GEMOLOGICAL INSTITUTE OF AMERICA, INC, MUMBAI V. DCIT (IT) RG 2(3)(2), MUMBAI

ITA 1836/MUM/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 5595 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 12-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 15-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY SINGH COMMISSIONER
• Assessee Lawyers: K K VED
• Keywords: Transfer pricing; Double taxation relief; International transaction; Permanent establishment; Question of law; Arm length price; Commercial expediency
• Section: 92C; 143(3); 10AA; 234B; 195; 250; 201; 92CE; 64; 113; 43; 48; 44DA; 73; 72; 13; 22; 90; 92

Judgement Text

ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 1 OF 51 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI ' I ' BENCH, MUMBAI [CORAM: PRAMOD KUMAR (VICE PRESIDENT) , AND VIKAS AWASTHY (JUDICIAL MEMBER)] ITA NO S. 386/MUM/2016 , 183 6 AND 7174/MUM/2017, 53 ,7739 AND 7740 /MUM /19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 GEMO LOGIC AL INSTITUTE OF AMERICA INC . . APP ELLANT 10 TH FLOOR, TRADE CENTRE, BANDRA KURLA COMPLEX BANDRA (E) , MUMBAI 400 051 [PAN: AADCG7962K] VS . ADDITIO NAL COMMISSIONER OF INCOME TAX INTERNATIONAL TAX CIRCLE 2(3), MUMBAI RESPONDENT APPEARANCES BY J D MISTRY, SENIOR ADVOCATE, ALONG - WITH NEERAJ S HETH AND K K VED FOR THE AP PELLANT SANJAY SINGH , COMMISSIONER (DR) FOR THE RESPONDE NT DATE OF CONCLUDING THE HEARING: : FEBRUARY 3, 2021 DATE OF PRONOUNCEMENT OF THE ORDER : AP RIL 30 , 2021 O R D E R PER PRAMOD KUMAR, VP: 1. THESE SI X APPEALS PER TAIN TO THE SAM E ASSESSEE, INVOLVE SOME COMMON ISSUES , AND WERE HEARD TOGETHER . THEREFORE, ALL SIX APPEALS ARE BEING DISPOSED OF BY A CONSOLIDATED ORDER AS A MATTER OF CONVENIENCE . 2. WH I LE A LMOST ALL THE ISSUES IN THESE APPEALS ARE STATED TO BE FULLY COVERED BY A DECISION OF THE COORDINATE BE NCH, IN THE ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 201 0 - 11 [REPORTED AS GEMOLOGICAL INSTIT UTE OF AMERICA INC VS . A CIT [(2019) 178 ITD 620 (MUM)] , TH ERE IS ONE ISSUE THAT IS REQUIRED TO BE DECIDED BY US ON THE FIRST PRINCIPLES, AND TH A T IS CONCERNI NG THE IMPACT OF A DVA NCE PRICING AGREEMENT BEING SIGNED BY THE ASSESSEE S INDIAN ASSOCIATED ENTERPRISES , NAMELY GIA INDIA LABORATORY PVT LT D, WITH THE CENT RA L BOA RD OF DIRECT T AXES , IN TERMS OF WHICH A PART OF THE ROYALTY RECEIVED BY THE ASS ES SEE COMPANY FRO M ITS INDIAN A E HAD TO REFUN D TO THE INDIA N AE . AS LEARNED REPRESENTATIVES FAIRLY AGREE , T HE SHORT QUESTION REQUIRING OUR ADJUDICATION , ON THIS POINT, IS W HETHER THE AM OUNT SO REFUNDED BY THE ASSESSEE COMPANY T O ITS INDIAN A E , IN TERMS OF TH E APA TERMS, CAN STILL BE TAX ED IN THE H ANDS OF THE ASSESSEE COMPANY AS ITS INCOME . AS LEARNED REPR ESENTATIVES FAIRLY AGREE, THAT IS ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 2 OF 51 THE CORE ISSUE REQUIRING OUR ADJUDI CA TION , EVEN THOUGH LEARNED CIT(DR) PUTS IT RATHER DIFFERE NTLY AS WHETHER , GIVEN THE FRAMEWORK OF LAW ON TR ANS FER PRICING, ANY SUCH ADJUSTMENT IN ROYALTY INCOME CAN BE ALLOWED TO THE ASSESSE E AS A RESULT OF AN APA TO WH ICH THE ASSESSEE IS NOT EVEN A PARTY . WH ICHEVER WAY ONE LOOKS AT IT, THE CORE ISSUE REALLY IS WHETHER OR NOT THE QUANTIF ICATION OF ROYALTY INCOME IN THE HANDS OF THE ASSESSEE W ILL STAND R EDUCED BY THE REFUND GRANTED BY THE ASSESSEE T IN TERMS OF THE APA THAT THE ASSESSEE S AE HAS ENTERED INTO W ITH THE CBDT. REVENUE IS FIERCELY RESISTING THIS CLAIM , FOR THE REDUCTION IN THE TAXABLE INCOME OF T HE ASSESSEE , ON TECHNICALITIES A S ALSO ON MERITS. WE WILL TAKE UP THIS ISSUE FIRST . WH IL E RELATED GROUND OF APPEAL FOR ALL THE ASSESSMENT YEARS BEFORE U S ARE MATERIALLY SIMILAR EVEN IF NOT RATHER SATISFACTORILY WORDED , EXCEPT F OR THE CHANGES IN FIGURES, WE A RE RE PR ODUCING BELOW TH E RELATED GROUND OF APPEAL FOR THE ASSESSMENT YEAR 2011 - 12 FOR READ Y REFERENCE: 8:0 R E: TAXATION OF ROYALTY INCOME AT RS. 49.0 8 ,99,451 8:1 THE APPELLANT SUBM I TS THAT THE AMOUNT TAXABLE IN TERMS OF ARTICLE 12(2) OF THE INDIA - USA DOUBLE TAXATION AVOIDANCE AGREEMENT [DTAA] SHOULD BE RESTRICTE D TO RS.49,08,99,45L/ WHICH IS IN ACCORDANCE WITH THE ADVANCED PRICING AGREEMENT [APA] DA T ED 0 7 MAY 2018 ENTERED INTO BY GIA INDIA LABORATORY PRIVATE LIMITED. 8:2 THE APPELLANT SUBMITS THAT CONSIDER ING THE FACTS AND CIRCUMSTANCES OF ITS CASE, AND THE LA W PREVAILING ON THE SUBJECT, T HE AM OUNT OF ROYALTY TAXABLE IN ITS HANDS IN ITS HANDS FOR TH E YEAR UNDER CONSIDERATION SHOUL D BE RESTRICTED TO RS. 49,08,99,451/ - IN ACCORDANCE WITH THE APA. 8:3 T HE APPE LLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO CONSIDER THE ROYALTY INCOME W ORKED OUT IN TERMS OR THE APA AND TO RE - COMPUTE ITS TOTAL INCO M E AND TAX THEREON ACCORDINGLY. 3. THE I SSUE IN APPEAL LIES IN A NARR OW COMPASS OF MATERIAL FACTS. THE ASSESSEE BEFORE US IS A US BASED COMPANY, AND IT HAS AN ASSOCIATED E N TERPRISE (AE) IN INDIA , BY TH E NAME OF GIA INDIA LABORATORY PVT LTD ( GIA - INDIA , IN SHORT). DURI NG THE FINANCIAL PERIOD REL ATING TO THE ASSESSMENT YEARS 2011 - 12 TO 2016 - 17, THE ASSESSEE RECEIVED THE FOLLOWING AMOUNTS AS ROYALTIES FROM THE SAID AE, I.E. , GIA - INDIA: ASSESSMENT YEAR AMO UNT (IN IN R ) 2011 - 12 (FINANCIAL YEAR ENDED 31 ST M ARCH 2012) 68 , 53 , 46 , 239 201 2 - 13 (FIN ANCIAL YEAR ENDED 31 ST MARCH 2012) 79,48, 51,211 2013 - 14 (FINANCIAL YEAR ENDED 31 ST MARCH 2012) 141,39,35,180 2014 - 15 (FINANCIAL YEAR ENDED 31 ST MARCH 2 012) 157 , 13,38,680 2015 - 16 (FINANCIAL YEAR ENDED 31 ST MARCH 2012) 288,71,40,778 2016 - 17 (FINANCIAL YEAR ENDED 31 ST MARCH 2012) 261,86,26,595 4. THE ROYALTIES SO RECEIVED B Y THE ASSESSEE COMPANY WERE DULY OFFERED TO TAX, UNDER ARTICLE 12 OF THE INDIA US DOUBLE TAXAT ION AVO IDANCE AGREEMENT [( 1991) 1 87 ITR (STAT) ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 3 OF 51 102 ; INDO US TA X TREATY , IN SHORT] , @ 15% ON A GROSS BASIS. WHILE THE AUTHORITIES BELOW HAD N O ISSUES ABOUT THE QUANTUM OF I NCOME SO OFFERED TO TAX, THERE W ERE C ERTAIN ISSUES WITH RE GARD T O THE MANNE R IN WHICH THE SAID INCOME IS TO BE TAXED A S THE STAND OF THE AUT HORITIES BELOW HAS BEEN T HAT THE ASSESSEE HAD A PERMANENT ESTABLISHMENT OF THE ASSESSEE IN I NDIA, AND THE ROYALTIES SO OFFERED TO TAX, BEING ATTRIBUTABLE TO S UCH A PERMANENT ESTABL ISHMENT, ARE LIABLE TO BE TAXED ON A NE T BASIS UNDER A R TICLE 7 OF THE INDO US TAX TREATY. WHILE WE ARE NOT REALLY CONCERNED WITH THE MERITS OF THAT ASPECT OF THE MATTER A S OF NOW , SUFFICE TO NOTE THAT, AS A RESULT OF TH ESE DISPUTES , THE ASSESSMENT OF INCOM E IS YET TO REACH FINALITY. 5. IN THE MEANTIM E, GIA I NDIA REACHED OUT TO THE CEN TRAL BOARD OF DIRECT TAXE S FOR AN ADVANCE PRICING AGREEMENT (APA) , UNDER SECTION 92 CC , IN RESPECT OF, INTER ALIA , THE A BOVE TRANSACTION S . 0N 7 TH MAY 2018, TH E A PA WAS FINALLY E NTERED INTO BETWEEN THE GIA INDIA AN D THE CBDT. TH IS APA WAS FOR FIVE CONSEC UTIVE PREVIOUS YEARS, NAM ELY F INA NCIAL PERIOD ENDED 31 ST M ARCH 2014, 2 105 , 2016 , AND 2017 , IT ALSO COVERED, AS A ROLL BACK PERIOD, F OUR CONSECU TIVE PRECEDING PRE VIOUS YEARS AS WELL I.E. , FINANCIAL PERIO DS E NDED 31 ST MA RCH 2010, 2011 ,2 0 12 AND 201 3 . THIS A GREEMENT, UNDER CLAUSE 12 (A) THER EOF, WAS TO CEASE TO BE BINDING ON PARTIES, SU BSEQUENT TO IT HAVING BEEN ENTERED IN TO, IF (INTER AL IA) (III) T HERE IS FAILURE TO MEET ANY OF THE CRIT ICAL ASSUMPTIONS OF THIS AGR EEMENT . ONE OF T HESE CRIT ICAL ASS UMPTIONS, AS SET OUT IN APPENDIX II TO TH E APA DATED 7 TH MA Y 2018, WAS AS FOLLOWS : 5. INVOICING AND CREDIT TERMS 5.1 FOR PREVIOUS YEARS 2009 - 10 TO 2016 - 17, WHERE THE PAYMENTS MADE FOR THE INTERNATIONAL TRANSACTIONS OF: (III) PAYMENT OF ROYALTY TO THE AE EXCEEDS THE ALP DETERMIN ED IN ACCORDANCE WITH PARA 6 READ WITH SUB - ITEM (III) OF ITEM (B) OF APPENDIX I, THE A PPLICANT SHALL RAISE APPROPRIATE INVOICE ON THE AE TO RECOVER THE AFORESAID EXCESS PAYMENT MADE AND SHOW THE RESPEC T IVE EXCESS AMOUNTS AS ADDITIONAL INCOME IN THE MODIFI ED RETURN OF THE RESPECTIVE YEARS. 5.2 FOR THE ADDITIONAL INCOME REFERRED TO IN PARA 5.1 THE APPLICANT SHALL RAISE AN INVOICE FOR THE EQUIVALENT AMO UNT IN THE MONTH FOLLOWING THE MONTH IN WHICH THIS AG R EEMENT IS SIGNED. THE INVOICE SHALL BE REALISED WITHI N 60 DAYS OF THE DATE OF THE ISSUE OF THE INVOICE . 6. SO FAR AS THE D ETERMINATION OF ARM S LEN GTH PRICE OF ROYALTY PA ID TO THE ASSESSEE IS CONCER NE D, WHICH IS SOUGHT TO BE ADJUSTED BY THE MECHANISM AB O VE, THE RELEVANT PROVISION IN 1(B)(III) OF APPENDIX 1 PROVIDED AS FOLLOWS: T HE COVERED INTERNATIONAL TRANSACTION REFERRED TO IN ITEM (II) OF PARA 3 OF THIS AGREEMENT SHALL BE CONSIDERED TO BE AT ARM'S LENGTH IN A PREVIOUS YEAR IN THE ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 4 OF 51 ROLLBACK YEARS AND T H E APA YEARS (OTHER THAN PREVIOUS YEAR 2009 - 10, WHEN IT WAS NOT PAYABLE), IF THE PAYMENT MADE BY THE APPLICANT IN RESPECT OF THE SAID TRANSACTION DOES NOT EXCEED AN AMOUNT WHICH REPRESENTS 53.5% OF THE O PERATING PROFIT OF INDIA GRADED SEGMENT OF THE RELEVA N T PREVIOUS YEAR. IN RESPECT OF PREVIOUS YEAR 2017 - 18 THE ALP SO DETERMINED SHALL BE SUBJECT TO THE CONDITION THAT AFTER PAYMENT OF ROYALTY THE APPLICANT SHALL, IN THE INDIA GRADED SEGMENT OF THIS YEAR, HAVE AN OPERATING PROFIT OF AT LEAST 33.37% OF THE OP E RATING REVENUE OF SAID SEGMENT. FURTHER , IT IS CLARIFIED THAT T HE OPERATING PROFITS FOR THE PURPOSE OF THIS SUB - ITEM SHALL BE THE OPERATING PROFIT OF INDIA GRADED SEGMENT DETERMINED AFTER REDUCTION OF P AYMENT FOR ALL OPERATING EXPENSES BUT BEFORE ANY DEDU C TION ON ACCOUNT OF ROYALTY. IN ORDER TO PROVIDE NECESSARY C LARI TY THE MANNER OF COMPUTATION OF PAYABLE ROYALTY FOR DIFFERENT YEARS AND THE ADDITIONAL INCOME TO BE INCLUDED IN THE MODIFIED RETURN IN THIS RESPECT HAS BEEN INCLUDED IN APPENDIX IV TO THIS AGR E EMENT BASED ON THE INFORMATION FURNISHED BY THE APPLICANT. 7. IT WAS IN THIS BACKGROUND THAT THE YEAR - WISE WORKING OF THE ROYALTY PAYABLE AND THE ADJUSTMENT AMOUNT BASED ON THE WORKING GIVEN BY THE AP PLICANT WAS SET OUT IN APPENDIX IV OF THE SAID APA, A ND TH E RELE VANT PO RTION OF THE W ORKING WAS A S FOLLOWS: THE A SSESSMENT YEAR 2011 - 12 SR. NO. PARTICULARS FYE MARCH 2011 F 46.5:53.5 SPLIT (INCLUDING MANAGEMENT FEES AND EXCLUDING ROYALTY) I) FOR INDIA (C * % ) 426,669,616 426,669,616 II) FOR US (C * % ) 490,899,451 490,899,451 G ROYALTY (%) H 1) AS PER THE 46.5 : 53.5 SPLIT [= F (II)/A] 25.51% II) ACTUAL PAID ( = D / A ) 35.62% PRIMARY A DJUSTMENT I) ACTUAL ROYALTY (= D) 685,34 6, 239 685,346,239 II) R OYALTY AS PER SPLIT [= F (II)] 490,899,451 490,899,451 PRIMARY ADJUSTMENT (H) = [(I) (II)] 194,446,788 194,446,788 ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 5 OF 51 THE A SSESSMENT YEAR 201 2 - 13 SR. NO. PARTICULARS FYE MARCH 2012 F 46.5:53.5 SPLI T (INCLUDING MANAGEMENT FEES AND EXCLUDIN G ROYALTY) I) FOR INDIA (C * % ) 490,904,396 490,904,396 II) FOR US (C * % ) 564,803,982 564,803,982 G ROYALTY (%) H 1) AS PER THE 46.5 : 53.5 SPLIT [= F (II)/A] 25.6 1% II) ACTUAL PAID ( = D / A ) 36.03 % PRIMARY ADJUSTMENT I) ACTUAL ROYALTY (= D) 794,851,211 794,851,211 II) ROYALTY AS PER SPLIT [= F (II)] 564,803,982 564,803,98 2 PRIMARY ADJUSTMENT (H) = [(I) (II)] 230,047,2 29 230,047,229 THE A SSESSMENT YEAR 2 01 3 - 14 SR. NO. PARTICULARS FYE MARCH 2013 F 46.5:53.5 SPLIT (INCLUDING MANAGEMENT FEES AND EXCLUDING ROYALTY) I) FOR INDIA (C * % ) 819,285, 731 819,285,731 II) FOR US (C * % ) 942,619 ,0 67 942,619,067 ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 6 OF 51 G ROYALTY (%) H 1) AS PER THE 46.5 : 53.5 SPLIT [= F (II)/A] 29.43 % II) ACTUAL PAID ( = D / A ) 44.14 % PRIMARY ADJUSTMENT I) ACTUAL R OYALTY (= D) 1,413,935,180 1,413,935,180 II) R OY ALTY AS PER SPLIT [= F (II)] 942,619,067 942,619,067 PRIMARY ADJUSTMENT (H) = [(I) (II)] 471,316,113 471,316,113 THE A SSESSMENT YEAR 2014 - 15 SR. NO. PARTICULARS FYE MARCH 2014 F 46.5:53.5 SPLIT (INCLUDING MANAGEMENT FEES AND EX CLUDING ROYALTY) I) FOR INDIA (C * % ) 929,422,416 929,422,416 II) FOR US (C * % ) 1,069,355,468 1,069,355,468 G ROYALTY (%) H 1) AS PER THE 46.5 : 53.5 SPLIT [= F (II)/A] 31.58 % II) ACTUAL PAID ( = D / A ) 46.41 % PRIMARY ADJUSTMENT I) ACTUAL ROYALTY (= D) 1,571,338,680 1,571,338,680 II) ROYALTY AS PER SPLIT [= F (II)] 1,069,355,468 1,069,355,468 PRIMARY ADJUSTM ENT (H) = [(I) (II)] 502,003,212 502,003,212 ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 7 OF 51 THE A SSESSMENT YEAR 2015 - 16 SR. NO. PARTICULARS F YE MARCH 2015 F 46.5:53.5 SPLIT (INCLUDING MANAGEMENT FEES AND EXCLUDING ROYALTY) I) FOR INDIA (C * % ) 1,601,310,544 1,601,310,5 44 II) FOR US (C * % ) 1,842,368,046 1,842, 36 8,046 G ROYALTY (%) H 1) AS PER THE 4 6.5 : 53.5 SPLIT [= F (II)/A] 35.28 % II) ACTUAL PAID ( = D / A ) 55.29 % PRIMARY ADJUSTMENT I) ACTUAL ROYALTY (= D) 2,887,140,778 2,887,140,778 II) ROYALTY AS PER SP LIT [= F (II)] 1,842,368,046 1,842,368,046 PRIMARY ADJUSTMENT (H) = [(I) (II)] 1,044,772,732 1,044,772,732 THE A SSESSMENT YEAR 2016 - 17 SR. NO. PARTICULARS FYE MARCH 201 6 F 46. 5:53.5 SPLIT (INCLUDING MANAGEMENT FEES AND EXCLUDING R OYALTY) I) FOR INDIA (C * % ) 146,74,52,57 9 53,71,52,579 II) FOR US (C * % ) 1,68,83,59,419 1,68,83,59,419 ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 8 OF 51 G ROYALTY (%) H 1) AS PER THE 46.5 : 53.5 SPLIT [= F (II)/A] 3 1.02 % II) ACTUAL PAID ( = D / A ) 48.11 % PRIMARY ADJUSTMENT I) ACT UAL ROYALTY (= D) 2,61,86,26,595 2,61,86,26,595 II) ROYALTY AS PER SPLIT [= F (II)] 1,68,83,59,419 1,68,83,59,419 PRIMARY ADJUST MENT (H) = [(I) (II)] 93,02,67,176 93,02,67,17 6 THE A SSESSMENT YEAR 2017 - 18 SR. NO. PARTICULARS FYE MA RCH 2017 F 46.5:53.5 SPLIT (INCLUDING MANAGEMENT FEES AND EXCLUDING ROYALTY) I) FOR INDIA (C * % ) 3,02,77,98.811 3,02,77 ,98.811 II) FOR US (C * % ) 3,48,35,96,482 3, 48,35,96,482 G ROYALTY (%) H 1) AS PER THE 46 .5 : 53.5 SPLIT [= F (II)/A] 38.69% II) ACTUAL PAID ( = D / A ) 66.39% PRIMARY ADJUSTMENT I) ACTUAL ROYALTY (= D) 5,97,75,36,448 5,97,75,36,448 II) ROYALT Y AS PER SPLIT [= F (II)] 3,48,35,96,482 3,48,35,96,48 2 PRIMARY ADJUSTMENT (H) = [(I) (II)] 2,49,39,39,966 2,49,39,39,966 ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 9 OF 51 8. THE NET RESULT OF TH E ABOVE APA IS THAT THE ROYALTIES WH ICH WERE RECEIVED BY THE ASSESSEE COMPANY FROM ITS IN DI AN AE, NAMELY GIA LABORA TOR Y INDIA PVT LTD, WERE REQUIRED T O BE PARTIALLY REFUNDED TO THE INDIAN A E . WHATEVER WAS HELD TO B E IN EXCESS OF THE ARM S LENGTH P RICE ARRIVED AT U NDER THE AFORESAID APA WAS R EQUIRED TO BE REFUNDED . THE DETAILS OF ROYA LTIES ACT U AL LY PAID, HELD TO AT ARM LENGTH PRICE UNDER THE APA , AND RE QUIRED TO BE REFUNDED TO THE IN DIAN AE CAN BE SUMM ED UP AS FOLLOWS: ASSESSMENT YEAR ROYALTY ACTUALLY PAID BY THE INDIAN AE ( IN INR) ALP OF T HE ROYALTY AS CONCLUDED IN INDIAN AE'S APA WITH THE CB DT AMOUNT TO BE RECOVERED BY THE INDIAN AE, FROM THE ASSESS EE, UNDER THE APA 2011 - 12 68 , 5 3 , 46,239 49 , 0 8 , 99,451 19 , 4 4 , 46,788 2012 - 13 79 , 4 8 , 51,211 56 , 4 8 , 03,982 23 , 0 0 , 47,229 2013 - 14 1 41 , 3 9 , 35,180 94 , 2 6 , 19,067 47 , 1 3 , 16,113 2014 - 15 1 57 , 1 3 , 38,680 1 06 , 9 3 , 3 5, 468 50 , 2 0 , 03,212 2015 - 16 2 88 , 7 1 , 40,778 1 84 , 2 3 , 68,046 1 04 , 4 7 , 72,732 2016 - 17 2 61 , 8 6 , 26,595 1 68 , 8 3 , 59,419 93 , 0 2 , 67,176 2017 - 18 597 ,75,36,448 348,35,96,482 249 ,39,39,966 T OT AL RE FUND BY THE ASSESSEE TO INDIAN AE, UNDER THE APA 5 86 , 6 7 , 93,216 9. THE AS SESSEE NOW CLAIMS THAT THE AMOUNTS SO REFUNDED BY THE ASSES SEE, TO ITS A E IN INDIA - NAMELY GIA - I NDIA, BE REDUCED FROM THE COMPUTATION OF I TS INCOME FROM THE ROYALTIES. SO FAR AS THE ASSESS MENT YEAR 2017 - 1 8 IS CO NCERNED, T HE CLA IM FOR REDUCTION IN INCOME HA S BEEN ACCEPTED AT THE ASSESSM ENT LEVEL ITSELF , AND, IN ANY EVE NT, WE ARE NOT DEALING WITH THAT ASSE SSMENT YEAR IN THIS BUNCH OF APPEALS . I N THE FIRST THREE ASSESSMENT YEARS BEFORE US, I.E. , ASSESSMENT Y EARS 2011 - 1 2 , 2012 - 13 , AND 2013 - 14 , THIS GRIEVANCE I S RAISED BEF ORE US BY WAY OF ADDITIONAL GROUNDS OF APPEAL, A ND IN THE REMAINING ASSESSMENT YEARS , I.E. , ASSESSMENT YEARS 201 4 - 15, 2015,16 A ND 2016 - 1 7 , TH I S GRIEVANCE WAS RAISED BEF ORE THE DISPUTE RES OLUTI ON PANEL. THE DISPUTE R ESOLUTION PANEL, HOWE VER, R AT HER SUMMARILY RE JE CTED THE CLAIM SO MAD E , AND THE B RIEF OBSER VATIONS MADE BY THE DISPUTE RES OL UTION PANEL IN THIS R EGARD, BARRING THE NECESSARY C HANGES IN THE AMOUNT IN VOLVED, A RE AS FOLLOWS : DISCUSSIO NS AND DIRECTIONS OF THE DRP: WE HAVE EXAMINED THE CLAIM OF THE ASSESSEE THAT THE ROYALTY RECEIVED SHOULD BE COMPUTED AT RS.106.93 CRS. AS PER APA DATED 07.05.2018 IN THE CASE OF GIA INDIA LAB INSTEAD OF AT RS.157.13 CR. AS PER THE RETURN OF INCOME. IT IS NOTED THAT AS PER SECTION 92(3) OF THE ACT, IF AN Y ADJUSTMENT HAS THE EFFECT OF REDUCING ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 10 OF 51 THE INCOME CHARGEABLE TO TAX OR INCREASING THE LOSS W ITH RESPECT TO ANY INTERNATIONAL TRANSACTION OR SPECIFIED DOMESTIC TRANSACTIONS, THE PROVI SIONS OF SECTION 92 SHA LL NOT APPLY. IT IS FURTHER NOTED THA T THE APA IN THE CASE OF GI A INDIA LAB DOES NOT HAVE A BINDING FORCE ON COMPUTATION OF ROYALTY IN THE HANDS OF THE ASSESSEE SINCE THE APA PROCEEDINGS IN THE CASE IF GIA INDIA LAB ARE ENTIRELY INDE PENDENT AND CANNOT BE I MPORTED INTO THE COMPUTATION OF TAXABLE ROYALTY IN THE HANDS OF THE ASSESSEE. IN VIEW OF THIS DISCUSSION IT IS HELD THAT THE AMOUNT O F ROYALTY RECEIVED CANNOT BE DEC REASED IN THE HANDS OF THE ASSESSEE ON THE BASIS OF APA IN THE CASE OF GIA INDIA LAB. AND T HE ADDITIONAL GROUND OF OBJECTION RAISED BY THE AS SESSEE IS REJECTED 10. IT IS IN THIS BACKDROP THAT THE ASSESSEE IS NOW BEFORE U S SEEKING MODIFI CATION IN QUANTUM OF ROYALT Y , RECE IVED FROM THE IN DIAN AE , BEING TAXED IN THE HA NDS OF THE ASSESSEE. THE CLAIM OF THE ASSESSE E, IN SUBSTANCE , IS THAT THE AMO UNT WHICH HA S BEEN REFUNDED BY THE ASSESSEE TO ITS AE C AN NOT BE T REATED AS INCOME IN THE HANDS OF THE ASSESSEE, AND MUST, THERE FORE , BE REDUC ED FROM ITS TAX ABLE INCOME AS ROYALTIES . 11. LEARNED SENIOR COUNSEL SUBMITS THIS ISSUE , ALONG - WITH ANOTHER GROUN D O F APPEAL DEALING WITH A CONNECTED FA CET OF TAXABILITY OF TH E ROYALTY INCOME , WHICH HAS BEEN RENDERED INFRUCTUOUS IN THE PRESENT CONTEXT IN THE LIGHT OF THE COORDINATE BE NC H DECISION HOLDING THAT THE ASSESSEE COMPANY DID NOT HA VE A PERMANENT E STA BLISHMEN T ( PE) IN INDIA, HAS BEEN TAKEN UP BY WAY OF AN ADDITIONAL GROUN D I N THE FIRST THREE ASSESSMENT YEARS, I.E. 2011 - 12, 2012 - 13 AND 201 3 - 14. THIS APPEAL AS ALSO THE OTHER SIX APPEALS OF THE ASSESSEE , W HICH HAVE BEE N TAKEN UP FOR HEARING TODAY, ARE THE A PPEAL S I N WHICH HEARING WAS CONCLUDED EARLIER AND THESE APPEALS HAVE NOW BEEN RE FIXED FOR HEARING DE NOVO . IT WAS FURTHER PO INTED OUT T HAT THESE ADDITIONAL GROUND S OF APPE AL WAS ADMITTED EARLIER AND ARGUED AT LENGTH , AND THERE IS NO REASON NOT TO ADMIT THE SAME FO R TH E SE PROCE EDINGS NOW . LEARNED DEP ARTMENTAL REPRESENTATIV E DOES NO T DISPUTE THIS SUBM ISSION , BU T VEHEMENTLY OP POSES THE ADMISSION OF TH IS ADDITIONAL GROUND NEVERTHELESS . L EARNED SENIOR COUNSEL FOR THE ASS ESSEE ONCE AGAIN P RAYS , ON MERITS, FO R ADMISSIO N O F TH IS GROUND OF APPEAL . HE SUBMITS THAT THIS ADDITIONAL GROUND S OF APPEAL HAS ARISEN BECAUSE OF SUBSEQUENT DEV ELOPMENT S AND COU LD NOT HAVE BEE N, THERE FORE, RAISED EARLIER , THAT I T INVOLVES A SU BSTANTIAL LEGAL IS SUE WHICH GOES TO THE FOUNDATIONAL ASPECT OF QUANTIFICATION OF INCOME , AND THAT IT DESERVES TO BE ADMITTED BY US , IN THE LIGHT OF THE WELL SETTLED LEGAL POSITION - PARTICULA RLY AS LAID DOWN BY HON BLE SUPREME COURT IN THE CASE OF NTPC VS CIT (229 ITR 383). I T IS SUBMITTED THAT THE ADDITIONAL GROUN D I N QUE STION IS RAISED BONAFIDE. LEA RNED CIT ( DR) SERIOUSL Y OPPOSE THE ADMISSION OF ADDITIONAL GROUND , AND SUBMITS THAT QUANTIFICATION OF THE ROYALTY INCOME IS AS PER THE VOLUNTARY INFORMATION FURNISHED BY THE ASSESSEE IN THE RETURN OF INCOME, AND IT CAN NO T B E REVIS ITED AT THIS STAGE. IT IS ALSO SUBMITTED THAT THE RELEVANT FA CTS ARE NOT ON RECORD. HE ALSO SUBMITS THAT THE CASE OF THE ASSESS EE PRIMA FACIE LAC KS ANY MERITS. LEARNE D CIT (DR) , HOWE VER, DOES SUBMIT THAT IN THE EVENT OF AD MITTING ADDITIONAL GROUND S O F APPEAL, HE SHOULD IDEALLY REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR NECESSARY VERIFICATION OF FACTS . AS REGARDS SECOND ADDITIONAL GROUND OF APPEAL, LEARNED CIT(DR) FAIRLY ACCEPTS THAT GIVEN THE FIN DINGS OF THE COORDINATE BE NCH ABOUT NO N - E XISTENCE OF ASSES SEE S PE IN INDIA , THIS GROUND IS WHOLLY ACADEMIC AND IT MAY NOT EVEN NEED ANY ADJUDICATION ON MERITS. H E DOES NOT OPPOSE THE ADMISSION OF THE SECOND ADDITIONAL G ROUND, LEARNED SE NI OR C OUNSEL SUBMITS TH AT ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 11 OF 51 NO USEFUL PURPOSE WILL BE SERVE D B Y REMITTING THE MATTER TO THE FILE OF THE ASSESSING OFFICER AS ALL THE RELATED FAC TS ARE ON RECORD, AND AS , IN THE ASSESSMENT YEARS 2013 - 14, 2 014 - 15 , 2015 - 16 AND 2016 - 17, THIS ISSUE HAS BEEN CON SIDERED ON MERITS BY THE AUTHORITIES BELOW AND DECIDED ON M ERI TS. A LL THOSE ASSESSMENT YEARS ARE ALSO BEFORE US TODAY . WE ARE URGED TO TAKE A CALL ON MERITS. ON A CAREFUL CONSIDERATION OF RIVAL CONTENTIONS, AS AL S O MATERIAL ON RECORD, WE ARE INCLINED TO AD MIT BOTH THE ADDITIONAL GROUNDS OF APPE AL AND PROCEED TO DE AL WITH THE SAME. THE SECOND ADDITIONAL GROUND OF APPEAL WILL BE TAKEN UP LATER ALONG - WIT H OTHER ISSUES RAISED IN APP EAL. COMING TO THE FIRS T ADDITIONAL GROUND OF APPEAL IN THE ASSESSMENT YEARS 2011 - 12, 2012 - 13 AND 2 013 - 14, WHICH IS CORE ISSUE IN ALL THESE AP PEALS, THE LEARNED SENIOR COUNSE L THEN BEGINS , ON MERITS, BY SUBMITTING THAT THE INCOME ON ACCOUNT OF ROYALT Y WHICH CAN BE TAXED IN THE HANDS OF TH E ASSESSEE IS THE NET AM OUNT, AS FINALLY RECEIVED BY THE ASSESSEE AFTER THE ADJUSTMENT S MADE PURSUANT TO THE APA SETTLEMENT OF THE INDIAN AE , AND NOT THE AMOU NT AS INITIALLY BILLED AND REC EIVED BY THE A SSESSEE. THE SU BSEQUENT EVENT OF REFUNDING THE AMOUNT OF RO YALTY, AS A RESULT OF THE INDIAN A E ENTERING INTO APA WITH THE INDIAN T AX AUTHORITIES, IS N OT A STAN DAL ONE EVENT, AND IT HAS TO BE ESSENTIALLY CONSIDERED IN CONJUNCTION WITH THE ORIGI NAL PAYME NT OF ROYALTIES B Y THE INDIAN AE TO THE ASSESSEE COMPANY. HE SUBMITS THAT FOR EXAMPLE , IN THE ASSESSMENT YEAR 2011 - 12, THE INITIA L AMO UNT B ILLED A ND RE CEIVED BY THE AS SESSEE, ON ACCOUNT OF ROYALTY BY THE INDIAN AE I.E . , GIA - INDIA, WAS RS 68,53,46,239, BUT THEN , AFTER GI VING A REFU ND OF RS 19 , 4 4 , 46,788 , IN TERMS OF TH E REQUIRE MENTS OF THE INDIAN AE S APA, THE NE T ROYALTY INCOME OF THE ASSESSEE WAS ONLY RS 49, 08,99,45 1 . T HE FACT THAT THE REFUND WAS MADE IN A SUBSEQ UENT Y EAR DOES NOT REALLY MATTER AS IT IS ADMITTEDLY ON ACCOUNT OF THE ROYALTY INCOME BOOKED IN THE ASSESSMENT YEAR 2011 - 12 , AND, THERE FORE, IT HAS TO RELATE BACK T O THAT ASSESSMENT YEAR. THE ROYALTY INCO ME FO R T HE ASSESSMENT YEAR 2011 - 12 , WHICH CAN BE TAXED I N THE HANDS OF THE ASSES SEE, IS ON L Y RS 49,08,99 ,4 51 . IT WAS CONTENDED THAT B Y VIRTUE OF THE APA, THE FUNDAMENTALS OF THE TRANSACTION S BETWEEN GIA INDIA LAB AND THE ASSESSEE HA D UNDERGONE A CHANGE WITH TH E APPROVAL OF THE CBDT AND THE ROYALTY WHICH IS PA YABLE BY GIA INDIA LAB AND THE ONLY AMOUNTS WHICH ARE RECEIVABLE BY THE ASSESSEE ARE RS. 49,08,99,451 . IT WAS CONTENDED THAT I NCOME CAN BE SAID TO ACCRUE TO THE ASSESSEE ONLY WHEN THE ASSESSEE HAS AN IN DEFEASIBLE RIGHT TO RECEIVE THE SAME , AND THA T IN VIEW THE APA BETWEEN GIA INDIA LAB AND CBDT, THE A PPELLANT HAS A RIGHT TO RECEIVE ONLY RS. 49,08,99,451 AND NOT RS. 68,53,46,239 . I T IS CONTEN DED T HAT WHAT CAN BE BROUGHT TO TAX IS T HE REAL INCOME OF AN ASSESSEE AND NO T HYPOTHETICAL AND NOTIONAL INCOME. RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN CIT VS. BOKARO STEEL LTD. ( 236 ITR 315 ) WHICH REFER TO THE DECISION IN THE C ASE OF GODHRA ELECTRICITY CO. LTD. VS. CIT ( 225 ITR 746 ) . RELIANCE WAS ALSO PLACED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF H.M. KASHIPAREKH & CO. LTD. VS CIT ( 39 ITR 706 ) WHICH HAS HELD T HAT THE PRINCIPLE OF R EAL INCOME IS NOT TO BE SO SUBORDINATED AS TO AMOUNT VIRTUALLY TO NEGATION OF IT WHEN A SURRENDER OR CONCESSION OR REBATE IN RESPECT OF MANAGING AGENCY COMMISSION IS MADE AGREED TO OR GIVEN ON GROUNDS OF COMMERCIAL EXPEDIENCY SIM PLY BECAUSE IT TAKES PLACE SOMETIME AFTER THE CLOSE OF AN ACCOUNTING YEAR. IN EXAMINING ANY TRANSACTION AND SITUATION OF THIS NATURE THE COURT WOULD HAVE MORE REGARD TO THE REALITY AND SPECIALITY OF THE SITUATION RATHER TH AN THE PURELY THEORETICAL OR DOCTRINAIRE ASPECT OF IT . IT WAS TH US C ONTENDED THAT TH E AMOUNT ACT UALLY REFUNDED BY THE ASSESSEE TO THE INDIAN AE CANNOT BE TREATED AS INCOME IN THE HANDS OF THE ASSESSEE . LEARNED COUNSEL THEN SUBMITS THAT SEC OND PROVISO TO S ECTION 92C(4) OF THE ACT DOES PROHIBIT AN A E FROM GETTING A CORRESPONDING BENEFIT OF AN ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 12 OF 51 ARMS LENGTH ADJUSTMENT BEING MADE IN THE CASE OF AN ENTERPRISE B UT THIS PROHIBITION APPLIES ONLY WHERE THE TOTAL INCOM E OF AN ENTERPRISE I S COMPUTED UNDER SUB - SECTION (4) OF SECTION 92C ON DETERMINATION OF THE ARMS LENGTH PRICE PAID TO ANOTHER ASSOCIATED ENTERPRISE. IT IS POINTED OUT THAT S UB - SECTION (4) APPLIES WHERE AN ALP IS DETERMINED BY AO UNDER SUB - SECTION ( 3) OF SECTION 92C. IT IS THEN POINTED OUT THAT, IN CONTRAST, NO CORRESPONDING PROHIBITION PROVIDED IN SECTION 92CC TO 92CE, WHICH ARE THE PROVISIONS GOVERNING THE APA SCHEME, NOR IS THERE ANY SUCH PROHIBITION IN RULE 10F TO 10T, RULES 44GA, RULE 10MA AN D 10RA, WHICH ARE THE RELEVANT RULES FOR THE APA S CHEME. IT IS THEREFORE SUBMITTED THAT WHERE A SUO MOTU ADJUSTMENT TO THE TRANSFER PRICE IS MADE BY AN ENTERPRISE PURSUANT TO AN APA, A CORRESPONDING EFFECT THEREOF MUST BE ALLO WED TO THE AE. IT STANDS TO REASON THAT A PRO HIBITION SHOULD EXIST IN SECTION 92C AND NOT IN SECTION 92CC. SECTION 92C DEALS WITH A SITUATION WHERE AN ASSESSEE DECLARES A PRICE TO BE ALP WHICH IS FOUND NOT TO BE CORRECT ON SC RUT INY BY TRANSFER PRICING OFFICER . THEREFORE, W HEN AN ADJUSTMENT IS MADE TO ALP UNDER SECTION 92C, IT IS PROVIDED THAT THE CORRESPONDING BENEFIT IS NOT TO BE GIVEN TO THE AE. HOWEVER, IN CONTRAST, THE APA UNDER SECTION 92C C IS A VOLUNTARY AGREEMENT BETWEEN AN ASSES SEE AND THE DEPARTMENT AND IS NOT A DETERMINATION BY THE AO/TPO WHERE THE ALP DECLARED BY AN ASSESSEE IS FOUND TO BE INCORRECT. BESIDES, THE APA, AS IN THE PRESENT CASE, HAS THE EFFE CT OF VARYING AND ALTERING THE TRANSACTION AND NOT VARYING THE ALP OF THE TRANSACTION. THEREFORE, IT IS SUBMITTED THAT THE CORRESPONDING BENEFIT OF AN AGREED AMOUNT OUGHT TO BE GIVEN TO THE AE IN CASE OF APA. OUR ATTENTION IS INVITED TO THE DECISION OF THE BANGALORE BENCH OF ITAT IN THE CASE OF ACIT VS. EYGBS INDIA PVT. LTD. [ITA NO 2984/BANG/2018] , A COPY OF WHICH WAS PLACED BEFORE US, IN WHICH AN APA WAS EN TERED INTO WHEREBY AN UPWARD ALP ADJUSTMENT OF RS. 8,66 ,80 ,000 WA S M ADE TO THE INCOME RECEIVED BY THE ASSESSEE, AND I T WAS HELD THAT THE PROHIBITION CONTAINED IN THE FIRST PROVISO TO SECTION 92C(4) WOULD HAVE NO APPLICATION TO A CASE OF APA. SIMILARLY, IT IS SUBMITTED THAT THE PROHIBITION CONTAINED IN THE SECO ND PROVISO WOULD ALSO NOT HAVE ANY APPLICATION IN T HE CASE OF APA. ON THE STRENGTH OF THESE S UBMISSIONS, LEARNED COUNSEL S UBMITS THAT ONLY THE NET AMOUNT, I.E. ORIGINALLY BILLED ROYALTY AM OUNT - AS REDUCED B Y THE REFUNDS IN TER MS OF THE APA ARRAN GEMENT, SH OUL D BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE. IN OTHER WORDS, THE AMOUNTS REFUNDED BY THE ASSESSEE, AS MANDATED BY THE TERMS OF THE A PA WITH ASSES SEE S AE, SHOULD BE EXCLUDED FROM THE INCOME TAXABL E IN THE H ANDS OF THE ASSESSEE. 12. LEARNED CIT (DR) VEHEMENTLY OPPOSED THE CLAIM MADE BY THE ASSESSEE . THE ELABORATE SUBMISSIONS MADE BY THE LEA NED C OMMISSIONER ( D R) HA VE BEEN ADEQUATELY S UMMED UP IN HIS WRITTEN NOTE AS F OLLOWS: 4. IT IS HUMBLY S UBMITTED THAT : (I) THE ASSESSEE GIA INC IS NOT A PARTY TO T HE APA AND, THEREFORE, CANNOT SEEK ANY RELIEF BASE D ON THE APA WHICH APPLIES ONLY TO THE PARTIES/ APPLICANTS COVERED BY THE APA. (II) THE ASSESSEE GIA INC HAD VOLUNTARILY OFFERED INCOME UNDER TH E HEAD ROYALTY AND PAID TAXES AS PER RETURN OF INCOME FILED . THE CLAIM MADE BEFORE THE HONBLE ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 13 OF 51 ITAT IS BEYOND THE PURVIEW OF SECTION 253 AS NO SUCH CLAIMS WERE MADE IN THE ASSESSMENT AND APPELLATE PROCEEDINGS OF THE ASSESSEE AND THE ASSESSEE WAS NOT A PAR TY TO THE APA. (III) AS PER THE PROVISIONS OF S EC. 92CE OF THE ACT AND RELEVANT RULES, THE TERMS OF ADVANCE P RICING AGREEMENT ARE APPLICABLE ONLY IN THE CASE OF A PERSON WHO IS A PARTY TO THE AGREEMENT. SINCE THE ASSESSEE IS NOT A PARTY TO THE ADVANCE PRICING AGREEMENT, THE TERMS OF THE SAME IS NOT BINDING ON THE ASSESSEE AND HENCE THE SAME CANNOT BE CLAIMED BY THE ASSESSEE. (IV) THE DECISION RELIED UPON BY THE ASSESSEE ARE NOT IN THE CONTEXT OF THE TRANSFER PRICING PROVISIONS OF SECTIONS 92C , 92CD, A ND 92CE. FURTHER IN THE CASE OF BOKARO STEEL L TD., THE ENT RIES WERE REVERSED IN THE SECOND YEAR. HERE THERE I S NO RECORD THAT ENTRIES ARE REVERSED AND IT IS NOT THE CASE THAT ROYALTY AGREEMENT IS CANCELLED. WHAT HAS MERELY HAPPENED IS THAT ALP HAS BEEN DET ERMINED AT DIFFERENT PRICE THAN THAT RECORDED IN THE BOOKS OF THE INDIAN COMPANY. SIMILARLY IN THE CASE OF GO DHRA ELECTRICITY CO. LTD., THE SUBJECT MATTER OF ENHANCEMENT OF TARIFFS WAS LITIGATED UPTO THE APEX COURT. THE DECISION WAS APPLICABLE TO THE ASSES SEE. IN THE CASE OF THE ASSESSEE HERE, APART F ROM THE FACT THAT THERE IS NO EVIDENCE OR ANY REVERSAL ON RECOR DS IN THE PRESENT PROCEEDINGS, THE QUESTION IS WHETHER IT IS VOLUNTARY IN THE CASE OF THE ASSESSEE AND IF SO WILL IT GO TO REVERSE THE ENTRIES AB - I NITIO, OR IT WILL APPLY TO THE YEAR IN WHICH R EVERSAL IS M ADE. 5. THE CLAIM OF THE ASSESSEE IS IN THE NATURE OF SECONDARY ADJUSTMENT SINCE IT PERTAINS TO THE ASSOCIATED ENTERPRISE AS A RESULT OF THE PRIMARY ADJUSTMENT. THE PROVISO TO SEC. 92C(4) READS AS PROVIDED FURTHER THAT WHERE THE TOTAL INCO ME OF AN AS SOCIATED ENTERPRISE IS COMPUTED UNDER THIS SUB - SECT ION ON DETERMINATION OF THE ARMS LENGTH PRICE PAID TO ANOTHER ASSOCIATED ENTERPRISE FROM WHICH TAX HAS BEEN DEDUCTED OR WAS DEDUCTIBLE UNDER THE PROVISIONS OF CHAPTER XVIIB, THE INCOME OF T HE OTHER AS SOCIATED ENTERPRISE SHALL NOT BE RECOMPUTED BY REAS ON OF SUCH DETERMINATION OF ARMS LENGTH PRICE IN THE CASE OF FIRST MENTIONED ENTERPRISE. THE LD AR HAS RELIED ON THE DECISION OF THE HONBLE ITAT IN THE CASE OF EYGBS TO CONTEND THAT SECTIO N 92C(4) DOE S NOT FETTER THE CLAIM PURSUANT TO THE APA. IT IS S UBMITTED THAT FACTS IN THAT CASE WERE DIFFERENT. IT WAS A CASE OF THE SAME TAX PAYER AND NOT THE OTHER AE. FURTHER, IT WAS HELD THAT SECTION 10AA DOES NOT RESTRICT THE CLAIM AND IS WORDED WIDEL Y TO NOT BE CONSTRAINED BY SECTION 92C(4). IT IS HUMBLY SUBMITT ED THAT THE RELIANCE ON THIS DECISION IS MISPLACED IN THE FACTS OF THE ASSESSEE. 6. YOUR KIND ATTENTION IS DRAWN TO SECTION 92CE BROUGHT ON THE STATUT E BY THE FINANCE ACT 2017 W.E.F. 2018. TH IS SECTION W HICH SPECIFICALLY DEALS WITH AND PERMITS THE SECOND ARY ADJUSTMENT, IN SEC. 92CE(1)(III) REFERS TO THE PRIMARY ADJUSTMENT DETERMINED BY THE ADVANCE PRICING AGREEMENT ENTERED INTO BY THE ASSESSEE U/S 92CC ON OR AFTER 01.04.2017. IN THE PRESE NT CASE, THE APA WAS ENTERED IN MAY 2018 AND THIS SECTION IS TH EREFORE APPLICABLE. THE FIRST PROVISO TO SECTION 92CE(1) STIPULATES ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 14 OF 51 THAT IF THE PRIMARY ADJUSTMENT IS MADE IN RESPECT OF AN ASSESSMENT YEAR COMMENCIN G ON OR BEFORE 01.04.2016 THEN THE SECOND ARY ADJUSTME NT PROVISION UNDER SECTION 92CE WILL NOT BE APPLICA BLE. THUS SECONDARY ADJUSTMENT PERMITTED U/S 92CE IS NOT APPLICABLE UPTO A.Y. 2016 - 17. THE CLAIM ACCEPTED BY THE AO FOR A.Y. 2017 - 18, AS REFERRED TO BY THE AR, HAS TO BE SEEN IN THIS CONTEXT . FURTHER, THE SECOND PROVISO TO SECTION 92CE(1), STIPULATES THAT NO REFUND OF TAXES PAID COULD BE CLAIMED OR ALLOWED. THE TERMS PRIMARY ADJUSTMENT AND SECONDARY ADJUSTMENT ARE DEFINED AND EXPLAINED IN SEC. 92CE (III)(3). 7. THE ASSESSEE HAS ALSO CONTEN DED THAT THE DIRECTIONS CONTAINED IN THE APA IS NOT IN THE NA TURE OF TRANSFER PRICING ADJUSTMENT. IT IS HUMBLY SUBMITTED THAT THE COVERED TRANSACTIONS ARE ENUMERATED AND MENTIONED IN PARA 3 OF THE APA AND INCLUD ES PAYMENT OF ROYALTY. THESE TRANSACTION S HAVE BEEN COVERED AND THE EXERCISE WAS TO DETERMINE THE ARMS LENGTH PRICE WITH RESPECT OF THESE TRANSACTIONS WHICH INCLUDE PAYMENT OF ROYALTY. A PERUSAL OF THE APA SHOWS THAT THE SAME WAS DETERMINED BASED ON THE VARIOUS INTERNATIONAL TRANSACTIONS RELAT ING TO THE P AYMENTS MADE BETWEEN THE INDIAN ENTERPRISE GIA IND IA TO THE FOREIGN AFFILIATES, INCLUDING THE ASSESEE GIA INC, IN RESPECT OF THE GRADING SERVICES, MANAGEMENT SERVICES AND ROYALTY. THE ALPS WERE DETERMI NED FOR ALL THESE THREE TRANSACTIONS. THI S NO SUO MO TU ADJUSTMENT AS CLAIMED BY THE ASSESSEE BEFORE YOU R HONOURS. THIS IS RESOLUTION OF DISPUTE BETWEEN THE TPO AND THE GIA INDIA IN RESPECT OF TRANSFER PRICING ISSUES. FURTHER, THE LD AR HAS CLAIMED THAT W HERE A SUO MOTU ADJUSTMENT TO THE TRANSFER PRICE IS MA DE BY THE ENTERPRISE PURSUANT TO AN APA , A CORRESP ONDING EFFECT THEREOF MUST BE ALLOWED TO THE AE. THIS CLEARLY SHOWS THAT THIS IS ADMITTED TO BE A TRANSFER PRICING ADJUSTMENT, AND A SECONDARY ADJUSTM ENT IS SOUGHT. UNDER APPENDIX II THERE IS REFERENCE TO PAYMENT OF ROYALTY IN ITEM 5.1(III). THIS REFERS TO THE APPENDIX - I (1)(B)(III). A PERUSAL OF THE SAME SHOWS THAT THE DETERMINATION WAS MADE KEEPING IN VIEW THE OPERATING PROFITS RESULTING FROM THE T RANSACTIONS. THUS, IT IS HUMBLY SUBMITTED THAT THE AD VANCE PRICING AGREEMENT IS IN THE CONTEXT OF TRANSF ER PRICING METHODOLOGY AND THE DIRECTIONS WHICH ARE THE SUBJECT MATTER OF APA FALLS UNDER SECTION U/S 92CC. THUS THE DETERMINATION UNDER APA ARE NOTHI NG BUT TRANSFER PRICING ADJUSTMENTS BASED ON ALP. 8. IT WAS OPEN TO THE ASSESSEE TO JOIN AS A PARTY TO APA WHICH IT CHOSE NOT DO SO. THE APA HAS NO BINDING FORCE ON ASSESSEE GIA INC. IT IS UP TO THE ASSESSEE WHETHER TO REMIT ANY FUNDS TO THE INDIAN PAR TY TO THE APA, WHICH IS A VOLUNTARY ACT O N ITS PART, BUT THIS HAS NO BEARING ON THE CLAIM FOR REDUCTION OF INCOME IN THE RETURN OF INCOME FILED SINCE THE APA IS NOT BINDING ON THE ASSESSEE. IN FACT, THE APA IN APPENDIX - II PARA 5.3, DOES RECOGNIZED AND ENVISAGE A SITUATION WHERE THE APPLICAN T GIA INDIA CAN CHOSE NOT TO RAISE ANY INVOICE ON THE ASSESSEE GIA INC, IN PREVIOUS YEARS, FOR RECEIVING BACK OF PAYMENT MADE BY IT. IN THIS CASE, CERTAIN ADDITIONAL INCOME HAS BEEN OFFERED FOR WHICH THE FORMUL A HAS BEEN SPECIFIED. THIS AGAIN SHOWS TH AT INVOICE I S RAISED BY GIA INDIA ON GIA INC , IF ANY, THE ACCE PTANCE BY THE ASSESSEE GIA INC IS A VOLUNTARY ACT. 9. FURTHER, IN PARA 5.4 OF THE APPENDIX - I IT IS STIPULATED THAT NO DOWNWARD ADJUSTMENT IS REQUIRED IF THE PAYMENT ACTUALLY MADE BY GIA INDI A IS LESS TH AN THAT ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 15 OF 51 REQUIRED AS PER THE APA AS ALP. THUS, THE RE CAN BE A SITUATION WHERE THE PAYMENT MADE BY THE INDIAN ENTITY IS LESS THAN THE ALP. THE ASSESSEE GIA INC WOULD NOT OFFER ANY ADDITIONAL INCOME AS RO YALTY AND CAN CLAIM THAT IT IS NOT A PAR TY TO THE AP A. 10. WITHOUT PREJUDICE, IT IS FURTHER SUBMITTED THAT IT IS NOT KNOWN THE OPTION CHOSEN BY GIA INDIA, AND WHETHER INVOICES WERE RAISED ON GIA INC, WHETHER PAYMENTS WERE MADE BY GIA INC, RBI OR OTHER APP ROVALS, REVISION OF ACCOUNTS ETC. THE SE FACTS WAR E NOT ON RECORD. FURTHER ASSUMING ANY SUCH PAYMENTS WERE MADE BY GIA INC, IT WOULD BE SUBSEQUENT TO APA DATED 7. 5.2018, AND THUS FALL IN A DIFFERENT ASSESSMENT YEAR. A SUBSEQUENT EVENT CANNOT LEAD TO REVIS ION OF INCOME OF AN EARLIER YEAR, WHIC H HAS ACCRUE D AS PER THE ACCOUNTING SYSTEM AND AUDITED ACCOUNTS FOR THE EARLIER ASSESSMENT YEARS. THUS EVEN IN THAT CASE A CLAIM CAN ONLY BE MADE IN THE YEAR IN WHICH PAYMENTS ARE MADE, IF AND AS PERMITTED UNDER LAW. 13. IN A BRIEF REJOINDER, LEARNED SENI OR COUNSEL H AS RE ITERATED HIS SUBMISSIONS. IT WAS CONT ENDED TH AT NOT EXCLUDING THE ROYALTIES REFUNDED BY THE ASSESSEE , AND NOT GIVE A CORRESPONDING EFFECT IN THE COMPUTATION OF INCOME OF THE AE, WOULD RESULT IN DOUBLE TAXATION AND AN UN JUST COLLECT ION OF TAX TWICE OVER BY THE DEPARTMENT, WHICH CAN N EVER BE THE INTENTION OF THE LEGISLATURE AND ANY INTERPRETATION WHICH LEADS TO SUCH ABSURD RESU LT MUST BE AVOIDED . RELIANCE WAS PLACED ON HON BL E SUPREME COURT S JUDGME NTS IN THE CA SES OF CIT V S J H GOTLA (156 ITR 323) AND K P V ARGHESE VS ITO (1 31 ITR 597). AS REGARDS RE LIANCE PLACED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE (DR) ON THE PROVISIONS OF SECTION 92CE OF THE ACT , IT IS CONTENDED TH AT SUCH A REL IA NCE IS COMPLE TELY ERRONEO US AND MISCONCEI VED FOR THE FO LLOW ING REASONS: THE SAID PROVISION , HAS BEEN INSERTED BY THE FINANCE ACT, 2017 WITH EFFECT FROM 01 APRIL 2018 I.E., ASSESSMENT YEAR 2018 - 19 ONWARDS. THE FIRST PROVISO TO SECTION 92CE OF THE ACT IN TERMS PROVIDES THAT THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IF THE PRIMARY ADJUSTMENT IS MADE IN RESPECT OF AN ASSESSMENT YEAR COMMENCING ON OR BEFORE 01 APRIL 2016 THE YEARS UNDER CONSIDERATION ARE ASSESSMENT YEAR 20 11 - 12 TO 201 6 - 17 AND THEREFORE THE PROVISIONS OF SECTION 92CE CANNOT HAVE ANY AP PLICATION. WITHOUT PREJUDICE TO THE ABOVE, EVEN ON MERITS THIS PROVISION WOULD HAVE NO APPLICATION. SECTION 92CE (1) PROVIDES INTER - ALIA THAT WHERE A PRIMA RY ADJUSTME NT TO THE TRANSFER PRICE IS DETERMINED BY AN APA ENTERED IN TO BY THE ASSESSEE U/S. 92CC ON OR AFTER 01 APRIL 2017, THE ASSESSEE SHALL MAKE A SECONDARY ADJUSTMENT . THUS, THE PRIMARY AS WELL AS THE SECONDARY ADJUSTMENTS ARE TO BE MADE IN THE CASE OF THE SAME ASSESSEE. IN OTHER WORDS, IF SECTION 92CE WERE TO BE APPLIED POST 1 ST APRIL 2018, THE QUESTION OF MAKING ANY SECONDARY ADJUSTMENT COULD ONLY ARISE IN THE HANDS OF GIA INDIA LAB AND NOT IN THE HANDS OF THE ASSE SSEE. A REA DING OF SUB - SECTION (2) OF SECTION 92CE SHOWS THAT THE SECONDARY AD JUSTMENT, WHICH IS ENVISAGED IN SECTION 92CE(3)(V) IS WHERE, AS A RESULT OF THE PRIMARY ADJUSTMENT, THERE IS AN INCREASE IN TOTAL INCOME OF THE ASSESSEE (G IA INDIA LAB ) AND THE EXCESS MONEY IS NOT REPATRIATED TO INDIA BY ITS AE (I.E. G IA US) WITHIN THE PRESCRIBED TIME, SUCH EXCESS IS TO BE DEEMED TO BE AN ADVANCE MADE BY GIA INDIA TO GIA US AND THE INTEREST ON SUCH ADVANCE IS REQUI RED TO B E ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 16 OF 51 COMPUTED IN THE PRESCRIBED MANNER. IN THE INSTANT CASE, THE EXCESS MONEY HAS BEEN REPATRIATED BY GIA US TO THE GIA INDIA LAB AND THEREFORE THERE CAN BE NO QUESTION OF ANY SECONDARY ADJUSTMENT. 1 4 . WE WERE THUS URGED TO UP HOL D T HE PLEA O F THE ASSESSEE AND RE JECT THE HYPER TECHNICAL , AS ALSO WHOLLY INCORR ECT, OBJECTIONS RAISED BY THE AUTHORITIES BELOW AS ALSO BY T HE LEA RNED DEPARTME NTAL RE PRESENTATI VE. L E ARNED SENIOR COUNSEL CONCLU DES BY SUBMITTING THAT THERE IS NO WA Y IN WHICH AN INCOME, WHICH IS N EITHER ACT UALLY RECEIVED NOR ACTUALLY ARISEN TO THE ASSESS EE - AS A RESUL T OF AN APA ARRANGEMENT, CAN BE TAXED IN THE HANDS OF THE ASSESSEE , AND THAT ONCE AN ASSESSEE REDUCES THE ROYALTY PAYABLE BY ITS ASSOCIATED ENTERPR ISE, AND GIVES EFFECT T O TH IS REDUCTION, THE ORIGINAL BILLING OF THE ROYALTY, WHICH STAND S ALTE RED NOW - IN LAW AND IN FACT , C EASES TO BE RELEVANT FOR D ETERMINATION OF ROYALTY INCOME TAXABLE IN THE HANDS O F THE ASSESSEE. 15. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO TH E RIVAL CONT ENTION S AND THE FACTS OF THE CASE IN THE LIG HT OF THE APPLICAB LE LEGAL POSITION. 16. WE FIND THAT ONE OF THE C RITICAL ASSUMPTIONS IN THE APA BETWEEN GIA INDIA, AN AE OF THE ASSESSEE , A ND THE CBDT WAS THAT IF PAYMENT OF ROYALTY BY THE GIA I N DIA TO THE ASSESSEE WAS TO EXCEED ITS ARM S LENGTH P RICE , AS DETERMINED IN THE APA, T HE A PPLICANT (I.E. , THE GIA INDIA ) SHALL RAISE THE APPROPRIATE INVOICE ON THE AE TO RECOVER THE AFORESAID EXCESS PAYMENT MADE AND SHOW THE RESPECTIVE EXCESS AMOUNTS AS A DDITIONAL IN COME IN THE MODIFI ED RETURN OF THE RESPECTIVE YEARS . UNDER RULE 10F(F) CRITICAL ASSUMPTION MEANS THE FACTORS AND ASSUMPTIONS THAT ARE SO CRITICAL AND SIGNIFICANT THAT NEITHER PARTY ENTERING INTO AN AGREEMENT WILL CONTINUE TO BE BOUND BY THE A GREEMENT , IF ANY OF THE FACTORS OR ASSUMPTIONS ARE CHANGED . IT IS , THUS , CLEAR THAT ONE OF THE FUNDAMENTAL ASSUMPTION S OF THE S A ID APA WAS PARTIAL RE COVERY OF ROYALTY FROM THE ASSESSEE , I .E. , TO THE EXTENT OF THE EXC ESS OF ACTUAL PAYMENT OF ROYAL TY BY THE GIA INDIA T O THE ASSESSEE VIS - - VIS ARM S LENGTH PRICE OF THE R O YALTY AS DETERMINED UNDER THE APA . UNDER THESE CIRC UMSTANCES, THE BO NAFIDES OF THE A DJUST MENTS, IN QUANTUM OF RO YA LTY PAYABLE BY THE GIA INDIA TO THE ASSESSEE, CANNOT BE QUESTIONED. THE NEXT QUESTION IS , WHAT IS I T S IMPACT ON THE INCOME OF THE ASSESSEE. O BVIOUSLY, THESE ROYALTY R EFUNDS BY , OR ROYALTY RECOVERIES FROM, THE ASSESSEE ARE NOT STANDALONE EVENTS , WHICH CAN BE SEEN IN ISOLATION WITH THE RECE IPTS OF R ELATED ROYALTIES IN THE CORRESPONDI NG PREVIOUS YE AR. THESE RE FUND S AND RECOVE RIES OF RO YALTIES ARE THUS REQUIRED TO BE SEEN IN CONJUNCTION WITH THE ASSOCI ATED RECEIPTS OF ROYALTIES FROM GIA INDIA . IN THE PERIOD RELATING TO THE ASSESSMENT YEAR 2011 - 12 , FO R EXAMPLE, THE ASSESSEE HAD RECEIVED RS 68,53,46, 239 AS ROYAL TI ES FROM GIA INDIA, BUT SINCE THE A SSESSEE WAS BONAFIDE CALLED UPON TO REFUND RS 19,44,46 ,788 , THE ACTUAL INCOME OF THE ASSESSEE, ON ACCOUNT OF ROYALTY RECEIVED FROM GIA INDIA, WAS ONL Y RS 49,08,99,451. A NY PART OF ROYALTY RECE IPT, WHICH HAD T O BE BO N A FIDE RE FUNDED TO THE PAYER OF THE R OYALTY, CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE AS THIS MONEY DID NOT EVENTUALLY BELONG TO THE ASSESSEE. IT IS ALSO IMPORTANT TO NOTE THAT CORRESPONDING REFUND TO THE GIA - INDIA HA S BEEN SHOWN AS A N INCOME O F THE GIA - INDIA, AND OFFERE D TO TAX AS SUCH, BY WAY OF A MODIFIED RETURN IN CONSEQUENCE O F THE A PA , AS WERE THE TERMS OF CRITICAL ASSUM PTION 5.1 REPRODUCED EARLIER WHICH REQUIRED THAT THE GIA INDIA SHALL RAISE AN APPROPRIATE INVOICE ON THE AE TO RECOVER THE AFORESAID EXCESS PAYMENT MADE AND SHOW THE RESPECTIVE EXCESS AMOUNTS AS ADDITIONAL INCOME IN THE MODIFI ED RETURN OF THE RESPECTIVE YEARS . THERE WAS ALSO A TIME LIMIT GRANTED TO CARRY OU T THIS E XERCISE INASMUCH AS ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 17 OF 51 UNDER CRITICAL ASSUMPTION 5.2 , IT WAS PROVIDED THAT ( F ) OR THE ADDITIONAL INCOME REFERRED TO IN PARA 5.1 THE A PPLICANT (I.E. GIA - INDIA) SHALL RAISE AN INVOICE FOR THE EQUIVALENT AMO UNT IN THE MONTH FOLLOWING THE MONTH IN WHICH THIS AGREEMENT IS SIGNED. THE INVOICE SHALL BE REALISED WITHI N 60 D AYS OF THE DATE OF THE ISSUE OF THE INVOICE . THE EXCESS OF ACTUAL ROYALTY PAYMENTS VIS - - VIS ALP ROYA LTY UNDER THE APA, WHICH IS SOUGHT TO BE TAXED IN THE HANDS OF THE ASSESSEE , HAS THUS ALREADY BEEN DECLINED DEDUCTION IN THE HANDS OF THE IND IA AE, NAMEL Y GIA INDIA, AND C ORRESPONDING H IGHER INCOME HAS BEEN BROUGHT TO TAX IN THE HANDS OF THE INDIAN AE. THIS TREATMENT IS CLEARLY INCONGRUOUS INASMUCH AS WHAT IS BEING TREATED AS A N INCOME IN THE HAND S OF THE REC IPIENT OF ROYALTY IS NOT BEING TREAT ED AS EXPEND ITURE IN THE HANDS OF THE PERSON PAYING TH E ROYALTY IN QUESTION. WHAT IS THUS ADMITTED NOT TREATED AS PAID BY THE PAYER O F ROYALTY IS BE ING SOU GHT TO BE TREATED AS WHAT IS RECEIVED BY THE RECIPIENT OF ROYALTY. THAT IS WHOLLY IN CONGRUOUS . THER E CAN BE NO WAY IN WHICH AN ASSESSEE CAN BE TAXED IN RESPEC T OF THAT PART OF RECE IPT OF AN INCOME WHICH THE ASSESSEE HAS BONA FIDE REFUNDED TO THE PERSON FRO M WHOM SUCH AN IN COME WAS RECEIVED . AS IS THE WELL - SETTLED LE GAL POSITION, IN ORDER THAT AN INCOME I S TAXED IN T HE HAN DS OF AN ASSESSEE, IT MUST BE A REAL INCOME, WHICH THE ASSESSEE HAS ACTUALLY EA R NED IN REALITY , AND NOT A MERE HYPOT HETICAL INCOME WHICH ASSESSEE CO ULD HAVE EA RNED BUT, IN FACT, DID NOT EARN . 17. L EAR N ED CIT (DR) SUGGESTS THAT IT IS BEY OND THE SCOP E OF SECTION 253 TO G ET INTO A QUESTION WHICH AL READY STANDS CONCLUDED B Y ACCEPTING THE QUANTUM OF INCOME THAT THE ASSESSEE HAD OFFERED TO TAX. THERE IS LITTLE SUBSTANCE IN THIS ARGUMENT. SECTION 253 ONLY REFERS TO THE ORDERS AGAINST WHICH APPE ALS CAN BE F I LED B EFORE THE T RIBUNAL. AS FOR THE POWERS OF THE TRIB UNAL, SECTION 254 DESCRIBES THESE POWERS IN THE WIDEST TERMS BY STATING THAT THE TRIBUNAL MAY , AFTER GI VING B OTH THE PARTIES TO AN APPEAL AN OPPORT UNITY OF BEING HEARD, PASS SUCH ORDERS TH EREON AS IT THINKS FIT . AS TO WHETHER SUCH A NEW ISSUE CAN BE RA ISED FOR THE FIRST TIME BEFORE US, WE MAY REFER TO THE O BSERVATIONS MADE B Y HON BLE DELHI HIGH C OURT, IN THE CASE OF ORISSA CEMENT LTD VS . CIT [(2001) 250 ITR 856 (DEL )] , AS FOLLOWS: IN JUT E CORPN. OF INDIA LTD.'S CASE (SUPRA), WHILE DEALING WITH THE POWERS OF THE AAC, IT W AS HELD BY THE APEX COURT THAT AN APPELLATE AUTHORITY HAS ALL THE POWERS WHICH THE ORIGINAL AUTHORITY MAY HAVE IN DECIDING THE QUESTION BEFORE IT SUBJECT TO THE RESTRICTIO NS OR LIMITA TIONS, IF ANY, PRESCRIBED BY THE STATUTORY PROVISIONS. IN THE ABSENCE OF ANY STATUTORY PROVISION, THE APPELLATE AUTHORITY IS VESTED WITH ALL THE PLENARY POWERS WHICH THE SUBORDINATE AUTHORITY MAY HAVE IN THE MATTER. THERE IS NO GOOD REASON TO J USTIFY CURTA ILMENT OF THE POWERS OF THE AAC IN ENTERTAINING AN ADDITIONAL GROUND RAIS ED BY THE ASSESSEE IN SEEKING MODIFICATION OF THE ORDER OF ASSESSMENT PASSED BY THE ITO. THE COURT WENT ON TO FURTHER OBSERVE THAT THERE MAY BE SEVERAL FACTORS JUSTIFYING THE RAISING OF A NEW PLEA IN AN APPEAL AND EACH CASE HAS TO BE CONSIDERED ON ITS OWN FACTS. THE AAC MUST BE SATISFIED THAT THE GROUND RAISED WAS BONA FIDE AND THAT THE SAME COULD NOT HAVE BEEN RAISED EARLIER FOR GOOD REASON. THE AAC SHOULD EXERCISE HIS DIS CRETION IN P ERMITTING OR NOT PERMITTING THE ASSESSEE TO RAISE ADDITIONAL GROUND IN AC CORDANCE WITH LAW AND REASON. THE ISSUE WAS AGAIN CONSIDERED BY THE APEX COURT IN NATIONAL THERMAL POWER CO. LTD. V. CIT [1998] 229 ITR 3832 . IT WAS OBSERVED THAT THE OBS ERVATIONS MA DE IN JUTE CORPN. OF INDIA LTD.'S CASE (SUPRA) WOULD APPLY TO APPEALS BEF ORE THE TRIBUNAL ALSO. IN ADDITION TO WHAT HAS BEEN STATED EARLIER IN JUTE CORPN. OF INDIA LTD.'S CASE (SUPRA), THE APEX COURT ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 18 OF 51 OBSERVED THAT UNDOUBTEDLY THE TRIBUNAL WILL HAVE THE DIS CRETION TO ALLOW OR NOT TO ALLOW A NEW GROUND TO BE RAISED BUT WHERE THE TRIBUNAL IS ONLY REQUIRED TO CONSIDER A QUESTION OF LAW ARISING FROM THE FACTS WHICH ARE ON RECORD IN THE ASSESSMENT PROCEEDINGS, THERE IS NO REASON AS TO WHY SUCH A QUEST ION SHOULD N OT BE ALLOWED TO BE RAISED WHEN IT IS NECESSARY TO CONSIDER THAT QUESTION IN ORDER TO CORRECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. 18. WE THUS REJECT THE CONTENTION OF THE LEARNED CO MMISSIONER (DR) THAT THIS ISSUE CANNOT BE RAISED BEFOR E US AT THIS STAGE. COMING TO THE MERITS OF OBJECTIONS RAISED BY THE AUTH ORIT IES BELOW AS ALSO THE LEARNED CIT (DR) , WE F IND THAT T HE BASIS ON WHICH THE IMPUGNED REDUCTION IN TAXABLE ROYALTY IS DECLINED BY THE DISPUTE RESOLUTION PANEL IS THAT , IN VIEW OF THE PROVISI ONS OF SECTION 92( 3 ) , WHERE THE COM PUTATION OF INCOME ON THE BASI S OF ARM S LENGTH PRICE RESULTS IN A REDUCTION OF TAXABLE INCOME INCREASE OF LOSS, THE PROVISIONS OF SECTION 92 WILL NOT APPLY , BUT THAT IS A WHOLLY IRRELEVANT OBSERVATION. IT IS NOT THE QUES TION OF COMPUTATION OF INCOME ON THE BASIS OF ALP ADJUSTMENTS IN THE HANDS OF THE ASSESSEE , BUT THE IS SUE I S WHETHER THE ROYALTY ACT UALLY RE CEIVED POST REFUND IS TO BE TAKEN INTO ACCOUNT AS INCO ME OF THE ASSESSEE OR WHETHER T HE ORIGINAL FIGURE OF ROYALTY I NCOME, DESP ITE THE REF UND, COULD BE TAXED IN THE HANDS OF THE ASSESSEE. T HE APPROACH OF THE D RP WAS THUS WHOLLY SUPERFI CIAL . AS REGARDS THE OBSERVATIONS BY THE DRP THAT THE ASSESSEE CANNOT BENEFIT FROM THE APA THAT GIA INDIA HAS ENTERED INTO WI T H THE CBDT, AND THE TERMS OF THE APA CANNOT BE IMPORTED INTO THE ASSESSMENT OF TAXAB LE ROYALTY IN THE HAN DS OF THE ASSESSEE, ONCE A GAIN THIS OBSERVATION IS ALSO VERY SUPERFICIAL. IT IS NOT THE CONTENT OF THE APA, BUT THE IMPACT OF THE APA, THAT IS RELEVA NT FOR THE A SSESSEE. IN TERMS OF THE APA, A RECOVERY OF ROYALTY IS MADE FROM THE ASSESSEE BY THE GIA - INDIA. THIS SHOWS THAT THE RECOVERY IS BONA FIDE . WHAT IS , HOWEVER, EVEN MORE MATERIAL , FROM OUR PERSPECTIVE , IS THAT AS A RESU LT OF THIS BONAFIDE RECOVERY OF THE PART OF ROYALTY RECEIVED BY THE ASSESSEE AND OFFERED TO TAX AS SUCH, INCOME OF THE ASSESSEE STANDS REDUCED. THE REDUCTION IN THE QUA NTUM OF ROYALTY I NCOME IS ON ACCOUNT OF THIS FACTOR OF ACTUAL REDUCTION IN INCO ME , AND THAT IS A REALITY - D E HORS THE APA. WHETHER IT HAPPENED ON ACCOUNT OF APA , OR IT WAS TO HAPPEN OTHERWISE, THE FACT REMAINS THAT THERE IS A RED U CTION OF ROYALTY INCOME IN THE H ANDS OF THE ASSESSEE . AND, IF TH ERE IS A REDUCTION IN ROYALTY INCOME, WHAT SHOULD BE BROUGHT T O TAX IS ONLY THE A CTUAL, I.E. , REDUC ED , ROYALTY INCOME. LEARNED CIT(DR) HAS CONTEN D ED THAT SINCE THE CLAIM OF THE ASSESSEE IS IN THE NATURE OF SECONDARY ADJUSTMENT SINCE IT PERTAINS TO THE ASSOCIATED ENTERPRISE AS A RESULT OF THE PRIMARY ADJUSTMEN T, BUT P ROVISO TO SEC. 92 C(4) LAY S DO WN THE PRINCIPLE THAT THAT WHERE THE TOTAL INCOME OF AN ASSOCIATED ENTERPRISE IS COMPUTED UNDER THIS SUB - SECT ION ON THE DETERMINATION OF THE ARMS LENGTH PRICE PAID TO ANOTHER ASSOCIATED ENTERPRISE FROM WHICH TAX HAS BEEN DEDUCTED OR WAS DEDUC TIBLE UNDER THE PROVISIONS OF CHAPTER XVIIB, THE INCOME OF THE OTHER ASSOCIATED ENTERPRISE SHALL NOT BE RECOMPUTED BY REAS ON OF SUCH DETERMINATION OF ARMS LENGTH PRICE IN THE CASE OF FIRST MENTIONED ENTERPRISE . IN OTHER WORDS, ACCORDING TO THE LEARNED CI T(DR), MEREL Y BE CAUSE ARM S L ENGTH P RICE OF ROYALTY PAID TO AN AE IS DIFFERENT THAN THE AMOUNT ACTUALLY PAID TO T HE AE, ON WH ICH TAX UNDER SECTION 195 IS DEDUCTED, THE INCOME OF THE SAID AE, I.E. THE ASSESSEE, CANNOT BE RECOMPUTED. ONCE AGAIN, THERE IS A C L EAR FALLACY I N THIS REASONING. IT IS NOT BECAUSE OF DETERMINATION OF ALP OF THE ROYALT Y RECEIVED BY T HE ASSESSEE A T A CERTAIN FIGURE , OTHER THAN THE FIGURE ON WHICH TAXES ARE WITHHELD AT SOU RCE , THAT THE ROYALTY INCOME IS BEING SOUGHT TO BE REVISED. THE M ODIFICATION I N QUANTUM OF ROYALTY BEING TAXED IN THE HANDS OF THE ASSESSEE IS S OUGHT BECAUSE OF THE ACTU AL, EVEN IF PARTIAL, REFUND OF THE ROYALTY ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 19 OF 51 RECEIVED BY THE ASSESSEE. AS FOR THE REASONS OF THIS REFUND, THE RELEVANCE OF THE APA IS ONLY IN ESTABLISHING BO NAFIDES O F THE REDUCTION IN THE QUAN TUM OF ROYALTY, AND NOTHING MORE. IT IS NO T THAT THE ASSESSEE IS SEEKING TO INVOKE ANY BENEFIT FROM THIS APA, BUT THE RELEVANCE OF THE ASSESSEE S REFERRING TO T HE APA IS IN EXPLAINING THE CIRCUMSTANCES IN WHI CH A PART OF THE ROYA LTY RECEIVED BY THE ASSESSEE HAD TO BE REFUNDED. W HETHER THE ASSESSEE HAD A LEG AL OBLIGATION TO DO SO OR NOT IS NOT MATERIAL, BUT WHAT IS MATERIAL IS WHETHER IT WAS COMMERCIALLY EXPE DIENT FOR THE ASSESSEE TO DO SO. THE ANSWER, TO OUR MIND, IS I N THE AFFIRM ATIVE . IT IS ALSO IMPORTANT TO NOTE THAT IN THE ASSES SMENT YEAR 201 8 - 19, THE ASSESSING OFFICER HIMSELF HAS REDUCED THE AMOUNT REFUNDED , AS ABOVE, FROM THE ROYALTY INCOME OF THE ASSESSEE. WHEN IT WAS POINTED OUT T O THE LEARNED COMMISSIONER (DR), HE EXPLAINE D THAT THE LEGAL POSITION POST 1 ST APRIL 2018 IS MATERIALLY DIFFERENT. L E ARNED COMMISSIONER (DR) SEEKS TO JUSTIFY THIS DIFFERENCE IN TREATMENT ON THE GROUND THAT W HILE S ECTION 92 CE WAS IN FORCE WITH EFFECT F THE QUESTION OF MAKING ANY SECONDARY ADJUSTMENT COULD ONLY ARISE IN THE HANDS OF GIA INDIA AND NOT IN THE HANDS OF THE ASSESSEE F ROM 1 ST APRIL 2018, WHICH PERMITS SECONDARY AMENDMENT, T HE LAW DID NOT PERMIT SECONDARY ADJUSTMENTS FOR A PERIOD PRIOR TO 1 ST APRIL 2018 AS PERTAINING TO THE ASSESSMENT YEARS BEFORE US. IT MAY BE REC ALLED TH AT, AS NOTED EA RLIER, STAND OF THE ASSESSEE IS CON CERNED, SO FAR AS SECONDARY ADJUSTMENTS UNDER SECTION 92CE ARE CONCERNED, THESE ADJUSTMENTS CAN ONLY BE MADE IN THE HANDS OF THE ASSESSEE AND NOT ITS AE, A N D, THERE FOR E, THE QUESTION OF MAKING ANY SECONDARY ADJUSTMENT COULD ONLY ARISE IN THE HANDS OF GIA INDIA AND NOT IN THE HANDS OF THE ASSESSEE . IT IS, THER EFORE, NECESSARY TO BRIEFLY DEAL WITH THE SCOPE AND IM PA CT OF SECTION 92CE SO F AR AS T HE FAC T SITU ATION BEFORE US IS CO NCERNED. 19. SECTION 92 CE, AS INTRODUCED BY THE FINANCE ACT 2017 W.E.F. 1 ST APRIL 2018, PRO VIDES THAT WHERE A PRI MARY ADJUSTMENT TO TRANSFER PRICE HAS BEEN MA DE SUO MOTU BY THE ASSESSEE IN HIS RETURN OF INCOME , MADE BY THE ASSESSIN G OFFICER HAS BEEN ACCEPTED BY THE ASSESSE E, I S DETERMINED BY AN ADVANCE PRICING AGREEMENT ENT ERED INTO BY THE ASSESSEE UNDER SECTION 92CC , ON OR AFTER THE 1ST DAY OF APRIL, 2017 , IS MADE AS PER THE SAFE HARBOUR RULES FRAMED UNDER SECTION 92CB; OR IS ARISI NG AS A RESULT OF THE RESOLUTION OF AN ASSESSMENT BY WAY OF THE MUTUAL AGREEMENT PROCEDURE UNDER AN AGREEMENT ENTERED INTO UNDER SECTION 90 OR SECTION 90A FOR THE AVOIDANCE OF DOUBLE TAXATION , THE ASSESSEE SHALL MAKE A SECOND ARY ADJUSTMENT. T HIS PROV ISIO N, HOWE VER, DOES NOT APPLY WHERE PRI MARY ADJUSTMENT DOES NOT EXCEED RS 1,00,00,000 OR WHERE PRIMARY ADJUS TMENT IS MADE IN RESPECT OF A N ASSESSMENT YEAR PR IOR TO THE ASSESSMENT YEAR 201 6 - 17. TH E WAY IN WHICH SECONDARY ADJUSTMENT WORKS IS LIKE T HIS. WHERE A S A RESULT OF A PRIMARY ADJUSTMENT TO THE TRANSFER PRICE, THERE IS AN INCR EASE IN INCOME OR REDUCTION IN LOSS, THE E X CESS PAYM ENT (I.E. , AMOUNT ACTUALLY PAID MINUS THE AR M S LENGTH PRICE) WILL HAVE TO BE REPATRIATED BY THE FOREIGN AE , OR ANY OT HER A E , WIT HIN THE TIME PRESCRIBED, AND , IF NO SUCH REPATRIATION TAKES PLACE, (A) THE EXCESS A MOUNT NOT SO REPA TRIATED WILL BE TREATED AS AN ADVANCE TO THE AE BEARING SUCH INTEREST AS MAY BE PRESCRIBED; OR (B) THE ASSESSEE, AT HIS OPTION, PAY ADDITIONAL I NCOME - TAX @ 18% ON SUCH EX CESS PAYMENT OR PART THEREOF. ONCE THE ASSESSE E SO PAYS THE ADDITIONAL INCOME TAX @18 %, THE ASSESSEE IS NOT REQUIRED TO MAKE ANY SECONDARY ADJUSTMENT UNDER SECTION 92 CE(1), AND, IN THAT SENSE, 18% ADDITIONAL INCOME TA X IS IN LIEU OF INWARD RE MITTANCE ON ACCOUNT OF SECONDA RY ADJU STMENT. THIS OPTION OF PAYING 18% AS ADDITIONAL INCOME TAX WAS INTRODUCED BY SUBSEQUENT AMENDMENT IN SECTION 92 CE BY THE FINANCE ACT 2019. WHILE DEALIN G WITH THE INTRODUCTION OF SECTION 92 CE, THE CEN TRAL B OARD OF DIRE CT TAXES, V IDE CIRCULAR NO. 2/2018, HAD OBSERVED , INTER ALIA , AS FOLLOWS: ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 20 OF 51 45.3 IN ORDER TO ALIGN THE TRANSFER PRICING PROVISIONS IN LINE WITH OECD TRANSFER PRICING GUIDE LINES AND INTERNATIONAL BEST PRACTICES, A NEW SECTION 92CE HAS BEEN INSE RTED IN THE INCOME - TAX ACT SO AS TO PROVIDE THAT THE ASSESSEE SHALL BE REQUIRED TO CARRY OUT SECONDARY ADJUSTMENT WHERE THE PRIMARY ADJUSTMENT TO TRANSFER PRICE , HAS BEEN MADE SUO MOTU BY THE ASSESSEE IN HIS RETURN OF INCOME; OR MADE BY THE ASSESSING OFFIC ER HAS BEEN ACCEPTED BY THE ASSESSEE; OR IS DETERMINED BY AN ADVANCE PRICING AGREEMENT ENTERED INTO BY THE ASSESSEE UNDER SECTION 92CC OF THE INCOME - TAX ACT; OR IS MADE AS PER THE SAFE HARBOUR RULES FRAMED UNDER SECTION 92CB OF THE INCOME - TAX ACT; OR IS AR ISING AS A R ESULT OF RESOLUTION OF AN ASSESSMENT BY WAY OF THE MUTUAL AGREEMENT PROCEDURE UNDER AN AGREEMENT ENTERED INTO UNDER SECTION 90 OR 90A OF THE INCOME - TAX ACT. 45.4 IT IS ALSO PROVIDED THAT WHERE AS A RESULT OF PRIMARY ADJUSTMENT TO THE TRANSFER PRICE, THERE IS AN INCREASE IN THE TOTAL INCOME OR REDUCTION IN THE LOSS, AS THE CASE MAY BE, OF THE ASSESSEE, THE EXCESS MONEY WHICH IS AVAILABLE WITH ITS ASSOCIATED ENTERPRISE, IF NOT REPATRIATED TO INDIA WITHIN THE TIME AS MAY BE PRESCRIBED, SHALL BE DE EMED TO BE A N ADVANCE MADE BY THE ASSESSEE TO SUCH ASSOCIATED ENTERPRISE AND THE INTEREST ON SUCH ADVANCE, SHALL BE COMPUTED AS THE INCOME OF THE ASSESSEE , IN THE MANNER AS MAY BE PRES CRIBED . 45.5 IT IS ALSO FURTHER PROVIDED THAT SUCH SECONDARY ADJUSTMEN T SHALL NOT BE CARRIED OUT IF, THE AMOUNT OF PRIMARY ADJUSTMENT MADE IN THE CASE OF AN ASSESSEE IN ANY PREVIOUS YEAR DOES NOT EXCEED ONE CRORE RUPEES OR THE PRIMARY ADJUSTMENT IS MADE IN RESPECT OF AN ASSESSMENT YEAR COMMENCING ON OR BEFORE 1ST APRIL, 2016 . 45.6 APPL ICABILITY: THIS AMENDMENT TAKES EFFECT FROM 1ST APRIL, 2018 AND WILL, ACCORDINGLY, APPLY FROM ASSESSMENT YEAR 2018 - 19 AND SUBSEQUENT YEARS. [EMPHASIS, BY UNDERLI NING, SUPPLIED BY US] 20 . QUITE CLEARLY, SECTION 92 CE IS IN THE NATURE OF AN ADDI TIONAL OBLIG ATION ON THE ASSESSEE TO EITHER REPATRIATE BACK TO INDIA THE EXCESS PAY MENT MADE (I.E. ACTUAL PAYMENT MINUS THE AR M S LENGTH PRICE) OR TO PAY ADDITIONAL INCOME TAX @ 1 8% THEREON. THE SECOND ARY ADJUS TMENT UNDER SECTION 92CE IS THUS NOT IN A VAC U UM BUT IN TH E LIGHT OF THE CORRESPONDI NG OBLIGATION TO EITHER REPATRIATE BACK THAT AMOUNT TO INDIA OR PA Y ADDITIONAL INCOME TAX THEREO N. W H ILE PROVISO TO SECTION 92CE(1) DOES C LARIFY THAT TH E ABOVE PR OVISIONS DO NOT APPLY WHERE PRIMARY ADJUSTMENTS ARE LES S THAN R S 1 CRORE OR WHERE PRIMARY ADJUSTMENTS ARE MADE IN RESPECT OF AN ASSESSMENT YEAR PR I OR TO 2016 - 17, THAT EXCEPTION REFERS TO THE SCHEME OF THIS SECTION AS A WH OL E BECAUSE A SECONDARY ADJUSTMENT UNDER SECTION 92CE (1) I S AN OBLIGATION ON THE ASSESSEE WITH CERTAIN MANDATORY CONSEQUENCE S UNDER SECTION 92CE(2) AS ALSO 92CE(2A TO 2 D) , RATHER T HAN A SECONDARY ADJUSTMENT SI MPLICITOR . LEARNED CIT(DR) PROCEEDS ON THE BASIS THAT SECTION 92CE GIVES CERTAIN CONCESSION OR RELIEF WHEN HE TREATS SECTION 92CE AS PE RMITTING TH E SECONDARY ADJUSTMENTS, WHEREAS AS A MATTER OF FACT , SECTION 92CE REQUIRES TH AT THE ASSESSEE SHA LL MAKE THE SECONDARY ADJUSTMENT WHICH BEING C OUPLED WITH CERTAIN F URTHER REQUIREMENTS UNDER SECTION 92CE(2) AND 92CE(2A T O D), OPERATE IN FAVO UR OF THE RE VENUE . GIVE N THE SCHEME OF SECTION 92CE, SECONDARY ADJUSTMENTS ARE NOT CONC ESSIONS TO AN ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 21 OF 51 ASSESSEE BUT OBLIG ATIONS ON THE ASSESSEE. THE PROVISO T O SECTION 92 CE(1 ) CANNOT, THEREFORE, BE INTERPRETED AS A BAR ON ANY SECONDARY ADJUSTMENT BY THE ASS ESSEE , EVEN DE HORS THE REQUIREMENTS UNDER SECTION 92CE(1). IN ANY CASE, SECT ION 92C E HAS NOTHING TO DO W ITH THE TAXABILITY OF CORRECT INCOME IN THE HANDS OF THE F OREIGN AE TO WHICH PAYMENT FOR THE INTERNATIONAL T RANSACTI ON HAS BEEN MADE , INAS MUCH AS , THIS PRO VISION CA NNOT BE SEEN AS A BAR ON REPATR IATING BACK THE EXCESS PAYMENT MADE (I.E. ACTUAL PAYMENT MINUS THE AR M S LENGTH PRICE) EVEN IF THERE WAS NO STATUTOR Y OBLIGATION TO DO SO. IN OUR HUMBLE UNDERSTANDING, THERE WAS NO BAR, E VEN IN RESPECT OF THE PER I OD PRIOR T O INSERTION OF SECTION 92CE, ON ANY SECONDARY ADJUSTMENTS BEING MADE BY PARTIES TO A TRANSACTION. IT IS ALSO IMPORTANT TO NOTE THAT SO FAR AS THE APAS ARE CONCERNED, UNDER RULE 10 M (1 )(VI) OF THE INCOME TAX RULES 196 2 , AN APA MAY , AM ONGST OTHER T HI NGS, INCL UDE THE CONDITIONS , IF ANY , OTHER THAN PROVIDED IN THE ACT OR THESE RULES A ND, THERE FORE, A S LONG AS A N APA RE FERS TO SECONDARY ADJU STMENTS, WHE THER SPECIFICALLY PERMISSI B LE UNDER THE LAW OR NOT, THESE SECONDARY ADJUSTMENTS ARE TO BE CARRIED OUT. IT IS A LSO IMPORTANT TO BEAR IN MIND THE FACT THAT N O SECONDARY ADJUSTMENT CAN ANYWAY BE UNILATERAL IN NATURE . WHEN A N ASSESSEE IS TO RAISE A N INVO ICE ON ITS AE ABROAD, TH AT INVOICE IS TO BE ACCOUNTED FOR BY THE ENTITY ISSUING THE INVOI CE AS ALSO B Y T HE ENTIT Y RE CEIVING THE INV OICE. THESE TWO FAC ETS OF THE TRANSACTIONS ARE TWO SIDES OF THE SAME COIN SECTION 92CE(3)(V) APTLY DEFINES, CONSISTENT WITH THE FIRST PRINCIPLES AS WELL, SECONDARY ADJUSTMENT MEANS AN ADJUSTMENT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ITS ASSOCIATED ENTERPRISE TO REFLECT THAT THE ACTUAL ALLOCATION OF PROFITS BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISE ARE CONSISTENT W ITH THE TRANSFER PRICE DETERMINED AS A RESULT OF THE PRIMARY ADJUSTMENT, THEREBY REMOVING THE IMBALAN CE BETWEEN A CASH ACCOUNT AND ACTUAL PROFIT OF THE ASSESSEE . IT IS , THEREFORE, NOT CO R RECT TO SAY THAT WHEN AN APA REQUIRES AN ASSESSEE TO RA ISE DEBIT NOTES OR INV OI CES ON ITS AE ABROAD, IT I S OPEN TO THE AE ABROAD TO IGNORE T HOSE INVOI CES OR DEBIT NOTE S AND CONTIN UE WITH COMPUTATION OF ITS INCOME DEHOR S THESE INVOICES OR DEB IT NOTES , BECAUSE THE SAID AE IS NOT A PARTY TO THE APA. THE AE MA Y NOT BE PARTY TO THE APA, YET THE IM PACT OF THE TERMS OF THE APA HAS TO BE TAKEN NOTE OF WHEN THESE TERMS AFFECT TH E AE . T HATS A REAL ITY AND CANNOT BE WISHED AWAY. WE , THEREF ORE, RE JECT TH IS OBJECTION RAISED BY THE LEARNED CIT(DR) AS WELL . AS FOR L EAR NED CIT(DR) S OBSERVATION THAT THE SECOND PROVISO TO SECTION 92CE(1) STIPULATES THAT NO REFUND OF TAXES PAID COULD BE CLAIMED OR A LLOWED , WHICH SUGGESTS THAT NO REFUND OF TAXES PAID COULD BE CLAIMED OR ALLOWED AS A RESUL T OF THE SECONDARY ADJUSTMENT , THIS OBSER VATION IS WHOLLY MISCONCEIVED INASMUCH AS WHILE THE SECOND PROVISO STATES THAT PROVIDED FURTHER THAT NO REFUND OF TAX ES PAI D, IF ANY, BY VIRTUE OF PROVISIONS OF THIS SUB - SECTION AS THEY STOOD IMMEDIATELY BEFORE THEIR AMENDMENT BY THE FINANCE (NO. 2) ACT, 2019 SHALL BE CLAIMED AND ALLOWED , THIS PROVI SO WAS QUITE CLEARLY IN SPECIFIC CONTEXT OF INSERTION OF WORDS ON OR AFTER TH E 1ST DAY OF APRIL, 2017 IN SECTION 92CE(1)( III) BY THE SAME FINANCE ACT 2 019 WHI CH HAD RES ULTED IN THE EXCLUSION OF RIGOURS OF SECTION 92CE IN RESPECT OF THE CASES IN WHICH THE ADDITIONAL OBLIGATIONS WERE INCU RRED BY THE AS SESSEE I N RESPECT O F THE APAS C ONCLUDED EVEN PRIOR TO 1 ST APRIL 2017. ALL THAT THIS PROVISO MEANT WAS THAT EVEN THOUGH THE ASSESSEE MAY HAVE PAID THE ADDITIONAL TAX , ON ACCOUNT OF C ONSEQUENCES ENVISAGED IN SECTION 92CE(2), WITH RESPECT TO APAS CONCLUDED BEFORE 1 ST APRIL 201 7 , THESE TAXE S WILL NOT BE REFU NDED. IN ST ILL O THER WORDS, IN OUR CONSIDERED VIEW, THE PRACTICAL CONNOTATIONS OF THE SECOND PROVISO TO SECTION 92CE(1) WAS THAT RELIEF GRANTED BY INSERTION OF WORDS ON OR AFTER THE 1 ST DAY OF APRIL 2017 IN SECTION 92CE (1)(I II) WAS WITH PROSPEC TIVE E FFECT. LEARNED CIT(DR) HAS BEEN A BIT TOO NAVE IN IGNORING THE IMPORT OF WORDS IF ANY, BY VIRTUE OF PROVISIONS OF THIS SUB - SECTION AS THEY STOOD IMMEDIATELY BEFORE THEIR AMENDMENT BY THE FINANCE (NO. 2) ACT, 2019 SHALL BE ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 22 OF 51 CLAIME D AND ALLOWE D IN THE PROVISO, AND , THEREF ORE, ENDED UP READING A BIT TOO MUCH INTO T HIS RATHER INNOCUOUS AND UNIDIMEN SIONAL PROVIS ION. IT IS THUS NOT CORRECT TO SAY THAT , IN PRINC IPLE, IN TER MS OF THE PROVISI ONS OF SECTION 92CE , NO REFUND OF TAXES COULD B E CLAIMED OR ALLOWED ON ACCOUNT OF SECONDA RY ADJUSTMENTS - EVEN IF , FOR EXAMPLE , AS IN THIS CASE, SUCH SECONDARY AD JUSTMENTS END UP REDUCING THE IN COME OF THE FORE IGN AE ASSESSES AS A RESULT OF PARTIAL REPATRIATION OF INCOME. A LOT OF EMPHASIS IS THEN PLAC ED B Y THE LE A RNED CIT( DR) ON THE CLAIM THAT THE ACTION OF THE ASSESSEE, IN PARTIALLY REFUNDING THE ROYALTY AMOUNT TO THE GIA INDIA, I.E. , INDIAN AE , WAS VOLUNTARY INASMUCH AS THE ASSESSEE WAS NOT A PA R TY TO THE APA. NO THING, HOWE VER, TURNS ON THIS PLEA. WH ETHER THE RE FUND WAS VOLUNTARY OR UNDER A LEGAL OBLIGATION, IT DOES NOT REALLY MA KE ANY DIFFERENCE AS LO NG AS THE RE FUND IS BONAFIDE AND PARTICULARLY WHEN ITS COMMERCIAL EXPE DIENCY IS NOT, AND RIGHTLY S O, EVEN CALLED INTO QUESTION. NONE OF TH E O BJECTIONS T AKEN BY THE DRP OR RAISED BY THE LEARNED CIT(DR) , FOR THE DETAILED REASONS , SET OUT ABOVE, REALLY IMPR E S SE S US. 21. IN V IEW OF THE A BOVE DISCUSSIONS , AS ALSO BEARING IN MIND THE ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT, I N PRINCIPLE, THE CLAIM OF T H E ASSESSEE DESER VES TO BE ACCEP T ED . HOWE VER, AS LEA RNED CIT (DR) RIGHTLY POINTS OUT , FACTUAL ASPECTS WITH RESPECT OF THESE CLAIMS, I.E. , WIT H RESPECT TO VERIFICATIONS AND QUAN T UM OF ACTUAL RE FUNDS OF ROYALTIES BY THE ASSESSEE, HAVE NOT BEEN EXAM INED AT ANY STAGE. WE, THERE FORE, DEE M IT FI T AND PROPER TO ACCEPT THE CLAIM OF THE ASSESSE E, IN P R I NCIPLE, B UT REMIT IT BACK TO THE ASSESSING OFFICER FOR VERIFICATION OF FACTUAL ELEMENTS EMBEDDED IN THE CLAIM OF T HE ASSESSEE. ORDERED , ACCORDINGLY . 22. L E T US N OW P I CK UP ALL THE SIX APPEALS ONE BY ONE AND TAKE UP THE GROUNDS OF APPEAL RA I SED THEREIN. 23. WE , THEREF ORE, BEGIN BY TAKING UP THE ITA NO. 386/MUM /2016, I.E. THE APPEAL FIL ED BY THE ASSESSEE FOR THE A SSESSMENT Y EAR 2 011 - 12. BY WAY OF THIS APPEAL, THE ASSES SEE A PPELLANT HAS CHALL ENGED CORRECTNESS OF THE ORDER DATED 16 TH DECEMBER 2015, PASSED BY THE AS SESSING OFFICER UNDE R SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSME NT YEAR 2011 - 12. 24 . GR OUND NO. 1 IS GEN ERAL IN NAT URE AND D OES NO T CALL FOR ANY ADJUDICATION. 25 . IN GROUND NO S . 2 AND 3 , THE ASSESSEE HAS RAIS ED THE FOLLOWING GRIEVANCES: 2:0 RE: HOLDING THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT ('PE') IN INDIA: 2:1 THE ASSESSING OFF ICER / THE DISPUTE RESOLUTI ON PANEL HAS E R RED IN HOLDING THAT THE AP PELLANT HAS A PERMANENT ESTABLISHMENT' ('PE) IN INDIA . ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 23 OF 51 2:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LA W PREVAILING ON THE SUBJECT, IT HAS NO PE IN INDIA AND THE STAND TA KEN BY T HE ASSESSING OFFICER/THE DISPUTE RESOLUTION PANEL IN THIS REGARD IS ERRONEOUS, MI SCONC EIVED AND NOT IN ACCORDANCE WITH LAW. 2:3 THE APPELLANT SUBMITS THAT THE ASSESSING OF F ICER HAS ERRED IN ARRIVING AT VARIOUS UNWARRANTED AND ERRONEOUS CONCLUSIONS UNSUPPOR TED BY ANY RELEVANT MATERIAL TO HO LD THAT THE APPELLANT HAD A PE IN INDIA. FURTHE R HE ALSO FAILED TO CONSIDER THE CONTRARY MATERIAL AND EVIDENCE ADDUCED BY THE APPELLANT. 2:4 THE AP PELLANT SUBMITS THAT THE ASSESSING OFFICER'S STAND THAT THE APPELLA NT HAS A PE IN INDIA BE STRUCK DOWN AND HE BE DIRECTED TO ACCEPT THE TOTAL INCOME AS RETU RNED. 3:0 RE.: HOLDIN G THAT THE APPELLANT HAS A 'B USINESS CONNECTION IN INDIA: 3:1 THE ASSESSING OF FICER/ THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING THAT THE A PPELLANT HAS 'BUSINESS CONNECTION IN INDIA. 3:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FAC TS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE S UBJECT, IT HAS NO BUSINESS CONN ECTION IN INDIA AND THE STAND TAKEN BY THE ASSESSING OFFICER/T HE DI SPUTE R E SOLUTION PANEL IN THIS REGARD I S ERRONEOUS, MISCONCEI VED AND NOT IN ACCORDANCE WITH L A W . 3:3 THE APPELLANT SUBMITS THAT THE ASSESSI NG OF F ICER HAS ERRED IN A RRIVING AT VARIOUS UNWARR ANTED AND ERRONEOUS CONCLUSIONS UNSUPPORTED BY ANY RELEVANT MATERIA L TO HOL D THAT THE APPELLANT HAD BUSINESS CONNECTION IN INDIA. F URTHER HE A LSO FAILED TO CONSI DER THE CONTRARY MATERIAL AND EVIDENCE ADDUCE D BY THE APPELLANT . 3:4 TH E APPELLANT SUBMITS THAT THE ASSESSING OFFICER'S STAND THAT THE APPEL LANT H A S BUSINESS CONN ECTION I N INDIA BE STRUCK DOWN AND HE BE DIRECTED TO ACCEPT THE TOTA L INCOME AS RETURNED 26 . L EARNED REPRESENT ATIVES FAIRLY AGREE THAT THE S E ISSUE S IN APPEAL ARE SQUARELY COVERED BY A DECIS ION OF THE COORDINATE BE NCH, IN ASSESSEE S OWN CASE FOR THE IMMEDI ATELY PR ECEDING ASSESSMENT YEAR I.E. 2010 - 11, WHEREIN T HE COORDINATE BE NCH HAS OBSER VED AS FOLL OWS: 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT MATER IAL, INCLUDING THE ORDERS OF THE LOWER AUTHORITIES AS WELL AS THE CASE LAWS REFERRED AT THE TIME OF HEARING. NOTABLY, THE CONTROVERSY BEFORE US PRIMAR ILY REVOLVES AROUND AS TO WHETHER OR NOT THE SUBSIDIARY OF THE ASSESSEE COMPANY I.E., GI A INDIA LAB CAN BE CONSTRUED AS ITS PE IN INDIA. THE INCOME - TA X AUTHOR ITIES HAVE INVOKED SECTION 9 OF THE ACT AND/OR ARTICLE 5 OF THE INDIA - US TREATY IN OR DER TO SAY THAT THE ASSESSEE COMPANY HAS A PE IN INDIA. ON THE CONTRARY, AS PER THE ASSESSEE, T HE IMPUGNED RECEIPTS ARE IN THE NATURE OF BUSINESS PROFITS, AND IN THE ABS ENCE OF ANY PE IN INDIA, THE SAME ARE ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 24 OF 51 NOT TAXABLE IN INDIA. FACTUALLY SPEAKING, IT IS EVIDENT THAT THE ON PERUSAL OF THE AGREEMENTS, THE TRANSACTION OF GRADING SERVI CES BETWEEN ASSESSEE COMPANY AND GIA INDIA LAB CANNOT BE CONSIDE RED TO B E IN THE NATURE OF A JOINT VENTURE, SINCE GIA INDIA LAB HAS ITS OWN INDEPEND ENT EXPERTISE BUT ONLY DUE TO ITS TECHNOLOGY/CAPACITY CONSTRAINTS, IT FORWARDS THE STONES TO THE ASSESSEE COMPANY FOR GRADING PURPOSES; IT IS N OT AN ARRANGEMENT BETWEEN TWO PARTIES WHERE EACH PARTY CONTRIBUTES ITS SHARE IN ORDER TO UNDERTAKE AN ECONOMIC ACTIVITY WHIC H IS SUBJECTED TO JOINT CONTROL; IN FACT, T HE ARRANGEMENT IS AKIN TO ASSIGNMENT OR SUB - CONTRACTING OF GRADING SERVICES TO THE ASSESSEE COMPANY, WHEREVER GIA INDIA LAB DOES NOT HAVE T HE REQUISITE EXPERTISE OR TECHNOLOGY OR CAPACITY FOR CARRYING OUT THE GRADING SERVIC ES; FURTHER, THE AFORESAID ARR ANGEMENT HAS ALSO BEEN ACCEPTED AS A MERE RENDERING OF GRADING SERVICES BY THE TRANSFER PRICING OFFICER BOTH IN THE CASE OF GIA INDIA LAB AND THE ASSESSEE COMPANY. I N THIS BACKGROUND, WE MAY NOW PROCEED TO DECIDE AS TO WHETHER THE INDIAN SUBSIDIARY GIA INDIA LAB CAN BE CONSTRUED A S A PE U NDER ANY OF THE ASPECTS CONTAINED IN ARTICLE 5 OF INDIA - USA DTAA. 10. FIRSTLY, W E MAY EXAMINE WHETHER GIA INDIA LTD. C AN BE CONSTITUTED AS A FIXED PLACE PE OF THE ASSE SSEE IN TERMS OF ARTICLE 5(1) OF THE INDIA - USA DTAA. AS PER ARTI CLE 5(1) OF THE INDO - USA DTAA, A FIXED PLACE PE ARISES WHEN THE FOREIGN ENTITY HAS A FIXED PLAC E IN INDIA THROUGH WHICH ITS BUSINESS IS WHOLLY OR PARTLY CARRIED ON. IN THIS CONTEX T, THE LEARNED COUNSEL POINTED OUT THAT A SIMILAR SITUATI ON HAS BEEN CONSIDERED BY THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF E - FUNDS IT SOLUTIO NS (SUPRA) , WHICH HAS BEEN UPHELD BY T HE HON'BLE SUPREME COURT. IN THAT CASE, IT HAS BE EN HELD THAT A SUBSIDIARY CANNOT BE REGARDED AS A 'FIXED PLACE PE' OF THE PARENT COMPANY ON THE GROUND OF A CLOSE ASSOCIATION BETWEEN THE INDIAN SUBSIDIARY AND THE FOREIGN TAXPAYER. IN THAT CASE, I T WAS NOTED THAT BECAUSE VARIOUS SERVICES WERE BEI NG PROVIDED BY E - FUND INDIA (INDIAN SUBSIDIARY) TO THE TAXPAYER OR THAT TH E FOREIGN TAX PAYER WAS DEPENDENT UPON INDIAN SUBSIDIARY (E - FUND INDIA) FOR ITS EARNIN GS OR ASSIGNMENT OR SUB - CONTRACT OF CONTRACTS TO E - FUND INDIA OR E - FUND INDIA BEING REIMBURSED ON A CERTAIN COST - PLUS BASIS OR SAVING / REDUCTION IN COST BY TRA NSFERRIN G BUSINESS OR BACK OFFICE OPERATIONS TO THE INDIAN SUBSIDIARY OR THE MANNER AND MODE TH E PAYMENT OF ROYALTY TRANSACTIONS OR E - FUND I NDIA PROVIDING SUPPORT FOR CARRYING ON CORE AC TIVITIES BEING PERFORMED BY THE TAXPAYER OR ASSOCIATED TRAN SACTIONS , CANNOT BE THE BASIS TO CONSTRUE THE INDIAN SUBSIDIARY AS PE OF THE FOREIGN TA X PAYER. FURTHER, BEFORE THE HON'BLE DELHI H IGH COURT, THE DEPARTMENT HAD CONTENDED THAT THE FOREIGN COMPANY HAD A JOINT VENTURE OR PARTNERSHIP WITH IND IAN SUBS IDIARY AS THE BUSINESSES OF THE ASSESSEE COMPANY AND THE INDIAN SUBSIDIARY WER E INTER - LINKED AND CLOSELY CONNECTED (WHICH I S ALSO CONTENDED IN THE CASE OF THE ASSESSEE B EFORE US) AND THEREFORE THE INDIAN SUBSIDIARY WAS REGARDED AS PE OF FOREIGN COMPANY IN INDIA. THE AFORESAID ARGUMENT OF THE REVENUE WAS RE PELLED SINCE THE CONDITIONS UNDER ARTICLE 5 OF THE DTAA WERE NOT MET AND IT HAS BEEN HELD T HAT PE CANNOT BE ESTABLISHED MERELY BECAUSE OF TRANSACTIONS BETWEEN ASSOCIATED ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 25 OF 51 ENTERPRISES OR THE PRINCIPAL SUB - CONTRACTING OR ASSIGNING THE CONTRACT TO T HE SUBSIDIARY. 11. FACTUALLY, IN THE CAS E OF THE ASSESSEE COMPANY, THERE IS NO JOINT VENTU RE ARRANGEMENT BETWEEN THE ASSESSEE COMPANY AND GIA INDIA LAB VIS - - VIS GEM GRADING SERVICES RENDERED BY THE ASSESSEE COMPANY TO GIA INDIA LAB SINCE IT I S GIA INDIA LAB WHO ENTERS INTO AGREEMENT WIT H THE CLIENT AND BEARS ALL THE RISKS INCLUDING CRE DIT RISKS, CLIENT FACING RISKS, ETC. ALSO, IN TERMS OF THE AGREEME NT, GIA INDIA LAB BEARS THE RISK OF LOSS OR DAMAGE TO ARTICLES WHILE IN TRANSIT TO AND FROM THE ASSESSEE COMPANY AND ALSO DURING THE TIME WH EN THE ARTICLES ARE AT OR IN THE ASSESSEE COMPANY' S FACILITIES. THEREFORE, THE ECONOMIC RISKS OF THE GEM GRADING S ERVICES RENDERED BY THE ASSESSEE COMPANY VIS - - VIS STONES/DIAMONDS OF CUSTOMERS OF GIA INDIA LAB SHIPPED TO IT ARE BORNE BY GIA INDIA LAB AND HENCE, THERE IS NO JOINT V ENTURE ARRANGEMENT WHATSOEVER BETWEEN THE ASSESSEE COMPANY AND GIA INDIA LAB. IN TERMS OF ARTICLE 5(6) OF THE INDIA USA DTAA, IT IS PROVIDE D THAT THE MERE FACT THAT A COMPANY HAS CON TROLLING INTEREST IN THE OTHER COMPANY DOES NOT BY ITSELF CONSTRUE THE OTHER COMPANY TO BE ITS PE. ACC ORDINGLY, THE ASSESSEE COMPANY IS NOT HAVING A 'FIXED PLACE' PE IN INDIA. 12. IN TER MS OF ARTICLE 5 (1) OF THE INDIA - USA DTAA, A SERVICE PE ARISES ON THE FURNISHING OF SERVICES IN INDIA BY THE ASSESSEE COMPANY THROUGH EMPLOYEES OR OTHER PERS ONNEL, BUT ONLY IF: ACTIVITIES OF THAT NATURE CONTINUE IN INDIA FOR A PERIOD OR PERIODS AGGRE GATING TO MORE THAN 90 DAYS WITHIN ANY T WELVE - MONTH PERIOD; OR THE SERVICES ARE PERFO RMED WITHIN INDIA FOR A RELATED ENTERPRISE . HENCE, A SERVICE PE IS TRIGGER ED IF THE SERVICES (OTHER THAN INCLUDED SERVICES AS DEFINED IN ARTICLE 12 'RO YALTIES AND FEES FOR INCLUDED SERVICES') ARE RENDERED BY THE ASSESSEE COMPANY THROUGH EMPLO YEES OR OTHER PERSONNEL AND ACTIVITIES OF THAT NATURE CONT INUE IN INDIA FOR A PERIOD OR PERIODS AGGREGATING TO MORE THAN 90 DAYS WITHIN ANY TWELVE - MONTH PERIOD; OR THE SERVICES ARE PERFORMED WITHIN INDIA FOR A RELATED ENTERPRISE. THE ASSESSE E COMPANY RENDERS 'GRADING SERVICES' AND 'MANAGEMENT S ERVICES TO GIA INDIA LAB'. IN FACT, 2 GRADERS WHO WERE EARLIER EMPLOYED WITH THE ASSESSEE COMPANY ARE NOW EMPLOYED WITH GIA INDIA LAB AND ARE ON THE PAYROLLS OF GIA INDIA LAB AND ARE WORKING UNDER CONTROL AND SUPERVISIONS OF GIA I NDIA LA B AND THEREFORE, NO SERVICE PE IS CREATED IN INDIA IN TERMS OF INDIA - US DTAA. THE SUPREME COURT HAS AFFIRMED THE DEC ISION OF THE DELHI HIGH COURT IN E - FUNDS (SUPRA) WHEREIN IT HAS BEEN HELD THAT TWO EMPLOYEES DEPUTED TO E - FUND INDI A FUND I NDIA DID NOT CREATE A SERVICE PE AS THE ENTIRE SALARY COST WAS BORNE BY E - FUND INDIA AN D THEY WERE WORKING UNDER CONTROL AND SUPER VISION OF E - FUND INDIA. IN THE FACTS OF TH E INSTANT CASE, SINCE THE SAID SERVICES ARE RENDERED OUTSIDE INDI A AND NO NE OF THE EMPLOYEES/ PERSONNEL OF THE ASSESSEE COMPANY HAS VISITED INDIA AND THEREFORE, SERVICE PE IS NOT TRIGGERED IN THE CASE OF T HE ASSESSEE COMPANY. 13. IN TERMS OF ARTICLE 5( 4) OF THE INDIA US/DTAA, AN AGENCY PE IS CREATED WHERE A PERSON - OTHER TH AN AN AGENT OF AN INDEPENDENT STATUS TO WHOM ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 26 OF 51 PARAGRAPH 5 APPLIES - IS ACTING IN INDIA ON BEHALF OF AN ENTERPRISE OF T HE USA, THAT ENTERPRISE SHALL BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN INDIA, IF: (A) HE HAS AND HABI TUALLY E XERCISES IN INDIA AN AUTHORITY TO CONCLUDE ON BEHALF OF THE ENTERPRISE, UNLESS HIS ACTI VITIES ARE LIMITED TO THOSE MENTIONED IN PARA GRAPH 3 WHICH, IF EXERCISED THROUGH A FIXED PLACE OF BUSINESS, WOULD NOT MAKE THAT FIXED PLACE OF BUSINESS A PERMAN ENT ESTA BLISHMENT UNDER THE PROVISIONS OF THAT PARAGRAPH; (B) HE HAS NO SUCH AUTHORITY BUT HABI TUALLY MAINTAINS IN INDIA A STOCK OF GOODS OR MERCHANDISE FROM WHICH HE REGULARLY DELIV ERS GOODS OR MERCHANDISE ON BEHALF OF THE ENTERPRISE, AND SOME ADDITIONAL ACTIVITIES CONDUCTED IN THE STATE ON BEHALF OF THE ENTERPRIS E HAVE CONTRIBUTED TO THE SALE OF THE GOODS OR M ERCHANDISE ; OR (C) HE HABITUALLY SECURES ORDE RS IN INDIA WHOLLY OR ALMOST WHOLLY FOR THE ENTERPRISE. 14. THE DEFINI TION EXCLUDES FROM THE AMBIT OF A PE ANY BUSINESS ACTIVITY CARRIED OUT THROUGH A BROKER, GENERAL COMMISSION AGENT OR ANY OT HER AGENT HAVING AN INDEPENDENT STATUS, IF SUCH BROKER, GENERAL COMMISSION AGENT OR ANY OTHER AGENT HAVING AN INDE PENDENT STATUS ACTS IN THE ORDINARY COURSE OF ITS BUSINESS. THE OECD COMMENTA RY DEALS WITH THE CONCEPT OF 'INDEPENDENT AGE NT' IN PARAGRAPHS 36 TO 39. IN TERMS OF PARAGRAPH 37 OF THE OECD COMMENTARY, A PERSON WILL BE REGARDED AS AN INDEPEN DENT AGE NT (I.E. IT WILL NOT CONSTITUTE A PE OF THE ENTERPRISE ON WHOSE BEHALF IT ACTS) ONLY IF : - HE IS INDEPENDENT OF THE ENTERPRISE BOTH LEGALLY AND ECONOMICALLY, AND - HE ACTS IN THE ORDINARY COURSE OF HIS BUSINESS WHEN ACTING ON BEHALF OF T HE ENTER PRISE. IN OTHER WORDS, ARTICLE 5(5) OF THE INDIA - USA DTAA STIPULATES THE FO LLOWING CONDITIONS WHICH ARE REQUIRED TO BE S ATISFIED IN ORDER THAT AN AGENT MAY BE SAID TO BE AN INDEPENDENT AGENT, I.E., - THAT HE SHOULD BE AN AGENT OF INDEPEND ENT STATUS; THAT, HE SHOULD BE ACTING IN THE ORDINARY COURSE OF HIS BUSINES S; AND, THAT HIS ACTIVITIES SHOULD NOT BE DE VOTED WHOLLY OR ALMOST WHOLLY ON BEHALF OF THE FOREIGN ENTERPRISE FOR WHOM HE IS ACTING AS AGENT. 15. GIA INDI A LAB IS AN INDEPENDENT/SEPARATE LEGAL ENTITY IN INDIA WHICH IS ENGAGED IN REND ERING OF GRADING SERVICES. FURTHER, C ONSIDERING THE FUNCTIONS AND THE RISKS ASSUMED BY GIA INDIA LAB VIS - - VIS ITS BUSINESS ACTIVITIES IN INDIA (A S HAS BEEN RECORDED IN THE TRANSFER PRICING STUDY REPORT - WHICH FUNCTIONAL AND RISK ANALY SIS HAS BEEN ACCEPTED BY THE TRANSFER ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 27 OF 51 PRICING OFFICER BOTH IN THE CASE OF GIA INDIA LAB AND IN THE CASE OF THE ASSESSEE COMPANY), GIA INDIA LAB IS AN INDEPENDENT ENTITY WHICH IS RENDERING GRADING SERVICES TO ITS CLIENTS IN INDIA. GIA INDIA LAB ALSO BEARS S ERVICE RISK AND ALL CLIENT FACING RISKS VIS - - VIS THE STONES SENT TO THE ASSESSEE COMPAN Y FOR GRADING PURPOSES (AS HAS BEEN RECORDED IN THE TRANSFER PRI CING STU DY REPORT). HENCE, GIA INDIA LAB IS NOT ACTING IN INDIA ON BEHALF OF THE ASSESSEE COMPA NY. FURTHER, GIA INDIA LAB IS NOT HAVI NG ANY AUTHORITY TO CONCLUDE CONTRACTS AND HAS NEITHER CONCLUDED ANY CONTRACTS ON BEHALF OF THE ASSESSEE COMPA NY NOR HAS IT SECURED ANY ORDERS FOR THE ASSESSEE COMPANY IN INDIA. THUS, GIA INDIA LAB CANNOT BE REGARDED AS AGENCY PE OF THE ASS ESSEE COMPANY IN INDIA . 16. BEFORE PARTING, WE MAY ALSO NOTE THE REFERENCE MADE BY THE LD. REPRESENTATIVE TO THE ASSESSM ENT CONCLUDED BY THE ASSESSING OFFICER FOR ASSESSMENT YEAR 2009 - 10. IT WAS EXPL AINED THAT DURING THE ASSESSMENT PROCEEDIN GS FOR ASSESSMENT YEAR 2009 - 10, A SIMILAR QUERY I. E. WHY GIA INDIA LAB SHOULD NOT BE CONSTRUED AS PE OF THE ASSESSEE COMPANY IN INDIA WAS RAISED, BUT AFTER CONSIDERING THE DETAILED RESPONSE FURNISHED BY ASSESSEE VIDE REPLY LETTER DATED 02 NOVEMBE R 2012, NO ADDITION WHATSOEVER WAS MADE, WHIC H IS EVIDENT FROM THE ASSESSMENT ORDER (AY 2009 - 10) DATED 26 M ARCH 201 3. THUS, IN THIS BACKGROUND IT WAS ALL THE MORE INCUMBENT UPON THE REVENUE IN THIS YEAR TO DISCHARGE ITS ONUS AS TO WHY A D IFFERENT STAND IS BEING ADOPTED, ESPECIALLY IN THE FACE OF THE FACT THAT THE NATURE AND SOURCE OF INCOME IN QU ESTION REMAINS THE SAME. THEREFORE, ON THIS ASPECT ALSO, WE ARE NOT INCLINED TO UP HOLD THE STAND OF THE ASSESSING AUTHORIT Y. 17. BEFORE PARTING, WE MAY ALSO REFER TO TH E RELIANCE PLACED BY THE LD. DR ON THE JUDGMENT IN THE CASE OF FORMULA ONE WORLD CHAMPIONSHIP LTD. (SUPRA). IN THAT CASE, THE ASSESSEE WAS A U.K TAX RESIDENT WHO OBTAINED LICENCE OVER ALL COMMERCIAL RIGHTS IN FIA FORMULA ON E WORLD CHAMPIONSHIP. FOR THIS PURPOSE, THE A SSESSEE (FORE IGN TAX PAYER) ENTERED INTO A CONTRACT WITH J.P. SPORTS (AN INDIAN CONCERN) BY WAY OF WHICH IT GRANTED TO J.P. SPORTS THE RIGHT TO HOST, STA GE AND PROMOTE FORMULA ONE GRAND PRIX OF INDIA EVE NT AT MOTOR RACING CIRCUIT OWNED BY J.P. SPORTS. AFTER EXAMINING ALL THE RELEVANT AGREEMENTS, THE CASE OF THE REVENUE WAS THAT THE CIRCUIT LOCATED IN INDIA CON STITUTED A PE OF ASSESSEE (I.E. THE FOREIGN T AX PAYER) IN INDIA. THE HONBLE HIGH COURT CONCLUD ED THAT SINCE THE ASSESSEE (FOREIGN TAX PAYER) HAD FULL ACCESS TO THE CIRC UIT AND COULD DICTATE AS TO WHO WAS AUTHORISED TO ACCESS THE CIRCUIT AND ORGANISING ANY OTHER EVENT ON THE CIRCUIT WAS NOT PERMIT TED, THE SAID CIRCUIT CONSTITUTED A PE OF THE FOREIGN TAX PAYER, I.E. FORMULA ONE WORLD CHAMPIONSHIP LTD., I N INDIA. THE SAID DECISION OF THE HONBLE HIGH COURT WAS APPROVED BY THE HONBLE SUP REME COURT. THE AFORESAID DECISION, IN OUR VIEW, STANDS ON AN ENTIRELY DIFFERENT FACT - SITUATI ON. IN THE PRESENT CASE, THERE IS NO MATERIAL TO SHOW THAT THE AS SESSEE D ICTATES TO THE INDIAN SUBSIDIARY AS TO WHAT ACTIVITIES IT IS AUTHORISED TO ENGAGE IN. WE HAVE ALSO NOTED EARLIER THAT THE INDIA N SUBSIDIARY IS OPERATING IN AN INDEPENDENT MANNER AND THERE IS NOTHING TO SHOW THAT FACTUALLY SPEAKI NG ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 28 OF 51 THE INDIAN SUBSIDIARY CONSTITUTES A PE OF THE ASSESSEE IN INDIA. THUS, ON ACCOUNT OF DIFFE RENCE IN FACT - SITUATION, THE RELIANCE PLACED BY THE LD. DR IN THE CASE OF FO RMULA ONE WO RLD CHAMPIONSHIP LTD. (SUPRA) IS MISPLACED. 18. IN VIEW OF TH E AFORES AID DISCUSSION, IN OUR CONSIDERED VIEW, THE ASSESSING OFFICER HAS ERRED IN INVOKIN G SECTION 9 OF THE ACT AND/OR ARTICLE 5 OF THE INDIA - USA DTAA IN ORDER TO SAY T HAT THE ASSESSEE COMPANY HAS A PE IN INDIA. THUS, ASSESSEE SUCCE EDS ON T HIS ISSUE 27 . WE SEE NO REASONS TO TAKE ANY OTHER VI EW OF THE MATTER THA N THE VIEW SO T AKEN BY THE COORDINATE BE NCH. R ESPEC TFULLY FO LLOWING THE SAME, WE UPHOLD THE PLEA OF THE ASSESS EE THAT THE ASSESSEE D ID NOT HAVE ANY PERMANENT ESTABLISHMENT IN I NDIA UN DER ARTICLE 5 OF THE INDO US TAX TREATY, OR B USINESS CONNECTION I N DIA UNDER SECTION 9 OF THE IN COME TAX ACT, 1961. THE ASSESSEE SUCCEEDS ON TH IS ISSUE. 28 . GROUND NO S . 2 AND 3 ARE THUS ALLOWED. 29 . IN GROUND NO S . 4 AND 5 , THE ASSESSEE HAS RAISED THE F OLLO WING GRIEVA NCE: WITHOUT PREJUDICE TO THE FOR EGOIN G 4:0 RE.: ATTRIBUTION 4 :1 T HE ASSESSING OFFI CER/ THE DISPUTE RESOLUTION PANEL H AS ERRED IN HOLDING THAT 50% OF RECEIPT S ARE ATTRIBUTABLE TO THE ALLEGED PE OF THE APPELLANT IN INDIA. 4:2 THE APPELL ANT S UBMI TS THAT CONSIDERING THE FACTS AND CIRCUM STANC ES OF ITS CASE AND TH E 1 AW PREVAILING ON THE SUBJEC T NO PART WHATSOEVER OF IT S RECEIPTS ARE ATTRIBUTABLE TO I ND I A AND THE STAND TAK EN BY THE ASSESSING OFFICER/ T HE DISPUTE RESOLUTION PANEL IN THIS REGARD IS I NCOR RECT, ILLEGAL, ARBITRARY, BASELESS, NOT IN AC CORDANCE WITH LAW AND HENCE OUGHT TO BE STRUCK DOW N. 4:3 THE APPELLANT SUBMITS THAT THE ARBITRARY ACTION OF THE ASSESSING OFFICER/ THE DISPUTE RESOLUTION PANEL BE STRUCK DOWN AND THE ASSESSING OFFICER B E DIR ECTE D TO ACCEPT THE TOTAL INCOME AS RETURNED. WIT HOUT PREJUDICE TO THE FOREGOING: 5:0 RE.: ESTIMATI ON OF GROSS PROF IT: 5:1 T HE ASSESSING OF F ICER / THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING THAT THE 8 .57% OF THE RECEIPTS ATTRIBUTABLE TO THE ALL EGED INDI AN OPERATIONS OUGHT TO BE CONSIDERED AS PROFI TS OF THE PE TAXABLE IN INDIA. 5:2 THE APPELLANT S UBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUB JECT, EVEN IF IT IS HELD THAT THE APPELLANT ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 29 OF 51 HAS A PE IN INDI A NO FURTHER INCOME CAN BE TAXED IN INDIA AS THE ALLEGED PF HAS BEEN REMUNERATED AT AN RESOLUTION P ANEL IN RESPECT THEREOF IS INCORRECT, ERRONEOUS, MISCONCEIVED AND ILLEG AL AND HENCE OUGHT TO BE STRUCK DOWN. 5:3 THE APPELLANT SUBMI T S THAT TH E ASSESSIN G OFF ICER BE DIRECTED TO ACCEPT THE TOTAL INCOME AS RE TURNED . 30 . LEARNED REPRESENTATIVES FAIRLY AGREE T HAT IN VIEW OF OUR CONCLUSION THAT THE ASSESSEE DID NOT HAVE ANY PERMA NEN T EST ABLISHMENT OR BUSINESS C O NNECTION IN INDIA, TH E ISSUE S REGAR D ING ATTRIBUTI ON O F PRO FITS OR ATTRIBUTION OF PROFITS ARE INFRUCTUOU S , AND DO NOT CALL FOR ANY ADJUDICATION BY US. WE, THEREFORE, DECLINE TO DEAL WITH THESE ISSUES ON MERITS, AND REJECT THE SA ME AS INFR UCTUOUS. 31 . GROUND NO S. 4 AND 5 ARE THUS DISMISSED A S INFRUCTUOUS. 32 . IN G ROUND NO. 6 , THE ASSESSEE HAS RAISED THE FOLL OWING GRIEV ANCE: 6:0 RE: TAXING THE ROYALTY' REC EIVED DURING THE YEAR U/S. 44DA OF THE INCOME ACT, 1961: 6: 1 TH E ASSESSING OFFICER THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING T H A T THE ROYALTY I NC OME IS EFFECTIVELY CONNECTED WITH THE ALLEGED PE OF THE APPELLANT IN INDIA AND IS THEREFORE TAXABLE U/S. 44DA OF THE INCOME TAX ACT, 1961 @40%. 6 :2 TH E APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND L AW PREVAILING ON TH E SUBJECT AND IN PARTICULAR THE PROVISIONS OF THE INDI A - USA D TAA, THE ASSESSING OFFICER/ THE DISPUTE RES OLUTION PANEL THE ROYALTY RECEIVED BY IT DURING THE YEAR UNDER CONSIDERATION IS NOT TAXABLE U/S. 44DA OF THE INCOME - TAX AC T, 19 6 1 AND HE NCE THE STAND T AKEN BY THE ASSESSING OFFICER/ THE DISPUTE RESOLUTIO N PANEL IN RESPECT THEREOF IS INCORRECT, ERRONEOUS , MISCONCEIVED AND ILLEGAL AND HENCE OUGHT TO BE STRUCK DOWN. 6:3 THE APPELLANT SUBMITS THAT THE ASSESSING OF F ICER BE DIRECTED TO TAX THE 'ROYALTY I NCO ME IN ACC ORDANCE WITH THE PROVISIONS OF SECTION 9 (1) (VI) OF THE INCOME - TAX ACT, 1 961 READ WITH ARTICLE 12 OF THE INDIA - USA DTAA AND BE DIRECTED TO ACCEPT THE TOTAL INCOME AS RETURNED. 33 . LEARNED REP R ESENTATI VES AGREE THAT ON CE WE COME TO THE CONCLUSION T HAT THE RE IS NO PE ON THE FACTS OF THIS CASE, THERE WILL BE NO OCCASION OF ROYALTY BEING EFFECTIVELY C ONNECTED WITH THE PE OR TAXABILITY OF ROYALT Y UNDER SECTION 44DA. THIS ISSUE IS ALSO, THERE FORE, AC ADEMIC AND INFRUCT UOUS IN THE PRESENT CONT EXT. 3 4 . G R O UND NO. 6 IS ALSO THUS DISMISSED. ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 30 OF 51 35 . IN GROUND NO . 7, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANC E : 7:0 RE.: LEVY OF INTEREST U/S 2 34B OF THE INCOME - TAX ACT, 1961: 7:1 THE ASSESSING OFFICER HAS ERRED IN LEVYING INTEREST US. 234B OF THE INCOME - TAX AC T, 1961 ON THE APPELLANT. 7:2 T HE APPELLAN T SUBMITS T HAT CONSIDERING THE F ACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAIL ING ON THE SUBJECT NO INTEREST U/S. 254B I S LEVIABLE AND THE STAND TAKEN BY THE ASSESSING OFFICER IN THIS REGARD I S MISCONCEIVED , INCORR ECT , ERRONEOUS AND ILLEGAL. 7:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO DELETE THE INTEREST U/S. 234B SO LEVIED ON IT AND TO RE - COMPUTE ITS TAX LIABILITY ACCORDINGLY 36 . LE ARNED REPRESENTATIVES F A IRLY AGREE THAT SINCE THE A SSESSMEN T YEAR BEFORE US PERTAIN S TO THE PERIOD PR IOR TO INSERTION OF EXPLAN ATION TO SECTION 209(1), W ITH EFFECT FROM 1 ST APRIL 20 12 , THE LAW STOOD AT THAT POINT OF TIME, IRRESPECTIVE OF THE ACTUAL DEDUCTION OF TAX AT SOURCE, AS LONG AS THE TAX IS DEDU C TIBLE AT SOURCE, THE TAX DEDUCTIBLE WILL BE REDUCED F ROM THE ADVANCE TAX LIABILITY. THAT IS WHAT HON BL E JURISDICTIONAL HIGH COURT HAS H ELD IN THE CASE OF DIT VS NGC NETWORK ASIA LLC [(2009) 313 ITR 187 (BOM) ]. THE LEV Y OF INTEREST UNDER SECTION 234B, ON T HE FACTS OF THIS CASE WHEN TA X WITHHOLDING OBLIGATION S UNDER SECTION 195 WERE CL EARLY APPLICABLE IN RES PECT OF ANY PAYMENT , HAVING AN ELE MENT OF INCOME TAX ABLE IN I NDIA, TO THE ASSESSEE , IS WHOLLY UNSUSTAINABLE IN LAW. WE, THEREFORE, UP HOLD THE PLEA OF TH E ASSESSE E O N THIS POINT. 37 . GROUND NO. 7 IS THUS AL LOWED. 38. IN GROUND NO S. 8 AND 9 , BY WAY OF ADDITIONAL G ROUND S OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWI NG GRIEVANCE: 8:0 R E: TAXATION OF ROYALTY INCOME AT RS. 49.08,99,451 8:1 THE APPELLANT S UBM I TS THAT THE AMOUNT TAXABLE IN TERMS OF ARTICLE 12(2) OF THE INDIA - USA DOUBLE TAXATION AVOIDANCE AGREEMENT [DTAA] SHOULD BE RESTRICTE D TO RS.49,08,99,45L/ WHICH IS IN ACCORDANCE WITH THE ADVANCED PRICING AGREEMENT [APA] DATED 0 7 MAY 2018 ENTERED INTO BY GIA INDIA LABORATORY PRIVATE LIMITED. 8:2 THE APPELLANT SUBMITS THAT CONSIDER ING THE FACTS AND CIRCUMSTANCES OF ITS CASE, AND THE LA W PREVAILING ON THE SUBJECT, T HE AM OUNT OF ROYALTY TAXABLE IN ITS HANDS IN ITS HANDS FOR TH E YEAR UNDER CONSIDERATION SH OUL D BE RESTRICTED TO RS. 49,08,99,451/ - IN ACCORDANCE WITH THE APA. ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 31 OF 51 8:3 T HE APPE LLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO CONSIDER THE ROYALTY INCOME W ORKED OUT IN TERMS OR THE APA AND TO RE - COMPUTE ITS TOTAL INCOME AND TAX THEREON ACCORDING LY. 9:0 RE: RESTRICTING THE TAXATION OF ROYALTY INCOME AFT EFFECTIVELY CONNECTED TO THE PE ONLY TO RS. 49,08,99,451 / - 9:1 THE APPELLANT SUBMITS THAT IN CASE I T IS H ELD THAT ANY PART OF ROYALTY INCOME IS EFFECTIVELY CONNECTED TO THE ALLEGED PE OR THE APPE LL ANT THEN SUCH AMOUNT SHOULD BE RESTRICTED TO RS. 49,08,99,451/ - WHICH IS IN ACCORDANCE WITH THE APA DATED 07 MAY 2018 ENTERED INTO BY G IA INDIA LABORATORY PRIVATE LIMITED. 9:2 THE APPELLANT SU BMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE , AND THE LAW PREVAILING ON THE SUBJECT, THE AMOUNT OF ROYALTY, IF HELD TO BE CONNECTED TO THE ALLEGED PE, SHOUL D BE RESTRICTED TO RS. 49 ,08,99,451/ IN ACCORDANCE WITH THE APA 9:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO CONSIDER TH E ROYALTY INCOME, IF ANY, CONNECTED TO THE ALLEGED PE, ONLY AT RS . 49,08,99,451/ - AND TO RE - COMPUTE ITS TOTAL INCOME AND TAX THEREON ACCORDINGLY. 39 . IN VIEW OF THE DISCUSSIONS EARLIER IN THE ORDER, BOTH THE ADDITIONAL GROUNDS OF APPEAL ARE AD MITTED FO R A DJUDIC ATION ON MERITS, AND IN THE LIGHTS OF THE DISCUSSIONS IN PA RAGRAPH 2 - 21 EARLIER IN THIS ORDER, THIS ADDITIONAL GROUND OF APPEAL NO. 8 DE CIDED IN F AVO UR OF THE ASSESSEE, IN PRINCIPLE, THOUGH THE MATTER WILL GO BACK TO THE ASSESSING OFFICER FOR VERI FIC ATIONS OF FACTUAL ASPECTS WITH RESPECT OF THESE CLAIMS, I.E. , WIT H RESPECT TO VERIFICATIONS AND QUAN T UM OF ACTUAL RE FUNDS OF ROYALTIES BY THE ASSESSEE, WHICH HAVE NOT BEEN EXAMINED AT ANY STAGE. WE, THERE FORE, DEE M IT FI T AND PROPER TO ACCEPT THE CLAIM OF THE ASSESSE E, IN P R I NCIPLE, B UT REMIT IT BACK TO THE ASSESSING OFFICER FOR VERIFICATION OF FACTUAL ELEMENTS EMBEDDED IN THE CLAIM OF T HE ASSESSEE. ORDERED , ACCORDINGLY . AS FO R SECOND ADDITIONAL GROUND OF APPEAL, I.E. GROUND NO. 9, THIS IS RENDERED INFRU CTU OUS IN THE LIGHT OF TH E FINDINGS EARLIER IN THE ORDER THA T NO PART OF THE ROYALTY INCOME IS TO BE TREATED AS ATTRIB UTABLE TO THE PE, AND TAXED UND ER SECTION 44A D AS SUCH, AS IT HAS BEEN HELD THAT THERE IS NO PE ON THE FACTS OF THIS CASE. 40 . GROUND NO . 8 IS THUS ALLOWED FOR STATI STICAL PURPOSES IN THE TERMS INDICATED ABOVE , AND GROUND NO. 9 IS DISMISSED AS I NFRUCT U O US. 41. IN THE RESULT, THE APPEAL FOR THE ASSESSMENT YEAR 2011 - 12 IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 42. WE NOW T AKE UP THE ITA NO. 1836/ MUM/17, I .E. APPE AL FILED BY THE ASSESSEE FOR THE ASSESSM ENT YEAR 2012 - 13. BY WAY OF T HIS APPEAL, TH E ASSESSEE A PPELLANT HAS CHALLEN GED CORRECTNESS OF THE ORDER DATED 24 TH OCTOBER 2017 IN THE MA TTER OF ASSESSMENT UNDER SECTION 14 3(3) R. W. S. 144C(13) OF THE INCOME TAX ACT, 1961, FOR THE ASSESS MENT YEAR 2012 - 13. ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 32 OF 51 43. GR OUND NO. 1 IS GEN ERAL IN NAT URE AND DOES NO T CALL FOR ANY SPECIFIC ADJUDICATION. 44. IN GROUND NO S . 2 AND 3 , THE ASSESSEE HAS RAIS ED THE FOLLOWING GRIEVANCES: 2:0 RE: HOLDI NG THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT ('PE') IN INDIA: 2:1 THE ASSESSING OFF ICER / THE DISPUTE RESOLUTI ON PANEL HAS E R RED IN HOLDING THAT THE AP PELLANT HAS A PERMANENT ESTABLISHMENT' ('PE) IN INDIA . 2:2 THE APPELLANT SUBMITS THAT CONSIDERIN G THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LA W PREVAILING ON THE SUBJECT, IT HAS NO PE IN INDIA AND THE STAND TA KEN BY THE ASSESSING OFFICER/THE DISPUTE RESOLUTION PANEL IN THIS REGARD IS ERRONEOUS, MI SCONC EIVED AND NOT IN ACCORDANCE WITH LAW. 2:3 T HE APPELLANT SUBMITS THAT THE ASSESSING OF F ICER HAS ERRED IN ARRIVING AT VARIOUS UNWARRANTED AND ERRONEOUS CONCLUSIONS UNSUPPORTED BY ANY RELEVANT MATERIAL TO HO LD THAT THE APPELLANT HAD A PE IN INDIA. FURTHE R HE ALSO FAILED TO CONSIDER THE CONTRARY MATERI AL AND EVIDENCE ADDUCED BY THE APPELLANT. 2:4 THE AP PELLANT SUBMITS THAT THE ASSESSING OFFICER'S STAND THAT THE APPELLA NT HAS A PE IN INDIA BE STRUCK DOWN AND HE BE DIRECTED TO ACCEPT THE TOTAL INCOME AS RETU RNED. 3:0 RE.: HOLDIN G THAT THE APPELLANT HAS A 'B USINESS CONNECTION IN INDIA: 3:1 THE ASSESSING OF FICER/ THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING THAT THE A PPELLANT HAS 'BUSINESS CONNECTION IN INDIA. 3:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FAC TS AND CIRCUMSTANCES OF ITS CASE AND THE LA W PREVAILING ON THE S UBJECT, IT HAS NO BUSINESS CONN ECTION IN INDIA AND THE STAND TAKEN BY THE ASSESSING OFFICER/T HE DI SPUTE R ESOLUTION PANEL IN THIS REGARD I S ERRONEOUS, MISCONCEI VED AND NOT IN ACCORDANCE WITH L A W . 3:3 THE APPELLANT SUBMITS THAT THE ASSES SI NG OF F ICER HAS ERRED IN A RRIVING AT VARIOUS UNWARR ANTED AND ERRONEOUS CONCLUSIONS UNSUPPORTED BY ANY RELEVANT MATERIA L TO HOLD THAT THE APPELLANT HAD BUSINESS CONNECTION IN INDIA. F URTHER HE A LSO FAILED TO CONSI DER THE CONTRARY MATERIAL AND EVIDENCE ADDU CE D BY THE APPELLANT . 3:4 TH E APPELLANT SUBMITS THAT THE ASSESSING OFFICER'S STAND THAT THE APPEL LANT H A S BUSINESS CONN ECTION IN INDIA BE STRUCK DOWN AND HE BE DIRECTED TO ACCEPT THE TOTA L INCOME AS RETURNED 45. WHILE DEALING WITH THE ASSESSMENT Y EAR 2011 - 12 EARLIER IN THIS CONSOLIDATED ORDER , AND RESPECTFULLY FOLLOWING A COORDINATE BENCH DECISION IN ASSESSEE S OWN CASE FOR THE ASSESSMENT ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 33 OF 51 YEAR 2010 - 11 , WE HAVE DECIDED THIS ISSUE IN F AVOUR OF THE ASSESSEE AND HELD THAT THE ASSESSEE D ID NOT HAVE ANY PERMANEN T ESTABLISHMENT IN I NDIA UNDER ARTICLE 5 OF THE INDO US TAX TREATY, OR B USINESS CONNECTION I N DIA UNDER SECTION 9 OF THE IN COME TAX ACT, 1961. THE ASSESSEE SUCCEEDS ON TH IS ISSUE. WE SEE NO RE ASONS TO TAKE ANY OTHER V IE W OF THE MATTER THAN THE VIEW SO TAKE N BY US AB OVE. WE, THER EFORE, UPHOLD THE PLEA OF THE ASSESSEE ON THESE POINTS. 46. GROUND NOS. 2 AND 3 ARE THUS ALLOWED. 47 . IN GROUND NO S . 4 AND 5 , THE ASSESSEE HAS RAISED THE FOLLO WING GRIEVA NCE: WITHOUT PREJUDICE TO THE FOR EGOIN G 4:0 RE.: ATTRIBUTI ON 4 :1 T HE ASSESSING OFFI CER/ THE DISPUTE RESOLUTION PANEL H AS ERRED IN HOLDING THAT 50% OF RECEIPT S ARE ATTRIBUTABLE TO THE ALLEGED PE OF THE APPELLANT IN INDIA. 4:2 THE APPELL ANT SUBMI TS THAT CONSIDERING THE FACTS AND CIRCUM STANC ES OF ITS CASE AND TH E 1 AW PREVAILING ON THE SUBJEC T NO PART WHATSOEVER OF IT S RECEIPTS ARE ATTRIBUTABLE TO I ND I A AND THE STAND TAK EN BY THE ASSESSING OFFICER/ T HE DISPUTE RESOLUTION PANEL IN THIS REGARD IS INCOR RECT, ILLEGAL, ARBITRARY, BASELESS, NOT IN AC CORDANCE WITH LAW AND HEN CE OUGHT TO BE STRUCK DOW N. 4:3 THE APPELLANT SUBMITS THAT THE ARBITRARY ACTION OF THE ASSESSING OFFICER/ THE DISPUTE RESOLUTION PANEL BE STRUCK DOWN AND THE ASSESSING OFFICER B E DIRECTE D TO ACCEPT THE TOTAL INCOME AS RETURNED. WIT HOUT PREJUDICE TO THE FOR EGOING: 5:0 RE.: ESTIMATI ON OF GROSS PROF IT: 5:1 T HE ASSESSING OF F ICER / THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING THAT THE 7.27 % OF THE RECEIPTS ATTRIBUTABLE TO THE ALL EGED INDI AN OPERATIONS OUGHT TO BE CONSIDERED AS PROFI TS OF THE PE TAXABLE IN I NDIA. 5:2 THE APPELLANT S UBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUB JECT, EVEN IF IT IS HELD THAT THE APPELLANT HAS A PE IN INDI A NO FURTHER INCOME CAN BE TAXED IN INDIA AS THE ALLEGED PF HAS BEEN REMUN ERATED AT AN RESOLUTION P ANEL IN RESPECT THEREOF IS INCORRECT, ERRONEOUS, MISCONCEIVED AND ILLEG AL AND HENCE OUGHT TO BE STRUCK DOWN. 5:3 THE APPELLANT SUBMI T S THAT TH E ASSESSIN G OFFICER BE DIRECTED TO ACCEPT THE TOTAL INCOME AS RE TURNED 5:4 WI THOUT PREJUD ICE TO THE FORE GOING AND INSPITE OF SPECI FIC DIRECTIONS IN THIS REGARD BY THE DI SPUTE RESOLUTION PANEL, THE ASSESSING OFFICER H AS ERRED IN ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 34 OF 51 HOLDING THAT 20.31% OF THE RECE IPTS ATTRIBUTABLE TO THE ALLEGED INDIAN OPERATIONS OUGHT TO BE CONSIDERED AS P ROFITS O F THE PE AND TAXABLE IN INDIA. 48 . LEARNED REPRESENTATIVES FAIRLY AGREE T HAT IN VIEW OF OUR CONCLUSION THAT THE ASSESSEE DID NOT HAVE ANY PERMA NEN T EST ABLISHMENT OR BUSINESS C O NNECTION IN INDIA, TH E ISSUE S REGAR D ING ATTRIBUTI ON OF PRO FITS OR ATTRIBUTION O F PROFITS ARE INFRUCTUOU S , AND DO NOT CALL FOR ANY ADJUDICATION BY US. WE, THEREFORE, DECLINE TO DEAL WITH THESE ISSUES ON MERITS, AND REJECT THE SA ME AS INFR UCTUOUS. 49 . GROUND NO S. 4 AND 5 ARE THUS DISMISSED A S INFRUCTUOUS. 50 . IN G ROUND NO. 6 , THE A SSESSEE HAS RAISED THE FOLL OWING GRIEV ANCE: 6:0 R E : TAXING THE ROYALTY' REC EIVED DURING THE YEAR U/S. 44DA OF THE INCOME ACT, 1961: 6: 1 TH E ASSESSING OFFICER THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING T H A T THE ROYALTY I NCOME IS EFFECTIVELY CONNEC TED WITH THE ALLEGED PE OF THE APPELLANT IN INDIA AND IS THEREFORE TAXABLE U/S. 44DA OF THE INCOME TAX ACT, 1961 . 6 :2 TH E APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND L AW PREVAILING ON TH E SUBJECT AND IN PARTICULAR THE P ROVISIONS OF THE INDI A - USA D TAA, THE ASSESSING OFFICER/ THE DISPUTE RES OLUTION PANEL THE ROYALTY RECEIVED BY IT DURING THE YEAR UNDER CONSIDERATION IS NOT TAXABLE U/S. 44DA OF THE INCOME - TAX AC T, 19 6 1 AND HE NCE THE STAND TAKEN BY THE ASSESSING OFFICER/ THE DISPUTE RESOLUTIO N PANEL IN RESPECT THEREOF IS INCORRECT, ERRONEOUS , MISCONCEIVED AND ILLEGAL AND HENCE OUGHT TO BE STRUCK DOWN. 6:3 THE APPELLANT SUBMITS THAT THE ASSESSING OF F ICER BE DIRECTED TO TAX THE 'ROYALTY I NCO ME IN ACC ORDANCE WITH THE PROVISI ONS OF SECTION 9 (1) (VI) OF THE INCOME - TAX ACT, 1 961 READ TO R ECOMPUTE ITS TOTAL INCOM E 51 . LEARNED REP R ESENTATI VES AGREE THAT ON CE WE COME TO THE CONCLUSION THAT THE RE IS NO PE OR BUSINESS C ONNECTION ON THE FACTS OF THIS CASE, AS WE HAVE CON CLUDED DEAL ING WITH PRECE DING GR OUNDS OF APPEAL, THERE WILL BE NO OCCASION OF ROYALTY BEING EFFECTIVELY C ONNECTED WITH THE PE OR TAXABILITY OF ROYALT Y UNDER SECTION 44DA. THIS ISSUE IS ALSO, THERE FORE, AC ADEMIC AND INFRUCT UOUS IN THE PRESENT CONT EXT. 52 . G R OUND NO. 6 IS ALSO THUS DISMISSED. 5 3. IN GROUND NO. 7, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 35 OF 51 7 :0 R E : CREDIT FOR TAX DEDUCTED AT SOURCE AMOUNTING TO RS 21,442 NOT GRANTED 6: 1 TH E ASSESSING OFFICER HAS E RRED IN NOT GRAN TING THE A PPELLANT FOR TAX DEDUCT ED AT SOURC E OF RS 21,442. 6 :2 TH E APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND L AW PREVAILING ON TH E SUBJECT IT IS ENTITLED TO FULL CRED IT OF RS 21,442 BEING TAX DEDUCTED AT SOURCE F ROM ITS I NCOME FOR THE YEAR. 6:3 THE A PPELLANT SUBMITS THAT THE ASSESSING OF F ICER BE DIRECTED TO GRANT THE CREDIT OF TAX DEDUCTED AT SOURCE AND RE - COMPUTE ITS TAX LIABILITY ACCORDINGLY. 54. LEARNED REPRESENTATI VES FA IRLY AGREE THAT THI S ISSUE MAY BE REMITTED FOR ADJUDICATION DE NOVO AFTER GI VING YET ANOTHER OPPORT UNITY OF HEARING TO THE ASSESSEE, IN ACCORDANCE WIT H THE LAW AND BY WAY OF A SPEAKING ORDER. ORDERED, ACCORDINGLY. 55. GROUND NO. 7 IS THUS ALLOWED FOR STATISTICAL PURPOSES. 56. IN GROUND NO S. 8 AND 9 , BY WAY OF ADDITIONAL G ROUN D S OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWI NG GRIEVANCE: 8:0 R E: TAXATION OF ROYALTY INCOME AT RS. 56,48,03,982 8:1 THE APPELLANT SUBM I TS THAT THE AMOUNT TAXABLE IN TERMS OF ARTICLE 12(2) OF THE INDIA - USA DOUBLE TAXATION AVOIDANCE AGREEMENT [DTAA] S HOULD BE RESTRICTE D TO RS 56,48,03,98 2 WHICH IS IN ACCORDANCE WITH THE ADVANCED PRICING AGREEMENT [APA] DATED 0 7 MAY 2018 ENTERED INTO BY GIA INDIA LABORATORY PRIVATE LIMITED. 8:2 THE APPELLANT SUBMITS THAT CONSIDER ING THE FACTS AND CIRCUMSTANCES OF ITS CASE, AND THE LA W PREVAILING ON THE SUBJECT, T HE AM OUNT OF ROYALTY TAXABLE IN ITS HANDS IN ITS HANDS FOR TH E YEAR UNDER CONSIDERATION SHOUL D BE RESTRICTED TO RS 56,48,03,98 2 IN ACCORDANCE WITH THE APA. 8:3 T HE APPE LLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO CONSIDER THE ROYALTY INCOME W ORKED OUT IN TERMS OR THE APA AND TO RE - COMPUTE ITS TOTAL INCOME AND TAX THEREON ACCORDINGLY. 9:0 RE: RESTRICTING THE TAXATION OF ROYALTY INCOME AFT EFFECTIVELY CONNECTED TO THE PE ONLY TO RS 56,48,03,98 2 9:1 T HE APPELLANT SUBMITS THAT IN CASE I T IS H ELD THAT ANY PART OF ROYALTY INCOME IS EFFECTIVELY CONNECTED TO THE ALLEGED PE OR THE APPELL ANT THEN SUCH ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 36 OF 51 AMOUNT SHOULD BE RESTRICTED TO RS 56,48,03,98 2 WHICH IS IN ACCORDANCE WITH THE APA DATED 07 MAY 2018 ENTERED INTO BY G IA INDIA LABORATORY PRIVATE LIMITED. 9:2 THE APPELLANT SU BMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE, AND THE LAW PREVAILING ON THE SUBJECT, THE AMOUNT OF ROYALTY, IF HELD TO BE CONNECTED TO THE ALLEGED PE, SHOUL D BE RESTRICTED TO RS 56,48,03,98 2 IN ACCORDANCE WITH THE APA 9:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO CONSIDER THE ROYALTY INCOME, IF ANY, CONNECTED TO THE ALLEGED PE, ONLY AT RS 56,48,03,98 2 AND TO RE - COMPUTE ITS TOTAL INCOME AND TAX THEREO N ACCORDINGLY. 57 . IN VIEW OF THE DISCUSSIONS EARLIER IN THE ORDER, BOTH THE ADDITIONAL GROUNDS OF APPEAL ARE AD MITTED FOR A DJUDIC ATION ON MERITS, AND IN THE LIGHTS OF THE DISCUSSIONS IN PA RAGRAPH 2 - 21 EARLIER IN THIS ORDER, THIS ADDITIONAL GROUND OF APP EAL NO. 8 DE CIDED IN F AVO UR OF THE ASSESSEE, IN PRINCIPLE, THOUGH THE MATTER WILL GO BACK TO THE ASSESSING OFFICER FOR VERIFIC ATIONS OF FACTUAL ASPECTS WITH RESPECT OF THESE CLAIMS, I.E. , WIT H RESPECT TO VERIFICATIONS AND QUAN T UM OF ACTUAL RE FUNDS OF ROYAL TIES BY THE ASSESSEE, WHICH HAVE NOT BEEN EXAMINED AT ANY STAGE. WE, THERE FORE, DEE M IT FI T AND PROPER TO ACCEPT THE CLAIM OF THE ASSESSE E, IN P R I NCIPLE, B UT REMIT IT BACK TO THE ASSESSING OFFICER FOR VERIFICATION OF FACTUAL ELEMENTS EMBEDDED IN THE CLAIM OF T HE ASSESSEE. ORDERED , ACCORDINGLY . AS FO R SECOND ADDITIONAL GROUND OF APPEAL, I.E. GROUND NO. 9, THIS IS RENDERED INFRUCTU OUS IN THE LIGHT OF TH E FINDINGS EARLIER IN THE ORDER THA T NO PART OF THE ROYALTY INCOME IS TO BE TREATED AS ATTRIB UTABLE TO THE P E, AND TAXED UND ER SECTION 44A D AS SUCH, AS IT HAS BEEN HELD THAT THERE IS NO PE ON THE FACTS OF THIS CASE. 58 . GROUND NO. 8 IS THUS ALLOWED FOR STATI STICAL PURPOSES IN THE TERMS INDICATED ABOVE , AND GROUND NO. 9 IS DISMISSED AS I NFRUCT U O US. 59. I N TH E RESULT, THE APPEAL FOR THE ASSESSMENT YEA R 2012 - 13 IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 60 . WE NOW T AKE UP THE ITA NO. 7 174/MUM/17 , I .E. APPE AL FILED BY THE ASSESSEE FOR THE ASSESSM ENT YEAR 2013 - 1 4 . BY WAY OF T HIS APPEAL, TH E ASSESSEE A PPEL LANT HAS CHALLEN GED CORRECTNESS OF THE ORDER DATED 31 ST OCTOBER 2017 IN THE MA TTER OF ASSESSMENT UNDER SECTION 14 3(3) R. W.S. 144C(13) OF THE INCOME TAX ACT, 1961, FOR THE ASSESS MENT YEAR 201 3 - 14 . 61 . GR OUND NO. 1 IS GEN ERAL IN NAT URE AND DOES NO T CALL FOR ANY SPECIFIC ADJUDICATION. 62 . IN GROUND NO S . 2 AND 3 , THE ASSESSEE HAS RAIS ED THE FOLLOWING GRIEVANCES: 2:0 RE: HOLDING THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT ('PE') IN INDIA: ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 37 OF 51 2:1 THE ASSESSING OFF ICER / THE DISPUTE RESOLUTI ON PANEL HAS E R R ED IN HOLDING THAT THE AP PELLANT HAS A PERMANENT ESTABLISHMENT' ('PE) IN INDIA . 2:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LA W PREVAILING ON THE SUBJECT, IT HAS NO PE IN INDIA AND THE STAND TA KEN BY THE ASSES SING OFFICER/THE DISPUTE RESOLUTION PANEL IN THIS REGARD IS ERRONEOUS, MI SCONC EIVED AND NOT IN ACCORDANCE WITH LAW. 2:3 THE APPELLANT SUBMITS THAT THE ASSESSING OF F ICER HAS ERRED IN ARRIVING AT VARIOUS UNWARRANTED AND ERRONEOUS CONCLUSIONS UNSUPPORTED BY A NY RELEVANT MATERIAL TO HO LD THAT THE APPELLANT HAD A PE IN INDIA. FURTHE R HE ALSO FAILED TO CONSIDER THE CONTRARY MATERIAL AND EVIDENCE ADDUCED BY THE APPELLANT. 2:4 THE AP PELLANT SUBMITS THAT THE ASSESSING OFFICER'S STAND THAT THE APPELLA NT HAS A PE IN I NDIA BE STRUCK DOWN AND HE BE DIRECTED TO ACCEPT THE TOTAL INCOME AS RETU RNED. 3:0 RE.: HOLDIN G THAT THE APPELLANT HAS A 'B USINESS CONNECTION IN INDIA: 3:1 THE ASSESSING OF FICER/ THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING THAT THE A PPELLANT HAS 'BU SINESS CONNECTION IN INDIA. 3:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FAC TS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE S UBJECT, IT HAS NO BUSINESS CONN ECTION IN INDIA AND THE STAND TAKEN BY THE ASSESSING OFFICER/T HE DI SPUTE R ESOLUTION PANEL IN THIS REGARD I S ERRONEOUS, MISCONCEI VED AND NOT IN ACCORDANCE WITH L A W . 3:3 THE APPELLANT SUBMITS THAT THE ASSESSI NG OF F ICER HAS ERRED IN A RRIVING AT VARIOUS UNWARR ANTED AND ERRONEOUS CONCLUSIONS UNSUPPORTED BY ANY RELEVANT MATERIA L TO HOLD THAT T HE APPELLANT HAD BUSINESS CONNECTION IN INDIA. F URTHER HE A LSO FAILED TO CONSI DER THE CONTRARY MATERIAL AND EVIDENCE ADDUCE D BY THE APPELLANT . 3:4 TH E APPELLANT SUBMITS THAT THE ASSESSING OFFICER'S STAND THAT THE APPEL LANT H A S BUSINESS CONN ECTION IN INDIA BE STRUCK DOWN AND HE BE DIRECTED TO ACCEPT THE TOTA L INCOME AS RETURNED 63 . WHILE DEALING WITH THE ASSESSMENT Y EAR 2011 - 12 AND 2012 - 13 EARLIER IN THIS CONSOLIDATED ORDER , AND RESPECTFULLY FOLLOWING A COORDINATE BENCH DECISION IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 201 0 - 11 , WE HAVE DECIDED THIS ISSUE IN F AVOUR OF THE ASSESSEE AND HELD THAT THE ASSESSEE D ID NOT HAVE ANY PERMANENT ESTABLISHMENT IN I NDIA UNDER ARTICLE 5 OF THE INDO US TAX TREATY, OR B USINESS CONNECTION I N DIA UNDER SECTION 9 OF THE IN COME TAX ACT, 1961. THE ASSESSEE SUCCEEDS ON TH IS ISSUE. WE SEE NO RE ASONS TO TAKE ANY OTHER V IE W OF THE MATTER THAN THE VIEW SO TAKEN BY US AB OVE. WE, THER EFORE, UPHOLD THE PLEA OF THE ASSESSEE ON THESE POINTS. 64 . GROUND NOS. 2 AND 3 ARE THUS ALLOWED. ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 38 OF 51 65 . IN GROUND NO S . 4 AND 5 , THE ASSESSEE HAS RAISED THE FOLLO WING GRIEVA NCE: WITHOUT PREJUDICE TO THE FOR EGOIN G 4:0 RE.: ATTRIBUTION 4 :1 T HE ASSESSING OFFI CER/ THE DISPUTE RESOLUTION PANEL H AS ERRED IN HOLDING THAT 50% OF RECEIPT S ARE ATTRIBUTABLE TO THE ALLEGED PE OF THE APPELLANT IN INDIA. 4:2 THE APPELL ANT SUBMI TS THAT CONSIDERING THE FACTS AND CIRCUM STANC ES OF ITS CASE AND TH E 1 AW PREVAILING ON THE SUBJEC T NO PART WHATSOEVER OF IT S RECEIPTS ARE ATTRIBUTABLE TO I ND I A AND THE STAND TAK EN BY THE ASSESSING OFFICER/ T HE DISPUTE RESOLUTION PANEL IN THIS REGARD IS INCOR RECT, ILLEGAL, ARBITRARY, BASELESS, NOT IN AC CORDANCE WITH LAW AND HENCE OUGHT TO BE STRUCK DOW N. 4:3 THE APPELLANT SUBMITS THAT THE ARBITRARY ACTION OF THE ASSESSING OFFICER/ THE DISPUTE RESOLU TION PANEL BE STRUCK DOWN AND THE ASSESSING OFFICER B E DIRECTE D TO ACCEPT THE TOTAL INCOME AS RETURNED. WIT HOUT PREJUDICE TO THE FOREGOING: 5:0 RE.: ESTIMATI ON OF GROSS PROF IT: 5:1 T HE ASSESSING OF F ICER / THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING T HAT THE 20.31% OF THE RECEIPTS ATTRIBUTABLE TO THE ALL EGED INDI AN OPERATIONS OUGHT TO BE CONSIDERED AS PROFI TS OF THE PE TAXABLE IN INDIA. 5:2 THE APPELLANT S UBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUB J ECT, EVEN IF IT IS HELD THAT THE APPELLANT HAS A PE IN INDI A NO FURTHER INCOME CAN BE TAXED IN INDIA AS THE ALLEGED PF HAS BEEN REMUNERATED AT AN RESOLUTION P ANEL IN RESPECT THEREOF IS INCORRECT, ERRONEOUS, MISCONCEIVED AND ILLEG AL AND HENCE OUGHT TO BE ST RUCK DOWN. 5:3 THE APPELLANT SUBMI T S THAT TH E ASSESSIN G OFFICER BE DIRECTED TO ACCEPT THE TOTAL INCOME AS RE TURNED 5:4 WI THOUT PREJUDICE TO THE FORE GOING AND INSPITE OF SPECI FIC DIRECTIONS IN THIS REGARD BY THE DI SPUTE RESOLUTION PANEL, THE ASSESSING OFFIC ER H AS ERRED IN HOLDING THAT 20.31% OF THE RECE IPTS ATTRIBUTABLE TO THE ALLEGED INDIAN OPERATIONS OUGHT TO BE CONSIDERED AS P ROFITS OF THE PE AND TAXABLE IN INDIA. 66 . LEARNED REPRESENTATIVES FAIRLY AGREE T HAT IN VIEW OF OUR CONCLUSION THAT THE ASSESSEE DI D NOT HAVE ANY PERMA NEN T EST ABLISHMENT OR BUSINESS C O NNECTION IN INDIA, TH E ISSUE S REGAR D ING ATTRIBUTI ON OF PRO FITS OR ATTRIBUTION OF PROFITS ARE INFRUCTUOU S , AND DO NOT CALL FOR ANY ADJUDICATION BY US. WE, THEREFORE, DECLINE TO DEAL WITH THESE ISSUES ON M ERITS, AND REJECT THE SA ME AS INFR UCTUOUS. 67 . GROUND NO S. 4 AND 5 ARE THUS DISMISSED A S INFRUCTUOUS. ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 39 OF 51 68 . IN G ROUND NO. 6 , THE ASSESSEE HAS RAISED THE FOLL OWING GRIEV ANCE: 6:0 R E : TAXING THE ROYALTY' REC EIVED DURING THE YEAR U/S. 44DA OF THE INCOME ACT , 1961: 6: 1 TH E ASSESSING OFFICER THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING T H A T THE ROYALTY I NCOME IS EFFECTIVELY CONNECTED WITH THE ALLEGED PE OF THE APPELLANT IN INDIA AND IS THEREFORE TAXABLE U/S. 44DA OF THE INCOME TAX ACT, 1961 . 6 :2 TH E AP PELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND L AW PREVAILING ON TH E SUBJECT AND IN PARTICULAR THE PROVISIONS OF THE INDI A - USA D TAA, THE ASSESSING OFFICER/ THE DISPUTE RES OLUTION PANEL THE ROYALTY RECEIVED BY IT DURING THE Y EAR UNDER CONSIDERATION IS NOT TAXABLE U/S. 44DA OF THE INCOME - TAX AC T, 19 6 1 AND HE NCE THE STAND TAKEN BY THE ASSESSING OFFICER/ THE DISPUTE RESOLUTIO N PANEL IN RESPECT THEREOF IS INCORRECT, ERRONEOUS , MISCONCEIVED AND ILLEGAL AND HENCE OUGHT TO BE STRUCK DOWN. 6:3 THE APPELLANT SUBMITS THAT THE ASSESSING OF F ICER BE DIRECTED TO TAX THE 'ROYALTY I NCO ME IN ACC ORDANCE WITH THE PROVISIONS OF SECTION 9 (1) (VI) OF THE INCOME - TAX ACT, 1 961 READ TO R ECOMPUTE ITS TOTAL INCOME. 69 . LEARNED REP R ESENTATI VES AGREE THAT ON CE WE COME TO THE CONCLUSION THAT THE RE IS NO PE OR BUSINESS C ONNECTION ON THE FACTS OF THIS CASE, AS WE HAVE CON CLUDED DEALING WITH PRECE DING GR OUNDS OF APPEAL, THERE WILL BE NO OCCASION OF ROYALTY BEING EFFECTIVELY C ONNECTED WITH THE PE OR TAXABI LITY OF ROYALT Y UNDER SECTION 44DA. THIS ISSUE IS ALSO, THERE FORE, AC ADEMIC AND INFRUCT UOUS IN THE PRESENT CONT EXT. 70 . G R OUND NO. 6 IS ALSO THUS DISMISSED. 71 . IN GROUND NO S. 7 AND 8 , BY WAY OF ADDITIONAL G ROUND S OF APPEAL, THE ASSESSEE HAS RAISED T HE FOLLOWI NG GRIEVANCE: 8:0 R E: TAXATION OF ROYALTY INCOME AT RS. 94,26,19,067 8:1 THE APPELLANT SUBM I TS THAT THE AMOUNT TAXABLE IN TERMS OF ARTICLE 12(2) OF THE INDIA - USA DOUBLE TAXATION AVOIDANCE AGREEMENT [DTAA] SHOULD BE RESTRICTE D TO RS 94,26,19,067 W HICH IS IN ACCORDANCE WITH THE ADVANCED PRICING AGREEMENT [APA] DATED 0 7 MAY 2018 ENTERED INTO BY GIA INDIA LABORATORY PRIVATE LIMITED. 8:2 THE APPELLANT SUBMITS THAT CONSIDER ING THE FACTS AND CIRCUMSTANCES OF ITS CASE, AND THE LA W PREVAILING ON THE SUB JECT, T HE AM OUNT OF ROYALTY TAXABLE IN ITS HANDS IN ITS HANDS FOR TH E YEAR UNDER CONSIDERATION SHOUL D BE RESTRICTED TO RS 94,26,19,067 IN ACCORDANCE WITH THE APA. ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 40 OF 51 8:3 T HE APPE LLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO CONSIDER THE ROYALTY INCO ME W ORKED OUT IN TERMS OR THE APA AND TO RE - COMPUTE ITS TOTAL INCOME AND TAX THEREON ACCORDINGLY. 9:0 RE: R ESTRICTING THE TAXATION OF ROYALTY INCOME AFT EFFECTIVELY CONNECTED TO THE PE ONLY TO RS 94,26,19,067 9:1 THE APPELLANT SUBMITS THAT IN CASE I T IS H ELD THAT ANY PART OF ROYALTY INCOME IS EFFECTIVELY CONNECTED TO THE ALLEGED PE OR THE APPELL ANT THEN SUCH AMOUNT SHOULD BE RESTRICTED TO RS 94,26,19,067 WHICH IS IN ACCORDANCE WITH THE APA DATED 07 MAY 2018 ENTERED INTO BY G IA INDIA LABORATORY PRIVATE LIMI TED. 9:2 THE APPELLANT SU BMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE, AND THE LAW PREVAILING ON THE SUBJECT, THE AMOUNT OF ROYALTY, IF HELD TO BE CONNECTED TO THE ALLEGED PE, SHOUL D BE RESTRICTED TO RS 94,26,19,067 IN ACCORDANCE WITH THE APA 9:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO CONSIDER THE ROYALTY INCOME, IF ANY, CONNECTED TO THE ALLEGED PE, ONLY AT RS 94,26,19,067 AND TO RE - COMPUTE ITS TOTAL INCOME AND TAX THEREON ACCORDINGLY. 72 . IN VIEW OF THE DISCUS SIONS EARLIER IN THE ORDER, BOTH THE ADDITIONAL GROUNDS OF APPEAL ARE AD MITTED FOR A DJUDIC ATION ON MERITS, AND IN THE LIGHTS OF THE DISCUSSIONS IN PA RAGRAPH 2 - 21 EARLIER IN THIS ORDER, THIS ADDITIONAL GROUND OF APPEAL NO. 7 DE CIDED IN F AVO UR OF THE ASSESSE E, IN PRINCIPLE, THOUGH THE MATTER WILL GO BACK TO THE ASSESSING OFFICER FOR VERIFIC ATIONS OF FACTUAL ASPECTS WITH RESPECT OF THESE CLAIMS, I.E. , WIT H RESPECT TO VERIFICATIONS AND QUAN T UM OF ACTUAL RE FUNDS OF ROYALTIES BY THE ASSESSEE, WHICH HAVE NOT BEEN EXAMINED AT ANY STAGE. WE, THERE FORE, DEE M IT FI T AND PROPER TO ACCEPT THE CLAIM OF THE ASSESSE E, IN P R I NCIPLE, B UT REMIT IT BACK TO THE ASSESSING OFFICER FOR VERIFICATION OF FACTUAL ELEMENTS EMBEDDED IN THE CLAIM OF T HE ASSESSEE. ORDERED , ACCORDINGLY . AS FO R SECOND ADDITIONAL GROUND OF APPEAL, I.E. GROUND NO. 8 , THIS IS RENDERED INFRUCTU OUS IN THE LIGHT OF TH E FINDINGS EARLIER IN THE ORDER THA T NO PART OF THE ROYALTY INCOME IS TO BE TREATED AS ATTRIB UTABLE TO THE PE, AND TAXED UND ER SECTION 44A D AS SUCH, A S IT HAS BEEN HELD THAT THERE IS NO PE ON THE FACTS OF THIS CASE. 73 . GROUND NO. 7 IS THUS ALLOWED FOR STATI STICAL PURPOSES IN THE TERMS INDICATED ABOVE , AND GROUND NO. 8 IS DISMISSED AS I NFRUCT U O US. 74 . I N THE RESULT, THE APPEAL FOR THE ASSESSMENT YEA R 2012 - 13 FOR THE ASSESSMENT YEA R 201 3 - 14 IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 75 . WE NOW T AKE UP THE ITA NO. 53/MUM/2019 , I .E. APPE AL FILED BY THE ASSESSEE FOR THE ASSESSM ENT YEAR 2 014 - 15 . BY WAY OF T HIS APPEAL, TH E ASSESSEE A PPELLANT HAS CHAL LEN GED CORRECTNESS OF THE ORDER DATED 29 TH OCTOBER 2018, IN THE MA TTER OF ASSESSMENT UNDER SECTION 14 3(3) R. W.S. 144C(13) OF THE INCOME TAX ACT, 1961, FOR THE ASSESS MENT YEAR 2014 - 15. 76 . GR OUND NO. 1 IS GEN ERAL IN NAT URE AND DOES NO T CALL FOR ANY SPECIFI C ADJUDICATION. 77 . IN GROUND NO S . 2 AND 3 , THE ASSESSEE HAS RAIS ED THE FOLLOWING GRIEVANCES: ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 41 OF 51 2:0 RE: HOLDING THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT ('PE') IN INDIA: 2:1 THE ASSESSING OFF ICER / THE DISPUTE RESOLUTI ON PANEL HAS E R RED IN HOLDIN G THAT THE AP PELLANT HAS A PERMANENT ESTABLISHMENT' ('PE) IN INDIA . 2:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LA W PREVAILING ON THE SUBJECT, IT HAS NO PE IN INDIA AND THE STAND TA KEN BY THE ASSESSING OFFICER /THE DISPUTE RESOLUTION PANEL IN THIS REGARD IS ERRONEOUS, MI SCONC EIVED AND NOT IN ACCORDANCE WITH LAW. 2:3 THE APPELLANT SUBMITS THAT THE ASSESSING OF F ICER HAS ERRED IN ARRIVING AT VARIOUS UNWARRANTED AND ERRONEOUS CONCLUSIONS UNSUPPORTED BY ANY RELEVANT MATERIAL TO HO LD THAT THE APPELLANT HAD A PE IN INDIA. FURTHE R HE ALSO FAILED TO CONSIDER THE CONTRARY MATERIAL AND EVIDENCE ADDUCED BY THE APPELLANT. 2:4 THE AP PELLANT SUBMITS THAT THE ASSESSING OFFICER'S STAND THAT THE APPELLA NT HAS A PE IN INDIA BE STRU CK DOWN AND HE BE DIRECTED TO ACCEPT THE TOTAL INCOME AS RETU RNED. 3:0 RE.: HOLDIN G THAT THE APPELLANT HAS A 'B USINESS CONNECTION IN INDIA: 3:1 THE ASSESSING OF FICER/ THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING THAT THE A PPELLANT HAS 'BUSINESS CONNE CTION IN INDIA. 3:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FAC TS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE S UBJECT, IT HAS NO BUSINESS CONN ECTION IN INDIA AND THE STAND TAKEN BY THE ASSESSING OFFICER/T HE DI SPUTE R ESOLUTION PANEL IN TH IS REGARD I S ERRONEOUS, MISCONCEI VED AND NOT IN ACCORDANCE WITH L A W . 3:3 THE APPELLANT SUBMITS THAT THE ASSESSI NG OF F ICER HAS ERRED IN A RRIVING AT VARIOUS UNWARR ANTED AND ERRONEOUS CONCLUSIONS UNSUPPORTED BY ANY RELEVANT MATERIA L TO HOLD THAT THE APPELLANT HAD BUSINESS CONNECTION IN INDIA. F URTHER HE A LSO FAILED TO CONSI DER THE CONTRARY MATERIAL AND EVIDENCE ADDUCE D BY THE APPELLANT . 3:4 TH E APPELLANT SUBMITS THAT THE ASSESSING OFFICER'S STAND THAT THE APPEL LANT H A S BUSINESS CONN ECTION IN INDIA BE STRUCK DO WN AND HE BE DIRECTED TO ACCEPT THE TOTA L INCOME AS RETURNED 78 . WHILE DEALING WITH THE ASSESSMENT Y EAR 2011 - 12 2 012 - 13 AND 2013 - 14 EARLIER IN THIS CONSOLIDATED ORDER , AND RESPECTFULLY FOLLOWING A COORDINATE BENCH DECISION IN ASSESSEE S OWN CASE FOR THE A SSESSMENT YEAR 201 0 - 11 , WE HAVE DECIDED THIS ISSUE IN F AVOUR OF THE ASSESSEE AND HELD THAT THE ASSESSEE D ID NOT HAVE ANY PERMANENT ESTABLISHMENT IN I NDIA UNDER ARTICLE 5 OF THE INDO US TAX TREATY, OR B USINESS CONNECTION I N DIA UNDER SECTION 9 OF THE IN COME TAX ACT, 1961. THE ASSESSEE SUCCEEDS ON TH IS ISSUE. WE SEE NO RE ASONS TO TAKE ANY OTHER V IE W OF ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 42 OF 51 THE MATTER THAN THE VIEW SO TAKEN BY US AB OVE. WE, THER EFORE, UPHOLD THE PLEA OF THE ASSESSEE ON THESE POINTS. 79 . GROUND NOS. 2 AND 3 ARE THUS ALLOWED. 80 . IN GROUND NO S . 4 AND 5 , THE ASSESSEE HAS RAISED THE FOLLO WING GRIEVA NCE: WITHOUT PREJUDICE TO THE FOR EGOIN G 4:0 RE.: ATTRIBUTION 4 :1 T HE ASSESSING OFFI CER/ THE DISPUTE RESOLUTION PANEL H AS ERRED IN HOLDING THAT 50% OF RECEIPT S ARE ATTRIBUTABLE TO THE ALLE GED PE OF THE APPELLANT IN INDIA. 4:2 THE APPELL ANT SUBMI TS THAT CONSIDERING THE FACTS AND CIRCUM STANC ES OF ITS CASE AND TH E 1 AW PREVAILING ON THE SUBJEC T NO PART WHATSOEVER OF IT S RECEIPTS ARE ATTRIBUTABLE TO I ND I A AND THE STAND TAK EN BY THE ASSESSING OFFI CER/ T HE DISPUTE RESOLUTION PANEL IN THIS REGARD IS INCOR RECT, ILLEGAL, ARBITRARY, BASELESS, NOT IN AC CORDANCE WITH LAW AND HENCE OUGHT TO BE STRUCK DOW N. WIT HOUT PREJUDICE TO THE FOREGOING: 5:0 RE.: ESTIMATI ON OF GROSS PROF IT: 5:1 T HE ASSESSING OF F ICER / THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING THAT THE 20.31% OF THE RECEIPTS ATTRIBUTABLE TO THE ALL EGED INDI AN OPERATIONS OUGHT TO BE CONSIDERED AS PROFI TS OF THE PE TAXABLE IN INDIA. 5:2 THE APPELLANT S UBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTA NCES OF ITS CASE AND THE LAW PREVAILING ON THE SUB JECT, EVEN IF IT IS HELD THAT THE APPELLANT HAS A PE IN INDI A NO FURTHER INCOME CAN BE TAXED IN INDIA AS THE ALLEGED PF HAS BEEN REMUNERATED AT AN RESOLUTION P ANEL IN RESPECT THEREOF IS INCORRECT, ERRONEOUS , MISCONCEIVED AND ILLEG AL AND HENCE OUGHT TO BE STRUCK DOWN. 81 . LEARNED REPRESENTATIVES FAIRLY AGREE T HAT IN VIEW OF OUR CONCLUSION THAT THE ASSESSEE DID NOT HAVE ANY PERMA NEN T EST ABLISHMENT OR BUSINESS C O NNECTION IN INDIA, TH E ISSUE S REGAR D ING ATTRIBUTI ON OF PRO FITS OR ATTRIBUTION OF PROFITS ARE INFRUCTUOU S , AND DO NOT CALL FOR ANY ADJUDICATION BY US. WE, THEREFORE, DECLINE TO DEAL WITH THESE ISSUES ON MERITS, AND REJECT THE SA ME AS INFR UCTUOUS. 82 . GROUND NO S. 4 AND 5 ARE THUS DISMISSED A S INFRUCTUOUS. 83 . IN G ROUND NO. 6 , THE ASSESSEE HAS RAISED THE FOLL OWING GRIEV ANCE: 6:0 RE: TAXING THE ROYALTY' REC EIVED DURING THE YEAR U/S. 44DA OF THE INCOME ACT, 1961: 6: 1 TH E ASSESSING OFFICER THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING T H A T THE ROYALTY I NCOME IS EFFECTIVELY CONNECTED WITH THE ALLEGED PE OF THE ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 43 OF 51 APPELLANT IN INDIA AND IS THEREFORE TAXABLE U/S. 44DA OF THE INCOME TAX ACT, 1961 . 6 :2 TH E APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND L AW PREVAILING ON TH E SUB JECT AND IN PARTICULAR THE PROVISIONS OF THE INDI A - USA D TAA, THE ASSESSING OFFICER/ THE DISPUTE RES OLUTION PANEL THE ROYALTY RECEIVED BY IT DURING THE YEAR UNDER CONSIDERATION IS NOT TAXABLE U/S. 44DA OF THE INCOME - TAX AC T, 19 6 1 AND HE NCE THE STAND TAKE N BY THE ASSESSING OFFICER/ THE DISPUTE RESOLUTIO N PANEL IN RESPECT THEREOF IS INCORRECT, ERRONEOUS , MISCONCEIVED AND ILLEGAL AND HENCE OUGHT TO BE STRUCK DOWN. 84 . LEARNED REP R ESENTATI VES AGREE THAT ON CE WE COME TO THE CONCLUSION THAT THE RE IS NO PE OR BU SINESS C ONNECTION ON THE FACTS OF THIS CASE, AS WE HAVE CON CLUDED DEALING WITH PRECE DING GR OUNDS OF APPEAL, THERE WILL BE NO OCCASION OF ROYALTY BEING EFFECTIVELY C ONNECTED WITH THE PE OR TAXABILITY OF ROYALT Y UNDER SECTION 44DA. THIS ISSUE IS ALSO, THERE F ORE, AC ADEMIC AND INFRUCT UOUS IN THE PRESENT CONT EXT. 85. G R OUND NO. 6 IS ALSO THUS DISMISSED. 86 . IN GROUND NO S. 7 AND 8 , , THE ASSESSEE HAS RAISED THE FOLLOWI NG GRIEVANCE: 7: 0 RE: TAXATION OF ROYALTY INCOME AT RS. 1,06,93.35,468/ - IN TERMS OF THE AD VANCED PRICING AGREEMENT F'APA'1 DATED 07 MAY 2018 ENTERED INTO BY GIA INDIA LABORATORY PRIVATE LIMITED: 7:1 THE APPELLANT SUBMITS THAT THE AMOUNT TAXABLE AS ROYALTY SHOULD BE RESTRICTED TO RS. 1,06,93,35,468/ - WHICH IS IN ACCORDANCE WITH THE APA. 7:2 T HE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE, AND THE LAW PREVAILING ON TH E SUBJECT, THE AMOUNT OF ROYALTY TAXABLE IN ITS HANDS FOR THE YEAR UNDER CONSIDERATION SHOULD BE RESTRICTED TO RS 1,06,93,35,468/ - IN ACCORDANCE WITH THE APA. 7 :3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO CONSIDER THE ROYALTY INCOME WORKED OUT IN TERMS OF THE APA AND TO RE - COMPUTE ITS TOTAL INCOME AND TAX THEREON ACCORDINGLY. WITHOUT PREJUDICE TO THE FORGOING 8 :0 RE: RESTRICT ING THE TAXATION OF ROYALTY INCOME AT EFFEC TIVELY CONNECTED TO THE PE ONLY TO RS. 1.06.93.35.468/ - : 8 :1 THE APPELLANT SUBMITS THAT IN CASE IT BE HELD THAT THE ROYALTY INCOME IS EFFECTIVELY CONNECTED TO THE ALLEGED PE IN INDIA OF THE APPELLANT THEN SUCH AMOUNT SHOULD BE RESTRICTED TO RS. ,06,93,3 5,468/ - WHICH IS IN ACCORDANCE WITH THE APA DATED 07 MAY 2018 ENTERED INTO BY GIA INDIA LABORATORY PRIVATE LIMITED. ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 44 OF 51 8 :2 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO CONSIDER THE ROYALTY INCOME , IF ANY, CONNECTED TO THE ALLEGED PE, ONLY AT RS. 1,06,93,35,468/ - AND TO RE COMPUTE ITS TOTAL INCOME AND TAX THEREON ACCORDINGLY. 87 . IN VIEW OF THE DISCUSSIONS EARLIER - PARTICUL ARLY IN PA RAGRAPH 2 - 21 EARLIER IN THIS ORDER, GROUND OF APPEAL NO. 7 DE CI DED IN F AVO UR OF THE ASSESSEE, IN PRINCIPLE, THOUGH THE MATTER WILL GO BACK TO THE ASSESSING OFFICER FOR VERIFIC ATIONS OF FACTUAL ASPECTS WITH RESPECT OF THESE CLAIMS, I.E. , WIT H RESPECT TO VERIFICATIONS AND QUAN T UM OF ACTUAL RE FUNDS OF ROYALTIES BY THE AS SESSEE, WHICH HAVE NOT BEEN EXAMINED AT ANY STAGE. WE, THERE FORE, DEE M IT FI T AND PROPER TO ACCEPT THE CLAIM OF THE ASSESSE E, IN P R I NCIPLE, B UT REMIT IT BACK TO THE ASSESSING OFFICER FOR VERIFICATION OF FACTUAL ELEMENTS EMBEDDED IN THE CLAIM OF T HE ASSESSE E. ORDERED , ACCORDINGLY . AS FO R GROUND NO. 8 , THIS IS RENDERED INFRUCTU OUS IN THE LIGHT OF TH E FINDINGS EARLIER IN THE ORDER THA T NO PART OF THE ROYALTY INCOME IS TO BE TREATED AS ATTRIB UTABLE TO THE PE, AND TAXED UND ER SECTION 44A D AS SUCH, AS IT HAS BEEN HELD THAT THERE IS NO PE ON THE FACTS OF THIS CASE. 88. GROUND NO. 7 IS THUS ALLOWED FOR STATI STICAL PURPOSES IN THE TERMS INDICATED ABOVE , AND GROUND NO. 8 IS DISMISSED AS I NFRUCT U O US. 89. IN GROUND NO. 8, THE ASSESSEE HAS RA ISED GRIEVANCE AGAIN ST LEV Y OF INTEREST UNDER SECTION 234A ON THE FACTS OF THE CASE, BUT NO SPECIFIC ARGUMENTS HAVE BEEN ADDRESSED ON THIS ISSUE. GROUND NO. 8 IS THUS TREATED AS N O T PRESSED. 90. GROUND NO. 8 IS THUS DISMISSED AS NOT PRESSED. 91 . I N THE RESULT, THE APPEAL FOR THE A SSESSMENT YEA R 201 4 - 15 IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 92 . WE NOW T AKE UP THE ITA NO. 7739 /MUM/2019 , I .E. APPE AL FILED BY THE ASSESSEE FOR THE ASSESSM ENT YEAR 2015 - 16 . BY WAY OF T HIS APPEAL, TH E ASSESSEE A PPELLANT HAS CHALLEN GED CORRECTNE SS OF THE ORDER DATED 18 TH OCTOBER 2019 , IN THE MA TTER OF ASSESSMENT UNDER SECTION 14 3(3) R. W.S. 144C(13) OF THE INCOME TAX ACT, 1961, FOR THE ASSESS MENT YEAR 2015 - 16 . 93 . GR OUND NO. 1 IS GEN ERAL IN NAT URE AND DOES NO T CALL FOR ANY SPECIFIC ADJUDICATION. 94 . IN GROUND NO S . 2 AND 3 , THE ASSESSEE HAS RAIS ED THE FOLLOWING GRIEVANCES: 2:0 RE: HOLDING THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT ('PE') IN INDIA: 2:1 THE ASSESSING OFF ICER / THE DISPUTE RESOLUTI ON PANEL HAS E R RED IN HOLDING THAT THE AP PEL LANT HAS A PERMANENT ESTABLISHMENT' ('PE) IN INDIA . 2:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LA W PREVAILING ON THE SUBJECT, IT HAS NO PE IN INDIA AND THE STAND ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 45 OF 51 TA KEN BY THE ASSESSING OFFICER/THE DISPUTE RES OLUTION PANEL IN THIS REGARD IS ERRONEOUS, MI SCONC EIVED AND NOT IN ACCORDANCE WITH LAW. 2:3 THE APPELLANT SUBMITS THAT THE ASSESSING OF F ICER HAS ERRED IN ARRIVING AT VARIOUS UNWARRANTED AND ERRONEOUS CONCLUSIONS UNSUPPORTED BY ANY RELEVANT MATERIAL TO HO LD THAT THE APPELLANT HAD A PE IN INDIA. FURTHE R HE ALSO FAILED TO CONSIDER THE CONTRARY MATERIAL AND EVIDENCE ADDUCED BY THE APPELLANT. 2:4 THE AP PELLANT SUBMITS THAT THE ASSESSING OFFICER'S STAND THAT THE APPELLA NT HAS A PE IN INDIA BE STRUCK DOWN AND HE B E DIRECTED TO ACCEPT THE TOTAL INCOME AS RETU RNED. 3:0 RE.: HOLDIN G THAT THE APPELLANT HAS A 'B USINESS CONNECTION IN INDIA: 3:1 THE ASSESSING OF FICER/ THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING THAT THE A PPELLANT HAS 'BUSINESS CONNECTION IN INDIA. 3:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FAC TS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE S UBJECT, IT HAS NO BUSINESS CONN ECTION IN INDIA AND THE STAND TAKEN BY THE ASSESSING OFFICER/T HE DI SPUTE R ESOLUTION PANEL IN THIS REGARD I S ER RONEOUS, MISCONCEI VED AND NOT IN ACCORDANCE WITH L A W . 3:3 THE APPELLANT SUBMITS THAT THE ASSESSI NG OF F ICER HAS ERRED IN A RRIVING AT VARIOUS UNWARR ANTED AND ERRONEOUS CONCLUSIONS UNSUPPORTED BY ANY RELEVANT MATERIA L TO HOLD THAT THE APPELLANT HAD BUSINESS C ONNECTION IN INDIA. F URTHER HE A LSO FAILED TO CONSI DER THE CONTRARY MATERIAL AND EVIDENCE ADDUCE D BY THE APPELLANT . 3:4 TH E APPELLANT SUBMITS THAT THE ASSESSING OFFICER'S STAND THAT THE APPEL LANT H A S BUSINESS CONN ECTION IN INDIA BE STRUCK DOWN AND HE BE DI RECTED TO ACCEPT THE TOTA L INCOME AS RETURNED 95 . WHILE DEALING WITH THE ASSESSMENT Y EAR S 2011 - 12 2 012 - 13 , 2013 - 14 AND 2014 - 15 EARLIER IN THIS CONSOLIDATED ORDER , AND RESPECTFULLY FOLLOWING A COORDINATE BENCH DECISION IN ASSESSEE S OWN CASE FOR THE ASSESS MENT YEAR 201 0 - 11 , WE HAVE DECIDED THIS ISSUE IN F AVOUR OF THE ASSESSEE AND HELD THAT THE ASSESSEE D ID NOT HAVE ANY PERMANENT ESTABLISHMENT IN I NDIA UNDER ARTICLE 5 OF THE INDO US TAX TREATY, OR B USINESS CONNECTION I N DIA UNDER SECTION 9 OF THE IN COME TAX A CT, 1961. THE ASSESSEE SUCCEEDS ON TH IS ISSUE. WE SEE NO RE ASONS TO TAKE ANY OTHER V IE W OF THE MATTER THAN THE VIEW SO TAKEN BY US AB OVE. WE, THER EFORE, UPHOLD THE PLEA OF THE ASSESSEE ON THESE POINTS. 96 . GROUND NOS. 2 AND 3 ARE THUS ALLOWED. 97 . IN GR OUND NO S . 4 AND 5 , THE ASSESSEE HAS RAISED THE FOLLO WING GRIEVA NCE: WITHOUT PREJUDICE TO THE FOR EGOIN G 4:0 RE.: ATTRIBUTION ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 46 OF 51 4 :1 T HE ASSESSING OFFI CER/ THE DISPUTE RESOLUTION PANEL H AS ERRED IN HOLDING THAT 50% OF RECEIPT S ARE ATTRIBUTABLE TO THE ALLEGED P E OF THE APPELLANT IN INDIA. 4:2 THE APPELL ANT SUBMI TS THAT CONSIDERING THE FACTS AND CIRCUM STANC ES OF ITS CASE AND TH E 1 AW PREVAILING ON THE SUBJEC T NO PART WHATSOEVER OF IT S RECEIPTS ARE ATTRIBUTABLE TO I ND I A AND THE STAND TAK EN BY THE ASSESSING OFFICER/ T HE DISPUTE RESOLUTION PANEL IN THIS REGARD IS INCOR RECT, ILLEGAL, ARBITRARY, BASELESS, NOT IN AC CORDANCE WITH LAW AND HENCE OUGHT TO BE STRUCK DOW N. WIT HOUT PREJUDICE TO THE FOREGOING: 5:0 RE.: ESTIMATI ON OF GROSS PROF IT: 5:1 T HE ASSESSING OF F ICER / THE D ISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING THAT THE 20.31% OF THE RECEIPTS ATTRIBUTABLE TO THE ALL EGED INDI AN OPERATIONS OUGHT TO BE CONSIDERED AS PROFI TS OF THE PE TAXABLE IN INDIA. 5:2 THE APPELLANT S UBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUB JECT, EVEN IF IT IS HELD THAT THE APPELLANT HAS A PE IN INDI A NO FURTHER INCOME CAN BE TAXED IN INDIA AS THE ALLEGED PF HAS BEEN REMUNERATED AT AN RESOLUTION P ANEL IN RESPECT THEREOF IS INCORRECT, ERRONEOUS, MIS CONCEIVED AND ILLEG AL AND HENCE OUGHT TO BE STRUCK DOWN. 98 . LEARNED REPRESENTATIVES FAIRLY AGREE T HAT IN VIEW OF OUR CONCLUSION THAT THE ASSESSEE DID NOT HAVE ANY PERMA NEN T EST ABLISHMENT OR BUSINESS C O NNECTION IN INDIA, TH E ISSUE S REGAR D ING ATTRIBUTI ON OF PRO FITS OR ATTRIBUTION OF PROFITS ARE INFRUCTUOU S , AND DO NOT CALL FOR ANY ADJUDICATION BY US. WE, THEREFORE, DECLINE TO DEAL WITH THESE ISSUES ON MERITS, AND REJECT THE SA ME AS INFR UCTUOUS. 99 . GROUND NO S. 4 AND 5 ARE THUS DISMISSED A S INFRUCTUOUS. 100 . IN G ROUND NO. 6 AND 7 , THE ASSESSEE HAS RAISED THE FOLL OWING GRIEV ANCE S : 6: 0 RE: NON - CONSIDERATION OF CORRECT AMOUNT OF ROYALTY FOR THE YEAR: 6: 1 THE ASSESSING OFFICER / THE DISPUTE RESOLUTION PANEL HAVE ERRED IN HOLDI NG THAT THE APPELLANT'S INCOME BY WAY OF ROYALTY FOR THE YEAR IS RS. 2,88,71,40,780/ - . 6: 2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE, AND THE LAW PREVAILING ON THE SUBJECT, THE AMOUNT OF ROYALTY TAXABLE IN ITS HANDS FOR THE YEAR UNDER CONSIDERATION S HOULD BE RESTRICTED TO RS. 1,84,23,68,0507 - BEING THE AMOUNT OF ROYALTY RECEIVED FOR THE YEAR. 6: 3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO CONSIDER THE ROYALTY INCOME ON THE BASIS OF THE ACTUAL INCOME EARNED FOR THE YEAR AND TO RE - C OMPUTE ITS TOTAL INCOME AND TAX THEREON ACCORDINGLY. WITHOUT PREJUDICE TO THE FOREGOING: ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 47 OF 51 7 : 0 RE.: TAXING THE 'ROYALTY' RECEIVED DURING THE YEAR U/S. 44DA OF THE INCOME - TAX ACT. 1961: 7: 1 THE ASSESSING OFFICER/ THE DISP UTE RESOLUTION PANEL HAVE ERRED IN HO LDING THAT THE ROYALTY INCOME IS 'EFFECTIVELY CONNECTED' WITH THE ALLEGED PE OF THE APPELLANT IN INDIA AND IS THEREFORE TAXABLE U/S. 44DA OF THE INCOME - TAX ACT, 1961. 7: 2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND TH E LAW PREVAILING ON THE SUBJECT AND IN PARTICULAR THE PROVISIONS OF THE INDIA - USA . DTAA, THE ASSESSING OFFICER / THE DISPUTE RESOLUTION PANEL THE 'ROYALTY' RECEIVED BY IT DURING THE YEAR UNDER CONSIDERATION IS NOT TAXAB LE U/S. 44DA OF THE INCOME - TAX ACT, 1 961 SINCE IT DOES NOT HAVE ANY PE IN INDIA AND HENCE THE STAND TAKEN BY THE ASSESSING OFFICER/ THE DISPUTE RESOLUTION PANEL IN RESPECT THEREOF JS INCORRECT, ERRONEOUS, MISCONCEIVED AND ILLEGAL AND HENCE OUGHT TO BE STRU CK DOWN. 7: 3 THE APPELLANT FURTHER SU BMITS THAT EVEN IF IT BE HELD THAT THE ROYALTY INCOME IS EFFECTIVELY CONNECTED TO THE ALLEGED PE IN INDIA OF THE APPELLANT THEN SUCH AMOUNT SHOULD BE RESTRICTED TO RS. 1,84,23,68,050/ - WHICH IS IN ACCORDANCE WITH THE AP A DATED 07 MAY 2018 ENTERED INTO BY G IA INDIA LABORATORY PRIVATE LIMITED. 101. IN VIEW OF THE DISCUSSIONS EARLIER - PARTICUL ARLY IN PA RAGRAPH 2 - 21 EARLIER IN THIS ORDER, GROUND OF APPEAL NO. 6 DE CIDED IN F AVO UR OF THE ASSESSEE, IN PRINCIPLE, THOUGH THE MATTER WILL GO BACK TO THE ASSESSING OFF ICER FOR VERIFIC ATIONS OF FACTUAL ASPECTS WITH RESPECT OF THESE CLAIMS, I.E. , WIT H RESPECT TO VERIFICATIONS AND QUAN T UM OF ACTUAL RE FUNDS OF ROYALTIES BY THE ASSESSEE, WHICH HAVE NOT BEEN EXAMINED AT ANY STAGE. WE, THERE FORE, DEE M IT FI T AND PROPER TO ACCE PT THE CLAIM OF THE ASSESSE E, IN P R I NCIPLE, B UT REMIT IT BACK TO THE ASSESSING OFFICER FOR VERIFICATION OF FACTUAL ELEMENTS EMBEDDED IN THE CLAIM OF T HE ASSESSEE. ORDERED , ACCORDINGLY . AS FO R GROUND NO. 7 , THIS IS RENDERED INFRUCTU OUS IN THE LIGHT OF TH E F INDINGS EARLIER IN THE ORDER THA T NO PART OF THE ROYALTY INCOME IS TO BE TREATED AS ATTRIB UTABLE TO THE PE, AND TAXED UND ER SECTION 44A D AS SUCH, AS IT HAS BEEN HELD THAT THERE IS NO PE ON THE FACTS OF THIS CASE. 102 . GROUND NO. 6 IS THUS ALLOWED FOR STAT I STICAL PURPOSES IN THE TERMS INDICATED ABOVE , AND GROUND NO. 7 IS DISMISSED AS I NFRUCT U O US. 103 . IN GROUND NO. 8, THE ASSESSEE HAS RA ISED GRIEVANCE AGAIN ST LEV Y OF INTEREST UNDER SECTION 234A ON THE FACTS OF THE CASE, BUT NO SPECIFIC ARGUMENTS HAVE BEEN ADDRESSED ON THIS ISSUE. GROUND NO. 8 IS THUS TREATED AS N O T PRESSED. 104 . GROUND NO. 8 IS THUS DISMISSED AS NOT PRESSED. 105. I N THE RESULT, THE APPEAL FOR THE ASSESSMENT YEA R 201 5 - 16 IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 48 OF 51 106 . WE NOW T AKE U P THE ITA NO. 77 40 /MUM/2019 , I .E. APPE AL FILED BY THE ASSESSEE FOR THE ASSESSM ENT YEAR 2016 - 17 . BY WAY OF T HIS APPEAL, TH E ASSESSEE A PPELLANT HAS CHALLEN GED CORRECTNESS OF THE ORDER DATED 18 TH OCTOBER 2019 , IN THE MA TTER OF ASSESSMENT UNDER SECTION 14 3(3) R. W.S. 144C(13) OF THE INCOME TAX ACT, 1961, FOR THE ASSESS MENT YEAR 2016 - 17. 107 . GR OUND NO. 1 IS GEN ERAL IN NAT URE AND DOES NO T CALL FOR ANY SPECIFIC ADJUDICATION. 108 . IN GROUND NO S . 2 AND 3 , THE ASSESSEE HAS RAIS ED THE FOLLOWING GRIEVANCES: 2:0 RE: HOLDING THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT ('PE') IN INDIA: 2:1 THE ASSESSING OFF ICER / THE DISPUTE RESOLUTI ON PANEL HAS E R RED IN HOLDING THAT THE AP PELLANT HAS A PERMANENT ESTABLISHMENT' ('PE) IN INDIA . 2:2 THE APPELLANT SUBMITS THAT CONSI DERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LA W PREVAILING ON THE SUBJECT, IT HAS NO PE IN INDIA AND THE STAND TA KEN BY THE ASSESSING OFFICER/THE DISPUTE RESOLUTION PANEL IN THIS REGARD IS ERRONEOUS, MI SCONC EIVED AND NOT IN ACCORDANCE WITH LAW. 2:3 THE APPELLANT SUBMITS THAT THE ASSESSING OF F ICER HAS ERRED IN ARRIVING AT VARIOUS UNWARRANTED AND ERRONEOUS CONCLUSIONS UNSUPPORTED BY ANY RELEVANT MATERIAL TO HO LD THAT THE APPELLANT HAD A PE IN INDIA. FURTHE R HE ALSO FAILED TO CONSIDER THE CONTRARY M ATERIAL AND EVIDENCE ADDUCED BY THE APPELLANT. 2:4 THE AP PELLANT SUBMITS THAT THE ASSESSING OFFICER'S STAND THAT THE APPELLA NT HAS A PE IN INDIA BE STRUCK DOWN AND HE BE DIRECTED TO ACCEPT THE TOTAL INCOME AS RETU RNED. 3:0 RE.: HOLDIN G THAT THE APPELLANT HAS A 'B USINESS CONNECTION IN INDIA: 3:1 THE ASSESSING OF FICER/ THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING THAT THE A PPELLANT HAS 'BUSINESS CONNECTION IN INDIA. 3:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FAC TS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE S UBJECT, IT HAS NO BUSINESS CONN ECTION IN INDIA AND THE STAND TAKEN BY THE ASSESSING OFFICER/T HE DI SPUTE R ESOLUTION PANEL IN THIS REGARD I S ERRONEOUS, MISCONCEI VED AND NOT IN ACCORDANCE WITH L A W . 3:3 THE APPELLANT SUBMITS THAT TH E ASSESSI NG OF F ICER HAS ERRED IN A RRIVING AT VARIOUS UNWARR ANTED AND ERRONEOUS CONCLUSIONS UNSUPPORTED BY ANY RELEVANT MATERIA L TO HOLD THAT THE APPELLANT HAD BUSINESS CONNECTION IN INDIA. F URTHER HE A LSO FAILED TO CONSI DER THE CONTRARY MATERIAL AND EVIDEN CE ADDUCE D BY THE APPELLANT . ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 49 OF 51 3:4 TH E APPELLANT SUBMITS THAT THE ASSESSING OFFICER'S STAND THAT THE APPEL LANT H A S BUSINESS CONN ECTION IN INDIA BE STRUCK DOWN AND HE BE DIRECTED TO ACCEPT THE TOTA L INCOME AS RETURNED 109 . WHILE DEALING WITH THE ASSESSMENT Y EAR S 2011 - 12 2 012 - 13 , 2013 - 14 , 2014 - 15 AND 201 5 - 16, EARLIER IN THIS CONSOLIDATED ORDER , AND RESPECTFULLY FOLLOWING A COORDINATE BENCH DECISION IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 201 0 - 11 , WE HAVE DECIDED THIS ISSUE IN F AVOUR OF THE ASSESSEE AND HELD THAT THE ASSESSEE D ID NOT HAVE ANY PERMANENT ESTABLISHMENT IN I NDIA UNDER ARTICLE 5 OF THE INDO US TAX TREATY, OR B USINESS CONNECTION I N DIA UNDER SECTION 9 OF THE IN COME TAX ACT, 1961. THE ASSESSEE SUCCEEDS ON TH IS ISSUE. WE SEE NO RE ASONS TO TAKE AN Y OTHER V IE W OF THE MATTER THAN THE VIEW SO TAKEN BY US AB OVE. WE, THER EFORE, UPHOLD THE PLEA OF THE ASSESSEE ON THESE POINTS. 110 . GROUND NOS. 2 AND 3 ARE THUS ALLOWED. 111 . IN GROUND NO S . 4 AND 5 , THE ASSESSEE HAS RAISED THE FOLLO WING GRIEVA NCE: WITH OUT PREJUDICE TO THE FOR EGOIN G 4:0 RE.: ATTRIBUTION 4 :1 T HE ASSESSING OFFI CER/ THE DISPUTE RESOLUTION PANEL H AS ERRED IN HOLDING THAT 50% OF RECEIPT S ARE ATTRIBUTABLE TO THE ALLEGED PE OF THE APPELLANT IN INDIA. 4:2 THE APPELL ANT SUBMI TS THAT CONSIDERING T HE FACTS AND CIRCUM STANC ES OF ITS CASE AND TH E 1 AW PREVAILING ON THE SUBJEC T NO PART WHATSOEVER OF IT S RECEIPTS ARE ATTRIBUTABLE TO I ND I A AND THE STAND TAK EN BY THE ASSESSING OFFICER/ T HE DISPUTE RESOLUTION PANEL IN THIS REGARD IS INCOR RECT, ILLEGAL, ARBITR ARY, BASELESS, NOT IN AC CORDANCE WITH LAW AND HENCE OUGHT TO BE STRUCK DOW N. WIT HOUT PREJUDICE TO THE FOREGOING: 5:0 RE.: ESTIMATI ON OF GROSS PROF IT: 5:1 T HE ASSESSING OF F ICER / THE DISPUTE RESOLUTION PANEL HAS ERRED IN HOLDING THAT THE 20.31% OF THE RECEI PTS ATTRIBUTABLE TO THE ALL EGED INDI AN OPERATIONS OUGHT TO BE CONSIDERED AS PROFI TS OF THE PE TAXABLE IN INDIA. 5:2 THE APPELLANT S UBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUB JECT, EVEN IF IT IS HELD THA T THE APPELLANT HAS A PE IN INDI A NO FURTHER INCOME CAN BE TAXED IN INDIA AS THE ALLEGED PF HAS BEEN REMUNERATED AT AN RESOLUTION P ANEL IN RESPECT THEREOF IS INCORRECT, ERRONEOUS, MISCONCEIVED AND ILLEG AL AND HENCE OUGHT TO BE STRUCK DOWN. 112 . LEARNED REP RESENTATIVES FAIRLY AGREE T HAT IN VIEW OF OUR CONCLUSION THAT THE ASSESSEE DID NOT HAVE ANY PERMA NEN T EST ABLISHMENT OR BUSINESS C O NNECTION IN INDIA, TH E ISSUE S REGAR D ING ATTRIBUTI ON OF PRO FITS OR ATTRIBUTION OF PROFITS ARE INFRUCTUOU S , AND DO NOT CALL FOR ANY ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 50 OF 51 ADJUDICATION BY US. WE, THEREFORE, DECLINE TO DEAL WITH THESE ISSUES ON MERITS, AND REJECT THE SA ME AS INFR UCTUOUS. 113 . GROUND NO S. 4 AND 5 ARE THUS DISMISSED A S INFRUCTUOUS. 1 14 . IN G ROUND NO. 6 AND 7 , THE ASSESSEE HAS RAISED THE FOLL OWING GRIEV ANC E S : 6: 0 RE: NON - CONSIDERATION OF CORRECT AMOUNT OF ROYALTY FOR THE YEAR: 6: 1 THE ASSESSING OFFICER / THE DISPUTE RESOLUTION PANEL HAVE ERRED IN HOLDI NG THAT THE APPELLANT'S INCOME BY WAY OF ROYALTY FOR THE YEAR IS RS. 261,86,26,600 6: 2 THE APPELLANT SU BMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE, AND THE LAW PREVAILING ON THE SUBJECT, THE AMOUNT OF ROYALTY TAXABLE IN ITS HANDS FOR THE YEAR UNDER CONSIDERATION SHOULD BE RESTRICTED TO RS. 168,83,59,420 BEING THE AMOUNT OF ROYALTY RECEIV ED FOR THE YEAR. 6: 3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO CONSIDER THE ROYALTY INCOME ON THE BASIS OF THE ACTUAL INCOME EARNED FOR THE YEAR AND TO RE - COMPUTE ITS TOTAL INCOME AND TAX THEREON ACCORDINGLY. WITHOUT PREJUDICE TO THE FOREGOING: 7 : 0 RE.: TAXING THE 'ROYALTY' RECEIVED DURING THE YEAR U/S. 44DA OF THE INCOME - TAX ACT. 1961: 7: 1 THE ASSESSING OFFICER/ THE DISP UTE RESOLUTION PANEL HAVE ERRED IN HOLDING THAT THE ROYALTY INCOME IS 'EFFECTIVELY CONNECTED' WITH THE ALLEGED PE OF THE APPELLANT IN INDIA AND IS THEREFORE TAXABLE U/S. 44DA OF THE INCOME - TAX ACT, 1961. 7: 2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT AND IN PARTICULAR THE PROVISIONS OF THE INDIA - U SA . DTAA, THE ASSESSING OFFICER / THE DISPUTE RESOLUTION PANEL THE 'ROYALTY' RECEIVED BY IT DURING THE YEAR UNDER CONSIDERATION IS NOT TAXAB LE U/S. 44DA OF THE INCOME - TAX ACT, 1961 SINCE IT DOES NOT HAVE ANY PE IN INDIA AND HENCE THE STAND TAKEN BY THE ASS ESSING OFFICER/ THE DISPUTE RESOLUTION PANEL IN RESPECT THEREOF JS INCORRECT, ERRONEOUS, MISCONCEIVED AND ILLEGAL AND HENCE OUGHT TO BE STRU CK DOWN. 7: 3 THE APPELLANT FURTHER SUBMITS THAT EVEN IF IT BE HELD THAT THE ROYALTY INCOME IS EFFECTIVELY CONNECTED TO THE ALLEGED PE IN INDIA OF THE APPELLANT THEN SUCH AMOUNT SHOULD BE RESTRICTED TO RS. 168,83,59,420 WHICH IS IN ACCORDANCE WITH THE AP A DATED 07 MAY 2018 ENTERED INTO BY GIA INDIA LABORATORY PRIVATE LIMITED. 115 . IN VIEW OF THE DISCUSSIONS EARLIER - PAR TICUL ARLY IN PA RAGRAPH 2 - 21 EARLIER IN THIS ORDER, THE GROUND OF APPEAL NO. 6 DE CIDED IN F AVO UR OF THE ASSESSEE, IN PRINCIPLE, THOUGH THE MATTER ITA NOS. 386/MUM/2016, 183 6 AND 7174/MUM/2017, 53,7739 AND 7740/MUM/19 ASSESSMENT YEAR: 2011 - 12 TO 2016 - 17 PAGE 51 OF 51 WILL GO BACK TO THE ASSESSING OFFICER FOR VERIFIC ATIONS OF FACTUAL ASPECTS WITH RESPECT OF THESE CLAIMS, I.E. , WIT H RESPECT TO VERIFICATIONS AND QUAN T UM OF ACTUAL RE FUNDS OF ROYALTIES BY THE ASSESSEE, WHICH HAVE NOT BEEN EXAMINED AT ANY STAGE. WE, THERE FORE, DEE M IT FI T AND PROPER TO ACCEPT THE CLAIM OF THE ASSESSE E, IN P R I NCIPLE, B UT REMIT IT BACK TO THE ASSESSING OFFICER FOR VERIFICATION OF FACTUAL ELEMENTS EMBEDDED IN THE CLAIM OF T HE ASSESSEE. ORDERED , ACCORDINGLY . AS FO R GROUND NO. 7 , THIS IS RENDERED INFRUCTU OUS IN THE LIGHT OF TH E FINDINGS EARLIER IN THE ORDER THA T NO PART OF THE ROYALTY INCOME IS TO BE TREAT ED AS ATTRIB UTABLE TO THE PE, AND TAXED UND ER SECTION 44A D AS SUCH, AS IT HAS BEEN HELD THAT THERE IS NO PE ON THE FACTS OF THIS CASE. 116 . GROUND NO. 6 IS THUS ALLOWED FOR STATI STICAL PURPOSES IN THE TERMS INDICATED ABOVE , AND GROUND NO. 7 IS DISMISSED AS I NFRUCT U O US. 1 17 . I N THE RESULT, THE APPEAL FOR THE ASSESSMENT YEA R 201 6 - 17 IS ALSO PARTLY ALLOWED IN THE TERMS INDICATED ABOVE 1 18 . NO OTHER ISSUES WE RE RAISED BEFORE US FOR ADJUDICATION. 119. IN THE RES ULT, ALL T HE SIX APPEALS ARE PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COU RT TODAY ON THE 30 T H DAY OF APRIL, 2021. SD/XX SD/XX VIKAS AWASTHY PRAMOD KUMAR ( JUDICIAL MEMBER ) (VIC E PRESIDENT) MUMBAI, DATED THE 30 TH DA Y OF APRIL , 20 2 1 COPIES TO: (1) THE APPELLANT ( 2) THE RESP ONDENT (3) CIT (4) CIT(A) (5) DR (6) GU ARD FILE BY ORDER TRUE C O P ASSISTANT REGIST RAR INCOME TAX APPELLATE TRIBUN AL MUMBAI BENCHES, MUMBAI