Mitsui & Co. India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1672/DEL/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6683 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 30-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SURENDER PAL
• Keywords: Transfer pricing; Business expenditure; Residential status; Salary income; International transaction; Earning of tax free income; Permanent establishment; Non-deduction of tax; Corroborative evidences; Commercial expediency; TDS; Set aside
• Section: 92B; 234B; 14A; 37(1); 44AB; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1: NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI O.P.KANT, ACCOUNTANT MEMBER ITA NO.1608/DEL/2016 (ASSESSMENT YEAR-2011-12) D Y. CIT, CIRCLE - 16(2), NEW DELHI VS. M/S. MITSUI & COMPANY INDIA PVT. LTD. PLOT NO.D-1, 4 TH FLOOR, SALCON RAS VILAS, DISTRICT CENTRE, SAKET, NEW DELHI-110017. PAN-AADCM 4488J (APPELLANT) (RESPONDENT) ITA NO.1672/DEL/2016 (ASSESSMENT YEAR-2011-12) M/S. MITSUI & COMPANY INDIA PVT. LTD. PLOT NO.D-1, 4 TH FLOOR, SALCON RAS VILAS, DISTRICT CENTRE SAKET, NEW DELHI-110017. PAN-AADCM 4488J VS. DCIT, CIRCLE - 16(2), NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SH. SURENDER PAL, CIT-DR RESPONDENT BY SH. VED JAIN, ADV. 2 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: THESE ARE CROSS-APPEALS FILED BY THE ASSESSEE AND T HE REVENUE ARISING FROM THE FINAL ASSESSMENT ORDER PASSED BY T HE ASSESSING OFFICER (AO) VIDE ORDER DATED 28.01.2016 CONSEQUENT TO THE DIRECTIONS OF THE LD. DISPUTES RESOLUTION PANEL (DRP) VIDE ITS DIRECTIONS DATED 14.12.2015 AND PERTAINS TO ASSESSMENT YEAR 2011-12. 2.0 IN THE APPEAL FILED BY THE REVENUE, IT HAS RAI SED THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE DISPUTE RESOLUTION PANEL (DRP) WAS JUSTIFIED IN NOT APPRECIATING THE FACT THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE WAS AKIN TO TRADING? 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE DRP WAS JUSTIFIED IN REJECTING THE PRIMACY OF FUNCTIONS PERFORMED BY THE ASSESSEE AND BASING ITS DECISION ON THE GROUND THAT THE RISKS WERE MINIMAL IN THE CASE OF THE ASSESSEE? 3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE DRP WAS JUSTIFIED IN STATING THAT NO INTANGIBLES WERE C REATED OF THE SUPPLY CHAIN AND HUMAN INTANGIBLES WHEN THESE INTANGIBLES HAVE BEEN SPECIFICALLY ACKNOWLEDGED BY THEIR INCORPORATION IN THE EXPLANATION (II) TO SECTION 92B OF THE INCOME TAX ACT, 1961? 4. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE DRP WAS JUSTIFIED IN REJECTING THE TPOS ANALYSIS WITHO UT GOING INTO THE AGREEMENTS THE ASSESSEE HAS ENTERED INTO WITH AE? 5. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CASE AND IN LAW THE DRP WAS JUSTIFIED IN REJECTING THE USE OF FOB IN THE COST BASE WHEN IT IS THE RELEVANT COST BASE FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF THE ASSESSEE WI TH ITS AES? 3 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. 6. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE DRP WAS JUSTIFIED IN DIRECTING ACCEPTANCE OF A PLI THAT DOES NOT INCLUDE COST OF GOODS AMONG EXPENSE, WHEN ALL THE FUNCTIONS PERF ORMED ASSETS UTILIZED AND RISK UNDERTAKEN WERE IN THAT CONTEXT O NLY? 7. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE DRP WAS JUSTIFIED IN CONSIDERING THE PROVISIONS OF PROV ISO TO SECTION 92C(2) OF THE ACT TO THE PRESENT CASE? 8. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP IS JUSTIFIED IN DELETING THE DISALLOWANCE OF AN AMOUNT OF RS.16,54,868/- MADE BY THE AO BY INVOKING THE PROVI SION OF SECTION 14A OF THE ACT? 9. WHETHER, ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP IS JUSTIFIED IN NOT UPHOLDING DISALLOWANCE OF RS.16 ,54,868/- U/S 14A OF INCOME TAX ACT 1961 WITHOUT CONSIDERING LEGISLATIVE INTEND OF INTRODUCING SECTION 14A BY THE FINANCE ACT 2001 AS CLARIFIED BY THE CBDT CIRCULAR NO.5/ 2014 DATED 10.02.2014? 10. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP IS JUSTIFIED IS NOT UPHOLDING THE DISALLOWANCE OF RS. 16,54,868/- U/S 14A OF THE ACT WITHOUT CONSIDER A LEGAL PRINCIP LE THAT ALLOWABILITY OF EXPENDITURE UNDER THE ACT IS NOT CONDITIONAL UPO N THE EARNING OF THE INCOME AS UPHELD BY THE HONBLE SUPREME COURT IN TH E CASE OF CIT VS. RAJENDRA PRASAD MOODY [1978] 115 ITR 519? 11. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP IS JUSTIFIED IN NOT UPHOLDING THE DISALLOWANCE OF AN AMOUNT OF RS.13,63,487/- ON ACCOUNT OF EXPENDITURE ON CLUB ME MBERSHIP? 12. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP IS JUSTIFIED IN NOT UPHOLDING DISALLOWANCE OF A N AMOUNT OF RS.1,28,79.450/- ON ACCOUNT OF SERVICE FEES PAID TO M/S WEST JAPAN LOGISTICS, DIVISION OF MITSUI & COMPANY LTD., JAPAN AND M/S MITSUI & COMPANY (ASIA) PTE., SINGAPORE? 13. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP IS JUSTIFIED IN RESTRICTING THE DISALLOWANCE TO THE EXTENT OF RS.26,93,754/- ONLY OUT OF THE TOTAL DISALLOWANCE O F RS.1,39,68,770/- MADE BY THE AO ON ACCOUNT OF STAFF WELFARE EXPENSES ? 14. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP IS JUSTIFIED IN NOT UPHOLDING THE DISALLOWANCE OF AN AMOUNT OF RS.23,57,926/- MADE BY THE AO ON ACCOUNT OF NON DED UCTION OF TDS ON PAYMENTS MADE TO MITSUI & CO., JAPAN. 4 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. 15. THAT THE ORDER OF THE LD. DRP IS ERRONEOUS AND IS N OT TENABLE ON FACTS AND IN LAW. 16. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D OR FORGO ANY GROUND(S) OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2.1 IN THE APPEAL FILED BY THE ASSESSEE, IT HAS RA ISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED AO/DRP HAS ERRED, BOTH ON FACTS AND IN LAW IN MAKING/UPHOL DING A DISALLOWANCE OF AN AMOUNT OF RS.26,93,754/- ON ACCO UNT OF EXPENDITURE ON STAFF WELFARE EXPENSES. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP ERRED IN CHARGING INTEREST U/S 234B & 234C O F THE ACT. 3. THAT ON FACTS AND IN LAW THE ORDERS PASSED BY THE A O/DRP ARE BAD IN LAW AND VOID AB-INITIO. THAT THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, A MEND AND/OR VARY THE GROUND(S) OF APPEAL AT OR BEFORE THE TIME OF HE ARING. 3.0 GROUND NOS.1 TO 7 IN THE APPEAL FILED BY THE R EVENUE ARE REGARDING THE TRANSFER PRICING ADJUSTMENT DELETED B Y THE LD. DRP VIDE ITS ORDER DATED 14.12.2015. DURING THE COURSE OF THE H EARING, IT WAS INFORMED THAT THE ASSESSEE HAS ENTERED INTO ADVANCE PRICING AGREEMENT (APA) DATED 19.12.2014 IN TERMS OF PROVISIONS OF SE CTION 92CC OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) FOR THE FINANCIAL YEAR 2013-14 TO FINANCIAL YEAR 2017-18. THE ASSESSEE, AF TER NOTIFICATION OF ROLLBACK RULES, SOUGHT APPROVAL FOR ROLLBACK OF THE ABOVE AGREEMENT FOR 5 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. FINANCIAL YEAR 2010-11 TO FINANCIAL YEAR 2012-13 AN D ACCORDINGLY, AN AGREEMENT WAS ENTERED INTO UNDER THE ADVANCE PRICING MECHANISM FOR THESE FINANCIAL YEARS WHICH INCLUDED THE PRESENT ASS ESSMENT YEAR 2011- 12. CONSEQUENT THERETO, A MODIFIED RETURN FOR THE ASSESSMENT YEAR 2011-12, AFTER INCLUDING THE INCOME IN ACCORDA NCE WITH THE AGREEMENT, WAS FILED ON 20.02.2017 TO GIVE EFFECT TO THE ADVANCE PRICING AGREEMENT IN ACCORDANCE WITH SECTION 92CD OF THE ACT . IT WAS INFORMED THAT IN VIEW OF THE ADVANCE PRICING AGREEMENT HAVING BEEN ENTERED INTO, THE GROUNDS IN THE APPEAL ON THIS ISSUE OF TRANSFER PRICING ARE TO WITHDRAWN AS PER RULE 10RA (5). 3.1 THE LEARNED DR AGREED THAT GROUND NO. 1 TO 7 B E TREATED AS WITHDRAWN. 3.2 IN VIEW OF THE ADVANCE PRICING AGREEMENT HAVIN G BEEN ENTERED INTO BY THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, GROUND NOS. 1 TO 7 OF REVENUES APPEAL ARE DISMISSED AS WIT HDRAWN. 3.3 GROUND NOS. 8 TO 10 IN REVENUES APPEAL ARE ON THE ISSUE OF DELETION OF DISALLOWANCE OF RS.16,54,868/- PROPOSED BY THE AO IN THE ASSESSMENT ORDER UNDER SECTION 14A OF THE ACT. THE AO HAS MADE THE ABOVE DISALLOWANCE BY HOLDING THAT DISALLOWANCE UNDER SECTION 14A IS TO 6 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. BE MADE MANDATORILY IRRESPECTIVE OF THE FACT WHETHE R ASSESSEE HAS RECEIVED ANY EXEMPT INCOME DURING THE YEAR OR NOT. THE LD. DRP HAS DELETED THE DISALLOWANCE RELYING UPON THE JUDGMENT O F HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. (378 ITR 33) W HEREIN IT HAS BEEN HELD THAT IN THE ABSENCE OF ANY EXEMPT INCOME DURING THE YEAR, NO DISALLOWANCE CAN BE MADE. FURTHER, THE LD. DRP HAS HELD THAT THE INTEREST FREE FUNDS ARE SUFFICIENT TO MEET THAT INV ESTMENT MADE BY THE ASSESSEE. THE LEARNED DR WAS FAIR ENOUGH TO ACCEPT THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS JUDGME NTS OF THE JURISDICTIONAL HIGH COURT INCLUDING THE ABOVE JUDGM ENT OF CHEMINVEST LTD. (SUPRA) RELIED UPON BY THE LD. DRP. 3.4 IN VIEW OF THE ABOVE FACTS, WE UPHOLD THE ORDER OF T HE DRP DELETING THE ABOVE SAID DISALLOWANCE AND GROUND NO. 8 TO 10 OF REVENUES APPEAL ARE DISMISSED. 3.5.0 GROUND NO. 11 IN THE REVENUES APPEAL IS REG ARDING DELETION OF ADDITION OF RS.13,63,487/- ON ACCOUNT OF EXPENDITUR E INCURRED BY THE ASSESSEE ON CLUB MEMBERSHIP FOR ITS EMPLOYEES. THE AO DISALLOWED THE EXPENDITURE HOLDING THAT THE SAME HAS NOT BEEN INCU RRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE L D. DRP HAS DIRECTED TO 7 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. DELETE THE DISALLOWANCE HOLDING THAT THIS CLUB MEMBE RSHIP EXPENDITURE INCURRED BY THE ASSESSEE FOR ITS EMPLOYEES HAS BEEN CONSIDERED AS PERQUISITE IN THE HANDS OF THE EMPLOYEES AS SALARY INCOME AND TAX HAS BEEN PAID THEREON. 3.5.1 IT WAS CONTENDED BY THE LEARNED DR THAT CLUB MEMBERSHIP EXPENDITURE IS A PERSONAL EXPENDITURE AN D CANNOT BE CONSIDERED TO BE AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. 3.5.2 THE LEARNED AR SUBMITTED THAT THE EXPENDITU RE INCURRED BY THE EMPLOYER ON ITS EMPLOYEES IS AN EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THESE EMPLOYEES ARE WORKING FOR THE ASSESSEE AND ANY BENEFIT EXTENDED TO SUCH E MPLOYEES WHETHER IN CASH OR KIND IS IN CONSIDERATION FOR THE SERVICES R ENDERED BY SUCH EMPLOYEES. FURTHER, THE ASSESSEE HAS CONSIDERED SUC H PAYMENT AS PERQUISITES IN THE HANDS OF THE EMPLOYEE AND DEDUCT ED TAX FROM THE EMPLOYEES. ON GOING THROUGH THE ORDER PASSED BY TH E LD. DRP, WE NOTE THAT THE LD. DRP HAD DELETED THE ADDITION HOLDING T HAT THE CLUB MEMBERSHIP FEES HAVING BEEN OFFERED FOR TAXATION BY THE RESPECTIVE EMPLOYEES AS SALARY RECEIPTS, AS IS EVIDENT FROM TH E FORM 16, PLACED IN THE 8 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. PAPER BOOK, ABSOLVED THE ASSESSEE OF THE LIABILITY TO SURRENDER IT FOR TAXATION AS EXPENDITURE NOT WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF BUSINESS. WE ARE OF THE CONSIDERED VIEW THAT THE FI NDING OF THE LD. DRP IS CORRECT. WE ARE FURTHER OF THE VIEW THAT ANY EXPEND ITURE INCURRED ON EMPLOYEES BY THE EMPLOYER, WHETHER BY WAY OF SALARY O R BY WAY OF PERQUISITES, IS BUSINESS EXPENDITURE AS THE EMPLOYE ES ARE WORKING FOR THE BUSINESS. WHAT THE EMPLOYER PROVIDES TO EMPLOYEES I S A CONSIDERATION FOR THE SERVICES RENDERED BY SUCH EMPLOYEES. SUCH CONS IDERATION CAN BE IN CASH BY WAY OF SALARY OR ALLOWANCES OR IN KIND BY WA Y OF VARIOUS PERQUISITES. THE CLUB MEMBERSHIP FEE IS ONE SUCH P ERQUISITE WHICH IS EXTENDED BY THE EMPLOYER TO ITS EMPLOYEES. SO LONG THE FEE IS PAID FOR THE EMPLOYEES WHO ARE WORKING WITH THE EMPLOYER FOR THE B USINESS BEING CARRIED ON BY SUCH EMPLOYER, THE FEE SO PAID IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 3.5.3 IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER O F THE LD. DRP AND GROUND NO. 11 OF THE REVENUES APPEAL IS DISMIS SED. 3.6.0 GROUND NO. 12 IN REVENUES APPEAL IS ON ACCO UNT OF DELETION OF ADDITION OF RS.1,28,79,450/- ON ACCOUNT OF THE SERV ICE FEES. THE AO HAS DISALLOWED THE SAME HOLDING THAT THIS EXPENDITURE H AS NOT BEEN INCURRED 9 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS A S THE ASSESSEE HAS NOT FURNISHED ANY DETAILS REGARDING THE ACTUAL SERVICE BEING PROVIDED AND THE NATURE OF SERVICES OFFERED BY M/S WEST JAPAN LOGIST ICS IS QUITE VAGUE. FURTHER, M/S MITSUI & COMPANY (ASIA) PTE., SINGAPOR E IS A TRADING COMPANY AND IS NOT A CONSULTING COMPANY AND IS NOT COMPETENT TO OFFER SUCH KIND OF SPECIALIZED SERVICE TO THE ASSESSEE CO MPANY. IT HAS BEEN FURTHER STATED BY THE AO THAT THE ASSESSEE HAS INCU RRED HUGE EXPENDITURE ON ACCOUNT OF LEGAL AND PROFESSIONAL CHARGES ITSELF AND AS SUCH THE CLAIM OF RECEIPT OF ANY LEGAL SERVICE FROM ITS ASSOCIATED ENTERPRISE (AE) IS UNJUSTIFIED. AS REGARDS THE CONTENTION OF THE ASSE SSEE THAT THE TRANSACTION WITH AE HAS BEEN EXAMINED BY THE TRANSFER PRICING OF FICER (TPO), THE SAME WAS REJECTED BY THE AO ON THE GROUND THAT THE TPO HAS NOT EXAMINED THE ABOVE PAYMENT FROM THE POINT OF ALLOW A BILITY UNDER SECTION 37(1) OF THE INCOME TAX ACT, 1961 FOR WHICH INQUIRY CAN ONLY BE MADE BY THE AO. THE LD. DRP HAS DELETED THE ABOVE ADDITION . AGGRIEVED BY THE ORDER OF THE DRP, THE REVENUE HAS RAISED THIS GROUN D IN ITS APPEAL. 3.6.1 THE LEARNED DR PLACED RELIANCE ON THE ORDER PASSED BY THE AO IN SUPPORT OF THIS GROUND. 10 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. 3.6.2 THE LEARNED AR PLACED RELIANCE ON THE ORDER PASSED BY THE LD. DRP. IT WAS SUBMITTED THAT ASSESSEE HAS PROVIDE D ALL THE EVIDENCES IN SUPPORT OF THE SERVICES AVAILED BY IT AND ALL THE A GREEMENTS ALONG WITH THE SUPPORTING DOCUMENTS WERE SUBMITTED. THE OBSERVATI ON OF THE AO THAT THE ASSESSEE HAS NOT SUBMITTED THE DETAILS REGARDIN G THE ACTUAL SERVICES AVAILED AND EVIDENCES IS FACTUALLY INCORRECT. THE L EARNED AR REFERRED TO THE DOCUMENTS PLACED IN THE PAPER BOOK IN SUPPORT T HEREOF. 3.6.3 ON GOING THROUGH THE FACTS, WE NOTE THAT TH E ASSESSEE HAS ENTERED INTO AGREEMENTS FOR AVAILING VARIOUS MANAGE MENT SERVICES FROM ITS ASSOCIATED ENTERPRISES (AE) I.E. MITSUI & CO. LTD. JAPAN & MITSUI ASIA PACIFIC LOCATED AT SINGAPORE. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, IT PAID RS 1,28,79,450/- FOR AVAILIN G SERVICES FROM ITS AE. THE NATURE OF SERVICES BEING AVAILED FOR THE OPERAT IONS OF MITSUI INDIA WERE AS UNDER- I. STRATEGIC PLANNING II. INVESTMENT PLANNING & ADMINISTRATION III. HUMAN RESOURCES MANAGEMENT IV. BUSINESS PROCESS RE-ENGINEERING V. INFORMATION SYSTEMS VI. LOGISTICS MANAGEMENT VII. COMPLIANCE (INTERNAL CONTROL) VIII. INTERNAL AUDIT 11 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. 3.6.4 THE ASSESSEE ALSO SUBMITTED THE AGREEMENT EN TERED INTO WITH RESPECT TO ASSOCIATED ENTERPRISES (AES).COPY OF THE SE AGREEMENTS ALONG WITH THE SUPPORTING DOCUMENTS/EVIDENCES IN THE FORM OF MAILS EXCHANGED, PRESENTATIONS, ETC. SUBSTANTIATING RECEIPT OF SERVI CE FROM AES ARE PART OF THE PAPER BOOK PAGE 518-614, FILED BEFORE US. FURT HER, THESE PAYMENTS BY ASSESSEE TO ITS AE WAS SUBJECT MATTER OF EXAMINATION BY THE TPO AS IS EVIDENT FROM PAGE 3 OF THE TPOS ORDER AND, ADMITTE DLY, THE TPO HAS NOT DRAWN ANY ADVERSE INFERENCE ON THIS ISSUE. THE AO, HOWEVER, ON THE PREMISE THAT SUCH EXPENDITURE HAS NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND THA T IT HAS BEEN MADE ONLY ON ACCOUNT OF CLOSE CONNECTION OF THE ASSESSEE WITH ITS AES, DISALLOWED THE SAME U/S 37(1) OF THE ACT. THE LD. DRP CARRIED OU T A DETAILED EXAMINATION OF THE AGREEMENTS WITH THE AES AND EVID ENCES IN SUPPORT THEREOF. AFTER DETAILED EXAMINATION, IT HAS DIRECT ED TO DELETE THE ADDITION GIVING A REASONED AND COGENT FINDING AS UNDER: THE PANEL WENT THROUGH THE SUBMISSIONS FILED BY TH E A IN RELATION TO THE EXPENDITURE CLAIMED AS ABOVE .THE R ELEVANT PAPER BOOK 1 CONSISTING OF 361 PAGES GONE THROUGH MINUTEL Y. THE PAPER BOOK CONTAINED COPIES OF AGREEMENTS ALONG WITH SUPP ORTING DOCUMENTS IN RESPECT OF INTRA-GROUP SERVICES RECEIV ED BY THE A FROM ITS AES IN THE FORM OF DIVISIONAL OPERATIONAL INCLUDING DEVELOPMENT AND MONITORING OF THE BUSINESS PLAN FOR EACH DEPARTMENT AND ALLOCATION AND APPRAISAL OF STAFF IN EACH SUCH 12 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. DEPARTMENT OF THE A, MAKING DECISIONS FOR BUSINESS ACTIVITIES SUCH AS GOODS TRADING, PROJECT MANAGEMENT, FORMULAT ING STRATEGIES, BUILDING OF RELATIONSHIPS WITH PARTNER COMPANIES IN ASIA PACIFIC REGIONS, HOLDING TALKS WITH CORRESPOND ING BUSINESS DIVISIONS IN TOKYO HEADQUARTERS, HUMAN RESOURCES, B USINESS PROCESS REENGINEERING, INFORMATION SYSTEMS, LOGISTI CS MANAGEMENT, LEGAL AND CFO U NIT, INVESTMENT, PLANNI NG AND ADMINISTRATION, ETC. (PAGES 32 TO 39 OF THE PAPER B OOK). IN THE ABOVE RESPECTS WE WENT THROUGH THE EMAIL EXC HANGED BETWEEN THE OFFICIALS OF THE AES AND THOSE OF THE A . THE CORRESPONDENCES CENTERED ON THE FOLLOWING ASPECTS O F WORK:- 1) HOLDING THE SEMINARS TO EDUCATE THE STAFF ON THE IM PORTANCE OF ANTI-COMPETITION LAWS AND PRACTICES, GLOBAL ENF ORCEMENT, CASE STUDIES, ANTI-TRUST, CARTEL CONDUCT, PRICE FIX ING, REFUSAL TO DEAL, MISUSE OF MARKET POWER, PREDATORY PRICING, E XCLUSIVE DEALING/THIRD LINE FORCING, RESALE PRICE MAINTENANC E RELATING TO ANTI-COMPETITION. 2) TRAININGS 3) SEEKING GUIDANCE FROM THE OFFICIALS REGARDING ITEM CLASSIFICATION FOR VARIOUS COMMODITIES. UPON AN ANALYSIS OF THE EVIDENCE FILED AS ABOVE BY A, IT WAS NOTICED BY US THAT THE AGREEMENT UNDER SUB-ARTICLES 1 TO 5 OF ARTICLE 2 PROVIDED THE BASIS OF REMUNERATION IN CON SIDERATION OF THE SERVICES RENDERED BY THE AES TO THE A ON PAGE 37 & 38 OF THE PAPER BOOK 1. HAVING REGARD TO ALL THE ABOVE DETAIL S THE PANEL FEELS INCLINED TO ALLOW THE CLAIM OF THE A 3.6.5 AS REGARDS THE ISSUE OF ALLOW ABILITY OF EXPE NDITURE UNDER SECTION 37(1), FROM THE FACTS, IT IS EVIDENT THAT A SSESSEE HAS SUBMITTED ALL THE DETAILS AND EVIDENCES IN SUPPORT THEREOF. THUS , THE CONTENTION OF THE AO THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS AND EVIDENCES IS FACTUALLY INCORRECT. IN FACT, THE LD. DRP HAS EXAM INED THESE DETAILS AND 13 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. AFTER EXAMINATION IT HAS HELD THAT THE PAYMENTS ARE IN CONSIDERATION OF THE SERVICES RENDERED BY THE AES BY GIVING REFERENCE TO PAGE 37 & 38 OF THE PAPER BOOK. THUS, THE ISSUE THAT THESE EXPENDITURE S HAVE BEEN ACTUALLY INCURRED FOR AVAILING THE SERVICES CANNOT BE DOUBTE D. AS REGARDS THE VALUE FOR SUCH SERVICES, THE ISSUE HAS BEEN THE SUBJECT M ATTER BEFORE TPO AND HE HAS NOT DRAWN ANY ADVERSE INFERENCE. THUS, THE AO C ANNOT DRAW ANY ADVERSE INFERENCE ON THE BASIS THAT THERE IS NO JUS TIFICATION FOR PAYMENT OF SUCH AMOUNT TO AE. THE CONTENTION OF THE LD. AR ON THIS ISSUE THAT IT IS NOT PERMISSIBLE FOR THE REVENUE TO STEP IN THE SHOE S OF THE ASSESSEE/ BUSINESSMAN AND TAKE THE BUSINESS DECISIONS IS CORR ECT. IN VIEW OF THE ABOVE ANALYSIS, WE UPHOLD THE ORDER OF THE DRP AND GROUND NO. 12 OF THE REVENUES APPEAL IS DISMISSED. 3.7.0 GROUND NO. 13 IN REVENUES APPEAL IS REGAR DING DELETION OF ADDITION OF RS.1,12,75,015/- OUT OF TOTAL EXPENDITU RE OF RS.1,39,68,770/- ON ACCOUNT OF STAFF WELFARE EXPENSES. THIS GROUND IS COMMON WITH GROUND NO. 1 IN ASSESSEES APPEAL WHERE THE ASSESSEE IS CONTESTING THE ADDITION OF RS.26,93,754/- SUSTAINED BY THE LD. DRP . THE AO, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, NOTICED T HAT THE ASSESSEE, DURING THE YEAR, HAS INCURRED THE FOLLOWING EXPENDIT URE ON STAFF WELFARE:- 14 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. MEDICAL INSURANCE 17,07,881 COMPANY FUNCTION 12,24,624 MEMBERSHIP FEES 29,34,012 SHIFTING EXPENSES 78,89,769 SOCIAL SECURITY EXPENDITURE 1,17,45,417 JAPANESE FOOD 24,35,836 TOTAL 2,79,37,539 3.7.1 THE AO MADE AN AD-HOC DISALLOWANCE OF 50% OUT OF THE ABOVE EXPENDITURE ON THE GROUND THAT THE ONUS IS ON THE ASSESSEE TO JUSTIFY THE CLAIM OF THE EXPENDITURE AND THAT THE A SSESSEE HAS FAILED TO DISCHARGE THIS ONUS BY NOT PRODUCING THE COMPLETE D ETAILS AND BY NOT PRODUCING THE SUPPORTING BILLS/VOUCHERS. AS PER THE ASSESSEE, THE AFORESAID EXPENDITURE WAS INCURRED MAINLY FOR THE WEL FARE OF THE EMPLOYEES AS A MEASURE OF COMMERCIAL EXPEDIENCY. TH E DISALLOWED 50% OF SUCH EXPENDITURE ON AN AD-HOC BASIS WHICH TURNED OUT TO BE RS. 1,39,68,770/-. THE LD. DRP NOTED THAT THE ASSESSEE HAS SUBMITTED COPIES OF THE BILLS IN SUPPORT OF THE EXPENDITURE INCURRED . THESE DETAILS WERE IN THE FORM OF HOTEL BILLS, DINING CHARGES, MEDICINES, PACKING CHARGES, AND SHIFTING CHARGES. THE LD. DRP, CONSIDERING THESE F ACTS, RESTRICTED THE DISALLOWANCE TO 20% OF THE TOTAL DISALLOWANCE OF RS. 1,39,68,770/- I.E. 15 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. RS.26,93,754/-. REVENUE IS IN APPEAL AGAINST THE R ELIEF GIVEN OF RS. 1,12,75,015/- AND THE ASSESSEE IS IN APPEAL AGAINST THE DISALLOWANCE OF RS. 26,93,754/- UPHELD BY THE LD. DRP. 3.7.2 IT WAS SUBMITTED BY THE LEARNED AR THAT THE AO HAS MADE AN AD-HOC DISALLOWANCE. THE ASSESSEE HAS BEEN MAINTAINING RE GULAR BOOKS OF ACCOUNTS. THE SAME HAVE BEEN AUDITED BOTH UNDER THE COMPANIES ACT AS WELL AS UNDER SECTION 44AB OF THE INCOME TAX ACT AND THERE IS NO ADVERSE OBSERVATION ABOUT ANY PERSONAL EXPENDITURE. IT WAS SUBMITTED THAT IT IS A CASE OF A COMPANY AND THE EXPENDITURE INCURRED ON THE STAFF WELFARE OF THE NATURE AS SPECIFIED IN THE DETAILS IS AN EXPENDITURE ALLOWABLE UNDER SECTION 37(1) AND CANNOT BE CONSIDERED AS PER SONAL EXPENDITURE. IT WAS SUBMITTED THAT COMPLETE DETAILS WERE FILED AND S AME HAS BEEN TAKEN NOTE BY THE LD. DRP IN ITS FINDINGS. THE LEARNED A R INVITED OUR ATTENTION TO THE COMPLETE DETAILS OF SUCH EXPENDITURE AND INV OICES/BILLS IN RESPECT OF SUCH EXPENDITURE INCURRED PLACED AT PAPER BOOK PAGE S FROM 615-847. 3.7.3 THE LEARNED DR SUBMITTED THAT THE EXPENDITUR E IS PERSONAL IN NATURE AND CANNOT BE ALLOWED WHILE COMPUTING BUSINES S INCOME. 3.7.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE ORDER PASSED BY THE AUTHORITIES BELOW. IN THE DRAFT ASSESSMENT ORDER, THE 16 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. AO MADE AN AD-HOC DISALLOWANCE OF 50%. THE LD. DRP HAS REDUCED THIS AD-HOC DISALLOWANCE TO 20% OF WHAT HAS BEEN PROPOSED IN THE DRAFT ASSESSMENT ORDER. THUS, THE FACT THAT EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE COMPANY HAS NOT BEEN DOUBTED EITHER BY THE AO OR BY THE LD. DRP. BOTH AUTHORITIES HAVE GONE WITH THE PERCEP TION THAT THE EXPENDITURE INCURRED HAS AN ELEMENT OF PERSONAL NAT URE AND HENCE, SOMETHING NEEDS TO BE DISALLOWED. THIS IS A CASE O F A COMPANY. THE IMPUGNED EXPENDITURES HAVE BEEN INCURRED ON ITS EMP LOYEES. THE EXPENDITURE, SO INCURRED, IS IN CONSIDERATION OF TH E SERVICES PROVIDED BY SUCH EMPLOYEES. THUS, IT CANNOT BE SAID THE EXPEND ITURE INCURRED IS PERSONAL IN NATURE. AS REGARDS THE DETAILS AND THE EVIDENCES IN SUPPORT THEREOF, IS EVIDENT FROM THE ASSESSMENT ORDER THAT THE ASSESSEE HAS SUBMITTED THE DETAILS OF THESE EXPENDITURE HEAD-WISE WHICH HAS BEEN QUOTED BY THE AO HIMSELF. IN SUPPORT THEREOF, THE ASSESSEE HAS SUBMITTED MORE THAN 200 INVOICES BEFORE THE LD. DRP WHICH HAVE BEEN TAKEN NOTE OF BY THE LD. DRP IN ITS FINDINGS WHERE IT HAS BEEN STA TED THAT COPIES OF BILLS FROM PAGES 129-361 OF THE PAPER BOOK WERE FILED. T HESE INVOICES ARE ALSO PLACED IN THE PAPER BOOK FILED BEFORE US AT PAGES 6 15-847. THOUGH, THE LD. DRP UPHELD DISALLOWANCE TO THE EXTENT OF 20% OF THE DISALLOWANCE 17 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. MADE BY AO, IT IS NOT ON THE REASONING THAT THE ASS ESSEE HAS NOT SUBMITTED THE DETAILS OR EVIDENCES IN SUPPORT THERE OF. THE LD. DRP HAS SUSTAINED THE DISALLOWANCE ON THE GROUND THAT MOST OF THE BILLS WERE ISSUED IN THE NAME OF MITSUI INDIA WITHOUT MENTIONIN G THE NAMES OF THE RECIPIENTS. THIS REASONING OF THE LD. DRP CANNOT B E SUSTAINED. MITSUI INDIA IS THE NAME OF THE ASSESSEE AND INVOICES OBVI OUSLY WILL BE IN THE NAME OF THE ASSESSEE. IT IS NOT THE CASE OF THE RE VENUE THAT NAME OF THE ASSESSEE IS NOT ON THE INVOICES. IN FACT, IT HAS BE EN SPECIFICALLY STATED THAT THE NAME OF THE ASSESSEE IS APPEARING ON THE INVOIC ES. LD DRP HAS FAILED TO TAKE NOTE OF THE NATURE OF EXPENDITURE WHILE MAKI NG THIS OBSERVATION. IN RESPECT OF GROUP INSURANCE FOR EMPLOYEES, THE IN VOICE WILL BE IN THE NAME OF THE COMPANY. SIMILARLY, INVOICES ISSUED BY THE HOTELS FOR HOSTING EVENTS WILL BE IN THE NAME OF THE COMPANY NOT IN THE NAME OF THE EMPLOYEES WHO HAVE PARTICIPATED AT SUCH YEAR-END FUN CTIONS. THE INVOICES ON ACCOUNT OF SHIFTING EXPENSES, SOCIAL SECURITY RE IMBURSEMENT STATE THE NAME OF EMPLOYEES. THESE INVOICES CONFIRM THAT ASSE SSEE HAS INCURRED THE EXPENDITURE. MERELY NOT MENTIONING THE NAME OF THE EMPLOYEES CANNOT BE A GROUND TO DISALLOW THE SAME CONSIDERING THE FACT T HAT IT IS A CASE OF A COMPANY. IN THE CASE OF A FIRM OR A PROPRIETORSHIP CONCERN, THERE COULD 18 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. HAVE BEEN A DOUBT WHETHER SUCH EXPENDITURES HAVE BEE N INCURRED ON THE EMPLOYEES OR ON THE PARTNERS/PROPRIETORS. FURTHER, AD-HOC DISALLOWANCE IS OTHERWISE NOT SUSTAINABLE. HOWEVER, THE AO, IN THE A SSESSMENT ORDER, HAS STATED THAT THE ASSESSEE HAS FAILED TO DISCHARGE IT S ONUS BY PRODUCING DETAILS AND COMPLETE EVIDENCES IN SUPPORT THEREOF. THOUGH, THE ASSESSEE HAS FILED THE DETAILS BEFORE THE LD. DRP ALONG WITH THE SUPPORTING EVIDENCES, APPARENTLY THE SAME HAS NOT BEEN EXAMINE D BY THE LD. DRP. CONSIDERING THIS FACT, WE DEEM IT FIT TO SET ASIDE T HIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO RESTRICT THE DISALLOWANCE ON LY TO SUCH EXPENDITURE WHICH ASSESSEE IS NOT ABLE TO SUPPORT WITH EVIDENCE. IN THE RESULT GROUND NO. 13 OF REVENUES APPEAL AND GROUND NO. 1 OF ASSE SSEES APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE. 3.8.0 GROUND NO. 14 IS REGARDING DELETION OF ADD ITION OF RS.23,57,754/- DIRECTED BY THE LD. DRP ON ACCOUNT O F NON-DEDUCTION OF TAX ON PURCHASES MADE FROM MITSUI & CO. LTD. JAPAN. DURING THE YEAR, THE ASSESSEE MADE PURCHASES OF RS 31,02,53,414/- FROM M ITSUI & CO LTD., JAPAN. THE AO, ON THE BASIS THAT MITSUI & CO. JAPAN HAS A PERMANENT ESTABLISHMENT (PE) IN INDIA, WAS OF THE VIEW THAT TH E ASSESSEE COMPANY OUGHT TO HAVE DEDUCTED TAX-AT-SOURCE WHILE MAKING SU CH PAYMENT. THE 19 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. AO COMPUTED AN AMOUNT OF RS.23,57,926/- AS THE PROF IT ATTRIBUTABLE TO THE PE OF MITSUI & CO., JAPAN IN RESPECT OF THE PUR CHASES MADE BY THE ASSESSEE BY APPLYING A GROSS PROFIT RATE OF 1.52% O F THE ABOVE PURCHASES AND ATTRIBUTING 50% OF SUCH GROSS PROFIT TO THE PE IN INDIA. ACCORDINGLY, HE DISALLOWED AN AMOUNT OF RS.23,57,926/- UNDER SEC TION 40(A)(I) OF THE INCOME TAX ACT. THE LD. DRP HAS DELETED THE SAID D ISALLOWANCE BY HOLDING THAT OFF-SHORE SUPPLIES CANNOT BE SUBJECT T O TAX IN INDIA DESPITE THE EXISTENCE OF THE PE IN INDIA UNLESS IT WAS SHOWN BY THE REVENUE THAT THE SUPPLIES WERE RELATED TO ACTIVITIES PERFORMED B Y THE PE OF SUCH AN AE IN INDIA. AGGRIEVED BY THE ORDER OF THE DRP, THE REVENUE IS IN APPEAL BEFORE US. 3.8.1 IT WAS SUBMITTED BY THE LEARNED AR THAT THE AO IN HIS ASSESSMENT ORDER HAS HELD THAT MITSUI & CO. LTD JAP AN HAS A PE IN INDIA BY PLACING RELIANCE UPON THE ASSESSMENT ORDER PASSE D IN THE CASE OF MITSUI & CO. LTD. JAPAN FOR ASSESSMENT YEAR 2010-11 . THE AO, WHILE PASSING THE ASSESSMENT ORDER IN THE CASE OF MITSUI & CO. LTD. JAPAN FOR AY 2010-11, HAS PLACED RELIANCE ON THE ASSESSMENT O RDER OF AY 2005-06 PASSED IN THE CASE OF MITSUI & CO. LTD. JAPAN. THUS , THE REFERENCE BY AO IN THE PRESENT ASSESSMENT ORDER IS ULTIMATELY TO TH E ORDER PASSED BY THE 20 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. AO IN THE CASE OF MITSUI & CO. JAPAN FOR AY 2005-06 . IT WAS SUBMITTED BY THE LEARNED AR THAT THIS ISSUE HAS EARLIER COME UP BEFORE THE ITAT IN ITA NO. 2335/DEL/2011 IN THE CASE OF MITSUI & CO. JAPAN WHEREIN THE ITAT HAS HELD THAT MITSUI & CO. JAPAN DOES NOT HAVE A PE IN INDIA. IN VIEW OF THIS FINDING RECORDED BY THE ITAT AND IN THE ABSENC E OF PE OF MITSUI & CO. JAPAN, THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOU RCE. IT WAS FURTHER CONTENDED BY THE LEARNED AR THAT EVEN IF THERE IS A PE, OFF-SHORE SUPPLIES ARE NOT TAXABLE IN INDIA. IT WAS SUBMITTED THAT THE AO HAS FAILED TO APPRECIATE THAT PURCHASES FROM JAPAN ARE NOT AT ALL ATTRIBUTABLE TO ANY OPERATIONS UNDERTAKEN IN INDIA AS HAS BEEN HELD BY THE HONBLE SUPREME COURT IN ITS JUDGMENT IN THE CASE OF ISHIKAWAJIMA-HA RIMA HEAVY INDUSTRIES LTD. VS. DCIT (288 ITR 408) WHEREIN IT HA S BEEN HELD BY THE HONBLE SUPREME COURT THAT EVEN WHERE THERE EXISTS A PERMANENT ESTABLISHMENT IN INDIA, THE OFF SHORE SUPPLIES STIL L CANNOT BE SUBJECTED TO TAX IN INDIA IF THEY ARE NOT RELATED TO THE ACTIVIT IES PERFORMED BY THE PE IN INDIA. THE LEARNED AR FURTHER CONTENDED THAT EVEN O THERWISE NO DISALLOWANCE CAN BE MADE IN VIEW OF NON-DISCRIMINATIO N CLAUSE IN THE TREATY. THE LEARNED AR INVITED OUR ATTENTION TO AR TICLE 24 OF INDIA JAPAN DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) WHICH CON TAINS A DETAILED 21 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. STIPULATION ON THE NON-DISCRIMINATORY AGREEMENT BET WEEN INDIA & JAPAN GOVERNMENTS. IT WAS SUBMITTED THAT AS PER ARTICLE 24 (3), ANY PAYMENT BY A RESIDENT OF A CONTRACTING STATE (INDIA) TO A RESIDE NT OF ANOTHER CONTRACTING STATE (JAPAN) WILL BE DEDUCTIBLE UNDER THE SAME COND ITIONS AS IF IT HAS BEEN PAID TO A RESIDENT OF INDIA. 3.8.2 THE LEARNED DR PLACED RELIANCE ON THE DRAFT ASSESSMENT ORDER PASSED BY THE AO. 3.8.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ON GOING THROUGH THE FACTS, WE NOTE THAT THE AO HAS MADE DISA LLOWANCE ON THE GROUND THAT ASSESSEE IS REQUIRED TO DEDUCT TAX AT S OURCE WHILE MAKING PAYMENT FOR PURCHASES FROM MITSUI & CO. LTD. JAPAN AS THIS COMPANY HAS PE IN INDIA. FROM THE FACTS EXPLAINED BY THE LD. A R, IT IS CLEAR THAT A COORDINATE BENCH OF THE ITAT IN THE CASE OF MITSUI & CO. LTD. JAPAN IN ITA NO. 2335/DEL/2011 HAS HELD THAT MITSUI & CO. LTD. J APAN DOES NOT HAVE A PE IN INDIA. IN THE ABSENCE OF ANY PE, THERE IS NO OBLIGATION TO DEDUCT TAX. FURTHER, IT IS ALSO A FACT THAT THESE PURCHASES ARE OFF-SHORE SUPPLIES WHICH CANNOT BE SUBJECTED TO TAX IN INDIA AND IF THAT BE SO, THERE IS NO REQUIREMENT TO DEDUCT TAX AT SOURCE. THE LD. DRP H AS ALSO EXAMINED THIS ISSUE AND HAS HELD THAT OFF-SHORE SUPPLIES WERE NOT RELATED TO THE ACTIVITIES 22 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. BY THE PE OF SUCH AN AE IN INDIA. THE RELEVANT FIN DINGS OF THE LD. DRP ON THIS ISSUE ARE AS UNDER: WE APPLIED OUR MINDS TO THE RIVAL CONTENTIONS. WE ARE OF THE CONSIDERED VIEW THAT THE AO FAILED TO APPRECIATE TH AT OFFSHORE SUPPLIES CANNOT BE SUBJECT TO TAX IN INDIA DESPITE THE EXISTENCE OF THE PE IN INDIA UNTIL IT WAS SHOWN BY THE REVENUE T HAT THE SUPPLIES WERE RELATED TO THE ACTIVITIES PERFORMED B Y THE PE OF SUCH AN AE IN INDIA. IN THE INSTANT CASE IT WAS NOT ED BY THE PANEL THAT THE A OPERATED AS A COMMISSION AGENTS/SERVICE PROVIDER TO ITS AES AS WELL AS A TRADER IN ITS OWN RIGHT. THE T PO ALSO DID NOT ALLEGE IN ITS ORDER THAT THE A WAS IN RECEIPT OF A NY STEWARDSHIP SERVICES FROM ITS AES IN ANY MANNER WHATSOEVER WHIC H COULD GO TO SUGGEST THE EXISTENCE OF THE MCJS PE IN INDIA. SINCE, IT HAS BEEN HELD THAT THE A SUBSIDIARY FUNCTIONED IN INDI A ON PRINCIPAL TO PRINCIPAL BASIS SUPRA AND NO PART OF ITS ACTIVIT IES WERE ON BEHALF OF THE PE OF MCJ, THE ALLEGATION OF THE A A PPEARS TO BE DEVOID OF MERIT. IT WAS ALSO NET WORTHY THAT THE FO LLOWING ALL THE TRANSACTION OF SUPPLIES IN QUESTION WERE CARRIED OU TSIDE INDIA, THE SUPPLIES COULD NOT BE SAID TO BE TAXABLE IN THE GAR B OF PE. THE 23 ITA NOS.1608 & 1672/DEL/2016 DCIT VS. MITSUI & COMPANY INDIA PVT. LTD. PRINCIPAL OF A PORTION MEANT ON THE BASIS OF TERRIT ORIES HAS TO BE FOLLOWED. ACCORDINGLY GROUND NO.17 IS ALLOWED. 3.8.4 THE LEARNED DR COULD NOT CONTROVERT THE ABO VE FACTS. IN VIEW OF THE ABOVE FACTS AND ANALYSIS, WE UPHOLD THE O RDER OF THE LD. DRP AND ACCORDINGLY, GROUND NO. 14 OF THE REVENUES APP EAL IS DISMISSED. 3.9.0 GROUND NOS.15 & 16 IN REVENUES APPEAL AND GROUND N OS. 2 & 3 IN ASSESSEES APPEAL ARE GENERAL IN NATURE AND NE ED NO SEPARATE ADJUDICATION. 4.0 IN THE FINAL RESULT, THE APPEALS OF THE REVENU E AND OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE S. ORDER PRONOUNCED ON 22/06/2020. SD/- SD/- (O.P.KANT) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:22/06/2020 *DRAGON COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI