Zebra Technologies Asia Pacific Pte. Ltd. , Bengaluru V. CIT International Taxation-3, Delhi

ITA 1084/DEL/2022

AI Insights

The case revolves around the appeal by Zebra Technologies Asia Pacific Pte. Ltd. against the order passed under section 263 of the Income-tax Act, 1961, which revised the assessment for the assessment year 2017-18. The Commissioner of Income Tax (CIT) had found the original assessment to be erroneous and prejudicial to the interest of the Revenue, as it failed to properly examine the taxability of receipts from technical support and repair services, and off-shore sales of products. The Tribunal examined whether the CIT was justified in revising the assessment, considering the detailed inquiries made by the Assessing Officer during the original assessment proceedings.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 300543 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 16-02-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 17-05-2022
• Other Referred Cases: UOI Vs. Azadi Bachao Andolan and Another [2003] 263 ITR 706 (SC), Vodafone International Holdings B.V. Vs. Union of India [2012] 341 ITR 1 (SC), Ishikawajma-Harima Heavy Industries Ltd. Vs. DIT [2007] 288 ITR 408 (SC), Michelin Tamil Nadu Tyres (P.) Ltd. [2018] 401 ITR 164 (AAR \\u2013 New Delhi), Toshiba Corporation [2021] 431 ITR 414 (AAR \\u2013 New Delhi), DCIT Vs. Guy Carpenter & co. Ltd. [2012] 20 taxmann.com 807 (Delhi), Akamai Technologies Inc. [2018] 404 ITR 495 (AAR \\u2013 New Delhi), Intertek Testing Services (P) Ltd. [2008] 175 Taxman 375 (AAR), Romer Labs Singapore Pte. Ltd. Vs. ADIT [2013] 22 ITR 224 (Delhi \\u2013 Trib.), ITO Vs. Nokia India (P.) Ltd. [2015] 59 taxmann.com 120 (Delhi \\u2013 Trib.), CIT Vs. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi), Shri Narayan Tatu Rane Vs. ITO [2016] 70 taxmann.com 227 (Mumbai \\u2013 Trib.), Malabar Industries Co. Ltd. Vs. CIT [2000] 243 ITR 83 (SC), Festo Elgi (P.) Ltd. Vs. CIT [2000] 246 ITR 705 (Madras), CIT Vs. Escorts Ltd. [2011] 198 Taxman 324 (Delhi), CIT Vs. G.M. Mittal Stainless Steel (P.) Ltd. [2003] 130 Taxman 67 (SC), CIT Vs. Paul Brothers [1995] 216 ITR 548 (Bom.), CIT Vs. Greenworld Corporation [2009] 314 ITR 81 (SC), CIT Vs. Kwality Steel Suppliers Complex, 395 ITR 1 (SC), CIT Vs. Max India Ltd. [2007] 295 ITR 282 (SC), PCIT Vs. Delhi Airport Metro Express (P.) Ltd. [2018] 99 taxmann.com 382 (Delhi), Delhi Airport Metro Express (P.) Ltd. Vs. PCIT [2017] 88 taxmann.com 767 (Delhi \\u2013 Trib.), DCIT Vs. Cameron Australasia Pty. Ltd. [2018] 96 taxmann.com 331 (Mumbai \\u2013 trib.), Microstrategy Singapore Pte. Ltd. Vs. ACIT [2022] 139 taxmann.com 510 (Delhi \\u2013 Trib.), HSBC Bank (Mauritius) Ltd. Vs. DCIT, ITA No.1708/Mum/2016, dated 2nd July, 2018, JCB India Ltd. Vs. DCIT, ITA No. 519/Del/2021, dated 19th January, 2022, DIT Vs. Jyoti Foundation [2013] 357 ITR 388 (Delhi), Ambuja Cements Ltd. Vs. CIT, LTU, ITA No.3563/Mum/2016, dated 10th November, 2017
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Transfer pricing; Double taxation relief; Additional evidence; TDS
• Section: 263; 2; 43B; 143(3); 142(1); 92E; 5(2); 115JB; 143(2); 44AB; 115A; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘D’ NEW DELHI BEFORE SHRI G.S. PANNU, HON’BLE PRESIDENT AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA No.1084/Del/2022 Assessment Year: 2017-18 Zebra Technologies Asia Pacific Pte. Ltd., C/o- Symbol Technologies India Pvt. Ltd., Block 3B, 1 st , 4 th and 5 th Floor, RMZ Ecospace Sarjapur Outer Ring Road, Devarabisanahalli, Bengaluru Vs. Commissioner of Income Tax, (International Taxation)-3, Delhi PAN :AAACZ7936P (Appellant) (Respondent) ORDER PER SAKTIJIT DEY, JM: Captioned appeal has been filed by the assessee assailing the validity of the order dated 25.03.2022 passed under section 263 of the Income-tax Act, 1961 (for short ‘the Act’) pertaining to assessment year 2017-18. Appellant by Sh. Kanchun Kaushal, FCA Sh. Ravi Sharma, Advocate Sh. Kshitij Bansal, CA Respondent by Sh. Anand Kumar Kedia, CIT (DR) & Sh. Sanjay Kumar, Sr. DR Date of hearing 31.10.2022 & 17.02.2023 Date of pronouncement 28.02.2023 ITA No.1084/Del/2022 AY: 2017-18 2 | P a g e 2. Briefly the facts are, the assessee is a non-resident corporate entity incorporated under the Laws of Singapore, since 2008 and is a tax resident of Singapore. Tax Residency Certificate (TRC) has also been issued in favour of the assessee by the authorities in Singapore entitling the assessee to avail the benefit of India – Singapore Double Taxation Avoidance Agreement (DTAA). 3. Be that as it may, the assessee is engaged in the business of wholesale distribution of electronic products and rendition of related after sales, repairs and technical support services to customers in various parts of the world, including India. The sales and support services were provided to customers through third party channel partners, viz., distributors and retailers. For the assessment year under dispute, the assessee had the following receipts from India: (a) From rendition of technical support and repair and maintenance services – Rs. 19,52,78,490/- (b) From off-shore sale of products – USD $2,09,19,539/- 4. In the return of income filed for the impugned assessment years on 02.11.2017, the assessee claimed both the receipts as not chargeable to tax in India and sought refund of the Tax Deducted at Source (TDS). The return of income filed by the ITA No.1084/Del/2022 AY: 2017-18 3 | P a g e assessee was selected for scrutiny. In course of the assessment proceeding, the Assessing Officer issued notices under section 142(1) and 143(2) of the Act seeking various information. In response to the queries raised, the assessee furnished its reply alongwith various details including the agreements entered with third party channel partners as well as an Indian entity, viz., Communication Test Design Indian Pvt. Ltd. (CTDIPL), who was appointed by the assessee to carry out repairs and maintenance services in India on behalf of the assessee. After verifying the information furnished by the assessee, the Assessing Officer ultimately completed the assessee under section 143(3) of the Act, vide order dated 25.12.2019, accepting the income returned by the assessee. After completion of assessment, as aforesaid, learned Commissioner of Income Tax (CIT) called for and examined the assessment record in exercise of power conferred under section 263 of the Act. While doing so, he was of the view that during the assessment proceedings, the Assessing Officer had not carried out any factual or legal verification before accepting assessee’s plea that the receipts from sales and services are not taxable in India. He observed that the receipts from Indian customers are towards sale of products as well as repairs and ITA No.1084/Del/2022 AY: 2017-18 4 | P a g e maintenance of hardware. He observed, though, the Assessing Officer has brought on record the agreements between the assessee and the third party channel partners in India as well as CTDIPL, however, the Assessing Officer failed to examine the true nature character of the receipts. He observed, the services rendered towards repairs and maintenance, if in the nature of managerial, technical and consultancy services, have to be taxed as fee for technical services (FTS) under section 9(1)(vii) of the Act. He observed, in course of assessment proceedings for assessment years 2018-19 and 2019-20, the Assessing Officer has conducted extensive inquiry/verification and has ascertained that the receipts are taxable at the hands of the assessee as FTS. Whereas, in the impugned assessment year, the Assessing Officer has failed to verify the true nature of the receipts through proper inquiry. Thus, being of the view that due to failure on the part of the Assessing Officer to make proper inquiry and investigation while completing the assessments accepting the return of income, has made assessment order erroneous and prejudicial to the interest of Revenue, he issued a show-cause notice to assessee to explain why the assessment order should not be revised under section 263 of the Act. In response to the show-cause notice, the ITA No.1084/Del/2022 AY: 2017-18 5 | P a g e assessee furnished a detailed reply objecting to the initiation of proceedings under section 263 of the Act. 5. Thereafter, in course of proceeding under section 263 of the Act, the Revisionary Authority issued one more show-cause notice on 07.02.2022 seeking further information with regard to remittances from India and to explain the reason for not offering them to tax in India. In response to the said notice, the assessee filed further submissions/reply before the Revisionary Authority explaining the reason, why the receipts from India were not offered to tax. It was submitted by the assessee that the amount received towards repairs and maintenance support services cannot be taxed in India, considering the fact that such services were rendered outside India without any of the personnel of the assessee visiting India, hence cannot be treated as FTS under section 9(1)(vii) of the Act or under Article 12 of the DTAA. 6. As regards the amount received towards off-shore sales of products, it was submitted by the assessee that products were directly sold to the customers from outside India and remittances were also received outside India. It was submitted, sales were effected from outside Indian and remittances were also received outside India. Thus, since, the title over goods passed outside ITA No.1084/Del/2022 AY: 2017-18 6 | P a g e India, the receipt from such sales cannot be taxed in India. The submissions made by the assessee were, however, not acceptable to learned CIT. He was of the view that not only the assessee has rendered technical and consultancy services to customers in India but while rendering such services has also made available technical know-how, knowledge, skill etc. In this regard, he observed, merely because the technical staff/personnel of the assessee did not come to India for rendering the services but necessary assistance was provided through mail etc. or other technical mode, it cannot be said that the nature of service rendered is not technical or consultancy. He observed, due to advancement in technology technical and consultancy services can be rendered irrespective of fact that whether it is rendered through human being or a machine, since, the end result remained same. According to him, whether the services are automated or through human involvement, do not change the characteristics of the services. Further, he observed, the assessee is assisted while rendering repair and support services by CTDIPL in India. Thus, to enable CTDIPL to perform the repair and support services, the assessee must have made available technical knowledge, skill, know-how etc. Therefore, the make ITA No.1084/Del/2022 AY: 2017-18 7 | P a g e available condition also stands satisfied. Thus, he held that the receipts from repair and support services are in the nature of FTS both under section 9(1)(vii) of the Act as well as Article 12 of the Treaty. 7. As regards receipts from off-shore sales of products, learned CIT observed that the taxation of cross border business income is governed by the Source Rule under section 5(2) read with section 9(1)(i) of the Income-tax Act and Article 7 of the DTAA. He observed, the assessee is selling products to Indian customers through distributors/resellers, which are continuing for several years. So there is a business connection in India as there exist real and intimate relationship of the assessee in India. Thus, ultimately, he concluded that the receipts from off-shore sale of products is taxable in India under section 5(2)(iii) read with section 9(1)(i) of the Act. Further, he observed that the assessee will not be entitled to avail the benefit of treaty provision as entire arrangement is intended for tax avoidance through treaty shopping. In this regard, he observed, as per the group structure, Zebra Technology Inc. a tax resident of USA is the ultimate parent company, who is the owner of the intellectual property of Zebra products. He submitted, just for the purpose of deriving tax ITA No.1084/Del/2022 AY: 2017-18 8 | P a g e benefit the parent company interposed two wholly owned subsidiaries one at Jersey and other in Singapore. Thereafter, referring to OECD BEPS papers, learned CIT concluded that since, the assessee is a part of tax avoidance arrangement and indulged on treaty shopping, it will not be entitled to avail the benefit of India-Singapore DTAA. Thus, he held that the receipts from rendition of repairs and support services as well as off-shore sales are to be taxed in India under the provisions of the Act. 8. Having held so, he proceeded to compute the taxable income by directing the Assessing Officer to tax the income from FTS at the rate of 10% on gross basis as per section 115A of the Act. 9. As far as receipts from off-shore sales are concerned, he computed the business income at Rs.27,12,42,743/- and directed the Assessing Officer to tax it at the rate of 40%. Accordingly, he passed the order under section 263 of the Act. 10. Before us, learned counsel appearing for the assessee made detailed submissions, both oral and in writing, submitting that the exercise of jurisdiction under section 263 of the Act is wholly unjustified as in course of assessment proceeding the Assessing Officer had made detailed inquiry in respect of the receipts from repair and support services as well as off-shore sales. He ITA No.1084/Del/2022 AY: 2017-18 9 | P a g e submitted, after making thorough inquiry and verification the Assessing Officer, being convinced with the fact that the repair and support services provided in India have no element of FTS, accepted assessee’s claim. 11. Insofar as the receipts from off-shore sales are concerned, he submitted, all relevant factual details were furnished before the Assessing Officer and after examining the claim of the assessee and keeping in view the position in law, the Assessing Officer accepted the claim. He submitted, when the assessment proceedings for the impugned assessment year was going on, assessment for assessment year 2016-17 involving identical issue was completed after the direction of learned DRP, wherein, the Assessing Officer had accepted that the receipts from repair and support services are not in the nature of FTS. He submitted, even the receipts from off-shore sales were not considered to be taxable in India. He submitted, when the Assessing Officer had the benefit of the assessment order passed for assessment year 2016- 17 in pursuance to directions of learned DRP, it cannot be said that the decision taken by him in accepting assessee’s claim that the receipts from repair and support services as well as off-shore sales are not taxable in India cannot be considered to be ITA No.1084/Del/2022 AY: 2017-18 10 | P a g e erroneous and prejudicial to the interest of Revenue, as, such view is consistent with the view taken by the Assessing Officer in assessment year 2016-17. 12. Proceeding further, he submitted, the repairs and maintenance services provided to customers in India is through online portal and no personnel of the assessee has ever visited India. He submitted, in case of major repairs the products are dispatched to Singapore and after completion of repair works, they are again sent back to the customers in India. He submitted, for some other repair work, which can be done in India, the assessee has outsourced the work to CTDIPL who carries out such work on behalf of the assessee and assessee makes payment to CTDIPL as remuneration for carrying out the work. Thus, he submitted the observations of learned CIT that the assesse has made available technical knowhow, knowledge, skill etc. to CTDIPL is completely wrong, as, instead of assessee receiving any payment from CTDIPL towards rendition of service, it is the assessee who makes payment to CTDIPL. Thus, he submitted, the receipts from repair and support services cannot be treated as FTS either under section 9(1)(vi) read with Article 12 of the DTAA. ITA No.1084/Del/2022 AY: 2017-18 11 | P a g e 13. As regards receipts from off-shore sales of products, learned counsel submitted, entire sale transaction was completed outside the territory of India in Singapore as per the terms of the contract with the third party channel partners. The amounts are transmitted to assessee’s bank account abroad. Thus, he submitted, the sale transaction was completed outside India and the title of goods passed overseas. Thus, under no circumstances, the receipts from sale of products can be taxed in India. Further, he submitted, though, assessee had receipts from off-shore sales in assessment year 2016-17, however, no such addition was made, either by the Assessing Officer or by DRP. 14. Proceeding further, he submitted, the CIT without giving show-cause notice or providing any opportunity to the assessee has unilaterally concluded that the assessee is not entitled to the benefit of treaty provisions as it is part of a tax arrangement/avoidance. He submitted, when the assessee is a resident of Singapore and has a valid TRC issued by the competent authorities in Singapore, without providing any opportunity to the assessee to explain its position, learned CIT could not have come to a conclusion that the assessee has been ITA No.1084/Del/2022 AY: 2017-18 12 | P a g e interposed for treaty shopping. In support of his submissions, learned counsel relied upon the following decisions: 1. UOI Vs. Azadi Bachao Andolan and Another [2003] 263 ITR 706 (SC) 2. Vodafone International Holdings B.V. Vs. Union of India [2012] 341 ITR 1 (SC) 3. Ishikawajma-Harima Heavy Industries Ltd. Vs. DIT [2007] 288 ITR 408 (SC) 4. Michelin Tamil Nadu Tyres (P.) Ltd. [2018] 401 ITR 164 (AAR – New Delhi) 5. Toshiba Corporation [2021] 431 ITR 414 (AAR – New Delhi) 6. DCIT Vs. Guy Carpenter & co. Ltd. [2012] 20 taxmann.com 807 (Delhi) 7. Akamai Technologies Inc. [2018] 404 ITR 495 (AAR – New Delhi) 8. Intertek Testing Services (P) Ltd. [2008] 175 Taxman 375 (AAR) 9. Romer Labs Singapore Pte. Ltd. Vs. ADIT [2013] 22 ITR 224 (Delhi – Trib.) 10. ITO Vs. Nokia India (P.) Ltd. [2015] 59 taxmann.com 120 (Delhi – Trib.) 11. CIT Vs. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi) 12. Shri Narayan Tatu Rane Vs. ITO [2016] 70 taxmann.com 227 (Mumbai – Trib.) 13. Malabar Industries Co. Ltd. Vs. CIT [2000] 243 ITR 83 (SC) 14. Festo Elgi (P.) Ltd. Vs. CIT [2000] 246 ITR 705 (Madras) 15. CIT Vs. Escorts Ltd. [2011] 198 Taxman 324 (Delhi) 16. CIT Vs. G.M. Mittal Stainless Steel (P.) Ltd. [2003] 130 Taxman 67 (SC) 17. CIT Vs. Paul Brothers [1995] 216 ITR 548 (Bom.) 18. CIT Vs. Greenworld Corporation [2009] 314 ITR 81 (SC) 19. CIT Vs. Kwality Steel Suppliers Complex, 395 ITR 1 (SC) 20. CIT Vs. Max India Ltd. [2007] 295 ITR 282 (SC) 21. PCIT Vs. Delhi Airport Metro Express (P.) Ltd. [2018] 99 taxmann.com 382 (Delhi) 22. Delhi Airport Metro Express (P.) Ltd. Vs. PCIT [2017] 88 taxmann.com 767 (Delhi – Trib.) 23. DCIT Vs. Cameron Australasia Pty. Ltd. [2018] 96 taxmann.com 331 (Mumbai – trib.) ITA No.1084/Del/2022 AY: 2017-18 13 | P a g e 24. Microstrategy Singapore Pte. Ltd. Vs. ACIT [2022] 139 taxmann.com 510 (Delhi – Trib.) 25. HSBC Bank (Mauritius) Ltd. Vs. DCIT, ITA No.1708/Mum/2016, dated 2 nd July, 2018 26. JCB India Ltd. Vs. DCIT, ITA No. 519/Del/2021, dated 19 th January, 2022 27. DIT Vs. Jyoti Foundation [2013] 357 ITR 388 (Delhi) 28. Ambuja Cements Ltd. Vs. CIT, LTU, ITA No.3563/Mum/2016, dated 10 th November, 2017 15. Learned Departmental Representative strongly relied upon the observations of learned CIT and submitted that the assessee has a dedicated support centre in India, which provides services to customers/end users. Therefore, the make available condition gets satisfied as through the transfer of technical knowledge, know-how, skill etc., the support centre in India is able to provide services to customers. 16. As regards the receipts from off-shore sale of products, learned Departmental Representative submitted, one has to look at the transaction as a whole and not to adopt a dissecting approach. He submitted, the nature of contract, the terms involved, the conduct of the parties etc. clearly show that only for tax purpose contract was split up. Therefore, substance over form approach has to be adopted. He submitted, learned CIT has given a categorical observation that the assessee has a business ITA No.1084/Del/2022 AY: 2017-18 14 | P a g e connection in India in terms of section 9(1)(i). Thus, he submitted, the receipts from off-shore sale of products was rightly brought to tax. Drawing our attention to the assessment order, learned Departmental Representative submitted, the Assessing Officer has not discussed all these aspects, which clearly shoes that in course of assessment proceedings the Assessing Officer failed to make the required verification and inquiry, which he should have made to not only find out the true nature and character of the receipts but the taxability at the hands of the assessee. He submitted, due to failure of the Assessing Officer in carrying out necessary verification and inquiry, the assessment order is erroneous and prejudicial to the interest of Revenue. 17. As regards availability of treaty benefits to the assessee, learned Departmental Representative strongly relied upon the observations of learned CIT. 18. We have carefully considered exhaustive submissions, both oral as well as in writing, from both sides in the light of the decisions relied upon and have also perused the materials on record. It is evident, learned CIT has considered the assessment order to be erroneous and prejudicial to the interest of Revenue and accordingly revised it basically on the premises that the ITA No.1084/Del/2022 AY: 2017-18 15 | P a g e Assessing Officer has not inquired into and examined the nature and character of receipts from rendition of repair and support services as well as off-shore sale of Zebra products and their taxability in India. According to learned PCIT, the receipts from rendition of repair and support services is in the nature of FTS under section 9(1)(vii) of the Act. Insofar as the receipts from off- shore sale of products, learned PCIT has held that since the assessee has a business connection in India, proceeds from off- shore sale of products would be taxable in India under section 5(2)(iii) read with section 9(1)(i) of the Act. Of Course, learned Revisionary Authority has also held that the assessee is not entitled to treaty benefit as it has been interposed by its parent company only for claiming benefit under the treaty. Thus, according to the Revisionary Authority, it is nothing but an arrangement for treaty shopping. 19. Keeping in perspective the aforesaid factual position, we proceed to examine the nature of inquiry conducted by the Assessing Officer in course of assessment proceeding to evaluate the validity of the observations/findings of the Revisionary Authority that the Assessing Officer has not enquired into various aspects as pointed out in the revision order. At the cost of ITA No.1084/Del/2022 AY: 2017-18 16 | P a g e repetition, we must observe in the return of income filed for the impugned assessment year the assessee had claimed the receipts from repair and support services to be in the nature of business profit and in absence of a PE is not taxable in India. As regards receipts from off-shore sale of Zebra products, it is the claim of the assessee that sales were concluded outside the territory of Indian, hence, profits derived from sale of such products are not taxable in India. It is relevant to observe, the Singapore Revenue Authorities have issued a TRC in favour of the assessee valid for the impugned assessment year. In course of assessment proceeding, the Assessing Officer, on 24.08.2018 issued a notice under section 143(2) of the Act, calling upon the assessee to justify the claims made in the return of income. In response to the said notice, the assessee furnished its reply on 11 th December, 2018. Thereafter, on 07.01.2019, the Assessing Officer issued a notice under section 142(1) of the Act alongwith a questionnaire, wherein, following details/documents were called for: 1 Give details note regarding nature of your business activities for the relevant period. Furnish details regarding the projects executed in India during the year. 2. File copy of Return of Income for A.Y. 2017-18, Audit Report in form 3CA/3CB and 3CD, if applicable, with Balance Sheet, Profit & Loss Account and Notes on Accounts. ITA No.1084/Del/2022 AY: 2017-18 17 | P a g e 3. Furnish Statement/Computation of Income with supporting annexure/evidence in support of the Return of Income and deductions claimed under Chapter-VIA. 4. Furnish report u/s. 115JB of the Income-tax Act, 1961 in form 29B as per Rule 40B. 5. Furnish report in Form 3CEB u/s. 92E read with Rule 10E, if applicable. 6. If the assessee company has not made - addition or disallowances, on the basis of the tax Audit Report; furnish reasons for the same. 7. Furnish the details regarding the share holding of your company alongwith the name and address of its directors. 8. Detail of Sales and Purchase made by the Head Office or parent company in India in the F.Y. 2016-17 (A.Y. 2017-18). 9. Explain the method of accounting employed in your case. 10. Copy of agreement/Contracts with Indian customer or any other party in India from whom payment is received during the year. 11. Details of invoices raised to the Indian customers/Income received. 12. Copy of all orders U/S. 195(2) which assessee might have received from payers relevant to the assessment year in consideration. 13. Whether the assessee company received any payment from any non-resident in connection with business of non-resident in India. If yes, please, file the relevant details. 14. Explain in detail whether you have permanent establishment in India. 15. Whether technical services were provided to the Indian customer during the year? If yes, please submit the names of employees and other persons who visited India in this regard stating their period of stay, purpose and for which project these services were provided and whether in these projects the assessee has supplied any products. The information should be provided invoice wise. 16. Furnish the details of all expatiates whose remuneration is charged to the expenses in India during the relevant period. 17. Furnish the details of salary paid during the year along with name and addresses of the persons to whom the salary was paid exceeding Rs. 5 Lakhs. 18. Please submit the name and address of sub contractors of the assessee, in connection with the India projects with their PAN Nos. ITA No.1084/Del/2022 AY: 2017-18 18 | P a g e 19. Give the list of your AEs in India, if any. Also give the details of transactions entered with them. 20. Please give names of your employees who visited India during the relevant period purpose of their visit and duration of stay in India. 21. Please furnish the above details at S.No.17 with respect of the employees of your associated enterprises (AEs), the applicable. 22. Please give the names and address of the employees — resident and non-resident, who were working for each project. Also give the duration of their stay at each project site. This should be supported with documentary evidences. Also give the details of salary of such employees. All these details should be project wise. 23. Please furnish the list of all bank accounts maintained by the company giving the following details (along with statement of account, for the relevant period. 24. A/c No., Type of account, Name of the bank, Address of the branch. 25. Details of the expenses incurred and income received by you in foreign currencies. Please support it with documentary evidences. 26. Copy of the tax residency certificate relevant to the AY 2017-18. 27. Please confirm whether you have maintained books of accounts for your Indian operation as required u/s 44AA of the Act. If yes, please confirm whether they have been audited as required u/s 44AB of the Act and furnish the same. If no, give your explanation for not complying with provisions u/s 44AA and u/s 44AB of the Act. 28. Reconciliation of receipts as per TDS certificate filed and as per your books of accounts. 29. Furnish party wise details of advances received, if any, during the relevant previous year. File confirmations the Income T Tax particulars from the parties concerned. 30. Please furnish details of payments made to persons specified in Section 40(A) (2) (b). 31. Furnish details along with proofs of payments made before the date of filing the return for payments referred to in section 43B and 40(a) (ia), if any. 32. Furnish list of sundry Creditors/Sundry debtors with complete names and addresses and amount payable/receivable from each of them.* 33. Furnish bills/documentary evidence of new assets purchased during the relevant previous year on which depreciation is claimed. ITA No.1084/Del/2022 AY: 2017-18 19 | P a g e Adduce evidence to prove when the asset was put to use for business. 34. Complete details about the parties to whom payment in excess of Rs. 50,0001- is made with nature of such payments, mode of payments, TDS deducted, if any. 35. Copy of last assessment order. 36. Furnish books of accounts with supporting bills and vouchers and bank statement. 37. Please furnish the reason for high ratio of refund to TDS. 20. In response to the aforesaid notice, the assessee furnished its reply on 18 th January, 2019 explaining the nature of activities in India. In the said reply, the assessee very clearly and categorically stated that the receipts from repair and support services are not taxable in India. A copy of TRC was also enclosed to the reply. Further, the assessee enclosed the final assessment order for assessment year 2016-17, wherein, after detailed inquiry the Assessing Officer had accepted assessee’s claim that the receipts from rendition of repair and support services is not in the nature of FTS, hence, not taxable in India. He has also accepted assessee’s claim that receipts from off-shore sale of Zebra products are not taxable in India. On 01.11.2019, the Assessing Officer issued one more notice under section 142(1) of the Act calling upon the assessee to furnish the list of Indian customers and copy of agreements for international transactions entered ITA No.1084/Del/2022 AY: 2017-18 20 | P a g e with the customers in India. In response to the said notice, the assessee furnished its reply on 8 th November, 2019 with the details called for. After examining assessee’s submissions and other evidences brought on record, including the final assessment order passed for the immediately preceding assessment year, i.e., assessment years 2016-17, the Assessing Officer proceeded to accept assessee’s claim regarding non-taxability of receipts from rendition of repair and support services as well as sale of products. Thus, the aforesaid facts clearly reveal that in course of assessment proceeding, the Assessing Officer, indeed, has made detailed inquiry regarding the nature of receipts from repair and support services as well as off-shore sale of products. It is relevant to observe, in the return of income filed for the assessment year 2016-17, the assessee had made identical claim with regard to receipts from rendition of repair and support services as well as off-shore sale of products. While framing the draft assessment order, the Assessing Officer, though, had accepted assessee’s claim regarding receipts from off-shore sale of products, however, he brought to tax receipts from rendition of repair and support services by treating it as royalty/FTS/FIS. ITA No.1084/Del/2022 AY: 2017-18 21 | P a g e Against the draft assessment order, the assessee raised objections before learned DRP. 21. In course of the proceedings before learned DRP, the assessee made specific submissions with regard to lack of opportunity at the assessment stage to explain the nature of receipts. Basis the submissions made by the assessee, learned DRP directed the Assessing Officer to examine assessee’s submissions with regard to the nature of receipts from repair and support services and furnish a report. In remand report dated 06.05.2019, the Assessing Officer, after conducting necessary inquiry with regard to the nature of receipts from repair and support services, observed as under: “6 . To verify the above claim of the assessee, a letter dated 22.04.2019 has been issued to the assessee company and in compliance to the same, the assessee has furnished its reply dated 03.05.2019 to this office. The same has been verified and it is clear that the services is being rendered from outside India and no expatriates visited India for rendering repair services to customers. Hence, it is clear that the off-shore services is being provided by the assessee company. Now the issue is whether these types of services rendered from outside India would qualify as FTS/FIS in India. On perusal of the DTAA treaty between India-Singapore, it is seen that the services imparted to the customer may qualify as FTS/FIS, if such services make available technical knowledge, experience, skill, know how or process, which enables the person acquiring the services to apply the technology contained therein. In the instant case, all defected equipments are sent outside India for repair and then, the same repaired equipments is shipped to the customers in India. The assessee has also furnished the copy of welcome pack which has been issued to customers for provision services. Hence, nature of services does not fall under the ambit of definition of FTS/FIS as per DTAA treaty between India-Singapore. ITA No.1084/Del/2022 AY: 2017-18 22 | P a g e Hence, as per the direction of the DRP, the additional evidences and submissions of the assessee have been examined and are found to be acceptable.” 22. While forwarding the remand report of the Assessing Officer to the DRP, the Commissioner of Income Tax (International Taxation)-3, New Delhi, who was the administrative head, in letter dated 09.05.2019 concurred with the observations/views of the Assessing Officer in the remand report. After considering the remand report of the Assessing Officer, learned DRP disposed of the objections by directing the Assessing Officer to delete the addition made by treating the receipt from rendition of repair and support services as FTS. In terms with the directions of learned DRP, the Assessing Officer passed the final assessment order deleting the addition made. Thus, from the aforesaid narration facts it is quite obvious that the nature of receipts, both from rendition of repair and support services as well as off-shore sale of Zebra products was examined by the Assessing Officer in assessment year 2016-17 and after thorough inquiry, assessee’s claim was accepted. In the impugned assessment year, as facts on record would reveal, the Assessing Officer has conducted necessary inquiry with regard to the activities carried out by the ITA No.1084/Del/2022 AY: 2017-18 23 | P a g e assessee and receipts earned there from. He has called for and examined the agreements with the Indian customers. Thus, it cannot be said that the Assessing Officer has not made the requisite inquiry. 23. Additionally, when the Assessing Officer was in sessin of the assessment proceeding for the impugned assessment year, the assessment proceeding for assessment year 2016-17 got concluded and the final assessment order accepting assessee’s claim was available before the Assessing Officer. Thus, the view taken by the Assessing Officer in the impugned assessment year in not bringing to tax the receipts from repair and support services as well as off-shore sales were consistent with the view taken by the Assessing Officer in the final assessment order passed for assessment year 2016-17, in pursuance to the directions of learned DRP. Thus, in these circumstances, it can very well be held that the view taken by the Assessing Officer, though, may not be the only view on the issue, but, is a possible view. In other words, whether the receipts from repair and support services and off-shore sales are taxable in India, will have more than one view. ITA No.1084/Del/2022 AY: 2017-18 24 | P a g e 24. That being the case, the issue is highly debatable. Therefore, the only because the view taken by the Assessing Officer is not acceptable to the Revisionary Authority or does not matched with the view of the Revisionary Authority, it cannot be said that it is not a possible view. In any case of the matter, when the Assessing Officer had the benefit of the decision of the DRP and the Assessing Officer in assessment year 2016-17, insofar as, the issue of taxability of receipts from rendition of repair and support services and off-shore sales, it cannot be said that the assessment order is erroneous. Therefore, one of the conditions of section 263 is not satisfied. While invoking the powers under section 263 of the Act, learned CIT has referred to Explanation 2 to section 263. In this regard, we must observe, Explanation 2 in no way dilutes basic conditions of sub-section (1) to section 163, i.e., twin conditions of ‘erroneous’ and ‘prejudicial to the interest of Revenue’ have to be satisfied cumulatively. In our view, the twin conditions are not satisfied in the present case. 25. As regards the observations of the Revisionary Authority regarding treaty shopping and non-availability of the treaty benefit to the assessee, we must observe, learned Revisionary Authority has ventured into uncharted territory without ITA No.1084/Del/2022 AY: 2017-18 25 | P a g e disclosing his mind to the assessee and providing an opportunity to the assessee to rebut the charges. Thus, in our view, the observations of learned CIT with regard to the assessee being an entity transposed to avail treaty benefit cannot be accepted as the assessee never got an opportunity to meet the allegations of the Revisionary Authority. Thus, applying the ratio laid down in the judicial precedents cited before us, we hold that the exercise of jurisdiction under section 263 of the Act in the present case is invalid, as, under the given facts and circumstances of the case, the conditions of section 263 (1) are not fulfilled. Accordingly, we quash the impugned order of learned CIT passed under section 263 of the Act and restore the order of assessment. 26. In the result, the appeal is allowed, as indicated above. Order pronounced in the open court on 28 th February, 2023 Sd/- Sd/- (G.S. PANNU) (SAKTIJIT DEY) PRESIDENT JUDICIAL MEMBER Dated: 28 th February, 2023. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi