HAS FILED OBJECTION UNDER EACH GROUND RUNNING INTO MORE THAN 10 PAGES. LEARNED DRP HAS NOT LOOKED INTO THE OBJECTIONS OF THE ASSESSEE ANALYTICALLY. THE ASSESSEE HAS ALREADY FILED AN APPLICATION FOR PERMISSION TO LEAD ADDITIONAL EVIDENCE. IT REMAINED UNDECIDED. CONSIDERING THE NON-ADJUDICATIO N OF THE APPLICATION FOR PERMISSION TO LEAD ADDITIONAL EVIDENCE AND NON-CONS IDERATION OF VARIOUS OBJECTIONS OF THE ASSESSEE, WE ARE OF THE VIEW THAT LEARNED DRP FAILED TO DECIDE THE OBJECTIONS OF THE ASSESSEE BY A SPEAKING ORDER. HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ROAD MASTER IND. INDIA REPORTED IN 303 ITR 138 HAS EMPHASIZED ON THE IMPORTANCE OF ASSIGNI NG REASONS WHILE ADJUDICATING ANY CONTROVERSY. HON'BLE HIGH COURT HA S MADE REFERENCE TO A LARGE NUMBER OF JUDGMENT OF HON'BLE SUPREME COURT. IT IS ADVANTAGEOUS TO TAKE NOTE OF THE RELEVANT FINDING OF THE HON'BLE PU NJAB & HARYANA HIGH COURT WHICH READ AS UNDER: 7. IN TRAVANCORE RAYONS LTD. V. UNION OF INDIA AIR 1971 SC 862, HONBLE THE SUPREME COURT OBSERVED : '. . .THE COURT INSISTS UPON DISCLOSURE OF REASONS IN SUPPORT OF THE ORDER ON TWO GROUNDS: ONE, THAT THE PARTY AGGRIEVED IN A PROCEEDINGS BEFORE THE HIG H COURT OR THIS COURT HAS THE OPPORTUNITY TO DEMONSTRATE THAT THE REASONS WHICH PERSUADED THE AU THORITY TO REJECT HIS CASE WERE ERRONEOUS; THE OTHER, THAT THE OBLIGATION TO RECORD REASONS OPERAT ES AS A DETERRENT AGAINST POSSIBLE ARBITRARY ACTION BY THE EXECUTIVE AUTHORITY INVESTED WITH THE JUDICI AL POWER.' (P. 866) 8. IN MAHABIR PRASAD SANTOSH KUMAR V. STATE OF UP AIR 1970 SC 1302, HONBLE THE SUPREME COURT WHILE QUASHING THE CANCELLATION OF THE PETITI ONERS LICENCE BY THE DISTRICT MAGISTRATE, OBSERVED. 15 '. . . RECORDING OF REASONS IN SUPPORT OF A DECISIO N ON A DISPUTED CLAIM BY A QUASI-JUDICIAL AUTHORITY ENSURES THAT THE DECISION IS REACHED ACCORDING TO L AW AND IS NOT THE RESULT OF CAPRICE, WHIM OR FANCY OR REACHED ON GROUNDS OF POLICY OR EXPEDIENCY. A PA RTY TO THE DISPUTE IS ORDINARILY ENTITLED TO KNOW THE GROUNDS ON WHICH THE AUTHORITY HAS REJECTED HIS CLAIM. IF THE ORDER IS SUBJECT TO APPEAL, THE NECESSITY TO RECORD REASONS IS GREATER, FOR WITHOUT RECORDED REASONS THE APPELLATE AUTHORITY HAS NO MATERIAL ON WHICH IT MAY DETERMINE WHETHER THE FACT S WERE PROPERLY ASCERTAINED, THE RELEVANT LAW WAS CORRECTLY APPLIED AND THE DECISION WAS JUST.' ( P. 1304) 9. IN WOOLCOMBERS OF INDIA LTD. V. WOOLCOMBERS WORKERS UNION AIR 1973 SC 2758, HONBLE THE SUPREME COURT QUASHED THE AWARD PASSED BY THE INDUS TRIAL TRIBUNAL ON THE GROUND THAT IT WAS NOT SUPPORTED BY REASONS AND OBSERVED : '. . .THE GIVING OF REASONS IN SUPPORT OF THEIR CON CLUSIONS BY JUDICIAL AND QUASI-JUDICIAL AUTHORITIES WHEN EXERCISING INITIAL JURISDICTION IS ESSENTIAL F OR VARIOUS REASONS. FIRST, IT IS CALCULATED TO PREV ENT UNCONSCIOUS, UNFAIRNESS OR ARBITRARINESS IN REACHIN G THE CONCLUSIONS. THE VERY SEARCH FOR REASONS WILL PUT THE AUTHORITY ON THE ALERT AND MINIMISE TH E CHANCES OF UNCONSCIOUS INFILTRATION OF PERSONAL BIAS OR UNFAIRNESS IN THE CONCLUSION. THE AUTHORITY WILL ADDUCE REASONS WHICH WILL BE REGARDED AS FAIR AND LEGITIMATE BY A REASONABLE MAN AND WILL DI SCARD IRRELEVANT OR EXTRANEOUS CONSIDERATIONS. SECOND, IT IS A WELL-KNOWN PRINCIPLE THAT JUSTICE S HOULD NOT ONLY BE DONE BUT SHOULD ALSO APPEAR TO BE DONE. UNREASONED CONCLUSIONS MAY BE JUST BUT THE Y MAY NOT APPEAR TO BE JUST TO THOSE WHO READ THEM. REASONED CONCLUSIONS, ON THE OTHER HAND, WILL HAVE ALSO THE APPEARANCE OF JUSTICE. THIRD, IT SHOULD BE REMEMBERED THAT AN APPEAL GENER ALLY LIES FROM THE DECISION OF JUDICIAL AND QUASI- JUDICIAL AUTHORITIES TO THIS COURT BY SPECIAL LEAVE GRANTED UNDER ARTICLE 136. A JUDGMENT WHICH DOES NOT DISCLOSE THE REASONS WILL BE OF LITTLE ASSISTAN CE TO THE COURT. . . .' (P. 2761) 10. THE SAME VIEW WAS REITERATED IN AJANTHA INDUSTRIES V. CBDT AIR 1976 SC 437 AND SIEMENS ENGG. & MFG. CO. OF INDIA LTD. V. UNION OF INDIA AIR 1976 SC 1785. X X X X X X X X X X X X X X X X 12. IN TESTEELS LTD. V. N.M. DESAI, CONCILIATION OFFICER AIR 1970 GUJ. 1, A FULL BENCH OF GUJARAT HIGH COURT SPEAKING THROUGH P.N. BHAGWATI, J. (AS H IS LORDSHIP THEN WAS) MADE A LUCID ENUNCIATION OF LAW ON THE SUBJECT IN THE FOLLOWING WORDS: 'THE NECESSITY OF GIVING REASONS FLOWS AS A NECESSA RY COROLLARY FROM THE RULE OF LAW WHICH CONSTITUTES ONE OF THE BASIC PRINCIPLES OF THE INDI AN CONSTITUTIONAL SET UP. THE ADMINISTRATIVE AUTHORITIES HAVING A DUTY TO ACT JUD ICIALLY CANNOT THEREFORE DECIDE ON CONSIDERATIONS OF POLICY OR EXPEDIENCY. THEY MUST D ECIDE THE MATTER SOLELY ON THE FACTS OF 16 THE PARTICULAR CASE, SOLELY ON THE MATERIAL BEFORE THEM AND APART FROM ANY EXTRANEOUS CONSIDERATIONS BY APPLYING PRE-EXISTING LEGAL NORMS TO FACTUAL SITUATIONS. NOW THE NECESSITY OF GIVING REASONS IS AN IMPORTANT SAFEGUA RD TO ENSURE OBSERVANCE OF THE DUTY TO ACT JUDICIALLY. IT INTRODUCES CLARITY, CHECKS THE I NTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND EXCLUDES OR, AT ANY RATE, MINIMI SES ARBITRARINESS IN THE DECISION- MAKING PROCESS. ANOTHER REASON WHICH COMPELS MAKING OF SUCH AN ORDE R IS BASED ON THE POWER OF JUDICIAL REVIEW WHICH IS POSSESSED BY THE HIGH COURT UNDER A RTICLE 226 AND THE SUPREME COURT UNDER ARTICLE 32 OF THE CONSTITUTION. THESE COURTS HAVE THE POWER UNDER THE SAID PROVISIONS TO QUASH BY CERTIORARI A QUASI-JUDICIAL ORDER MADE BY AN ADMINISTRATIVE OFFICER AND THIS POWER OF REVIEW CAN BE EFFECTIVELY EXERCIS ED ONLY IF THE ORDER IS A SPEAKING ORDER. IN THE ABSENCE OF ANY REASONS IN SUPPORT OF THE ORD ER, THE SAID COURTS CANNOT EXAMINE THE CORRECTNESS OF THE ORDER UNDER REVIEW. THE HIGH COU RT AND THE SUPREME COURT WOULD BE POWERLESS TO INTERFERE SO AS TO KEEP THE ADMINISTRA TIVE OFFICER WITHIN THE LIMITS OF THE LAW. THE RESULT WOULD BE THAT THE POWER OF JUDICIAL REVI EW WOULD BE STULTIFIED AND NO REDRESS BEING AVAILABLE TO THE CITIZEN, THERE WOULD BE INSI DIOUS ENCOURAGEMENT TO ARBITRARINESS AND CAPRICE. IF THIS REQUIREMENT IS INSISTED UPON, THEN , THEY WILL BE SUBJECT TO JUDICIAL SCRUTINY AND CORRECTION.' 11. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE ORDER OF THE LEARNED DRP IS NOT SUSTAINABLE. IT IS SET ASIDE ON THESE ISSUES AND REMITTED BACK TO THE LEARNED DRP FOR READJUDICATION . ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 07.06.20 13 SD/- SD/- ( G.D. AGRAWAL ) ( RAJPAL YADAV ) VICE-PRESIDENT JUDICIAL MEMBER DATED: 07 /06/2013 MOHAN LAL 17 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR