Hitachi High- Technologies (Singapore) Pte Ltd., New Delhi V. DCIT, New Delhi

ITA 2683/DEL/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0587 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-06-2017
• Assessment Year: 2002-2003
• Appeal Filed On: 05-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY PURI PCIT UDAIPUR
• Keywords: Reopening of assessment; Transfer pricing; Double taxation relief; Opportunity of being heard; International transaction; Additional evidence; Permanent establishment; Question of law; Wholly owned subsidiary; Reassessment proceedings; TDS; Set aside
• Section: 143(3); 92B; 92F; 142(1); 5(2); 133A; 234B; 195; 144C; 208; 64; 147; 148; 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI A BEN CH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL M EMBER ITA NOS. 2683 TO 2688/DEL/2015 [A.YS 2002-03 TO 2007-08] HITACHI HIGH TECHNOLOGIES VS. THE DY. C.I .T SINGAPORE PTE LTD CIRCLE - GURGAON, ASA & ASSOCIATES, CAS INTERNATIONAL TAXAT ION 81/1, THIRD FLOOR, ADCHINI NEW DELHI AUROBINDO MARG, NEW DELHI PAN: AABCH 7717 H (APPLICANT) ( RESPONDENT) ASSESSEE BY : SHRI AJAY VOHR A, SR. ADV SHRI ANAND SACHAR, CA SHRI NEERAJ K. JAIN, ADV SHRI KARAN JAIN, CA SHRI RAMIT KATYAL, CA DEPARTMENT BY : SHRI SANJAY PURI, PCIT, UDAIPUR DATE OF HEARING : 04.09.2019 DATE OF PRONOUNCEMENT : 17.09.2019 2 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS IS A BUNCH OF APPEALS BY THE ASSESSEE PREFERRE D AGAINST THE COMMON ORDER DATED 30.03.2015 FRAMED U/S 143(3) R.W .S. 144C(13)/254 OF THE INCOME-TAX ACT, 1961 [HEREINAFT ER REFERRED TO AS 'THE ACT' FOR SHORT]. SINCE COMMON ISSUES ARE INVO LVED IN ALL THE ABOVE APPEALS PERTAINING TO SAME ASSESSEE, THESE ARE BEIN G DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND B REVITY. 2. THE REPRESENTATIVES OF BOTH THE SIDES ARGUED ON THE FACTS OF ASSESSMENT YEAR 2002-03 WITH AN UNDERSTANDING THAT IN ALL OTHER YEARS, THE UNDERLYING FACTS IN ISSUES ARE IDENTICAL. ON S UCH CONCESSION, THE REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LEN GTH, THE CASE RECORDS CAREFULLY PERUSED AND WITH THE ASSISTANCE O F THE LD. COUNSEL, WE HAVE CONSIDERED THE DOCUMENTARY EVIDENCES BROUGH T ON RECORD IN THE FORM OF PAPER BOOK IN LIGHT OF RULE 18(6) OF IT AT RULES. JUDICIAL DECISIONS RELIED UPON WERE CAREFULLY PERUSED. 3. FACTS, AS CULLED OUT FROM THE RECORDS, SHOW THAT THE APPELLANT- COMPANY, INCORPORATED UNDER THE LAWS OF SINGAPORE, IS A WHOLLY OWNED 3 SUBSIDIARY OF HITACHI HIGH-TECHNOLOGIES CORPORATION (HHT), A COMPANY INCORPORATED UNDER THE LAWS OF JAPAN. THE APPELLANT IS ENGAGED IN TRADING OPERATIONS ACROSS ASEAN COUNTRIES AND ALSO CARRIES OUT SOURCING AND TRADING OPERATIONS IN RESPECT OF VARIOUS PRODUC TS AND EQUIPMENTS. IN THE YEAR AUGUST 1988, THE ASSESSEE ESTABLISHED A LIAISON OFFICE (LO) IN INDIA [EARLIER KNOWN AS NISSEI SANGYO (SI NGAPORE) PTE LTD] FOR RENDERING PREPARATORY AND AUXILIARY SERVICES, INCLU DING MARKET RESEARCH AND LIAISON ACTIVITIES. BRANCHES OF THE LO WERE SET UP IN DELHI, BANGALORE AND MUMBAI; HOWEVER, THE BRANCHES OF LO A T BANGALORE AND MUMBAI WERE SUBSEQUENTLY CLOSED. IN JULY 2007, HITA CHI SINGAPORE ESTABLISHED A BRANCH OFFICE IN INDIA. 4. SURVEY OPERATION UNDER SECTION 133A OF THE ACT W AS CARRIED OUT AT THE PREMISES OF THE BRANCH OFFICE OF THE APPELLA NT ON 24.04.2008 AND STATEMENTS OF THE EMPLOYEES WERE RECORDED. STA TEMENTS OF THE EMPLOYEES PROMPTED THE ASSESSING OFFICER TO INITIAT E PROCEEDINGS U/S 147 OF THE ACT FOR ASSESSMENT YEARS 2002-03 TO 2007 -08. 5. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, T HE ASSESSING OFFICER HAD, INTER-ALIA, ALLEGED THAT LO WAS ENGAGED IN EXECUTING/NEGOTIATING CONTRACTS FOR THE APPELLANT I N INDIA AND WAS NOT 4 MERELY UNDERTAKING PREPARATORY AND AUXILIARY ACTIVI TIES AND, THEREFORE, THE LO WAS PERMANENT ESTABLISHMENT (PE) OF THE AP PELLANT IN INDIA IN TERMS OF ARTICLE 5 OF THE INDIA SINGAPORE DOUBLE TA XATION AVOIDANCE AGREEMENT (DTAA). 6. ON TREATING THE LO AS A PE OF THE APPELLANT, A D RAFT ASSESSMENT ORDER WAS FRAMED U/S 144C OF THE ACT ORDER DATED 31 .1.2009 FOR ASSESSMENT YEARS 2002-03 TO 2007-08 AND THE INCOME OF THE APPELLANT WAS COMPUTED IN THE HANDS OF THE PE [LO] BY APPLYIN G THE GLOBAL PROFIT MARGIN OF THE APPELLANT TO THE SALES MADE IN INDIA AND ATTRIBUTING 50% THEREOF TO THE PE IN INDIA AS UNDER: ASSESSMENT YEAR ASSESSED INCOME TAX DEMAND INTEREST UNDER SECTION 234A AND 234B OF THE ACT 2002 - 03 14,65,468 5,97,911 6,41,259 2003 - 04 37,24,345 15,64,225 14,42,997 2004 - 05 1,42,42,854 58,39,570 46,13,260 2005 - 06 1,61,83,140 67,67,789 45,34,419 2006 - 07 1,60,21,945 67,00,377 36,85,208 2007 - 08 2,05,53,037 85,95,280 47,27,404 TOTAL 7,21,90,789 3,00,65,152 1,96,44,547 TOTAL TAX AND INTEREST DEMAND 49,709,699 5 7. THE APPELLANT FILED OBJECTIONS BEFORE THE DISPUT E RESOLUTION PANEL AGAINST THE DRAFT ASSESSMENT ORDER. THE APPELLANT A LSO FILED APPLICATIONS UNDER RULE 9 OF THE DRP RULES TO PLACE ON RECORD ADDITIONAL EVIDENCE. THE DRP VIDE DIRECTION DATED 2 7.09.2010, UPHELD THE OBSERVATIONS OF THE ASSESSING OFFICER. 8. CONSEQUENTLY, THE ASSESSING OFFICER PASSED FINAL ASSESSMENT ORDERS DATED 26.10.2010 FOR ASSESSMENT YEARS 2002-03 TO 20 07-08 WHEREIN TOTAL INCOME OF THE APPELLANT WAS COMPUTED IN THE H ANDS OF THE PE (LO) BY APPLYING THE GLOBAL PROFIT MARGIN OF THE AP PELLANT TO THE SALES MADE BY IT IN INDIA AND ATTRIBUTING 50% THEREOF TO THE PE IN INDIA. TOTAL INCOME WAS COMPUTED AS UNDER: ASSESSMENT YEAR ASSESSED INCOME TAX DEMAND INTEREST UNDER SECTION 234A AND 234B OF THE ACT 2002 - 03 14,65,468 5,97,911 6,41,259 2003 - 04 37,24,345 15,64,225 14,42,997 2004 - 05 1,42,42,854 58,39,570 46,13,260 2005 - 06 1,61,83,140 67,67,789 45,34,419 2006 - 07 1,60,21,945 67,00,377 36,85,208 2007 - 08 2,05,53,037 85,95,280 47,27,404 TOTAL 7,21,90,789 3,00,65,152 1,96,44,547 TOTAL TAX AND INTEREST DEMAND 49,709,699 6 9. THE ASSESSEE CARRIED THE MATTER BEFORE THE ITAT, AND THE TRIBUNAL VIDE ORDER DATED 07.06.2013, IN ITA NOS. 12 TO 17/D EL/2011 SET ASIDE THE ORDER PASSED BY THE ASSESSING OFFICER/ DRP AND RESTORED THE MATTER TO THE DRP WITH DIRECTIONS TO PASS SPEAKING ORDER. THE RELEVANT FINDINGS OF THE TRIBUNAL READ AS UNDER: ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTANCE S, WE FIND THAT THE IMPUGNED ORDER OF THE LEARNED DRP IS RUNNI NG INTO SIX PAGES, OUT OF THAT THE LEARNED DRP HAS REPRODUCED T HE GROUNDS OF OBJECTIONS RAISED BY THE ASSESSEE AND THEREAFTER IN PARAGRAPH 4 IN 10-15 LINES, IT HAS NOTICED THE SUBMISSIONS OF THE ASSESSEE IN BRIEF. WE FIND THAT THE ASSESSEE HAS FILED OBJECTIO N UNDER EACH GROUND RUNNING INTO MORE THAN 10 PAGES. LEARNED DRP HAS NOT LOOKED INTO THE OBJECTIONS OF THE ASSESSEE ANALYTIC ALLY. THE ASSESSEE HAS ALREADYY FILED AN APPLICATION FOR PERM ISSION TO LEAD ADDITIONAL EVIDENCEE. IT REMAINED UNDECIDED. CONSID ERING THE NON-ADJUDICATION OF THE APPLICATION FOR PERMISSION TO LEAD ADDITIONAL EVIDENCE AND NON-CONSIDERATION OF VARIOU S OBJECTIONS OF THE ASSESSEE, WE ARE OF THE VIEW THAT LEARNED DR P FAILED TO DECIDE THE OBJECTIONS OF THE ASSESSEE BY A SPEAKING ORDER. HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ROAD MASTER IND. INDIA REPORTED IN 303 ITR 138 HAS EMPHASIZED O N THE .IMPORTANCE OF ASSIGNING REASONS WHILE ADJUDICATING ANY CONTROVERSY. HON'BLE HIGH COURT HAS MADE REFERENCE TO A LARGE NUMBER OF JUDGMENT OF HON'BLE SUPREME COURT. IT IS ADVANTAGEOUS TO TAKE NOTE OF THE RELEVANT FINDING O F THE HON'BLE PUNJAB & HARYANA HIGH COURT WHICH READ AS UNDER: 7 7. IN TRAVANCORE RAYONS LTD. V. UNION OF INDIA AIR 1971 SC 862, HON'BLE THE SUPREME COURT OBSERVED: THE COURT INSISTS UPON DISCLOSURE OF REASONS IN SU PPORT OF THE ORDER ON TWO GROUNDS: ONE, THAT THE PARTY AGGRI EVED IN A PROCEEDINGS BEFORE THE HIGH COURT OR THIS COURT HAS THE OPPORTUNITY TO DEMONSTRATE THAT THE REASONS WHICH PERSUADED THE AUTHORITY TO REJECT HIS CASE WERE ERR ONEOUS; THE OTHER, THAT THE OBLIGATION TO RECORD REASONS OP ERATES AS A DETERRENT AGAINST POSSIBLE ARBITRARY ACTION BY TH E EXECUTIVE AUTHORITY INVESTED WITH THE JUDICIAL POWE R.' (P. 866) 8. IN MAHABIR PRASAD SANTOSH KUMAR V. STATE OF UP AIR 1970 SC 1302, HONBLE THE SUPREME COURT WHILE QUASHING T HE CANCELLATION OF THE PETITIONER'S LICENCE BY THE DIS TRICT MAGISTRATE, OBSERVED. RECORDING OF REASONS IN SUPPORT OF A DECISION ON A DISPUTED CLAIM BY A QUASI-JUDICIAL AUTHORITY ENSURES THAT TH E DECISION IS REACHED ACCORDING TO LAW AND IS NOT THE RESULT O F CAPRICE, WHIM OR FANCY OR REACHED ON GROUNDS OF POLICY OR EXPEDIENCY. A PARTY TO THE DISPUTE IS ORDINARILY EN TITLED TO KNOW THE GROUNDS ON WHICH THE AUTHORITY HAS REJECTE D HIS CLAIM. IF THE ORDER IS SUBJECT TO APPEAL, THE NECES SITY TO RECORD REASONS IS GREATER, FOR WITHOUT RECORDED REA SONS THE APPELLATE AUTHORITY HAS NO MATERIAL ON WHICH IT MAY 8 DETERMINE WHETHER THE FACTS WERE PROPERLY ASCERTAIN ED, THE RELEVANT LAW WAS CORRECTLY APPLIED AND THE DECISION WAS JUST.' (P. 1304) 9. IN WOOLCOMBERS OF INDIA LTD. V. WOOLCOMBERS WORKERS' UNION AIR 1973 SC 2758, HON'BLE THE SUPREME COURT QUASHED THE AWARD PASSED BY THE INDUSTRIAL TRIBUNAL ON THE GROUND THAT IT WAS NOT SUPPORTED BY REASONS AND OBS ERVED : , . .THE GIVING OF REASONS IN SUPPORT OF THEIR CON CLUSIONS BY JUDICIAL AND QUASI-JUDICIAL AUTHORITIES WHEN EXERCI SING INITIAL JURISDICTION IS ESSENTIAL FOR VARIOUS REASONS. FIRS T, IT IS CALCULATED TO PREVENT UNCONSCIOUS, UNFAIRNESS OR ARBITRARINESS IN REACHING THE CONCLUSIONS. THE VERY SEARCH FOR REASONS WILL PUT THE AUTHORITY ON THE ALERT AND MIN IMISE THE CHANCES OF UNCONSCIOUS INFILTRATION OF PERSONAL BIA S OR UNFAIRNESS IN THE CONCLUSION. THE AUTHORITY WILL AD DUCE REASONS WHICH WILL BE REGARDED AS FAIR AND LEGITIMA TE BY A REASONABLE MAN AND WILL DISCARD IRRELEVANT OR EXTRA NEOUS CONSIDERATIONS. SECOND, IT IS A WELL-KNOWN PRINCIPL E THAT JUSTICE SHOULD NOT ONLY BE DONE BUT SHOULD ALSO APP EAR TO BE DONE. UNREASONED CONCLUSIONS MAY BE JUST BUT THEY M AY NOT APPEAR TO BE JUST TO THOSE WHO READ THEM. REASONED CONCLUSIONS, ON THE OTHER HAND, WILL HAVE ALSO THE APPEARANCE OF JUSTICE. THIRD , IT SHOULD BE REMEMBE RED THAT AN APPEAL GENERALLY LIES FROM THE DECISION OF JUDIC IAL AND QUASI JUDICIAL AUTHORITIES TO THIS COURT BY SPECIAL LEAVE GRANTED UNDER ARTICLE 136. A JUDGMENT WHICH DOES NOT 9 DISCLOSE THE REASONS WILL BE OF LITTLE ASSISTANCE T O THE COURT....' (P. 2761) THE SAME VIEW WAS REITERATED IN AJANTHA INDUSTRIES VS CBDT AIR 1976 SC 437 AND SIEMENS ENGG. & MFG. CO. OF INDIA LTD. V. UNION OF INDIA AIR 1976 SC 1785. X X XXX X X X I X X X X X X X X 12. IN TESTEELS LTD. V. N.M. DESAI, CONCILIATION OFFICER AIR 1970 GUJ. 1, A FULL BENCH OF GUJARAT HIGH COURT SPEAKING THROUGH P.N. BHAGWATI, J. (AS HIS LORDSHIP THEN WAS) MADE A LUCI D ENUNCIATION OF LAW ON THE SUBJECT IN THE FOLLOWING WORDS: 'THE NECESSITY OF GIVING REASONS FLOWS AS A NECESSA RY COROLLARY FROM THE RULE OF LAW WHICH CONSTITUTES ON E OF THE BASIC PRINCIPLES OF THE INDIAN CONSTITUTIONAL SET U P. THE ADMINISTRATIVE AUTHORITIES HAVING A DUTY TO ACT JUD ICIALLY CANNOT THEREFORE DECIDE ON CONSIDERATIONS OF POLICY OR EXPEDIENCY. THEY MUST DECIDE THE MATTER SOLELY ON T HE FACTS OF THE PARTICULAR CASE, SOLELY ON THE MATERIA L BEFORE THEM AND APART FROM ANY EXTRANEOUS CONSIDERATIONS B Y APPLYING PRE-EXISTING LEGAL NORMS TO FACTUAL SITUAT IONS. NOW THE NECESSITY OF GIVING REASONS IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE DUTY TO ACT JUDICIALLY. IT INTRODUCES CLARITY, CHECKS THE INTRO DUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND EXCLUDE S OR, AT ANY RATE, MINIMISES ARBITRARINESS IN THE DECISION M AKING 10 PROCESS. ANOTHER REASON WHICH COMPELS MAKING OF SUCH AN ORDER IS BASED ON THE POWER OF JUDICIAL REVIEW WHICH IS POSS ESSED BY THE HIGH COURT UNDER ARTICLE 226 AND THE SUPREME COURT UNDER ARTICLE 32 OF THE CONSTITUTION. THESE C OURTS HAVE THE POWER UNDER THE SAID PROVISIONS TO QUASH B Y CERTIORARI A QUASI-JUDICIAL ORDER MADE BY AN ADMINISTRATIVE OFFICER AND THIS POWER OF REVIEW CAN BE EFFECTIVELY EXERCISED ONLY IF THE ORDER IS A SPEAKI NG ORDER. IN THE ABSENCE OF ANY REASONS IN SUPPORT OF THE ORDER, THE SAID COURTS CANNOT EXAMINE THE CORRECTNE SS OF THE ORDER UNDER REVIEW. THE HIGH COURT AND THE SUPR EME COURT WOULD BE POWERLESS TO INTERFERE SO AS TO KEEP THE ADMINISTRATIVE OFFICER WITHIN THE LIMITS OF THE LAW . THE RESULT WOULD BE THAT THE POWER OF JUDICIAL REVIEW W OULD BE STULTIFIED AND NO REDRESS BEING AVAILABLE TO THE CITIZEN, THERE WOULD BE INSIDIOUS, ENCOURAGEMENT TO ARBITRARINESS AND CAPRICE. IF THIS REQUIREMENT IS I NSISTED UPON, THEN, THEY WILL BE SUBJECT TO JUDICIAL SCRUTI NY AND CORRECTION.' 11. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE ORDER OF THE LEARNED DRP IS NOT SUSTAINABLE. IT IS SET ASIDE ON REMITTED BACK TO THE LEARNED DRP FOR READJUDICAT ION. ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICA L PURPOSES. 11 10. IN THE RE-ADJUDICATION PROCEEDINGS, THE DRP FRA MED ITS ORDER ON 27.03.2015 PURSUANT TO THE DIRECTIONS OF THE TRIBUN AL BUT FINAL ASSESSMENT ORDER WAS PASSED BY THE ASSESSING OFFICE R ON 30.03.2015 FRAMED U/S 143(3) R.W.S 144C(13)/254 OF THE ACT. 11. THE APPELLANT IS BEFORE US AGAINST THIS ORDER. 12. THE LD. COUNSEL FOR THE ASSESSEE ARGUED VEHEMEN TLY AND BIFURCATED HIS SUBMISSIONS INTO FOUR PARTS, WHICH NEEDS TO BE ADJUDICATED BY US AND FOR THE SAKE OF CONVENIENCE, THE SAME ARE CATEG ORISED AS UNDER: I) WHILE READJUDICATING ON THE DIRECTIONS OF THE I TAT, THE DRP HAS EXCEEDED THE DIRECTIONS. II) IN FRAMING THE FINAL ASSESSMENT ORDER, THE ASS ESSING OFFICER HAS PUT THE ASSESSEE IN A MORE WORSE POSITION THAN IT WAS BEFORE FILING APPEAL. III) THERE IS NO PE OF THE APPELLANT IV) SINCE THERE IS NO PE OF THE APPELLANT, NO PROF IT CAN BE ATTRIBUTED. 13. WE WILL NOW ADDRESS THE ISSUES RAISED BY THE LD . COUNSEL FOR THE ASSESSEE ONE BY ONE. 12 I WHETHER THE DRP HAS EXCEEDED THE DIRECTIONS ISSUE D BY THE TRIBUNAL . 14. WE HAVE ALREADY EXTRACTED THE RELEVANT FINDINGS OF THE TRIBUNAL. IT CAN BE SEEN FROM THE FINDINGS OF THE TRIBUNAL TH AT THE TRIBUNAL WAS CONCERNED WITH NON ADJUDICATION OF THE APPLICATION FOR PERMISSION TO LEAD ADDITIONAL EVIDENCES AND OBJECTIONS DISPOSED O F BY THE DRP WERE NOT BY A SPEAKING ORDER AND, ACCORDINGLY , SET ASID E ALL THESE ISSUES AND REMITTED BACK TO THE DRP FOR READJUDICATION. IN TH E READJUDICATION PROCEEDINGS, THE DRP DISPOSED OF THE OBJECTIONS BY A WELL REASONED ORDER FOLLOWING THE DIRECTIONS OF THE TRIBUNAL WHIC H DIRECTED THE DRP TO DISPOSE THE OBJECTIONS BY A SPEAKING ORDER. 15. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY STA TED THAT THE DRP HAS ENHANCED ASSESSMENT, WHICH IT COULD NOT DO IN T HE SECOND ROUND OF LITIGATION. IT IS THE SAY OF THE LD. COUNSEL FOR T HE ASSESSEE THAT ADDITIONAL EVIDENCES WERE ALREADY PLACED BEFORE THE DRP IN THE FIRST ROUND OF LITIGATION AND SOME OF THE EVIDENCES WERE ONCE AGAIN FILED BUT THE DRP FAILED TO DEAL WITH THE ADDITIONAL EVID ENCES IN SPITE OF SPECIFIC DIRECTIONS OF THE TRIBUNAL. THE LD. COUNS EL FOR THE ASSESSEE FURTHER STATED THAT PURSUANT TO THE DIRECTIONS OF T HE TRIBUNAL, IT WAS 13 INCUMBENT UPON THE ASSESSING OFFICER TO ADJUDICATE THE MATTER ON THE BASIS OF ADDITIONAL EVIDENCES TO DECIDE WHETHER THE LO WAS INVOLVED IN TRANSACTIONS INVOLVING SALE OF MACHINES BY THE APPE LLANT IN INDIA. 16. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUBMI TTED THAT THE DRP IS NOT ENTITLED TO CHANGE THE BASIS OF DETERMINING THE MANNER OF COMPUTING THE PROFITS ATTRIBUTABLE TO TAX IN THE HA NDS OF THE ALLEGED PE (LO) IN INDIA AS COMPUTED BY THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 26.10.2010. THE LD. COUNSEL FOR THE AS SESSEE FURTHER POINTED OUT THAT EVEN IN DOING SO, THE DRP WAS BOUN D TO ISSUE A SHOW CAUSE NOTICE FOR ENHANCEMENT OF ASSESSED INCOME OF THE APPELLANT. 17. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESS EE THAT IT WAS INCUMBENT UPON THE ASSESSING OFFICER TO PASS FRESH ORDERS KEEPING IN MIND THE SPECIFIC FINDINGS/ DIRECTIONS GIVEN BY THE APPELLATE AUTHORITY SINCE THE APPELLATE AUTHORITY CANNOT GRANT ANY AUTH ORITY/ POWER TO THE ASSESSING OFFICER THAT DOES NOT VEST IN THE APPELLA TE AUTHORITY ITSELF. THE LD. AR FURTHER POINTED OUT THAT DISALLOWANCE IN THE SET-ASIDE PROCEEDINGS BEFORE THE DRP CANNOT EXCEED THE AMOUNT OF ORIGINAL DISALLOWANCE, AS THE SAME WOULD TANTAMOUNT TO TAKIN G BACK THE RELIEF GRANTED BY THE ASSESSING OFFICER. 14 18. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY STA TED THAT THE DRP, DURING RE-ADJUDICATION PROCEEDINGS, DOES NOT HAVE A NY POWER OF ENHANCEMENT AND, THEREFORE, AS A CONSEQUENCE OF THE ORDER OF THE DRP IN RE-ADJUDICATION PROCEEDINGS, INCOME OF THE ASSES SEE CANNOT EXCEED THE INCOME ASSESSED BY THE ASSESSING OFFICER. THER EAFTER, THE LD. AR PLACED RELIANCE ON VARIOUS JUDICIAL DECISIONS STATI NG THAT THE TRIBUNAL DOES NOT HAVE ANY POWER OF ENHANCEMENT AND, THEREFO RE, CANNOT DIRECT THE ASSESSING AUTHORITY TO MAKE FRESH ASSESS MENT, WHICH RESULTED INTO ENHANCEMENT OF INCOME AS COMPARED TO THAT WHICH WAS ASSESSED AT THE FIRST STAGE. 19. PER CONTRA, THE LD. DR STRONGLY OBJECTED TO THE SUBMISSIONS MADE BY THE LD. COUNSEL FOR THE ASSESSEE AND VEHEMENTLY STATED IT WAS MERELY INCIDENTAL THAT AFTER FOLLOWING THE DIRECTIO NS OF THE TRIBUNAL, THE DRP FRAMED A WELL SPEAKING ORDER AND DIRECTED T HE ASSESSING OFFICER TO FRAME THE FINAL ASSESSMENT ORDER WHICH H AS RESULTED INTO THE ENHANCEMENT OF INCOME. IT IS THE SAY OF THE LD. DR THAT THIS HAS HAPPENED FOR THE REASON THAT THE DRP DIRECTED THE A SSESSING OFFICER TO ADOPT AN OBJECTIVE METHODOLOGY FOR DETERMINING THE INCOME ATTRIBUTABLE TO THE ASSESSEES PE AS AGAINST THE GU ESSTIMATE PROPOSED BY HIM IN THE ORIGINAL ASSESSMENT. 15 20. THE LD. DR DREW OUR ATTENTION TO THE PROVISIONS OF SECTION 144C(8) OF THE ACT AND POINTED OUT THAT THE DRP HAS POWER TO CONFIRM, REDUCE OR ENHANCE THE VARIATIONS PROPOSED IN THE DR AFT ASSESSMENT ORDER. THEREFORE, THE DIRECTIONS OF THE DRP ARE EN TIRELY LAWFUL, EVEN IF THESE RESULTED IN TAXABLE INCOME BEING HIGHER THAN WHAT WAS PROPOSED IN THE DRAFT ASSESSMENT ORDER. THE LD. DR POINTED OUT THAT THE DRP HAS, IN FACT, GIVEN SUBSTANTIAL RELIEF TO THE APPEL LANT WHEN IT FOLLOWED THE DIRECTIONS OF THE TRIBUNAL IN PASSING A SPEAKIN G ORDER. 21. IN SO FAR AS THE PRIOR NOTICE FOR ENHANCEMENT I S CONCERNED, THE LD. DR POINTED OUT THAT THE LD. CIT(A) IS BOUND TO GIVE A NOTICE IF HE PROPOSES AN ENHANCEMENT TO THE ASSESSED INCOME. IT IS THE SAY OF THE LD. DR THAT IN SO FAR AS THE DRP IS CONCERNED, SECT ION 144C(1) MERELY REQUIRES THAT AN OPPORTUNITY OF BEING HEARD NEEDS T O BE GIVEN TO THE ASSESSEE ON SUCH DIRECTIONS WHICH ARE PREJUDICIAL T O THE INTEREST OF THE ASSESSEE. 22. THE LD. DR FURTHER CONTENDED THAT THE DRP IS NO T AN APPELLATE BODY. IT IS A CORRECTIVE MECHANISM TO GUIDE THE AS SESSING OFFICER FOR MAKING ERROR FREE ASSESSMENTS, PARTICULARLY IN THE CASES OF NON RESIDENTS. THE LD. DR FURTHER POINTED OUT THAT DURI NG THE 16 READJUDICATION PROCEEDINGS, THE DRP NOT ONLY INTENS ELY ENGAGED WITH THE REPRESENTATIVES OF THE ASSESSEE COMPANY, BUT AL SO GAVE AMPLE OPPORTUNITY TO THEM BEFORE GIVING DIRECTIONS TO THE ASSESSING OFFICER IN THE MATTER OF ATTRIBUTION OF PROFIT TO THE ASSESSEE S PE IN INDIA. 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GI VEN THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELO W AND WITH THE ASSISTANCE OF THE LD. COUNSEL FOR THE ASSESSEE, WE HAVE CONSIDERED THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD. WE HAVE ALSO PERUSED THE JUDICIAL DECISIONS RELIED UPON BY BOTH THE RIVAL REPRESENTATIVES. IN OUR CONSIDERED OPINION, THE DR P HAS SIMPLY FOLLOWED THE DIRECTIONS OF THE TRIBUNAL IN READJUDI CATION PROCEEDINGS TO ASSIST THE ASSESSING OFFICER IN DETERMINING THE ISSUES RAISED BEFORE THE TRIBUNAL IN THE FIRST ROUND OF LITIGATION. WE FIND THAT IN DOING SO, THE DRP HAS NOT DONE ANY ENHANCEMENT. 24. FURTHER, WE FIND THAT THE PROVISIONS OF SECTION 251(2) OF THE ACT ARE DIFFERENT FROM THE PROVISIONS OF SECTION 144C(8 ) & (11) OF THE ACT. THE LD. CIT(A) IS AN APPELLATE AUTHORITY, WHEREAS T HE DRP IS A CONTINUATION OF THE ASSESSMENT PROCEEDINGS WHERE TH E DRP ACTS AS A CORRECTIVE MECHANISM TO GUIDE THE ASSESSING OFFICER FOR MAKING ERROR 17 FREE ASSESSMENTS. THE ROLE OF A DRP, IN OUR HUMBLE UNDERSTANDING, IS TO ASSIST THE ASSESSING OFFICER IN DETERMINING THE CORRECT INCOME SO THAT CORRECT TAX MAY BE LEVIED. II IN FRAMING THE FINAL ASSESSMENT ORDER, THE ASSES SING OFFICER HAS PUT THE ASSESSEE IN A MORE WORSE POSITI ON THAN IT WAS BEFORE FILING APPEAL. 25. HAVING SAID ALL THAT, THE PERTINENT QUESTION WH ICH NEEDS TO BE ADDRESSED IS AS TO WHETHER THE APPELLANT CAN BE PUT TO WORSE OFF POSITIONS AS A RESULT OF FILING THE APPEAL BEFORE T HE TRIBUNAL. AS MENTIONED ELSEWHERE, IN THE FIRST ROUND OF LITIGATI ON, THE AMOUNT OF PROFIT ATTRIBUTABLE TO THE APPELLANT FOR ASSESSMENT YEARS 2002-03 TO 2007-08 WAS TO THE TUNE OF RS. 7.21 CRORES, WHEREAS AFTER FOLLOWING THE DIRECTIONS OF THE DRP IN RE-ADJUDICATION PROCEEDING S, THE INCOME HAS BEEN ASSESSED AS UNDER: ASSESSMENT YEAR [RS.] 2002-03 1,44,22,125/- 2003-04 3,47,61,421/- 2004-05 46,79,16,411/- 2005-06 30,32,94,442/- 2006-07 21,77,14,621/- 2007-08 19,35,04,059/- 18 26. WE UNDERSTAND THAT THE POWERS OF THE TRIBUNAL I N DISPOSING OF AN APPEAL ARE SET IN VERY WIDE TERMS, BUT, AT THE SAME TIME, WE ALSO UNDERSTAND THAT IN THE ABSENCE OF A CROSS APPEAL OR CROSS OBJECTION BY THE DEPARTMENT, THE TRIBUNAL CANNOT ENHANCE AN ASSE SSMENT OF AN APPEAL BY THE ASSESSEE. ACCORDINGLY, WE ARE OF THE CONSIDERED VIEW THAT THE TRIBUNAL IS NOT COMPETENT TO GIVE A FINDIN G WHICH IS ADVERSE TO THE ASSESSEE AND MAKE THE LATTERS POSITION WORSE T HAN BEFORE. IT IS NOT OPEN TO THE TRIBUNAL TO GIVE A FINDING ADVERSE TO THE ASSESSEE, WHICH DOES NOT ARISE FROM ANY QUESTION RAISED IN TH E APPEAL NOR IS IT OPEN TO IT TO RAISE ANY GROUND WHICH WOULD WORK ADV ERSELY TO THE APPELLANT AND PASS AN ORDER WHICH MAKES HIS POSITIO N WORSE THAN IT WAS UNDER THE ORDER APPEALED AGAINST. 27. THE HON'BLE SUPREME COURT IN THE CASE OF STATE OF KERALA VS. VIJAYA STORES 116 ITR 15 HAS HELD THAT IN THE CASE OF ASSESSEES APPEAL AND IN THE ABSENCE OF CROSS OBJECTION OR CROSS APPE AL FROM THE REVENUE, AN ASSESSEE CANNOT BE WORSE OFF AS A RESUL T OF HIS HAVING CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. THE HON'BLE SUPREME COURT OBSERVED AS UNDER: THE NORMAL RULE THAT A PARTY NOT APPEALING FROM A DECISION MUST BE DEEMED TO BE SATISFIED WITH THE DE CISION, MUST BE TAKEN TO HAVE ACQUIESCED THEREIN AND BE BOU ND BY 19 IT. AND, THEREFORE, CANNOT SEEK RELIEF AGAINST A RI VAL PARTY IN AN APPEAL PREFERRED BY THE LATTER, HAS NOT BEEN DEVIATED FROM IN SUB-S.(4)(A)(I) ABOVE. IN OTHER WORDS, IN T HE ABSENCE OF AN APPEAL OR CROSS-OBJECTIONS BY THE DEPARTMENT AGAINST THE APPELLATE ASSISTANT COMMISSI ONER'S ORDER THE APPELLATE TRIBUNAL WILL HAVE NO JURISDICT ION OR POWER TO ENHANCE THE ASSESSMENT. FURTHER, TO ACCEPT THE CONSTRUCTION PLACED BY THE COUNSEL FOR THE APPELLAN T ON SUB-S. (4)(A)(I) WOULD BE REALLY RENDERING SUB-S. ( 2) OF S. 39 OTIOSE, FOR IF IN AN APPEAL PREFERRED BY THE ASSES SEE AGAINST THE APPELLATE ASSISTANT COMMISSIONER'S ORDE R THE TRIBUNAL WOULD HAVE THE POWER TO ENHANCE THE ASSESS MENT, A PROVISION FOR CROSS- OBJECTIONS BY THE DEPARTMENT WAS REALLY UNNECESSARY. HAVING REGARD TO THE ENTIRE SCH EME OF S. 39 , THEREFORE, IT IS CLEAR THAT ON A TRUE AND PROPER CONSTRUCTION OF SUB-S. (4) (A) (I) OF S. 39 THE TRIBUNAL HAS NO JURISDICTION OR POWER TO ENHANCE THE ASSESSMENT IN THE ABSENCE OF AN APPEAL OR CROSS- OBJECTIONS BY THE DEPARTMENT. 28. A SIMILAR VIEW WAS TAKEN BY THE HON'BLE ALLAHAB AD HIGH COURT IN THE CASE OF PAHULAL VED PRAKASH 186 ITR 589 WHEREIN THE HON'BLE HIGH COURT OBSERVED AS UNDER: 13. IT IS PERTINENT TO POINT OUT THAT, BEFORE THE INCOME- TAX APPELLATE TRIBUNAL, THE ASSESSEE ALONE WAS IN A PPEAL. THE REVENUE HAD NOT FILED ANY APPEAL OR CROSS-OBJEC TION. IT 20 IS SETTLED THAT THE INCOME-TAX APPELLATE TRIBUNAL, WHILE DEALING WITH THE APPEAL, IN THE ABSENCE OF ANY CROS S-APPEAL OR OBJECTION, CANNOT GIVE A FINDING ADVERSE TO THE APPELLANT WHICH WOULD MAKE HIS POSITION WORSE THAN IT WAS UNDER THE ORDERS APPEALED AGAINST. IT IS TRUE THAT THE QUESTION SUGGESTED BY THE COMMISSIONER IS, NO DOUBT , ONE OF LAW, BUT THE ANSWER TO IT IS, IN OUR OPINION, SE LF-EVIDENT BECAUSE THE TRIBUNAL HAS NO POWER OF ENHANCEMENT. SEE HUKUMCHAND MILLS LTD. V. CIT [1967] 63 ITR 232 (SC). IN THESE CIRCUMSTANCES, IT WOULD BE FUTILE TO REQUIRE THE TRIBUNAL TO REFER THE QUESTION SOUGHT FOR BY THE RE VENUE TO THIS COURT. ACCORDINGLY, NO STATABLE QUESTION OF LAW ARISES. THE APPLICATION FILED BY THE REVENUE IS ALS O REJECTED. 29. THE LD. DR HAS OBJECTED TO THE AFOREMENTIONED D ECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE. THE LD. DR POINTED OUT THAT IN THE CASE OF VIJAYA STORES [SUPRA] THE JUDGMENT W AS GIVEN UNDER THE KERALA GENERAL SALES TAX ACT WHICH WAS PREMISED ON THE PRINCIPLE ESPOUSED IN THE CPC THAT THE PARTY WHICH HAS NOT FI LED AN APPEAL IN A LITIGATION MUST BE DEEMED TO BE SATISFIED WITH THE DECISION OF THE LOWER AUTHORITY, AND HE WILL NOT BE ENTITLED TO SEE K RELIEF AGAINST THE RIVAL PARTY. 21 30. THE LD. DR POINTED OUT THAT WHEN THE ASSESSEE A PPROACHED THE TRIBUNAL FOR THE FIRST TIME, THE ASSESSING OFFICER COULD NOT HAVE APPEALED AGAINST HIS OWN ORDER AND, THEREFORE, THE RATIO LAID DOWN IN THE CASE OF VIJAYA STORES [SUPRA] SHOULD NOT BE APP LIED. IN SUPPORT OF HIS CONTENTION, THE LD. DR STRONGLY RELIED UPON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF AHMADABAD ELECTRICITY CO. LTD 199 ITR 351 AND POINTED OUT THAT THE FULL BENCH DECISION OF THE HON'BLE BOMBAY HIGH COURT HAS CONSIDERED THE JUDGME NT OF THE HON'BLE SUPREME COURT IN THE CASE OF HUKUMCHAND MILLS LTD 6 3 ITR 232. IT IS THE SAY OF THE LD. DR THAT THERE IS NO ENHANCEMENT OF INCOME AND INCOME HAS INCREASED MERELY ON FOLLOWING THE DIRECT IONS OF THE TRIBUNAL. 31. WE ARE OF THE CONSIDERED VIEW THAT FIRSTLY, THE DECISION IN THE CASE OF AHMADABAD ELECTRICITY CO. LTD [SUPRA] DOES NOT APPLY TO THE CASE IN HAND BECAUSE THAT CASE INVOLVES THE ADMISSI ON OF ADDITIONAL GROUND. SECONDLY, IT IS INCORRECT TO SAY THAT THE ASSESSING OFFICER COULD NOT HAVE APPEALED AGAINST HIS OWN ORDER. EVEN IF I T WAS NOT OPEN FOR THE REVENUE TO PREFER APPEAL BEFORE THE ITAT AGAINS T THE ORDER OF THE DRP, THE RATIO LAID DOWN BY THE HON'BLE SUPREME COU RT STILL APPLY ON THE FACTS OF THE CASE IN HAND. 22 32. THOUGH WE AGREE WITH THE LD. DR THAT THERE WAS NO ENHANCEMENT OF INCOME BY THE DRP, BUT, AT THE SAME TIME, THE A SSESSED INCOME OF THE YEAR UNDER CONSIDERATION, HAVING BEEN EXHIBITED ELSEWHERE, CLEARLY PUTS THE ASSESSEE IN A WORSE OFF SITUATION THAT IT WAS BEFORE FILING THE APPEAL. IF THE ASSESSEE HAD NOT FILED ANY APPEAL A GAINST THE TOTAL ASSESSED INCOME OF ALL THE ASSESSMENT YEARS UNDER C ONSIDERATION, THE INCOME WOULD HAVE BEEN RS. 7.21 CRORES ONLY. HOWEV ER, AFTER FILING APPEAL AND AFTER READJUDICATION, THE TOTAL ASSESSED INCOME OF ALL THE YEARS UNDER CONSIDERATION IS RS. 123.16 CRORES. IN ALL FAIRNESS, THE ENTIRE PROCEEDINGS SHOULD NOW BE RESTRICTED TO ADJU DICATION UPON THE ASSESSED INCOME OF ALL THE YEARS UNDER CONSIDERATIO N TO THE EXTENT OF RS. 7.21 CRORES. III WHETHER THE APPELLANT HAD BUSINESS CONNECTION/P E IN INDIA 33. THE BUSINESS SEGMENTS OF APPELLANT DURING THE Y EAR WERE AS FOLLOWS: SALE OF EQUIPMENT TO MOSER BAER INDIA SALE OF EQUIPMENT PARTS, SPARES & CONSUMABLES TO MB I SALE OF EQUIPMENT THROUGH INDEPENDENT AGENTS 34. WE ARE CONCERNED WITH ONLY 1 AND 2 ABOVE. 23 35. FACTS ON RECORD SHOW THAT DURING THE RELEVANT P REVIOUS YEARS, THE ASSESSEE WAS HAVING AN OFFICE IN INDIA WHICH IT CAL LED LIAISON OFFICE [LO]. THERE IS NO DISPUTE THAT THIS LO WAS SET UP IN 1988 VIDE LETTER DATED 24.08.1988. THE RESERVE BANK OF INDIA [RBI] GRANTED PERMISSION U/S 29(1)(A) OF THE FOREIGN EXCHANGE REGULATION ACT , 1973 [FERA] FOR POSTING A REPRESENTATIVE IN INDIA. THIS LETTER SHO WS THAT PERMISSION HAS BEEN GRANTED WITH THE FOLLOWING CONDITIONS : I) EXCEPT FOR LIAISON WORK, THE REPRESENTATIVES WIL L NOT UNDERTAKE ANY OTHER ACTIVITY OF TRADING, COMMERCIAL OR INDUSTRIAL NATURE NOR SHALL ENTER INTO ANY BUSINESS CONTRACTS IN HIS OWN NAME WITHOUT PRIOR PERMISSION. II) NO COMMISSION/FEE WILL BE CHARGED OR ANY OTHER REMUNERATION RECEIVED/INCOME EARNED BY THE REPRESEN TATIVES FOR LIAISON ACTIVITIES/SERVICES RENDERED BY REPRESENTAT IVES OR OTHERWISE IN INDIA. III) ENTIRE EXPENSES OF THE REPREHENSIVE OFFICE WIL L BE MET EXCLUSIVELY OUT OF THE FUNDS RECEIVED FROM ABROAD T HROUGH NORMAL BANKING CHANNEL. REPRESENTATIVE SHALL NOT BORROW OR LEND ANY MONEY FROM/TO ANY PERSON IN INDIA WITHOUT PRIOR PER MISSION. 24 IV) REPRESENTATIVE SHALL NOT ACQUIRE, HOLD, TRANSFE R OR DISPOSE OF ANY IMMOVEABLE PROPERTY IN INDIA WITHOUT OBTAINI NG PRIOR PERMISSION. 36. ON JUNE 08, 1999 APPLICATION FOR RENEWAL OF PER MISSION TO CONTINUE REPRESENTATIVE OFFICE IN NEW DELHI WAS FIL ED WITH THE RBI AND VIDE ORDER DATED 04.01.2000, THE RBI GRANTED PERMIS SION U/S 29(1)(A) OF THE FERA WITH THE SAME CONDITIONS WHICH ARE MENT IONED HEREINABOVE. IN FEBRUARY 2007, PERMISSION WAS GRANT ED TO ESTABLISH BRANCH OFFICE [BO] IN INDIA. IT IS PERTINENT TO ME NTION HERE THAT THE APPELLANT WAS INITIALLY HAVING LO IN BANGALORE AND MUMBAI IN ADDITION TO THE OFFICE AT NEW DELHI. THE LO AT BANGALORE AN D MUMBAI WERE CLOSED IN THE YEAR 2004. 37. AS MENTIONED ELSEWHERE, SURVEY OPERATION UNDER SECTION 133A OF THE ACT WAS CONDUCTED AT THE PREMISES OF THE APPELL ANT AT NEW DELHI ON 24.04.2008 AND DURING THE COURSE OF SURVEY, STAT EMENTS OF THE EMPLOYEES ALONGWITH THE DEPUTY MANAGING WERE RECORD ED AND CERTAIN DOCUMENTS WERE FOUND, MOSTLY EMAIL EXCHANGES, BETWE EN THE REPRESENTATIVES AT LO, TAX CONSULTANTS WITH EMPLOYE ES OF HITACHI HIGHTECHNOLOGIES. 25 38. A PERUSAL OF THESE EMAIL EXCHANGES AND STATEMEN TS OF THE EMPLOYEES PROMPTED THE REVENUE TO PROCEED BY TREATI NG THE LO AS PE WHICH RESULTED INTO ATTRIBUTION OF PROFITS. 39. BEFORE US, THE LD. AR VEHEMENTLY STATED THAT TH E LO WAS NOT INVOLVED IN UNDERTAKING ANY OF THE ACTIVITIES FOR S ALE OF EQUIPMENTS TO MBI AND WAS ACTING ONLY AS A COMMUNICATION CHANNEL IN RELATION TO THE ACTIVITIES UNDERTAKEN BY APPELLANT IN INDIA. 40. THE LD. AR EXPLAINED THE MODUS OPERANDI STATING THAT ONCE THE EQUIPMENTS HAVE BEEN SUPPLIED TO MBI, DEMAND FOR SP ARES AND CONSUMABLES IS DIRECTLY COMMUNICATED BY MBI TO THE APPELLANT. IT IS THE SAY OF THE LD. AR THAT THE APPELLANT, THROUGH I TS SINGAPORE OFFICE, MAINTAINS REGULAR CONTACTS WITH ITS SUPPLIERS SPREA D ACROSS THE WORLD. IT WAS FURTHER STATED THAT UPON RECEIVING AN ENQUIR Y FROM MBI, APPELLANT PROVIDES THE LISTED PRICE OF RELEVANT PAR TS, SPARES AND CONSUMABLES, EITHER DIRECTLY OR THROUGH THE LO AND THE LO, FORWARDS THE PRICE QUOTATION TO MBI. THE LD. AR CONTINUED BY STATING THAT THEREAFTER, A PURCHASE ORDER WAS PLACED ON APPELLAN T. A COPY OF PO WAS DELIVERED TO LO FOR ACCEPTANCE. LATER ON, A LE TTER OF CREDIT WAS ISSUED BY MBI TO APPELLANT WITHOUT THE INVOLVEMENT OF LO. THEREAFTER, 26 THE MERCHANDISE IS SHIPPED TO INDIA. FOR SALE, A CO MMERCIAL INVOICE IS ISSUED BY APPELLANT TO MBI. THE SHIPMENT DOCUMENTS ARE DELIVERED DIRECTLY TO MBI. AS PER THE AGREEMENT, PAYMENT FOR THE EQUIPMENTS IS MADE IN FOREIGN CURRENCY. 41. THE LD. AR FURTHER CONTENDED THAT IN TERMS OF A RTICLE 5(1) OF THE INDO SINGAPORE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA), THE TERM PERMANENT ESTABLISHMENT MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF THE (NON-RESIDENT) EN TERPRISE IS WHOLLY OR PARTLY CARRIED ON. IT IS THE SAY OF THE LD. AR THA T IN ORDER FOR A PLACE OF BUSINESS TO BE CONSIDERED AS A PERMANENT ESTABLISHM ENT, THERE MUST EXIST A COMMON THREAD OF INTEREST BETWEEN THE PLACE OF BUSINESS AND THE NON-RESIDENT ASSESSEE. IT WAS POINTED OUT THAT CORE BUSINESS FUNCTION OF APPELLANT COMPRISES OF TRADING OPERATIO NS ACROSS ASEAN COUNTRIES IN RESPECT OF VARIOUS PRODUCTS AND EQUIPM ENTS. INDIA LO SIMPLY ACTED AS A COMMUNICATION CHANNEL BETWEEN APP ELLANT AND THE CUSTOMERS AND WAS PROVIDING LOGISTIC SUPPORT TO APP ELLANT OR REPRESENTATIVES THERE OF. NO PART OF THE AFORESAID CORE ACTIVITY/ FUNCTION OF APPELLANT WAS CARRIED OUT IN INDIA. 27 42. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT TH AT IN TERMS OF ARTICLE 5(2) OF THE DTAA, AN OFFICE OF THE FOREIG N ENTERPRISE IN THE OTHER CONTRACTING STATE IS ALSO DEEMED AS PERMANENT ESTABLISHMENT OF THE FOREIGN ENTERPRISE IN THAT STATE. EVEN IN TERMS OF THE AFORESAID ARTICLE, AN OFFICE CAN BE CONSIDERED TO BE PE ONL Y IF SUCH OFFICE MEETS THE REQUIREMENTS OF PARAGRAPH 1 OF THAT ARTIC LE, I.E., THE BUSINESS OF THE FOREIGN ENTERPRISE SHOULD BE CARRIE D OUT FROM SUCH OFFICE IN THE OTHER COUNTRY. 43. THE LD. COUNSEL FOR THE ASSESSEE EMPHATICALLY S TATED THAT THE COMMUNICATION ACTIVITIES CARRIED ON BY LO AT INDIA CONSTITUTED AUXILIARY/ANCILLARY ACTIVITIES AND NOT THE CORE BUS INESS FUNCTIONS OF APPELLANT, THE INDIA LO CANNOT BE CONSIDERED AS FIX ED PLACE OF BUSINESS OF APPELLANT IN INDIA, IN TERMS OF ARTICLE 5(1) OF INDIA-SINGAPORE DTAA. STRONG RELIANCE IN THIS REGARD WAS PLACED ON THE DE CISION OF THE DELHI HIGH COURT IN THE CASE OF NATIONAL PETROLEUM CONSTR UCTION COMPANY VS. DIT: 383 ITR 648, DIT VS. MITSUI & CO LTD: 84 TAXMA NN.COM 3 AND SEVERAL OTHER DECISIONS. 28 44. REFERRING TO THE PERMISSION GRANTED BY THE RBI, THE LD. COUNSEL STATED THAT THE RBI HAD NOT POINTED OUT ANY VIOLATION IN THE NATURE OF ACTIVITIES CARRIED OUT BY LO. THE ASSESSING OFFICER , UNDER THE PROVISIONS OF THE ACT, COULD NOT PRESUME ENLARGED ACTIVITIES B EING CARRIED OUT BY LO. FOR THIS PROPOSITION, THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE DELHI TRIBUNAL IN T HE CASE OF NOKIA NETWORKS OY: 94 TAXMANN.COM 111 (DEL). 45. THE LD. COUNSEL FOR THE ASSESSEE ARGUED AT LENG TH ON THE RELIANCE PLACED ON THE STATEMENTS OF THE EMPLOYEES RECORDED DURING THE COURSE OF SURVEY PROCEEDINGS. THE LD. COUNSEL FOR THE ASS ESSEE STATED THAT SUCH STATEMENTS RECORDED AT THE TIME OF SURVEY PROC EEDINGS DO NOT HAVE ANY EVIDENTIARY VALUE IN THE LIGHT OF THE DECI SION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. S. KHADER KHAN SON: 300 ITR 157, WHICH WAS AFFIRMED BY THE HON'BLE SUPREME COU RT IN 210 TAXMANN 248. 46. THE LD. COUNSEL FOR THE ASSESSEE PROCEEDED BY S TATING THAT THE REVENUE HAS PICKED UP ANSWERS TO SELECTIVE QUESTION S TO JUSTIFY THE ALLEGATION THAT THE LO WAS PE OF THE APPELLANT. 29 47. THE LD. DR, ON THE OTHER HAND, STATED THAT THE ASSESSING OFFICER HAS RELIED ON THE MATERIAL FOUND DURING THE SURVEY OPERATION TO HOLD THAT THE ASSESSEE HAD PE IN INDIA THAT WAS ENGAGED IN BUSINESS ACTIVITY. IT IS THE SAY OF THE LD. DR THAT THE DRP HA MOSTLY RELIED UPON THE SUBMISSIONS MADE BY THE ASSESSEE DURING THE ASSESSM ENT AND DRP PROCEEDINGS TO AFFIRM THE FINDINGS OF THE AO. IT I S THE SAY OF THE LD. DR THAT AT LEAST SIX EMPLOYEES WERE WORKING IN LO, TWO OF WHICH WERE KEY PERSONNEL AND ONE WAS AN IMPORTANT EXECUTIVE SINCE ALL THE EXCHANGE OF EMAILS HAVE BEEN COPIED TO THIS IMPORTANT EXECUT IVE LEENA CARDOZA. THE LD. DR POINTED OUT THAT THESE EMPLOYEES IN INDI A OFFICE [LO] WERE ENGAGED IN ADVERTISEMENT AND MARKETING, SALES PROMO TION, MARKET RESEARCH AND ADMINISTRATION. THE LD. DR VEHEMENTLY STATED THAT THERE ARE ENOUGH EVIDENCES ON RECORD TO SHOW THAT SUBSTAN TIAL PART OF TRADING BUSINESS OF HTS IN INDIA WAS BEING CARRIED OUT FROM ITS OFFICE IN INDIA. 48. REFERRING TO THE STATEMENTS OF THE EMPLOYEES, T HE LD. DR POINTED OUT THAT IT WAS THE EMPLOYEES OF HTS WORKING IN IND IA WHO WERE ASCERTAINING CUSTOMER REQUIREMENTS, DOING PRICE NEG OTIATION, FOLLOWING UP ON DELIVERIES AND CHASING OF PAYMENTS. IT IS TH E SAY OF THE LD. DR THAT THE APPELLANT IS A TRADING CONCERN AND THESE A RE CORE ACTIVITIES IN 30 RELATION TO TRADING SALES MADE IN INDIA. THE LD. D R HIGHLIGHTED THE RELEVANT PARTS OF THE STATEMENTS OF THESE KEY PERSO NNEL TAKEN DURING THE SURVEY OPERATIONS AND CONCLUDED BY SAYING THAT THESE STATEMENTS CONCLUSIVELY PROVE THEIR INVOLVEMENT IN TRADING BUS INESS OF HTS IN INDIA. 49. THE LD. DR ALSO REFERRED TO RELEVANT ARTICLES O F INDIA SINGAPORE DTAA TO DEMONSTRATE THAT THE LO WAS THE PE OF THE A PPELLANT IN INDIA. IT IS THE SAY OF THE LD. DR THAT THE ACTIVITIES OF THE REPRESENTATIVES OF THE LO CANNOT BE CONSIDERED AS ONLY ACTIVITIES FOR PREPARATORY OR AUXILIARY IN NATURE. SINCE THE LO IS OPERATING SIN CE 1988, NATURE OF ACTIVITIES PERFORMED BY THE OFFICE OF THE APPELLANT COMPANY IN INDIA WERE ADMITTEDLY WHERE ITS EMPLOYEES WERE ENGAGED IN MARKETING, SALES PROMOTION, MARKET RESEARCH ACTIVITIES. THEY WERE ACTIVELY INVOLVED IN ASCERTAINING CUSTOMER REQUIREMENTS, PRI CE NEGOTIATION, OBTAINING OF PURCHASE ORDERS, FOLLOWING UP ON DELIV ERY OF MATERIAL AND PAYMENTS. THEREFORE, NONE OF THESE ACTIVITIES CAN BE TERMED AS HAVING PREPARATORY OR AUXILIARY CHARACTER OR BEING CARRIED OUT SOLELY OF THE PURPOSES OF ADVERTISING, SUPPLY OF INFORMATION, SCI ENTIFIC RESEARCH OR SIMILAR PURPOSE. THEREFORE, THESE DO NOT FALL UNDE R EXCLUSIONARY CLAUSE OF ARTICLE 5 FOR DETERMINATION OF PE IN INDIA. THE REAFTER, THE LD. DR 31 WENT ON TO DISTINGUISH THE FACTS OF THE CASE IN HAN D WITH THE FACTS OF THE DECISIONS RELIED UPON BY THE LD. AR. 50. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE R IVAL CONTENTIONS AND HAVE CAREFULLY PERUSED THE JUDICIAL DECISIONS R ELIED UPON. THE UNDISPUTED FACT IS THAT THE LO IS CARRYING OUT ITS ACTIVITIES SINCE 1988 AND UPTO A.Y. 2001-02, SUCH ACTIVITIES WERE ACCEPTE D. HOWEVER, POST SURVEY OPERATIONS, WHEN THE EMAIL EXCHANGES WERE UN EARTHED, WHICH RESULTED INTO SOME NEW FACTS, PROMPTED THE REVENUE TO REOPEN THE ASSESSMENTS OF A.YS 2002-03 TO 2007-08. 51. THE BUSINESS SEGMENTS OF THE APPELLANT DURING T HE YEAR HAVE ALREADY BEEN MENTIONED ELSEWHERE. WE FIND THAT THE REVENUE HAS HEAVILY RELIED UPON THE EMAIL EXCHANGES AND STATEM ENTS OF KEY PERSONNEL NAMELY, MR. MORIMASA GEMPEI, DY. MANAGING DIRECTOR, SHRI JAI PRABHAKARAN, SALES EXECUTIVE AND MS. LEENA CARD OZA LOOKING AFTER SALES TO MOSER BAER. THE REVENUE HAS ALSO DRAWN HE AVY SUPPORT FROM THE EMAILS OF THE TAX CONSULTANT SHRI PIYUSH KAUSHI K, WHO, IN HIS EMAILS HAS SHOWN APPREHENSION OF THE POSITION THAT THE REV ENUE MIGHT TAKE POST SURVEY OPERATIONS. THE CONTENTS OF THE EMAILS OF SHRI PIYUSH KAUSHIK CLEARLY SHOW THAT HE WAS ACTING AS TAX CONS ULTANT AND ADVISING 32 THE APPELLANT ON THE PROBABLE TAX LITIGATION WHICH MAY ARISE AFTER SURVEY OPERATIONS. 52. BEFORE ADHERING TO THESE ISSUES, IT WOULD BE PE RTINENT TO CONSIDER THE REASONS RECORDED BEFORE REOPENING OF ASSESSMENT AS WELL AS THE ANALYSIS OF SURVEY MATERIAL AND STATEMENTS WHICH RE AD AS UNDER: 4. THE REASONS RECORDED BEFORE REOPENING OF ASSESS MENT AS WELL AS THE ANALYSIS OF SURVEY MATERIAL AND STAT EMENTS IS AS UNDER: 'A SURVEY U/S 133A OF THE I, T. ACT, 1961 (ACT) WAS CARRIED OUT AT THE OFFICE PREMISES OF HITACHI HIGH TECHNOLOGIES (SINGAPORE) PTE. LTD. (HITACHI SINGAPO RE/ COMPANY) AT 602, 6 TH FLOOR, EROS CORPORATE TOWER, NEHRU PLACE, NEW DELHI ON 24.4.2008. HITACHI SINGAPORE, H ELD BY HITACHI CORPORATION JAPAN, WAS HAVING PRESENCE I N INDIA, IN THE FORM OF LIAISON OFFICE SINCE 1988. TH E COMPANY WAS ALSO HAVING LIAISON OFFICE IN BANGALORE AND MUMBAI; HOWEVER, THE SAME WERE CLOSED BY 2004. THE HITACHI- HIGH TECHNOLOGIES PTE. LTD. PRIOR TO 01.04 .2002 WAS KNOWN AS NISSEI SANGYO (S) PTE. LTD. A NOTICE U/S 142(1) OF THE ACT WAS ISSUED ON 28.03. 2007 FOR WHICH A LETTER DATED 12.04.2007, A LETTER FROM 33 DELOITTE HASKINS & SELLS, POWER OF ATTORNEY HOLDER DATED 12.04.2007 WAS RECEIVED REQUESTING FOR ADJOURNMENT FOR AT LEAST 6 WEEKS, AS THE COMPANY IS IN THE PROCESS OF COLLATING THE INFORMATION REQUIRED TO PREPARE THE R ETURN. HOWEVER, THERE WAS NO RESPONSE FOR ONE YEAR TILL AP RIL, 2008. FROM THE INTERNET, INFORMATION WAS GATHERED THAT TH E COMPANY HAS APPOINTED SALES MANAGER IN INDIA. THE SURVEY REVEALED THAT BRANCH IS HEADED BY AN EXPAT GENERAL MANAGER, WHO IS ALSO THE DEPUTY MANAGING DIRECTOR OF HITACHI HIGH TECHNOLOGIES SINGAPORE PTE . LTD. ANOTHER JAPANESE EXPAT AND AN INDIAN EMPLOYEE ARE WORKING AS SALES MANAGER, THE DELHI OFFICE HAS THRE E MORE EMPLOYEES LOOKING AFTER THE LOGISTICS AND SALE S AND MARKETING WORK. THE COMPANY HAS ALSO APPOINTED TWO AGENTS FOR MAKING SALES IN INDIA. HITACHI SINGAPORE IS THE LEADING EDGE TECHNOLOGY SPECIALIST AND IS ENGAGED IN THE BUSINESS OF FOUR KEY AREAS, (I) ELECTRONIC DEVICE SYSTEM (II) LIFE SCIENCE (III) INFORMATION SYSTEM AND ELECTRONIC COMPONENTS AND (I V) ADVANCED INDUSTRIAL PRODUCTS. IN INDIA, THE COMPANY IS SELLING VARIOUS PRODUCTS NAMELY, ELECTRON MICROSCOP E, ANALYTICAL INSTRUMENTS, MANUFACTURING EQUIPMENTS FO R OPTICAL DISC AND ALSO MATERIA! FOR OPTICAL DISC, TH E 34 COMPANY IS SELLING THESE PRODUCTS GLOBALLY AND IN I NDIA SPECIFICALLY, THE MAJOR CUSTOMERS ARE MOSER BAER IN DIA LTD., TURBO ENERGY LTD. AND HONEYWELL INDIA PVT. LT D. HITACHI SINGAPORE HAS AN ESTABLISHED NETWORK IN THE ASEAN REGION. IT HAS A DEDICATED TEAM OF PROFESSIONALLY TRAINED ENGINEERS TO PROVIDE THE CUS TOMER WITH CUSTOM- MADE CARE SERVICES. THIS INCLUDES ORIG INAL PRODUCT PART SUPPLIES FROM JAPAN AND AFTER SALES SU PPORT AND SERVICES. AFTER SALES SERVICES FOR SURFACE MOUN T SYSTEMS (SMP) HARD DISK MANUFACTURING SYSTEM AND SEMI-CONDUCTOR MANUFACTURING PRODUCTS INCLUDES; RECOMMENDATIONS FOR MAINTENANCE AND REPAIRS, OPERATIONAL AND MAINTENANCE TRAINING, SPARE PARTS, SERVICE CONTRACTS, MAINTENANCE AND OVERHAUL SERVICE S AS WELL AS OPERATIONAL SUPPORT SERVICES, RELOCATION SE RVICES INCLUDING LOGISTICS AND ASSEMBLY, SHUT DOWN SUPPORT SERVICES, OVERHAUL AND UPGRADING. THE GLOBAL NETWOR K OF THE COMPANY OFFERS NOT ONLY ASSISTANCE TO CUSTOMERS ' NEEDS BUT ALSO COMMITMENT TO PROVIDE ADVANCED CUSTOMER SUPPORT. THE GLOBAL NETWORK OF EXPERTS CONSISTS OF JAPAN TEAM AND LOCAL TEAM, WHO HAVE THE TECHNICAL KNOWLEDGE AND PROFESSIONAL EXPERIENCE. 35 2. DURING THE COURSE OF SURVEY, STATEMENTS OF MR. MORIMASA GEMPEI, DEPUTY MANAGING DIRECTOR OF THE COMPANY, MR. JAI PRABHAKARAN (WORKING SINCE 2005), SALES EXECUTIVE AND LEENA CARDOZA (WORKING SINCE 19 95), LOOKING AFTER THE SALES TO MOSER BAER, WERE RECORDE D. DURING SURVEY VARIOUS DOCUMENTS WERE VERIFIED INCLU DING THE E- MAILS OF THE EMPLOYEES AND COPY OF THE DOCUM ENTS WERE OBTAINED AND INVENTORIED AS ANNEXURE A' TO T, THE COPY OF THESE STATEMENTS AS WELL ALL THE DOCUMENTS WERE PROVIDED TO THE COMPANY BEFORE CLOSING THE SURVEY. 3.2 AN EXTRACT OF STATEMENT OF MS, LEENA KARDOZA, ADMINISTRATIVE EXECUTIVE OF HITACHI HIGH TECHNOLOGIES (SINGAPORE) PTE. LTD. IS REPRODUCED BELOW:- QL. PLEASE IDENTIFY YOURSELF. A. B. I AM MS. LEENA KARDOZA, WORKING WITH ORGANIZATION S INCE 15.9.1995. Q.3 SINCE YOU ARE THE OLDEST EMPLOYEE OF THIS ORGANIZATION IN INDIA, YOU MUST BE AWARE OF THE ACT IVITIES OF THE LIAISON OFFICE AND THE PRESENT BRANCH OFFICE. I S THERE ANY DIFFERENCE BETWEEN THE ACTIVITIES? 36 A. THE BASIC ACTIVITY OF THE LIAISON OFFICE WAS LIA ISON WORK AND SUPPORTING HEAD OFFICE IN TRADING BUSINESS. THE OFF ICE IS PROVIDING RAW MATERIALS FOR MANUFACTURING CDS, DVRS AND OTHER OPTICAL MEDIA PRODUCTS, PARTS FOR TURBO IMPEL LERS ETC, EXACT PRODUCTS CAN BE CHECKED WITH THE SALES PERSON . THERE IS NO SIGNIFICANT CHANGE IN THE BUSINESS ACTIVITIES OF THE INDIAN OFFICE AFTER THE CONVERSION OF THE SAME TO A BRANCH OFFICE. ACTIVITIES CONTINUE TO BE SAME EXCEPT EARLIER THERE WAS NO EXPAT AND NOW WE HAVE AN EXPAT. Q.4 IN THE LIAISON OFFICE, HOW MANY PERSONS ARE WOR KING? ALSO GIVE THE NAME OF THE EMPLOYEES AND NATURE OF A CTIVITIES FROM 2001 ONWARDS. A. THERE WERE 5 PERSONS PLUS ONE EXPAT AT THE TIME OF CLOSURE OF THE LIAISON OFFICE. PRESENTLY IN BRANCH OFFICE, WE HAVE TWO EXPAT AND 4 INDIANS. OUT OF THIS, WE ARE WORKING IN SALES-ONE AS SALES MANAGER (JAPANESE) AND TWO SALES EXECUTIVE S. 8 WHETHER THE SINGAPORE COMPANY HAD ANY OFFICE IN I NDIA? IF YES, DURING WHICH PERIOD? A. WE HAD REPRESENTATIVE OFFICES IN BANGALORE AND M UMBAI. PERIOD I DO NOT EXACTLY REMEMBER, HOWEVER BANGALORE OFFICE FUNCTION FROM 1996 TO 2003 AND MUMBAI OFFICE WAS JU ST 37 OPENED BETWEEN 2000 TO 2002 BUT DID NOT FUNCTION. A LL THE OFFICES WERE REPORTING TO MR. SIDDIQUI, WHO IN TURN REPORTS TO OUR HEAD OFFICE TO SINGAPORE. Q.20 WHY THE REPRESENTATIVE OFFICE CONVERTED TO BRA NCH OFFICE? A. I GUESS FOR THE GROWTH OF OUR COMPANY, IT WAS CO NVERTED INTO A BRANCH OFFICE. Q. 21 DO YOU HAVE ANY IDEA ABOUT AFTER SALES SERVIC ES PROVIDED BY HITACHI SINGAPORE /OR INDIAN OFFICE? A. NO. USUALLY WHEN THE MACHINERY IS SOLD TO MOSERB AER, THE ENGINEERS OF THAT PARTICULAR COMPANY LIKE ORIGIN JA PAN, SHIBURA JAPAN ETC. COME TO INDIA TO INSTALL THE MAC HINERY AND AS AND WHEN ANY TECHNICAL SERVICES ARE REQUIRED. Q.22 ANNEXURE 'A' CONTAINING 93 PAGES ARE THE COPY OF EMAILS TAKEN FROM YOUR LAPTOP. PLEASE CONFIRM THE SAME? A. YES -1 AGREE THE SAME ARE TAKEN FROM MY LAPTOP. 38 A 23 I AM SHOWING YOU PAGE 23, AND PARTICULARLY THE MAIL FROM MR. PIYITSH KAUSHIK TO MR. DAVID WONG, WHICH HAS RE FERENCE TO INFORMATION BY MS. LEENA. WHO ARE MR. PIYUSH 25. L AM SHOWING PAGE 58 TO 62 OF ANNEXURE 'A ', PLEASE STATE WHAT ARE THESE DOCUMENTS? A. PAGE 58 IS THE COPY OF DEBIT NOTE OF SERVICE FEE FOR MARKET RESEARCH SENT TO OUR JAPAN OFFICE AND THE MARKET RE PORT IS BEING SENT BY MR. GEMPEI TO JAPAN OFFICE DIRECTLY. PAGE 59 TO PAGE 62 IS THE BASIS OF INDENT COMMISSION, WHICH WE RECEIVED MONTHLY FROM OUR SINGAPORE OFFICE, BASED ON THIS WE ISSUE THE DEBIT NOTE TO OUR SINGAPORE OFFICE. . Q.26 WHAT IS THIS MARKET RESEARCH, AND SINCE WHEN THESE SERVICES ARE BEING PROVIDED AND WHO PROVIDES THE SA ME NOW AND WHERE BEING PROVIDED EARLIER? A. I FEEL MARKET RESEARCH IS BASICALLY GIVING THE I NDIAN MARKET SURVEY REPORT TO OUR JAPAN OFFICE. THIS IS BEING PR OVIDED BY MR. GEMPEI NOW. EARLIER, MR. SIDDIQUI WAS GIVING TH E MARKET REPORT. Q.27 LAM SHOWING YOU ANNEXURE '13' CONTAINING 58 PA GES, WHICH ARE THE FINANCIAL STATEMENTS OF HITACHI-HIGH 39 TECHNOLOGIES (S) PTE. LTD. THIS HAS INFORMATION REG ARDING EXPENSES FOR THE YEAR ENDING 31.03.2003 TO 30.09.20 07. PLEASE STATE, WHETHER ALL THE SALARY EXPENSES INCUR RED BY ASSESSEE COMPANY IN RESPECT OF VARIOUS PERSONS WORK ING FOR THE COMPANY IN INDIA ARE DEBITED INTO THESE ACCOUNT S AND ALSO STATE WHETHER ANY PAYMENTS ARE MADE DIRECTLY TO ANY PERSON BY SINGAPORE OFFICE OR JAPAN OFFICE IN RESPECT OF B USINESS OF HITACHI-HIGH TECHNOLOGIES (S) PTE. LTD. IN INDIA? SALARY EXPENSES OF ALL THE HITACHI HIGH-TECHNOLOGIE S, INDIA STAFF WERE PAID BY THE COMPANY IN INDIA AND THE SAM E HAS BEEN DEBITED INTO THESE ACCOUNTS. AS FAR AS I KNOW, HITACHI HIGH-TECHNOLOGIES, SINGAP ORE OR JAPAN OFFICE HAS NOT MADE PAYMENTS DIRECTLY IN RESP ECT OF BUSINESS OF HITACHI HIGH-TECHNOLOGIES (S) PTE. LTD. IN INDIA. 53. THE MOST IMPORTANT MAIL WAS FROM LEENA CARDOZA TO DAVID WONG DATED 21.06.2007 WHICH READS: WE HAD EXPLAINED TO MR. PIYUSH KAUSHIK CLEARLY THA T THE REPRESENTATIVE OFFICE WAS ACTIVELY INVOLVED IN COMM ERCIAL ACTIVITIES. THEN WHY SHRI PIYUSH KAUSHIK WANTS TO TAKE THIS STAND. 40 I FEEL HIS FORTE IS LAW AND HE WANTS TO TAKE THIS M ATTER INTO LITIGATION INSTEAD OF PAYING TAX AND FINISHING THIS ISSUE. ONCE WE ARE INTO LITIGATION, THIS WILL CARRY ON AND ON AND HE WILL MAKE MONEY ON EVERY APPEARANCE APART FROM T HESE AGREEMENT CONTRACTS. I GUESS IT IS NOT TOO LATE IN TAKING COMMENTS OF E & Y OR SOME OTHER GOOD COMPANY WHETHER TO PAY TAX OR NOT. AFTER GIVING REASONS, OUR REPRESENTATIVE OFFICE WAS INVOLVED IN COMMERCIAL ACTIVITIES. 54. TO THIS, DAVID WONG REPLIED YOU DO HAVE A POINT HERE. 55. AT THIS STAGE, IT WOULD NOT BE OUT OF PLACE TO MENTION THAT LEENA CARDOZA WAS THE OLDEST EMPLOYEE OF THE LO AND WAS W ELL AWARE OF THE ACTIVITIES OF THE LO SINCE ITS INCEPTION AND WAS AL SO WELL AWARE THAT THE LO WAS, IN FACT, ENGAGED IN SOME FORM OF COMMERCIAL ACTIVITIES. MOST RELEVANT ANSWERS TO THE QUESTIONS GIVEN BY LEENA CA RDOZA DURING THE COURSE OF ASSESSMENT PROCEEDINGS READ AS UNDER: 3 SINCE YOU ARE THE OLDEST EMPLOYEE OF THIS ORGANI ZATION IN INDIA, YOU MUST BE AWARE OF THE ACTIVITIES OF THE L IAISON OFFICE AND THE PRESENT BRANCH OFFICE. IS THERE ANY DIFFERE NCE BETWEEN THE ACTIVITIES? 41 ANS. THE BASIC ACTIVITY OF LIAISON OFFICE WAS LIAIS ON WORK& SUPPORTING HEAD OFFICE IN TRADING BUSINESS THERE IS NO SIGNIFICANT CHANGE IN THE BUSINESS ACTIVITIES OF TH E INDIAN OFFICE AFTER THE CONVERSION OF THE SAME TO A BRANCH OFFICE. ACTIVITIES CONTINUE TO BE THE SAME, EXCEPT EARLIER THERE WAS NO EXPAT AND NOW WE HAVE AN EXPAT. THE OFFICE IS PR OVIDING RAW MATERIAL Q. 13 REGARDING THE SALES MADE, PLEASE STATE WHETHE R THE INVOLVEMENT OF DELHI OFFICE WAS MORE PRIOR TO MAY 2 007 OR IS IT MORE AFTER 2007? S' ANS. INVOLVEMENT OF DELHI OFFICE WAS MORE PRIOR TO MAY 2007. 56. AT THIS JUNCTURE, WE HAVE TO STATE THAT THE DEC ISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE QUESTIONING THE ADMISSIBILITY OF STATEMENTS RECORDED AT THE TIME OF SURVEY PROCEEDIN GS ARE MISPLACED. IN THE CASE OF S. KADER KHAN[SUPRA], THE HON'BLE HI GH COURT HELD THAT SOLELY ON THE BASIS OF STATEMENTS GIVEN BY ONE OF T HE PARTNERS OF THE ASSESSEE FIRM, DISCLOSED INCOME WAS NOT ASSESSABLE AS LAWFUL INCOME OF THE ASSESSEE. IN THAT CASE, STATEMENT WAS GIVEN BY A PARTNER WHO WAS NEW TO THE MANAGEMENT AND WAS INCAPABLE OF ANSWERIN G THE ENQUIRIES MADE. 42 57. IN THAT CASE, THE HON'BLE HIGH COURT ALSO FOLLO WED THE CIRCULAR OF THE CBDT FOR ARRIVING AT THE CONCLUSION THAT MATERI ALS COLLECTED AND STATEMENTS OBTAINED U/S 133A WOULD NOT AUTOMATICALL Y BIND UPON THE ASSESSEE. HOWEVER, IN THE CASE IN HAND, STATEMENTS OF KEY EMPLOYEES RELIED UPON BY THE REVENUE ARE WELL SUPPORTED BY DO CUMENTARY EVIDENCES IN THE FORM OF EMAILS WHICH PROMPTED THE REVENUE TO TAKE A STAND THAT THE OFFICE OF HTS IN INDIA WAS ENGAGED I N MARKETING, SALES PROMOTION AND MARKET RESEARCH. MOREOVER, IN THE CA SE IN HAND, INCOME HAS NOT BEEN DETERMINED ON THE BASIS OF ANY BANAL DECLARATION BY ANY WITNESS BUT AFTER ANALYSING IN DETAIL THE AC TIVITIES OF THE PE IN INDIA SINCE ITS INCEPTION. 58. WE WILL NOW ADDRESS TO THE SUBMISSIONS OF THE L D. COUNSEL FOR THE ASSESSEE THAT ACTIVITIES OF THE LO FALL IN EXCLUSIO NARY CLAUSE OF ARTICLE 5 OF INDIA SINGAPORE DTAA. THERE IS NO DISPUTE IN RE LATION TO THE ACTIVITIES OF THE OFFICE IN INDIA WHICH ARE ADVERT ISEMENT AND MARKETING, SALES PROMOTION, MARKET RESEARCH AND ADM INISTRATION. IN OUR CONSIDERED OPINION, THE ACTIVITIES CARRIED OUT BY THE APPELLANTS LO UNQUESTIONABLY OCCUPY TIME AND ATTENTION AND LABOUR OF MEN. THE APPELLANT COMPANY INDEED CARRIED ON BUSINESS IN IND IA. 43 59. THE CONCEPT OF BUSINESS CONNECTION WAS EXPLAI NED BY THE HON'BLE SUPREME COURT IN THE CASE OF R.D. AGGARWAL AND CO. 56 ITR 20. ACCORDING TO THE HON'BLE SUPREME COURT, BUSINESS C ONNECTION, IS AS UNDER: INVOLVES A RELATION BETWEEN A BUSINESS CARRIED ON BY A NON RESIDENT WHICH YIELDS PROFITS OR GAINS AND SOME ACTIVITY IN THE TAXABLE TERRITORIES WHICH CONTRIBUTES DIRECTLY OR INDIRECTL Y TO THE EARNING OF THOSE PROFITS, OR GAINS. IT PREDICATES AN ELEMEN T OF CONTINUITY BETWEEN THE BUSINESS OF THE NON-RESIDENT AND THE AC TIVITY IN THE TAXABLE TERRITORIES: A STRAY OR ISOLATED TRANSACTIO N IS NORMALLY NOT TO BE REGARDED AS A BUSINESS CONNECTION. BUSINESS C ONNECTION MAY TAKE SEVERAL FORMS: IT MAY INCLUDE CARRYING ON A PA RT OF THE MAIN BUSINESS OR ACTIVITY INCIDENTAL TO THE MAIN BUSINES S OF THE NON- RESIDENT THROUGH AN AGENT, OR IT MAY MERELY BE A RE LATION BETWEEN THE BUSINESS OF THE NON-RESIDENT AND THE ACTIVITY I N THE TAXABLE TERRITORIES WHICH FACILITATES OR ASSISTS THE CARRYI NG ON OF THAT BUSINESS. 1 ' (EMPHASIS SUPPLIED). 60. AS MENTIONED ELSEWHERE, LO IN INDIA HAD ATLEAST SIX EMPLOYEES ENGAGED IN ADVERTISEMENT AND MARKETING, SALES PROMO TION, MARKET RESEARCH AND ADMINISTRATION ACTIVITIES IN INDIA. I N OUR CONSIDERED OPINION, THERE WAS CLEAR RELATION BETWEEN THE BUSIN ESS OF THE APPELLANT AND THE ACTIVITIES IN INDIA, AS BUSINESS OF THE APPELLANT WAS 44 TRADING AND ACTIVITIES OF THE LO ARE CORE ACTIVITIE S FOR A TRADING BUSINESS. 61. IT IS IMPERATIVE TO LOOK INTO THE RELEVANT PART S OF ARTICLE 5 OF THE INDIA SINGAPORE DTAA WHICH READ AS UNDER: INDIA-SINGAPORE DTAA ARTICLE 5 PERMANENT ESTABLISHMENT 1. FOR THE PURPOSES OF THIS AGREEMENT, THE TERM 'PERMANENT ESTABLISHMENT' MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF THE ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON. 2. THE TERM 'PERMANENT ESTABLISHMENT' INCLUDES ESPECIALLY : (C) AN OFFICE 7. NOTWITHSTANDING THE PRECEDING PROVISIONS OF THIS ARTICLE, THE TERM 'PERMANENT ESTABLISHMENT' SHALL BE DEEMED NOT TO INCLUDE : (E) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR THE PURPOSE OF ADVERTISING, FOR THE 45 SUPPLY OF INFORMATION, FOR SCIENTIFIC RESEARCH, OR FOR SIMILAR ACTIVITIES WHICH HAVE A PREPARATORY OR AUXILIARY CHARACTER, FOR THE ENTERPRISE. 62. IN THE LIGHT OF THE ABOVE, ALL THAT HAS TO BE C ONSIDERED IS AS TO WHETHER THE ACTIVITIES WERE PREPARATORY OR AUXILIAR Y IN NATURE TO FALL UNDER THE EXCLUSIONARY CLAUSE OF ARTICLE 5(7)(E) OF THE DTAA WHICH READS AS UNDER: UNDER ARTICLE 5(7)(E) OF THE INDIA-SINGAPORE DTAA, THERE WOULD BE NO PE IF THE PLACE OF BUSINESS IS MAINTAINED: 'SOLELY FOR THE PURPOSE OF ADVERTISING, FOR THE SUPPLY OF INFORMATION, FOR SCIENTIFIC RESEARCH, OR FOR SIMILA R ACTIVITIES WHICH HAVE A PREPARATORY OR AUXILIARY CHARACTER' 63. THE LD COUNSEL HEAVILY EMPHASISED THAT SINCE TH E ACTIVITIES OF THE LO IS OF PREPARATORY/AUXILIARY CHARACTER, THE SAME FALLS INTO THE EXCLUSIONARY ARTICLE 5(7)(E) OF THE DTAA. THE LD. COUNSEL HEAVILY EMPHASISED ON OR FOR SIMILAR ACTIVITIES WHICH HAV E PREPARATORY OR AUXILIARY CHARACTER. IN OUR UNDERSTANDING OF LAW, THE GENERAL WORDS SIMILAR ACTIVITIES SHOULD BE READ WITH SPECIFIC W ORDS ADVERTISING, FOR THE SUPPLY OF INFORMATION, FOR SCIENTIFIC RESEARCH . 46 64. WE FIND THAT ARTICLE 5 OF INDIA SINGAPORE DTAA RESTRICTS THE NATURE OF PREPARATORY OR AUXILIARY ACTIVITIES WHICH CAN BE EXCLUDED TO DETERMINE EXISTENCE OF PE. 65. THE EXCLUSIONARY ARTICLE OF INDIASINGAPORE DTA A, IF READ WITH EXCLUSIONARY ARTICLE OF INDIA USA/INDIA CANADA DTAA , WOULD THROW MORE LIGHT ON THE QUARREL. THE EXCLUSIONARY ARTICL E OF THESE DTAAS ARE AD UNDER: INDIA-SINGAPORE DTAA NOTWITHSTANDING THE PRECEDING PROVISIONS OF THIS AR TICLE, THE TERM 'PERMANENT ESTABLISHMENT' SHALL BE DEEMED NOT TO IN CLUDE ..... (E) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SO LELY FOR THE PURPOSE OF ADVERTISING , FOR THE SUPPLY OF INFORMATION, FOR SCIENTIFIC RESEARCH, OR FOR SIMILAR ACTIVITIES WHICH' HAVE A PREPARATORY OR AUXILIARY CHARACTER, FOR THE ENTERPRISE. INDIA-USA/LNDIA-CANADA DTAA 1 NOTWITHSTANDING THE PRECEDING PROVISIONS OF THIS ARTICLE, THE TERM 'PERMANENT EST ABLISHMENT' SHALL BE DEEMED NOT TO INCLUDE .................................................. .. (E) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SO LELY FOR THE PURPOSE OF ADVERTISING, FOR THE SUPPLY OF INFORMATI ON, FOR 47 SCIENTIFIC RESEARCH OR FOR OTHER ACTIVITIES WHICH HA/E A PREPARATORY OR AUXILIARY CHARACTER, FOR THE ENTERPR ISE. 66. IT CAN BE SEEN FROM THE ABOVE RELEVANT EXCLUSIO NARY ARTICLES THAT IN INDIA SINGAPORE DTAA, PREPARATORY OR AUXILIARY C HARACTER, AS USED IN PARA 7 OF ARTICLE 5 OF INDIA-SINGAPORE DTAA IS EJUS DEM GENERIS TO THE OTHER TERMS USED THEREIN WHICH MEANS THAT SIMILAR ACTIVITIES WHICH HAVE PREPARATORY OR AUXILIARY CHARACTER HAS TO BE R EAD AS BUSINESS SOLELY USED FOR THE PURPOSE OF ADVERTISING, FOR THE SUPPLY OF INFORMATION, FOR SCIENTIFIC RESEARCH OR FOR SIMILAR ACTIVITIES. 67. IN CONTRAST, FORMULATION IN INDIA-USA/CANADA DT AA OTHER ACTIVITIES HAVE BEEN MENTIONED WHICH HAVE TO BE RE AD AS BESIDES ADVERTISEMENT, SUPPLY OF INFORMATION AND SCIENTIFIC RESEARCH. THIS CLEARLY SHOWS THAT INDIA-SINGAPORE DTAA IS RESTRICT IVE IN NATURE THAN THE EXCLUSIONARY ARTICLE OF INDIA-USA/CANADA DTAA. THIS MEANS THAT AS PER INDIA SINGAPORE DTAA, UNLESS FIXED PLACE OF BUS INESS [LO IN THE CASE OF THE APPELLANT] WAS BEING USED ONLY FOR THE PURPOSE OF ADVERTISEMENT, FOR SUPPLY OF INFORMATION, FOR SCIEN TIFIC RESEARCH OR FOR SIMILAR ACTIVITIES WHICH HAVE PREPARATORY OR AUXILI ARY CHARACTER, IT COULD NOT HAVE BEEN EXCLUDED FROM THE DEFINITION OF PE. 48 68. THE NATURE OF THE ACTIVITIES OF THE LO, IF READ WITH THE RELEVANT ANSWERS TO THE QUESTIONS GIVEN IN THE STATEMENTS RE CORDED AT THE TIME OF SURVEY, ADMITTEDLY, THE EMPLOYEES WERE ENGAGED I NTO MARKETING, SALES PROMOTION AND MARKET RESEARCH ACTIVITIES WHIC H ARE SINE QUA NON FOR A TRADING BUSINESS, I.E. THE APPELLANTS BUSINE SS. THE LO WAS ACTIVELY INVOLVED IN ASCERTAINING CUSTOMER REQUIREM ENTS, PRICE NEGOTIATION, OBTAINING OF PURCHASE ORDERS, FOLLOWIN G UP ON DELIVERY OF MATERIAL AND PAYMENTS. IN OUR UNDERSTANDING OF FAC TS, NONE OF THESE ACTIVITIES CAN BE TERMED AS HAVING PREPARATORY OR A UXILIARY CHARACTER KEEPING IN MIND THAT LO WAS FUNCTIONING SINCE 1988. THE LO WAS DIRECTLY PARTICIPATING IN CORE ACTIVITIES OF THE TR ADING BUSINESS OF THE APPELLANT. THE ONLY ACTIVITY IN WHICH THE LO WAS N OT INVOLVED WAS PREPARING OF INVOICES AND RECEIVING PAYMENTS. 69. THE CASE LAWS RELIED UPON BY THE LD. COUNSEL FO R THE ASSESSEE HAVE BEEN DISTINGUISHED BY THE LD. DR IN HIS WRITTE N SUBMISSIONS AND FOR THE SAKE OF CONVENIENCE, WE EXTRACT THE RELEVANT SU BMISSIONS OF THE LD. DR AS UNDER: E-FUNDS IT SOLUTION[2014] 42 TAXMANN.COM 50 (DELHI) (PAGES 349 TO 396 OF THE ASSESSEE'S PAPER-BOOK ON CASE LAWS) 49 I. THE FACTS OF THIS CASE BRIEFLY ARE: THAT TWO COMPAN IES NAMELY E- FUND CORP. AND E-FUND INC. WHICH WERE INCORPORAT ED IN USA HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH TH EIR INDIAN SUBSIDIARY COMPANY, I.E. E-FUND INDIA. IN TERMS OF THEIR AGREEMENT, E-FUND INDIA PERFORMED BACK OFFICE OPERA TIONS IN RESPECT OF ATM MANAGEMENT, ELECTRONIC PAYMENTS, DEC ISION SUPPORT AND RISK MANAGEMENT SERVICES RENDERED BY TH E FOREIGN COMPANIES OUTSIDE INDIA. II. ON THE FACTS OF THIS CASE, THE REVENUE AUTHORITIES TOOK A POSITION THAT INCOME OF THE TWO FOREIGN COMPANIES W AS ATTRIBUTABLE TO INDIA BECAUSE THEY HAD A PE IN INDI A IN THE FORM OF THEIR INDIAN ASSOCIATE COMPANY I.E. E-FUND INDIA, AND SHOULD BE TAXED IN INDIA. IT WAS FURTHER HELD BY TH E REVENUE THAT INCOME EARNED AND TAXED IN THE HANDS OF E-FUND INDIA WAS DIFFERENT FROM THE INCOME ATTRIBUTABLE TO THE TWO F OREIGN COMPANIES (IN THE HANDS OF E-FUND INDIA). THUS, THE BALANCE OR DIFFERENTIAL AMOUNT, I.E., INCOME ATTRIBUTABLE TO T HE TWO FOREIGN COMPANIES, WHICH WAS NOT INCLUDED IN INCOME EARNED AND TAXED IN THE HANDS OF E-FUND INDIA, SHOULD BE TAXED IN INDIA. III. THE HON'BLE HC HOWEVER REJECTED THE CONTENTION OF T HE REVENUE AUTHORITIES AND HELD THAT THE USA INCORPORA TED FOREIGN COMPANIES DID NOT HAVE A PE IN INDIA AND TH EREFORE NO INCOME WAS TAXABLE IN INDIA. 50 IV. THE FACTS OF THE CITED CASE ARE COMPLETELY AT VARI ANCE WITH THE FACTS IN THE PRESENT CASE. EVEN THE APPLICABLE LAW (OF INDIA-USA DTAA) IS DIFFERENT FROM THE LAW APPLICABLE HERE I.E . ARTICLE 5 OF INDIA-SINGAPORE DTAA. FIRSTLY, IN THAT CASE, THE IS SUE PRIMARILY WAS WHETHER AN INDIAN SUBSIDIARY CAN CONSTITUTE A PE FO R A FOREIGN COMPANY WHICH DID NOT HAVE ANY OFFICE OR FACTORY OR WORKSHOP IN INDIA. THE HIGH COURT HELD THAT MERELY BECAUSE A FO REIGN COMPANY HAS A SUBSIDIARY IN INDIA IT DOES NOT CONSTITUTE IT S PE. SAME IS NOT THE CASE HERE. IN THE PRESENT CASE OF HTS, ITS VERY OWN OFFICE IN INDIA IS BEING SOUGHT TO BE HELD AS ITS PE FOR THE REASON THAT IT PERFORMED BUSINESS ACTIVITIES WHICH WENT WAY BEYOND WHAT COULD BE DESCRIBED AS 'PREPARATORY OR AUXILIARY' CHARACTER U NDER ARTICLE 5 OF INDIA-SINGAPORE DTAA. V. SPECIFIC RELIANCE HAS BEEN PLACED ON PARA 19 & 20 OF THE JUDGMENT, WHICH EMPHASIZES ON THE THREE REQUIREMENTS OF ARTIC LE 5 FOR HOLDING A FIXED PLACE AS PE, NAMELY; (/) THE EXISTENCE OF P LACE OF BUSINESS AT THE DISPOSAL OF THE ENTERPRISE; (II) THE PLACE OF BUSINESS MUST BE OF A 'FIXED NATURE' (GEOGRAPHICAL AND TEMPORAL PERMANENC E); AND (III) THE ENTERPRISE BEING CARRIED ON IS REQUIRED TO BE 'CARR IED ON THROUGH THE PLACE OF BUSINESS' (WITH A SPECIAL EMPHASIS ON WORD 'THROUGH'). VI. ALL OF THESE THREE REQUIREMENTS ARE MET IN THE CASE OF HTS; THAT (I) IT HAD A PLACE OF BUSINESS IN INDIA WHERE SEVERAL O F ITS EMPLOYEES WORKED AND EARNED THEIR REMUNERATIONS, (II) THE PLA CE WAS FIXED AT A 51 KNOWN ADDRESS I.E. 602, 6TH FLOOR, EROS CORPORATE T OWERS, NEHRU PLACE - 110019, AND (III) AND DURING THE RELEVANT P ERIOD, ITS EMPLOYEES WERE ADMITTEDLY 'ENGAGED IN ADVERTISING AND MARKETI NG, SALES PROMOTION, MARKET RESEARCH, AND ADMINISTRATION' ACT IVITIES WHICH WERE WAY BEYOND THE SCOPE OF THE ACTIVITIES CARRIED OUT 'SOLELY FOR THE PURPOSE OF ADVERTISING, FOR THE SUPPLY OF INFOR MATION, FOR SCIENTIFIC RESEARCH, OR FOR SIMILAR ACTIVITIES WHIC H HAVE A PREPARATORY OR AUXILIARY CHARACTER' AS REQUIRED UNDER THE INDIA-SINGAPORE DTAA. THE CITED CASE LAW DOES NOT ASSIST THE ASSESSEE'S CASE. I. THIS IS ALSO A CASE OF A COMPANY INCORPORATED IN US A, WHICH HAD A WHOLLY OWNED SUBSIDIARY IN INDIA, NAMELY, ADOBE I NDIA. THE INDIAN COMPANY PROVIDED SOFTWARE RELATED RESEARCH A ND DEVELOPMENT (R&D) SERVICES TO ITS FOREIGN PARENT. T HE FOREIGN COMPANY DID NOT HAVE ANY SEPARATE BUSINESS OPERATIO NS IN INDIA. THE R&D SERVICES RENDERED BY ADOBE INDIA, WERE PAID FOR BY THE FOREIGN COMPANY ON COST PLUS BASIS IN TERMS OF AN AGREEMENT BETWEEN THE TWO. II. FOR THE RELEVANT YEARS, THE ASSESSING OFFICER AND THE TPO ACCEPTED THE FEES PAID BY THE ASSESSEE ON COST PLUS 15 PER CENT BASIS AS BEING ON ALP AND ADOBE INDIA'S ASSESSMENT WAS MADE ACCORDINGLY. SUBSEQUENTLY, THE ASSESSING OFFICER SO UGHT TO REOPEN THE ASSESSMENT. THE REASONS RECORDED FOR SAI D PURPOSE WERE THAT ACTIVITIES CARRIED OUT BY ADOBE INDIA WER E A PART OF THE FOREIGN COMPANY'S CORE BUSINESS ACTIVITIES AND, CONSEQUENTLY, ADOBE INDIA CONSTITUTED THE FOREIGN C OMPANY'S 52 PE UNDER ARTICLE 5(1) OF DTAA. THE ASSESSING OFFICE R FURTHER REASONED THAT SINCE THE ASSESSEE HAD A PE IN INDIA, A PART OF THE PROFIT ACCRUING TO THE ASSESSEE WHICH WAS ATTRI BUTABLE TO THE ACTIVITIES IN INDIA WAS CHARGEABLE TO TAX UNDER THE ACT. III. THE HON'BLE HC QUASHED THE REASSESSMENT PROCEEDING S, BY HOLDING THAT THE FOREIGN COMPANY DID NOT HAVE ANY R IGHT TO USE PREMISES OR ANY FIXED PLACE AT ITS DISPOSAL IN INDI A AND, THUS, RIGHT TO USE TEST OR DISPOSAL TEST WAS NOT SATISFIE D FOR HOLDING THAT IT HAD A PE IN INDIA IN TERMS OF ARTICLE 5(1) . FURTHER, EVEN THOUGH THE FOREIGN COMPANY WAS AUTHORIZED TO AUDIT INDIAN SUBSIDIARY (ADOBE INDIA) SUCH A CLAUSE IN AGREEMENT COULD NOT LEAD TO INFERENCE THAT IT HAD A SERVICE PE IN INDIA IN TERMS OF ARTICLE 5(2)(1) . ALSO, SINCE ADOBE INDIA WAS ASSESSED ON ITS INCOME DETERMINED AT ALP AND, THEREFORE, THERE WAS NO OCCASION FOR ASSESSING OFFICER TO ASSUME THAT ADOBE INDIA CONSTITUTED A PE FOR THE USA COMPANY UNDER ARTICLE 5(5) OF INDIA-USA TAX TREATY. IV. ONCE AGAIN, THE FACTS OF THE CITED CASE ARE COMPLE TELY DIFFERENT FROM THE CASE IN HAND. OF THE SPECIFIC RE LEVANCE ARE PARA 32 AND 33 OF THE JUDGMENT, WHERE THE HON'BLE HC AFTER QUOTING THE E-FUNDS CASE LAW (SUPRA), EMPHASIZED ON THE REQUIRED ATTRIBUTES OF A FIXED PLACE PE, ESPECIALLY THE REQUIREMENT THAT THE FIXED PLACE MUST BE AT THE DIS POSAL OF THE ASSESSEE FOR IT TO CARRY ON ITS BUSINESS (WHOLL Y OR PARTLY) 53 THROUGH IT. SINCE THESE POINTS HAVE BEEN ALREADY AD DRESSED ABOVE, IN RELATION TO THE E-FUNDS CASE, USING FACTS OF THE ASSESSEE'S CASE, THESE ARE NOT REPEATED HERE. V. THIS CASE ALSO DOES NOT GIVE ANY SUPPORT TO THE PRE SENT CASE. UAE NATIONAL PETROLEUM CONSTRUCTION COMPANY [2016] 66 TAXMANN.COM 16 (DELHI) I. IT WAS A CASE OF A UAE INCORPORATED NON-RESIDENT CO MPANY WHICH HAD ENTERED INTO CONTRACT WITH ONGC THAT ENTA ILED DESIGNING, ENGINEERING, PROCUREMENT, FABRICATION OF OFFSHORE PLATFORM AND ITS INSTALLATION, TESTING AND COMMISSI ONING AT AN OFFSHORE FACILITY OF ONGC. ACCORDING TO REVENUE, TH E INCOME FROM THE SAID CONTRACT WAS LIABLE TO BE TAXED IN IN DIA AS THE ASSESSEE HAD A PE IN INDIA. ACCORDING TO THE ASSESS EE, ITS INCOME FROM THE CONTRACT WAS NOT TAXABLE UNDER THE ACT BY VIRTUE OF DTAA WITH UAE. ASSESSEE CLAIMED THAT IT D ID NOT HAVE A PE IN INDIA AND FURTHER THE INCOME FROM FABR ICATION AND SUPPLY OF PLATFORM WAS NOT TAXABLE AS IT PERTAI NS TO THE ASSESSEE'S ACTIVITIES OUTSIDE INDIA. II. IN THIS CASE THE ASSESSEE HAD ESTABLISHED A PROJECT OFFICE AT MUMBAI, WHICH WAS ALSO INTIMATED TO THE RBI. IT WAS ALSO NOT DISPUTED THAT THE ASSESSEE DID CARRY ON PART OF ITS BUSINESS THROUGH ITS PROJECT OFFICE, IN THE CIRCUMS TANCES, 54 THE CONDITIONS AS SPELT OUT IN PARA 1 AND PARAGRAPH 2(C) OF ARTICLE 5 OF THE DTAA WERE SATISFIED. ACCORDING TO THE HIGH COURT, THE MATTER HOWEVER WOULD NOT REST HERE AND I T WAS TO BE SEEN WHETHER ANY OF THE EXCLUSIONARY CLAUSES OF PARAGRAPH 3 OF ARTICLE 5 OF THE DTAA WERE APPLICABL E. IN THIS CASE, THE HC CONSIDERED CLAUSE (E) OF PARAGRAP H 3 OF ARTICLE 5 OF THE DTAA WHICH EXPRESSLY PROVIDED THAT NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH 1 AND P ARAGRAPH 2 OF ARTICLE 5, A PE WOULD NOT INCLUDE 'MAINTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR THE PURPOSES OF CARRYI NG ON, FOR THE ENTERPRISE ANY OTHER ACTIVITY OF A PREPARATORY OR AUXILIARY CHARACTER'. THE ASSESSEE CONTENDED THAT ITS PROJECT OFFICE FALLS WITHIN THIS EXCLUSIONARY CLAUS E. III. THE HC AGREED WITH THE ASSESSEE IN VIEW OF THE SPEC IFIC LANGUAGE OF THE INDIA-UAE DTAA AND HELD THAT IN THE CONTEXT OF ARTICLE 5(3)(E) OF THE APPLICABLE DTAA, THE EXPRESSION WOULD NECESSARILY MEAN CARRYING ON ACTIV ITIES, OTHER THAN THE MAIN BUSINESS FUNCTIONS, THAT AID AN D SUPPORT THE ASSESSEE. THE HC THUS DECIDED THAT THE ACTIVITY OF THE ASSESSEE'S PROJECT OFFICE IN MUMBAI WOULD FALL WITH IN THE EXCLUSIONARY CLAUSE OF ARTICLE 5(3)(E) OF THE DTAA AND, THEREFORE, CANNOT BE CONSTRUED AS THE ASSESSEE'S PE IN INDIA. 55 IV. AGAIN, THIS CASE TOO WAS DECIDED AFTER APPLYING THE LAW THAT WAS COMPLETELY DIFFERENT FROM THE LAW APPLICABLE IN THE PRESENT CASE OF HTS. THE LANGUAGE OF ARTICLE 5(3)(E ) IN INDIA-UAE TREATY IS, THAT 3. NOTWITHSTANDING THE PRECEDING PROVISIONS OF THIS ARTICLE, THE TERM 'PERMANENT ESTABLISHMENT' SHALL BE DEEMED NOT TO INCLUDE: (E) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SO LELY FOR THE PURPOSE OF CARRYING ON, FOR THE ENTERPRISE, ANY OTHER ACTIVITY OJ A PREPARATORY OR AUXILIARY CNARACTER. IN CONTRAST, THE LANGUAGE OF CORRESPONDING ARTICLE 5(7)(K) IN INDIA- SINGAPORE DTAA IS: 7. NOTWITHSTANDING THE PRECEDING PROVISIONS OF THIS AR TICLE, THE TERM 'PERMANENT ESTABLISHMENT' SHALL BE DEEMED NOT TO INCLUDE: (E) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SO LELY FOR THE PURPOSE OF ADVERTISING, FOR THE SUPPLY OF INFORMATION, FOR SCIENTIFIC RESEARCH, OR FOR SIMILA R ACTIVITIES WHICH HAVE A PREPARATORY OR AUXILIARY CHARACTER, FOR THE ENTERPRISE. 56 IT IS EASY TO SEE THE DIFFERING REQUIREMENT OF THE TREATY LAW IN RESPECT OF THE EXCLUSIONS THAT CAN BE PERMITTED WHI LE HOLDING A FIXED PLACE OF BUSINESS AS PE ON THE GROUNDS OF PRE PARATORY OR AUXILIARY ACTIVITIES. V) NOT ONLY THAT THE CASE OF NATIONAL PETROLEUM CONSTRUCTION COMPANY WAS DECIDED ON THE DIFFERENT TREATY LAW, IT ALSO DIFFERED ON FACTS. IN THAT CASE THE HIGH COURT NOTE D THAT THE PROJECT OFFICE OF THE ASSESSEE WAS MANNED BY THREE EMPLOYEES, WHO WERE ONLY ENGAGED IN COLLECTING INFORMATION FRO M ONGC AND TRANSMITTING THE SAME TO THE ASSESSEE'S OFFICE IN A BU DHABI AND SIMILARLY TRANSMITTING COMMUNICATIONS FROM ASSESSEE 'S OFFICE IN ABU DHABI TO ONGC. THESE EMPLOYEES WERE SIMPLE GRAD UATES AND WERE NOT CAPABLE FOR PARTICIPATING IN THE EXECU TION OF THE WORK UNDERTAKEN. THEY WERE NOT EVEN THE EMPLOYEES O F THE PROJECT OFFICE. COMPARED IT TO THE CASE OF HTS, WHERE NOT ONLY THAT THERE WERE SEVERAL EMPLOYEES MANNING THE 'LO' THEY WERE 'PLAYI NG ACTIVE ROLE IN CONCLUDING THE STEALS BETWEEN HTS AND SOME OF TH E INDIAN CUSTOMERS' THIS CASE ALSO DOES NOT COME TO THE RESCUE OF THE A SSESSEE IN THE PRESENT CASE. 57 70. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON TH E DECISION OF THE TRIBUNAL IN THE CASE OF SOFEMA SA : ITA NO. 3900/ D EL./ 2002 WHICH WAS AFFIRMED BY THE HON'BLE HIGH COURT OF DELHI AND IN WHICH SLP WAS DISMISSED BY THE HON'BLE SUPREME COURT. 71. RELIANCE WAS PLACED ON THIS DECISION FOR THE FA CT THAT NO VIOLATION WAS FOUND BY THE RBI WITH THE ACTIVITIES OF THE LO. WE ARE OF THE CONSIDERED VIEW THAT THIS DECISION IS NOT APPLICABL E TO THE FACTS OF THE CASE IN HAND. FIRSTLY, IN THE CASE OF SOFEMA [SUPR A] THOUGH THE FINDINGS OF THE SURVEY WERE BASIS OF ASSESSMENT ORDER, BUT S AME WERE NEVER SHARED WITH THE ASSESSEE AND SUBSEQUENTLY, ASSESSME NT WAS COMPLETED BY NOT GIVING SUFFICIENT OPPORTUNITY TO THE ASSESSE E. FACTS OF THE CASE IN HAND CLEARLY SHOW THAT THE DOCUMENTS IMPOUNDED I N THE SURVEY PROCEEDINGS WERE VERY MUCH CONFRONTED TO THE ASSES SEE. WHETHER THE ASSESSEE VIOLATED THE CONDITIONS OF RBI OR FEMA IS NOT RELEVANT IN DETERMINING THE LO AS A PE UNDER THE I.T. ACT. 72. FOR OUR DETAILED DISCUSSION HEREINABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE LO IS PE OF THE APPELLANT. 58 IV ATTRIBUTION OF PROFIT TO THE PE 73. ARTICLE 7 OF THE INDIA SINGAPORE DTAA STATES TH AT THE PROFITS OF AN ENTERPRISE OF A CONTRACTING STATE SHALL BE TAXABLE ONLY IN MAT STATE UNLESS THE ENTERPRISE CAR RIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN. IF THE ENTERPRISE CARRIES ON BUSI NESS AS AFORESAID, THE PROFITS OF THE ENTERPRISE MAY BE TAXED IN THE O THER STATE BUT ONLY SO MUCH OF THEM AS IT DIRECTLY OR INDIRECTLY A TTRIBUTABLE TO THAT PERMANENTESTABLISHMENT. 74. ARTICLE 7(8) OF THE INDIA SINGAPORE DTAA STATES THAT FOR THE PURPOSE OF PARAGRAPH 1, THE TERM 'DIRECTLY OR INDIRECTLY TABLE TO THE PERMANENT ESTABLISHMENT' INCLUDES PROFITS ARISING F ROM TRANSACTIONS IN WHICH THE PERMANENT ESTABLISHMENT H AS BEEN INVOLVED AND SUCH PROFITS SHALL BE REGARDED AS ATTR IBUTABLE TO THE PERMANENT ESTABLISHMENT TO THE EXTENT APPROPRIATE T O THE PART PLAYED BY THE PERMANENT ESTABLISHMENT IN THOSE TRAN SACTIONS, EVEN IF THOSE TRANSACTIONS ARE MADE OR PLACED DIRECTLY W ITH THE OVERSEAS HEAD OFFICE OF THE 'ENTERPRISE RATHER THAN WITH THE PERMANENT ESTABLISHMENTS. 59 75. IN OUR CONSIDERED VIEW, EVEN IF THE ORDERS WERE PLACED DIRECTLY WITH THE HEAD OFFICE OF THE ASSESSEE, ANY PROFIT AR ISING FROM SUCH TRANSACTIONS CAN BE TAXED IN INDIA TO THE EXTENT AN Y PART IS PLAYED BY THE PE OF THE ASSESSEE IN INDIA. 76. ARTICLE 7(2) OF THE INDIA SINGAPORE DTAA REQUIR ES THAT THE PE OF NON RESIDENT ENTERPRISE BE TREATED AS A DISTINCT AN D SEPARATE ENTERPRISE ENGAGED IN THE SAME OR SIMILAR ACTIVITIE S UNDER THE SAME OR SIMILAR CONDITIONS AND DEALING WHOLLY INDEPENDENTLY WITH THE ENTERPRISE OF WHICH IT IS A PERMANENT ESTABLISHMENT . 77. THUS, THE PE, THOUGH A DISTINCT AND A SEPARATE ENTERPRISE, IS TO BE TREATED AS AN ASSOCIATED ENTERPRISE UNDER ARTICL E 9 OF THE DTAA READ WITH SECTIONS 92B AND 92F OF THE ACT. THEREFO RE, THE PE IS SUBJECT TO THE PROVISIONS OF SECTION 92, WHICH REQU IRE THAT ANY INTERNATIONAL TRANSACTION BE CARRIED OUT AT ARMS L ENGTH. 78. NOW THE ISSUE IS TO DETERMINE THE ARMS LENGTH PROFIT THAT THE APPELLANTS PE WOULD HAVE EARNED IF IT HAD BEEN OPE RATING AS AN INDEPENDENT ENTERPRISE IN INDIA. 60 79. THE DRP FOUND THE WORK PROFILE OF THE APPELLANT S PE TO BE SIMILAR TO ONE OF THE INDEPENDENT AGENT I.E. FOREVI SON, USED BY THE ASSESSEE TO CARRY OUT SAME OR SIMILAR ACTIVITIES CO NCERNING SALES IN INDIA. THE DRP HAS CONSIDERED THE PART DETAILS SUB MITTED BY THE ASSESSEE ITSELF AND AFTER COMPARING THE ACTIVITIES OF FOREVISION WITH THAT OF LO, DIRECTED THE ASSESSING OFFICER TO USE M ARGIN PERCENTAGE OF FOREVISION AS INTERNAL COMPARABLE. 80. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HEA VILY CONTENDED THAT THE DRP/ASSESSING OFFICER HAS, ON ADHOC AND AR BITRARY BASIS, EQUATED FUNCTIONS OF LO WITH AN INDEPENDENT AGENT A ND ON THAT BASIS HELD THAT THE PE (LO) OF THE APPELLANT OUGHT TO HAV E EARNED COMMISSION ON SALES @ 16.5% WITHOUT APPRECIATING TH AT THE NATURE OF ACTIVITIES CARRIED OUT AND THE PRODUCTS DEALT WITH BY THE INDEPENDENT AGENT ARE DIFFERENT FROM THOSE PRODUCTS IN RELATION TO WHICH LO HELD TO BE INVOLVED IN NEGOTIATION AND CONCLUSION OF ORDER IN INDIA. 81. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTEN TION TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF DIT VS. MORGAN STANLEY & CO. [292 ITR 416 (SC)] IN WHICH THE HON'B LE SUPREME COURT HAS H ELD THAT THE INCOME ATTRIBUTION TO THE PE HAS TO BE DONE WITH 61 REFERENCE TO ANALYSIS OF FUNCTIONS PERFORMED, ASSET S EMPLOYED AND RISKS ASSUMED. IT IS THE SAY OF THE LD. COUNSEL FO R THE ASSESSEE THAT NO OPPORTUNITY WAS PROVIDED TO CONTROVERT THE BASIS FO R TAXING THE INCOME OF APPELLANT IN INDIA. THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE COMPUTATION METHODOLOGY ADOPTED BY THE DRP/ASSE SSING OFFICER HAS NO BASIS AND IS BASED ON CONJECTURES AND SURMIS ES, AS NO FAR ANALYSIS HAS BEEN CONDUCTED BY THEM IN THIS REGARD. 82. REFERRING TO THE DECISION OF THE HON'BLE SUPRE ME COURT IN THE CASE OF ANGLO FRENCH TEXTILE COMPANY LTD. VS CIT 23 ITR 101 (SC) AND THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS BERTRAMS SCOTTS LTD.: 31 TAXMAN 444 (CAL. HC), THE LD. COUNSEL FOR THE ASSESSEE STATED THAT ON A ROUGH AND READY BASIS, SINCE THE ALLEGED PE IS INVOLVED IN LESSER NUMBER OF ACTIVITIES, ONLY 10% OF GLOBAL PRO FIT PERCENTAGE, AS APPLIED TO INDIA SALES COULD AT BEST BE ATTRIBUTED AS PROFIT ATTRIBUTABLE TO THE ALLEGED PE. 83. THE LD. COUNSEL FOR THE ASSESSEE FURTHER FURNIS HED A COMPARATIVE CHART OF GLOBAL PROFIT ON INDIA TURNOVER QUA PROFIT ATTRIBUTED TO LO BY ASSESSING OFFICER/DRP WHICH IS AS UNDER: 62 COMPARISON OF GLOBAL PROFIT ON INDIAN TURNOVER QUA PROFIT ATTRIBUTED TO LO BY AO/ DRP ASSESSMENT YEARS 2002-03 TO 2007-08 ASSESSMENT YEAR INDIAN TURNOVER (MBIL TURNOVER) COMMISSION @ 16.5% OF INDIAN TURNOVER TAKEN BY DRP EXPENSES OF LO PROFIT ATTRIBUTABLE TO LO AS PER AO/DRP GLOBAL NET PROFIT RATE (%) PROFIT TAKING GLOBAL NET PROFIT MARGIN ON INDIAN TURNOVER (100% ATTRIBUTION) (A) (B) = A* 16.5% (C) D= (B-C) (E) F = (A*E) 2002-03 141,131,193 23,286,647 8,864,522 14,422,125 0.72 1,016,145 2003-04 262,639,470 43,335,513 8,574,092 34,761,421 1.42 3,729,480 2004-05 2,922,938,885 482,284,916 14,368,505 467,916,411 0.96 28,060,213 2005-06 1,914,078,428 315,822,941 12,528,499 303,294,442 1.65 31,582,294 2006-07 1,392,195,828 229,712,312 11,997,691 217,714,621 2.08 28,957,673 2007-08 1,315,186,748 217,005,813 23,501,755 193,504,058 2.79 36,693,710 1,311,448,141 79,835,064 1,231,6 13,077 130,039,516 84. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT TH AT THE ROLE OF THE LO IN THE ENTIRE VALUE CHAIN IS EXTREMELY LIMITED A S IT REFLECTED IN THE LOW INTENSITY OF FUNCTIONS OF THE INDIAN LIAISON OF FICE AND SALES MADE TO INDIA THIRD PARTIES. IT IS THE SAY OF THE LD. COUN SEL FOR THE ASSESSEE THAT CONSIDERING THE INTENSITY OF FUNCTIONS OF THE INDIA N LIAISON, IT IS IN THE RANGE OF 0.50% TO 6.28%, THE AVERAGE BEING 2.22%, W HEREAS THE OPERATING MARGINS RESULTING FROM ATTRIBUTION MADE T O THE REVENUE ARE IN THE RANGE OF 163 TO 3257%, WHICH IS NOT ONLY EXC ESSIVE BUT ABSURD. 63 85. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE DRP. IT IS THE SAY OF THE LD. DR THAT THE DRP PROCEEDED WITH DETAILS SUBMITTED BY THE ASSESSEE ITSELF AND ON FINDING THA T THE INDEPENDENT AGENT FOREVISION IS PERFORMING /CARRYING OUT SAME O R SIMILAR ACTIVITIES, CONCERNING SALES IN INDIA. THE DRP HAS RIGHTLY USE D AVERAGE SALES COMMISSION OF 16.5% OF THE COMPARABLE FOREVISION AN D SAME SHOULD BE ACCEPTED. 86. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE R IVAL CONTENTIONS. THE UNDISPUTED FACT IS THAT TO BOOST SALES FOR ADVA NCE AND ANALYTICAL SYSTEMS [AAS] BUSINESS DIVISION, THE APPELLANT ENTE RED INTO ARRANGEMENTS WITH AGENTS IN INDIA FOR SPECIFIC MARK ETING AND PROMOTION AND ONE OF SUCH AGENT WAS FOREVISION. 87. AS PER TERMS OF THE AGENCY AGREEMENT, THE AGENT S WERE RESPONSIBLE FOR: MARKETING INCLUDING ADVERTISEMENTS, EXHIBITION PART ICIPATION AND THE NECESSARY SALES CO-ORDINATION ACTIVITY FOLLOW UP ASSISTANCE SERVICES IN RESPECT OF THE PO & LETTERS OF CREDIT FROM CUSTOMERS FOLLOWING UP ON DELIVERY TO CUSTOMERS FOLLOW UP AND ASSISTANCE IN RESPECT OF IMPORT DOCUM ENTATION 64 FOLLOW UP ON CREDIT AND COLLECTION DUE FROM CUSTOME RS INSTALLATION OF EQUIPMENT THROUGH THEIR OWN ENGINEE RS TEST RUNS (POST INSTALLATION) TRAINING OF CUSTOMERS STAFF AFTER SALE SERVICES, VIZ., MAINTAINING THE MACHINES QUALITY, REGULAR MAINTENANCE AND SUPPORT TO CUSTOMERS. 88. IT IS ALSO NOT IN DISPUTE THAT FOREVISION IS AL SO DOING BUSINESS WITH OTHER COMPANIES. IT IS EQUALLY TRUE THAT THE DRP/A SSESSING OFFICER HAS NOT DONE ANY FAR ANALYSIS OF FOREVISION QUA THE APP ELLANTS PE [LO]. 89. WE FIND FORCE IN THE CONTENTION OF THE LD. COUN SEL FOR THE ASSESSEE THAT THE LO IS PERFORMING ROUTINE AND LIMI TED FUNCTIONS AND IS OPERATING IN A RISK IMMUNE ENVIRONMENT AND CONSIDER ING THE INTENSITY OF FUNCTIONS, ATTRIBUTION MADE BY THE REVENUE WHICH RANGES FROM 163% TO 2357% IS NOT ONLY EXCESSIVE BUT ABSURD AND ABNOR MAL. 90. IN OUR CONSIDERED OPINION, WHEN A PE IS TREATE D AS IF IT IS AN INDEPENDENT ENTERPRISE, ITS PROFITS SHOULD BE DETER MINED ON THE BASIS AS IF IT IS AN INDEPENDENT ENTERPRISE. MEANING THE REBY, THE PROFITS OF THE PE SHOULD BE DETERMINED ON THE BASIS OF WHAT AN INDEPENDENT ENTERPRISE UNDER SIMILAR CIRCUMSTANCES MIGHT BE EXP ECTED TO DERIVE ON ITS OWN. FOR THIS PROPOSITION, WE DRAW SUPPORT FRO M THE DECISION OF THE 65 HON'BLE SUPREME COURT IN THE CASE OF MORGAN STANLEY 162 TAXMANN 165. IN OUR CONSIDERED VIEW, LOOKING TO THE BUSINESS PRO FILE OF FOREVISION AND IN THE ABSENCE OF COMPLETE DETAILS, THE SAME IS NOT A GOOD COMPARABLE. IN OUR UNDERSTANDING OF THE FACTS AND C ONSIDERING THAT THE LO IS PERFORMING ROUTINE AND LIMITED FUNCTIONS AND IS OPERATING IN A RISK IMMUNE ENVIRONMENT, THE ALLOCATION OF PROFIT SHOULD BE DONE BY APPLYING TNMM AS MOST APPROPRIATE METHOD. 91. THE ASSESSEE IS DIRECTED TO FURNISH NECESSARY D ETAILS AND THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE ATTR IBUTION OF PROFIT TO [LO] PE BY APPLYING TNMM AS MOST APPROPRIATE METHOD . IT IS MADE CLEAR THAT SALES THROUGH FOREVISION AND SALES TO VI DEOCON SHOULD NOT BE CONSIDERED FOR THE PURPOSES OF ATTRIBUTION OF PROFI TS. 92. TO SUM UP: I) THE DRP HAS DONE NO ENHANCEMENT AND HAS SIMPLY ADJU DICATED UPON FOLLOWING DIRECTIONS OF THE TRIBUNAL WHICH DIR ECTED THE DRP TO ADJUDICATE THE OBJECTIONS RAISED BY THE ASSE SSEE BY A SPEAKING ORDER. 66 II) YES, THE ASSESSEE HAS BEEN PUT IN A MORE WORSE SITU ATION THAN WHAT IT WAS BEFORE FILING APPEAL IN THE FIRST ROUND OF LITIGATION. THEREFORE, WE HAVE HELD, AS MENTIONED ELSEWHERE THA T THE ADDITIONS MADE IN THE FIRST ROUND OF LITIGATION WIL L ONLY BE CONSIDERED WHICH IS RS. 7.21 CRORES. III) YES. THERE IS A PE IN INDIA. IV) ATTRIBUTION HAS TO BE DONE BY APPLYING TNMM AS MOST APPROPRIATE METHOD ON THE PROFITS ATTRIBUTABLE TO T HE SALES EXCLUDING FOREVISION AND VIDEOCON. 93. BEFORE CLOSING, THE REPRESENTATIVES OF BOTH THE SIDES HAVE REFERRED TO SEVERAL JUDICIAL DECISIONS IN THEIR RES PECTIVE WRITTEN SYNOPSIS. HOWEVER, WE HAVE ONLY CONSIDERED THOSE D ECISIONS WHICH HAVE SOME RELEVANCE ON THE FACTS UNDER CONSIDERATIO N. 94. BEFORE PARTING, WE APPRECIATE AND THANK THE ASS ISTANT GIVEN BY SHRI SANJAY PURI, LD. PCIT, UDAIPUR REPRESENTING TH E REVENUE AND SHRI AJAY VOHRA, SR. ADV. NEXT ISSUE RELATES TO CHARGING OF INTEREST U/S 234B OF THE ACT. 67 94. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESS EE THAT THE REVENUES RECEIVABLE BY IT ARE SUBJECT TO DEDUCTION OF TAX AT SOURCE, THEREFORE, THE QUESTION OF PAYMENT OF ADVANCE TAX AND SUBSEQUE NT LEVY OF INTEREST UNDER SECTION 234B OF THE ACT DOES NOT ARI SE AT ALL. 95. PER CONTRA, THE LD. DR STATED THAT SINCE THE AS SESSEE DID NOT FILE ANY TAX RETURN AND MADE EVERY ATTEMPT TO CONCEAL IN COME EARNED IN INDIA FROM GETTING TAXED, AND INCOME OF THE ASSESSE E HAS BEEN BROUGHT TO TAX ONLY AFTER ISSUE OF NOTICES U/S 148 OF THE A CT, THE PLEA OF INCOME HAVING BEEN SUBJECT TO TDS IS NOT AVAILABLE TO THE ASSESSEE AND HENCE INTEREST U/S 234B OF THE ACT HAS BEEN RIGHTLY LEVIE D BY THE DRP/ASSESSING OFFICER. 96. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE R IVAL CONTENTIONS AND HAVE CAREFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. AS PER THE PROVISIONS OF SECTION 234B OF THE ACT, AN ASSESSEE WHO IS LIABLE TO PAY ADVANCE TAX UNDER SECTION 208 WILL BE LIABLE TO INT EREST UNDER SECTION 234B OF THE ACT, IF HE FAILS TO PAY SUCH TAX, OR TH E ADVANCE TAX PAID BY HIM FALLS SHORT OF 90 PERCENT OF THE ASSESSED TAX. IN OUR UNDERSTANDING OF THE LAW, AN ASSESSEE MUST FIRST BE LIABLE TO PAY ADVANCE TAX UNDER 68 THE PROVISIONS OF SECTION 208 OF THE ACT. AS PER T HE PROVISIONS OF SECTION 208 READ WITH SECTION 209(1)(D) OF THE ACT, ADVANCE TAX PAYABLE HAS TO BE COMPUTED AFTER REDUCING FROM THE ESTIMATED TAX LIABILITY THE AMOUNT OF TAX DEDUCTIBLE/ COLLECTIBLE AT SOURCE ON INCOME WHICH IS INCLUDED IN COMPUTING THE ESTIMATED TAX LI ABILITY. 97. UNDER SECTION 195 OF THE ACT, TAX IS DEDUCTIBLE AT SOURCE FROM PAYMENTS MADE TO NON-RESIDENTS. APPELLANT IS A NON -RESIDENT AND THUS, TAX IS DEDUCTIBLE AT SOURCE FROM THE PAYMENTS MADE TO IT UNDER SECTION 195 OF THE ACT. SINCE TAX WAS DEDUCTIBLE AT SOURCE ON ALL THE PAYMENTS MADE TO APPELLANT, NO ADVANCE TAX WAS PAYABLE AS PE R THE PROVISIONS OF THE ACT. 98. THE HON'BLE DELHI HIGH COURT IN THE CASE OF DIT V. GE PACKAGED POWER INC. 373 ITR 65 WHEREIN THE HIGH COURT HELD THAT NO INTEREST UNDER SECTION 234B OF THE ACT CAN BE LEVIED ON THE ASSESSEE-PAYEE ON THE GROUND OF NON-PAYMENT OF ADVANCE TAX BECAUSE TH E OBLIGATION WAS UPON THE PAYER TO DEDUCT THE TAX AT SOURCE BEFORE M AKING REMITTANCES TO THEM. 99. AMENDMENT TO THE PROVISIONS HAVE BEEN BROUGHT B Y THE FINANCE ACT, 2012, W.E.F. 1.4.2012 BY WHICH A PROVISO BELOW SECTION 209(1)(D) 69 OF THE ACT HAS BEEN ADDED BUT APPLICABLE FROM A.Y 2 013-14. CONSIDERING THE LAW ON THIS ISSUE, WE DIRECT THE AS SESSING OFFICER NOT TO CHARGE INTEREST U/S 234B OF THE ACT. 100. IN A.Y 2004-05, INTEREST HAS ALSO BEEN LEVIED U/S 234A OF THE ACT. SUCH LEVY IS CONSEQUENTIAL AND WE DIRECT THE ASSESS ING OFFICER TO CHARGE INTEREST AFTER GIVING APPEAL EFFECT AS PER T HE PROVISIONS OF THE ACT 101. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN ITA NOS. 2683 TO 2688/DEL/2015 ARE PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 17.09. 2019. SD/- SD/- [ SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17 TH SEPTEMBER, 2019 VL/ 70 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER