Daikin Industries Ltd., Gurgaon V. ADIT, New Delhi

ITA 3005/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61770 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 07-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K GUPTA
• Keywords: Double taxation relief; Opportunity of being heard; Permanent establishment; Advance ruling; Question of law; Wholly owned subsidiary
• Section: 234B

Judgement Text

ITA NO. 3005/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 3005/DEL/2011 A.Y. : 2006-07 DAIKIN INDUSTRIES LIMITED, C/O BMR ASSOCIATES, 22 ND FLOOR, BUILDING NO. 5, TOWER-A, DLF CYBER CITY, DLF PHASE-III, GURGAON 122 002 HARYANA (PAN/GIR NO. : AACCD2498N) VS. ASSISTANT DIRECTOR OF INCOME TAX, CIRCLE 1(1), INTERNATIONAL TAXATION, DRUM SHAPE BUILDING, IP ESTATE, NEW DELHI (APPELLANT (APPELLANT (APPELLANT (APPELLANT ) )) ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : SH. MUKESH BUTANI, ADV., SH. ANURAG JAIN, PARUL JAIN, MOHIT AGGARWAL, ANUJ AGGARWAL, CA DEPARTMENT BY : SH. D.K. GUPTA, CIT(D.R.) ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XI, NEW DEL HI DATED 07.3.2011 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE GROUNDS RAISED READ AS UNDER:- 1. GENERAL 1.1 THAT THE ORDER DATED MARCH 7, 2011 PASSED BY T HE, COMMISSIONER OF INCOME-TAX (APPEALS) - XI, NEW DELHI ITA NO. 3005/DEL/2011 2 [HEREINAFTER REFERRED TO AS 'THE CIT(A)'] UNDER SEC TION 253 OF THE INCOME TAX ACT 1961 ('ACT') IS ILLEGAL, BAD IN L AW AND VOID AB INITIO. 1.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE ASSISTANT DIRECTOR OF INCOME-TAX, CIRCLE 1(1), INTERNATIONAL T AX, NEW DELHI, (HEREINAFTER REFERRED TO AS 'THE AO') ASSESSI NG THE INCOME OF THE APPELLANT FOR THE RELEVANT ASSESSMENT YEAR AT RS. 79,353,253, AS AGAINST THE RETURNED INCOME OF RS . 19,718,810. 2. CREATION OF PERMANENT ESTABLISHMENT ('PE') 2.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE AO CONCLUDING THAT THE APPELLANT HAD A PE IN INDIA AS P ER THE PROVISIONS OF PARAGRAPH 7 OF ARTICLE 5 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIAN AND JAPAN ('THE TREATY'). 3. ATTRIBUTION OF PROFITS 3.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE AO ATTRIBUTING PROFITS OF RS. 59,634,440 TO THE ALLEGE D PE OF THE APPELLANT IN INDIA WITHOUT ANY COGENT BASIS AND WIT HOUT CONSIDERING THE PROVISIONS OF THE ACT. 3.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE AO ATTRIBUTING PROFITS OF RS 59,634,440 TO THE ALLEGED PE AND ITA NO. 3005/DEL/2011 3 NOT APPRECIATING THAT AN ARM'S LENGTH COMMISSION HAD BEEN PAID TO THE ALLEGED DEPENDENT AGENT, DAIKIN AIR-CON DITIONING INDIA PRIVATE LIMITED, WHICH SHOULD EFFECTIVELY EXTIN GUISH ANY ATTRIBUTION TO THE ALLEGED PE. 3.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE AO AND IN NOT ALLOWING DEDUCTION ON ACCOUNT OF ACTUAL COMMISSI ON PAYABLE TO DAIPL AT RS. 106,439,135 WHILE COMPUTING TAXABLE PROFITS ATTRIBUTABLE TO THE ALLEGED PE IN IN DIA. 3.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLDING THE ATTRIBUTION A S MADE BY THE AO, ERRONEOUSLY OBSERVING THAT THE APPELLANT HA S NOT PUT FORTH ANY FACTS TO SUBSTANTIATE A LOWER ATTRIBU TION OF PROFITS, IGNORING THE DETAILS OF ITS GLOBAL PROFITA BILITY FOR THE RELEVANT YEAR PLACED ON RECORD BY THE APPELLANT. 4. LEVY OF INTEREST 4.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE AO LEVYING INTEREST UNDER SECTION 234B OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT , SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF HEARING, OF THE APPEAL. 3. THE ASSESSEE IS ENGAGED IN THE DEVELOPMENT, MANU FACTURE, ASSEMBLY AND SALE OF AIR CONDITIONING AND REFRIGERAT ION EQUIPMENTS. IT WAS INCORPORATED IN JAPAN. IN INDIA, THE ASSESSEE IS HAVING A WHOLLY OWNED SUBSIDIARY BY THE NAME OF DAIKIN AIR-CONDITION ING INDIA PVT. LTD. ITA NO. 3005/DEL/2011 4 (DAIPL/ INDIAN COMPANY). EARLIER THE INDIAN COMPANY WAS JOINT A VENTURE OF THE ASSESSEE COMPANY OF THE ASSESSEE AND SHRIRAM GROUP. IN FINANCIAL YEAR 2004-05, THE JOINT VENTURE WAS TE RMINATED AND THE ASSESSEE ACQUIRED ALL THE SHARES IN THE JOINT VENTU RE COMPANY. REGARDING THE FACT WHETHER THE ASSESSEE HAS A PERMAN ENT ESTABLISHMENT (PE) IN INDIA, THE OBSERVATION OF THE AO ARE SUMMARIZED BELOW:- 5.1 THE CONTENTION OF THE ASSESSEE THAT DAIPL ACTED AS A COMMUNICATION CHANNEL BETWEEN THE PROSPECTIVE CUSTOMERS AND THE ASSESSEE AND FACILITATE THE FLOW OF INFORMATION AND DOCUMENTS LIKE ENQUIRIES, PROPOSALS , QUOTATION, PURCHASE ORDERS, INVOICES ETC BETWEEN TH E ASSESSEE AND THE CUSTOMERS. AS AGAINST THIS, THE COMMISSION AGREEMENT DATED 22/12/05 STATES THE ROLES AND RESPONSIBILITY OF DAIPL AS BELOW:- I) TO FORWARD THE CUSTOMER'S REQUEST FOR PROCURING PRODUCTS FROM DIL TO DIL. II) TO FORWARD DILS QUOTATION AND CONTRACTUAL PROPOSALS TO THE CUSTOMERS, THE ASSESSEE DID NOT SUBMIT ANY DOCUMENT TO PROVE THAT ENQUIRIES, PROPOSALS FROM THE CUSTOMERS WERE RECEIVED BY IT, IT CLEARLY INDICATES THAT NO S UCH ENQUIRIES OR PROPOSALS WERE RECEIVED FROM THE CUSTOMERS BY THE ASSESSEE AND THESE FUNCTIONS WERE PERFORMED BY DAIPL AND FOR THESE FUNCTIONS DAIPL IS NOT BEING REMUNERATED. WITHOUT PREJUDICE TO THE ABOVE AND WITHOUT ACCEPTING, EVEN IF THE ASSESSEE W AS ITA NO. 3005/DEL/2011 5 RECEIVING ENQUIRIES/PROPOSALS FROM CUSTOMERS FORWARDED BY DAIPL FOR THESE FUNCTIONS ALSO DAIPL IS NOT BEING REMUNERATED. 5.2 THE REASON FOR DIRECT IMPORT BY THE CUSTOMERS AR E CERTAINLY ON ACCOUNT OF EXEMPTIONS FROM CUSTOMS DUTY. 5.3 THE ASSESSEE HAS CONTENDED THAT THE SALES MADE TO VARIOUS CUSTOMERS WERE NOT LESS THAN RS.1 LAKH, BUT MORE THAN THAT. EVEN IF THIS BEING SO, THE SAME DOES NOT CHANGE THE FACT THAT, ASSESSEE, DID NOT SUBMIT A NY OBJECTIVE DOCUMENTS TO SUPPORT ITS CONTENTION THAT, WITH THESE PARTIES IT HAS NEGOTIATED THE PRICES. 5.4 THE CLAIM THAT THE CONSULTANT/CONTRACTOR/ARCHIT ECT REPRESENTS SEVERAL PRICE AND ARE IN CONTACT WITH ASSESSEE GENERALLY FOR THEIR REQUIREMENTS ON A REGUL AR BASIS AND THE DISCUSSION ABOUT THE PRICES TAKE PLAC E GENERALLY BETWEEN THE CONSULTANTS OF THE INDIVIDUAL AND THE ASSESSEE. EVEN FOR SUCH CLAIM NOT A SINGLE DOCUMENTARY EVIDENCE IS FILED. 5.6 .SUCH EXPLANATION IS NOT MATERIAL FOR THE FA CT THAT THIS OFFICE HAD REQUESTED THE EMAILS/CORRESPONDENCE WITH THE DIRECT CUSTOMERS IN INDIA WITH REGARD TO THE RECEIPT OF PROPOSALS, RELA TING TO PRICE NEGOTIATION AND OTHER DOCUMENTS. THESE DOCUMENTS ARE NOT SUPPOSED TO BE IN THE POSSESSION OF THE PERSON HANDLING THE TAX MATTERS. IN ABSENCE OF THESE DOCUMENTS, ONE IS REQUIRED TO DRAW THE ITA NO. 3005/DEL/2011 6 CONCLUSION THAT THE EMPLOYEES OF DAIPL OR THE PERSONS OF THE ASSESSEE, WHO ARE DEPUTED WITH DAIPL ONLY, ARE DECIDING THE PRICES OF THE PRODUCTS AND O NLY THOSE PERSONS ARE SECURING THE ORDERS FOR THE ASSESSEE. 5.7 THE ASSESSEE'S CLAIM THAT THE EMPLOYEES, WHO VIS ITED INDIA, FOR WHICH INFORMATION WAS SUBMITTED VIDE LETTE R DATED 20/11/08, INCLUDE PEOPLE FROM SALES AND MARKETING, WHO HAVE MADE FREQUENT VISITS, SUCH PERSONNEL WERE RESPONSIBLE FOR DISCUSSING PROPOSALS AND TO NEGOTIATE THE TERMS AND CONDITIONS AND PRICES WITH THE CUSTOMERS. THIS IS NOT ACCEPTABLE DUE TO T HE FACT THAT ONLY VERY FEW EMPLOYEES HAD BUSINESS MEETINGS WITH CUSTOMERS. THESE BUSINESS MEETINGS WILL NOT BE ONLY FOR THE PURPOSE OF DIRECT SALES BY DIL BUT ALSO FOR THE SALES MADE THROUGH DAIPL. ...... IN VIEW OF THE ABOVE AND IN ABSENCE OF POSITIVE DOCUMENTARY EVIDENCE BY THE ASSESSEE, IT I S HELD THAT DAIPL SECURES ORDERS IN INDIA FOR THE ASSESSEE (WHICH IS CONTROLLING DAIPL) AND DAIPL ALSO NEGOTIATES AND FINALIZES THE PRICES WITH THE CUSTOM ERS OF ASSESSEE IN INDIA, THOUGH SUCH AUTHORITY IS NOT VESTED IN THEM THROUGH ANY AGREEMENT, BUT IN PRACTI CE THEY ARE DECIDING THE PRICES AND SUCH PRICES ARE LA TER ON BEING CONFIRMED BY THE ASSESSEE THROUGH DOCUMENTS. SUCH PRICES DECIDED BY DAIPL HAVE THE ITA NO. 3005/DEL/2011 7 BINDING EFFECT ON THE ASSESSEE, AS THE OTHERWISE HA S NOT BEEN PROVED. IN THIS REGARD, REFERENCE IS INVITED TO PARA 32.1 OF THE COMMENTARY ON OECD MODEL TAX CONVENTION READS AS BELOW:- 32.1 ALSO THE PHRASE 'AUTHORITY TO CONCLUDE CONTRACTS IN THE NAME OF THE ENTERPRISE' DOES NOT CONFINE THE APPLICATION OF THE PARAGRAPH TO AN AGEN T WHO ENTERS INTO CONTRACTS LITERALLY IN THE NAME OF THE ENTERPRISES; THE PARAGRAPH APPLIES EQUALLY TO AN AG ENT WHO CONCLUDES CONTRACTS WHICH ARE BINDING ON THE ENTERPRISE EVEN IF THOSE CONTRACTS ARE NOT ACTUALLY IN THE NAME OF THE ENTERPRISE. LACK OF ACTIVE INVOLVEME NT BY AN ENTERPRISE IN TRANSACTIONS MAY BE INDICATIVE OF A GRANT OF AUTHORITY TO AN AGENT. FOR EXAMPLE, AN AGEN T MAY BE CONSIDERED TO POSSESS ACTUAL AUTHORITY TO CONCLUDE CONTRACTS WHERE HE SOLICITS AND RECEIVES ( BUT DOES NOT FORMALLY FINALIZE) ORDERS WHICH ARE SENT DIRECTLY TO A WAREHOUSE FROM WHICH GOODS ARE DELIVERED AND WHERE THE FOREIGN ENTERPRISE ROUTINEL Y APPROVES THE TRANSACTIONS.' (EMPHASIS SUPPLIED) IN ARRIVING AT THE PRICES WITH THE CUSTOMERS, THE ASSESSEE COULD NOT PROVE THAT IT WAS ACTIVELY INVOL VED IN NEGOTIATING THE PRICES, WHICH LEAD TO THE CONTRA CTS. THEREFORE IT IS HELD THAT THE ASSESSEE HAS PE IN IND IA ITA NO. 3005/DEL/2011 8 CONSIDERING THE PROVISIONS OF PARAGRAPH 7(A) AND 7(C ) OF THE TAX TREATY BETWEEN INDIA AND JAPAN. 4. BEFORE THE LD. CIT(A), ASSESSEE INTER-ALIA SUBMI TTED THAT THE ASSESSEE COMPANY WAS INCORPORATED IN JAPAN AND IT HA S A WHOLLY OWN SUBSIDIARY IN THE NAME AND STYLE DAIKIN AIR-CONDITIO NING INDIA PVT. LTD. THE INDIAN COMPANY DOES TRADING IN AC MACHINE IN AS MUCH IT PURCHASES THE MACHINE FROM THE PARENT COMPANY AND SEL LS TO INDIAN CUSTOMERS. THE APPELLANT, THE PARENT COMPANY ALSO DI RECTLY SELLS ITS PRODUCT TO THE RESIDENT CUSTOMERS. THE INDIAN COMPAN Y PROVIDES AFTER SALE WARRANTY SERVICES BOTH FOR THE PARENT COMPANY A ND FOR ITSELF AND MARKETING SUPPORT FOR THE PARENT COMPANY. THE LD AO W HILE COMPLETING THE ASSTT. HAS HELD THAT THE INDIAN COMPAN Y NEGOTIATES AND CONCLUDES CONTRACTS ON BEHALF OF THE APPELLANT AND THEREFORE THE APPELLANT HAS A PE IN INDIA UNDER ART.5(7) OF INDO JAPAN TREATY (REFER TO PAGE 16 TO 18, PARA 5.1 TO 5.10 OF THE ORD ER DATED 26/12/08). IT WAS FURTHER SUBMITTED THAT THE APPROACH OF THE LD AO IS WRONG BECAUSE OF THE FOLLOWING REASONS:- A) THE AGREEMENT DATED 22/12/05 ENTERED UPON BETWEEN T HE APPELLANT AND THE INDIAN COMPANY (DAIPL) REVEALS THAT THE SOLE JOB OF DAIPL IS TO ACT AS A COMMUNICATION CHANNEL BETWE EN THE APPELLANT AND THE INDIAN CUSTOMERS. THE APPELLANT HA S PRODUCED DOCUMENTS LIKE COPY OF THE AGREEMENT, QUOTAT IONS, PURCHASE ORDERS ETC. DURING THE COURSE OF ASSTT. PR OCEEDINGS BUT FURTHER REQUIREMENTS LIKE DETAILS OF CORRESPONDE NCE THROUGH E-MAILS COULD NOT BE FILED AS THE MATTER WAS ABOUT 4 YEARS OLD AND THE DETAILS WERE NOT MAINTAINED EITHE R BY THE APPELLANT OR BY DAIPL. THE COPIES OF PURCHASE ORDER AS FILED ITA NO. 3005/DEL/2011 9 BEFORE THE LD AO CLEARLY INDICATES THAT THE INDIAN CUSTOMERS PLACED ORDER DIRECTLY WITH THE APPELLANT COMPANY AND THERE WAS NO ROLE IN CONCLUDING CONTRACT BY DAIPL IN SUCH TRANSACTION. THE APPELLANT RECEIVES QUERIES FROM RE SIDENT CUSTOMERS AND FORWARD THE SAME TO THE APPELLANT AND THE PROPOSAL IS PREPARED AND SENT BY THE APPELLANT TO D AIPL WHICH IN TURN FORWARD THE SAME TO THE RESIDENT CUSTOMERS. THIS ACTION OF THE DAIPL BY ITSELF WOULD NOT PROVE CONCLUSION OF THE CONTRACT AS ALLEGED BY THE LD. AO. B) THE ART.5(7)(A) STIPULATES THE CONDITIONS FOR HAVIN G PE IN INDIA AND THE DAIPL WOULD NOT MEET THE CONDITIONS AS LAID DOWN AND HENCE THE ACTION OF THE LD AO IS WRONG. 5. CONSIDERING THE ABOVE, LD. CIT(A) HELD AS UNDER: - EXAMINED THE RIVAL SUBMISSIONS. THE SHORT QUESTION OF LAW TO BE ADJUDICATED HERE AS TO WHETHER THE APPELLA NT HAS PE IN INDIA WITHIN THE MEANING OF PARA 7(A) AND PARA 7(C) OF ARTICLE 5 OF INDO JAPAN TREATY (DTAA). EITHER SIDE HAS GIVEN ITS ARGUMENT WHICH HAS BEEN PLACED ABOVE IN VERBATIM. THE FACT REMAINS IN THE INSTANT CASE THAT THE APPELLANT DID NOT SUPPLY ANY DOCUMENT BEFORE THE REVENUE TO PROVE THAT ENQUIRIES, PROPOSALS FROM THE CUSTOMERS WERE RECEIVED BY IT. WHETHER SUCH ACT OF APPELLANT WOULD IPSO FACTO INDICATE THAT NO SUCH ENQUIRIES OR PROPOSALS WERE PERFORMED IS ALSO TO BE DECIDED BUT THERE IS NO SHR ED OF DOUBT THAT THE APPELLANT HAS GROSSLY FAILED TO DISCHARGE ITS ONUS WHICH HAS BEEN PLACED ON IT BY T HE ITA NO. 3005/DEL/2011 10 STATUTE ITSELF. THE LD AO HAS BROUGHT ON RECORD THA T REGARDING THE CLAIM OF THE APPELLANT THAT THE CONSULTANT /CONTRACTOR REPRESENT SEVERAL PRICE AND ARE IN CONTACT WITH THE APPELLANT COULD NOT BE VERIFIED AS NOT A SINGLE DOCUMENTARY EVIDENCE IN THIS RESPECT WA S FILED BEFORE THE REVENUE IN SPITE OF SPECIFIC REQUI SITION. THE AO HAS ALSO COME TO THE CONCLUSION FROM THE MATERIAL EVIDENCE THAT BUSINESS MEETING WILL NOT BE ONLY FOR THE PURPOSE OF DIRECT SALES BY THE APPELLA NT BUT ALSO THROUGH THE DAIPL. IN ABSENCE OF ANY SUCH DOCUMENT THE REVENUE WAS CONSTRAINED TO CONCLUDE THAT DAIPL SECURED ORDERS IN INDIA FOR THE APPELLANT , THE APPELLANT IS THE CONTROLLING AUTHORITY FOR DAIPL AND DAIPL ALSO NEGOTIATES AND FINALIZES THE PRICES WITH T HE CUSTOMERS OF THE APPELLANT IN INDIA. THE AUTHORITY FOR SUCH ACT ALTHOUGH NOT VESTED IN THEM THROUGH ANY AGREEMENT BUT IN ALL PRACTICAL PURPOSES THEY WERE DECIDING THE PRICES AND SUCH PRICES LATER ON CONFIR MED BY THE APPELLANT THROUGH DOCUMENT AT A ROUTINE MANNER. IT HAS BEEN DECISIVELY HELD BY A FIVE MEMBER BENCH OF SUPREME COURT IN THE CASE OF MC DONALD V. CIT 154 ITR 148 (5C) THAT ANY COLOURABLE DEVICE TO EVADE THE TAX WOULD NOT EXONERATE THE ASSESSEE FROM THE AMBIT OF TAXATION STATUTE. ALTHOUGH NO AGREEMEN T WAS SIGNED BETWEEN THE APPELLANT AND DAIPL IN THIS REGARD BUT IN REALITY THE PRICES DECIDED BY DAIPL H AVE BEEN CONFIRMED BY THE APPELLANT AND THE LD. AO HAS ITA NO. 3005/DEL/2011 11 RIGHTLY PIERCED THROUGH THE VEIL TO FIND THE ACTUAL FACT AND SUCH FACT CANNOT BE FAULTED. ALTHOUGH NO AGREEMENT WAS ENTERED UPON BETWEEN THE APPELLANT AND DAIPL, THE LATTER COMPANY ACTED AS ITS AGENT FOR SOLICITING ORDER. THE AO H AS MADE A DETAILED STUDY WHICH HE HAS PLACED IN THE FACE OF THE ASSTT. ORDER. THE APPELLANT COULD NOT PRODUCE ANY DOCUMENTS AS ASKED FOR BY THE REVENUE. THIS LEADS TO AN INESCAPABLE CONCLUSIO N THAT THERE IS A DIRECT NEXUS BETWEEN THE APPELLANT AND DAIPL. NON-PRODUCTION OF THE DOCUMENT AT THE ASSTT. STAGE WOULD PROVE THE HOLLOWNESS OF THE ARGUMENT OF THE APPELLANT. THE APPELLANT HAS CHOSE N BOTH BEFORE THE LD. AO AND ALSO BEFORE ME TO EXPLAI N THE SITUATION NOT WITH FACTS BUT ONLY WITH THE CASE LAWS. THE COURT DECISIONS, UNDER NO STRETCH OF IMAGINATION CAN BE SUBSTITUTE FOR FACTS AND THERE IS CONSPICUOUS ABSENCE OF THE SAME IN THE PRESENT CASE. THE APPELLANT HAS FAILED TO EXPLAIN THE FACTS TO TH E SATISFACTION OF THE AO AND THE OBSERVATION OF THE A O IS ON FACTS AND HE HAS CRITICALLY EXAMINED ALL THE SUBMISSIONS OF THE APPELLANT FOR THE PERIOD UNDER CONSIDERATION (0607). CONSIDERING THE MATERIAL FACT S, I CONFIRM THE APPROACH TAKEN BY THE LD. AO IN HOLDING THAT THE APPELLANT HAS PE IN INDIA WITHIN THE MEANIN G OF PARA 7(A) AND PARA 7(C) OF ARTICLE 5 OF INDO JA PAN TAX TREATY. WITH THIS THE QUESTION RELATING TO THE FACT THAT WHETHER THE APPELLANT HAS PE IN INDIA IS ANSWER ED ITA NO. 3005/DEL/2011 12 IN FAVOUR OF REVENUE AND AGAINST THE APPELLANT AND THE GROUND OF THE APPELLANT FAILS. 6. AGAINST THE ABOVE ASSESSEE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENTS RELIED UPON. 8. IN THIS REGARD ASSESSEES SUBMISSION AS REGARD PERMANENT ESTABLISHMENT ARE AS UNDER:- AUTHORITY TO CONCLUDE CONTRACTS ARTICLE 5(7) OF THE INDIA-JAPAN TAX TREATY READS AS FOLLOWS: .. 7. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH S 1 AND 2, WHERE A PERSON OTHER THAN AN AGENT OF AN INDEPEN DENT STATUS TO WHOM PARAGRAPH 8 APPLIES - IS ACTING IN A CONTRACTING STATE ON BEHALF OF AN ENTERPRISE OF THE OTHER CONTRACTING STATE, THAT ENTERPRISE SHALL BE DEEMED T O HAVE A PERMANENT ESTABLISHMENT IN THE FIRST-MENTIONED CONTRACTING STATE, IF (A) HE HAS AND HABITUALLY EXERCISES IN' THAT CONTRA CTING STATE AN AUTHORITY TO CONCLUDE CONTRACTS ON BEHALF OF THE ENTERPRISE, UNLESS HIS ACTIVITIES ARE LIMITED TO THO SE MENTIONED IN PARAGRAPH 6 WHICH, IF EXERCISED THROUGH A FIXED PLACE OF BUSINESS, WOULD NOT MAKE THIS FIXED P LACE OF BUSINESS A PERMANENT ESTABLISHMENT UNDER THE PROVISI ONS OF THAT PARAGRAPH ... ' THE PHRASE 'AUTHORITY TO CONCLUDE CONTRACTS' IMPLIES THAT AN AGENT OF A NON RESIDENT CAN BE CONSTRUED TO CONSTIT UTE A PE ITA NO. 3005/DEL/2011 13 OF THE NON-RESIDENT, IF THE AGENT CAN ACT INDEPENDE NTLY ON ITS OWN IN THE MATTER OF CONCLUDING CONTRACTS ON BEH ALF OF ITS PRINCIPAL. IF THE AGENT CANNOT CONCLUDE OR ENTER IN TO A CONTRACT ON ITS OWN OR WITHOUT THE FINAL CONFIRMATIO N / APPROVAL FROM ITS PRINCIPAL, IT NEGATES THE SAID PO WER TO CONCLUDE CONTRACTS. THE COMMISSION AGREEMENT BETWEEN THE APPELLANT AND DAIPL (PAGE 48 TO 57 OF PAPER BOOK) MAKES IT CLEAR TH AT DAIPL DID NOT HAVE THIS FREEDOM AND THE ROLE OF DAIPL IS LIMITED TO ACT AS A COMMUNICATION CHANNEL BETWEEN THE APPELLANT AND CUSTOMERS. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING: PARAGRAPH 32 OF OECD COMMENTARY ON ARTICLE 5 OF THE OE CD MODEL TAX CONVENTION ON INCOME AND CAPITAL- JULY 2010 EDITION IF A NON-RESIDENT PRINCIPAL IS ALSO INVOLVED IN NEGOTIATIONS / CONCLUSION OF CONTRACTS SOLELY OR JOI NTLY WITH THE AGENT OR IF THE AGENT HAS TO OBTAIN PERMISS ION / CONFIRMATION FOR THE SAME FROM ITS PRINCIPAL, THE AGENT CANNOT BE SAID TO HAVE THE AUTHORITY TO CONCL UDE CONTRACTS ON ITS BEHALF AND, THEREFORE, CANNOT BE S AID TO CONSTITUTE A PE OF THE NON- RESIDENT. THUS, THE AUTHORITY TO CONCLUDE CONTRACTS MUST BE EXERCISED HABITUALLY BY THE DEPENDENT AGENT PE INDEPENDENTLY. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING: ITA NO. 3005/DEL/2011 14 RULING OF THE AUTHORITY FOR ADVANCE RULINGS ('AAR') IN TVM LTD, IN RE [1999] 237 ITR 230 (AAR) IN THIS CASE, THE AAR HAS HELD THAT: ' ... A PERSON WILL BE DEEMED TO BE A PE ONLY IF HE HAS, AND EXERCISES, THE AUTHORITY TO CONCLUDE CONTRACTS IN THE NAME OF THE ENTERPRISE THE CONCLUSION SEEMS INEVITABLE THAT EVEN A NON INDEPENDENT AGENT CAN BE DEEMED TO BE A PE ONLY IF HE CAN ACT INDEPENDENTLY IN THE MATTER OF CONCLUDING CONTRACTS ON BEHALF OF THE PRINCIPAL, ON HIS OWN, FREELY AND WITHOUT CONTROL FROM THE LATTER ... ' PARAGRAPH 33 OF THE OECD MODEL TAX CONVENTION ON INCOME AND CAPITAL - JULY 2010 EDITION FURTHER, IT IS RESPECTFULLY SUBMITTED THAT THE ALLEGA TION OF THE AO IS THAT DAIPL IS ENGAGED IN THE ACTIVITY OF NEGOTIATION WITH THE CUSTOMERS AND SUCH ACTIVITY RESULTS IN THE CREATION OF PE FOR THE APPELLANT IN I NDIA. HOWEVER, IT MAY BE NOTED THAT ARTICLE 5(7) OF THE IN DIA- JAPAN TAX TREATY, AS REPRODUCED ABOVE, ENVISAGES TH E CREATION OF A PE ONLY WHEN THE AGENT HAS AN AUTHORI TY TO CONCLUDE CONTRACTS ON BEHALF OF THE ENTERPRISE, AND SUCH AUTHORITY IS HABITUALLY EXERCISED. THE STRESS IN THE INDIA-JAPAN TAX TREATY IS ON CONCLUSION OF CONT RACT AND NOT ON NEGOTIATION. IT IS AMPLY CLEAR FROM THE PL AIN READING OF THE COMMISSION AGREEMENT THAT DAIPL DID NOT HAVE ANY AUTHORITY TO EVEN NEGOTIATE CONTRACTS ITA NO. 3005/DEL/2011 15 MUCH LESS CONCLUDE CONTRACTS ON BEHALF OF THE APPELLANT. FURTHER, IT IS RESPECTFULLY SUBMITTED THAT DAIPL IS NOT A DEPENDENT AGENT, PER SE, AS IT IS ALSO UNDERTAKING ITS OWN BUSINESS OF TRADING IN AIR- CONDITIONERS AND THEREFORE, IT SHOULD BE CONSIDERED AS AN INDEPENDENT AGENT OF THE APPELLANT, IF AT ALL IT IS HELD TO BE AN AGENT. THE DEPARTMENT REPRESENTATIVE ('DR'), DURING THE COURSE OF THE HEARING, HAS STATED THAT THE APPELLAN T, INTER ALIA, HAS A PE IN INDIA UNDER ARTICLE 5(7)(C) OF THE INDIA-JAPAN TAX TREATY, WHICH READS AS FOLLOWS: ' ... (C) HE HABITUALLY SECURES ORDERS IN THE FIRST - MENTIONED CONTRACTING STATE, WHOLLY OR ALMOST WHOLLY FOR THE ENTERPRISE ITSELF OR FOR THE ENTERPRISE AND OTHER ENTERPRISES CONTROLLING, CONTROLLED BY, OR SUBJECT TO THE 'SAME COMMON CONTROL AS THAT ENTERPRISE ... ' THERE IS NO GUIDANCE IN THE INDIA-JAPAN TAX TREATY ON WHAT CONSTITUTES 'SECURING ORDERS'. ATTENTION IS, HOWEVER, DRAWN TO THE PROTOCOL TO THE INDIA- USA TAX TREATY WHICH EXPLAINS THE TERM 'SECURING ORDERS' AS FOLLOWS: ' ... A PERSON SHALL BE CONSIDERED TO HABITUALLY SECURE ORDERS IN A CONTRACTING STATE, WHOLLY OR ALMOST FOR AN ENTERPRISE, ONLY IF: ITA NO. 3005/DEL/2011 16 1. SUCH PERSON FREQUENTLY ACCEPTS ORDERS FOR GOODS OR MERCHANDISE ON BEHALF OF THE ENTERPRISE; 2. SUBSTANTIALLY ALL OF SUCH PERSON'S SALES RELATED ACTIVITIES IN THE CONTRACTING STATE CONSIST OF ACTIVITIES FOR THE ENTERPRISE; 3. SUCH PERSON HABITUALLY REPRESENTS TO PERSONS OFFERING TO BUY GOODS OR MERCHANDISE THAT ACCEPTANCE OF AN ORDER BY SUCH PERSON CONSTITUTES THE AGREEMENT OF THE ENTERPRISE TO SUPPLY GOODS OR MERCHANDISE UNDER THE TERMS AND CONDITIONS SPECIFIED IN THE ORDER; AND 4. THE ENTERPRISE TAKES ACTIONS THAT GIVE PURCHASERS THE BASIS FOR A REASONABLE BELIEF THAT SUCH PERSON HAS AUTHORITY TO BIND THE ENTERPRISE ... ' IT IS RESPECTFULLY SUBMITTED THAT WHILE THE DR HAS ARGUED THAT DAIPL SECURE ORDERS FOR THE APPELLANT IN INDIA, HE HAS NOT BEEN ABLE TO SUBSTANTIATE AS TO H OW, CONSIDERING THE ABOVE MENTIONED EXPLANATION OF THE TERM 'SECURING ORDERS', DAIPL COULD BE SAID TO HAVE SECURED ORDERS FOR THE APPELLANT IN INDIA. THE ONUS , IN THIS REGARD, IS ON THE REVENUE TO SUBSTANTIATE THAT DAIPL SECURES ORDERS FOR THE APPELLANT IN INDIA AND SUCH ONUS HAS NOT BEEN DISCHARGED AT ALL. ITA NO. 3005/DEL/2011 17 FURTHER, THE DR HAS PLACED RELIANCE ON THE RULING OF THE AAR IN THE CASE OF ARAMEX INTERNATIONAL LOGISTI CS PVT LTD TO ARGUE THAT DAIPL, BEING A SUBSIDIARY OF THE APPELLANT, WOULD CONSTITUTE A PE IN INDIA. IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED THAT THE FACTS IN THE CASE IN HAND ARE COMPLETELY DIFFERENT FROM THE FACTS IN THE CASE OF ARAMEX. IN THIS CASE, THE APPELLANT WAS ENGAGED IN THE BUSINESS OF DELIVERING DOOR TO DOOR SHIPMENTS BY AIR AND PERFORMING RELATED TRANSPORT SERVICES. THE INDIAN COMPANY WAS RESPONSIBLE FOR MOVEMENT OF PACKAGES WITHIN INDIA. ON THESE FACTS, THE AAR HAS HELD THAT THE BUSINESS OF THE APPELLANT COULD NOT HAVE BEEN CARRIED OUT WITHOUT THE INDIAN COMPANY AND THE OFFICE OF THE INDIAN COMPANY WAS BEING USED BY THE NON-RESIDENT ASSESSEE AND, THEREFORE, IT HAD A FIXED PLACE PE IN INDIA. IT IS RESPECTFULLY SUBMITTED THAT THE FACTS IN THE INSTAN T CASE ARE SUBSTANTIALLY DIFFERENT AS THE ISSUE IS REGARDING CONSTITUTION OF DEPENDENT AGENT PE ('DAPE') AND THE ROLE OF DAIPL IS ONLY TO ACT AS A COMMUNICATION CHANNEL BETWEEN THE APPELLANT AND THE CUSTOMER, THEREFORE, THE SAME COULD NOT BE APPLIED. COMMISSION AGREEMENT REJECTED - CONCLUSION DRAWN ON CONJECTURE AND SURMISE IT IS RESPECTFULLY SUBMITTED THAT, THE INCOME-TAX A CT, 1961 ('ACT') DOES NOT CLOTHE THE TAXING AUTHORITIES ITA NO. 3005/DEL/2011 18 WITH ANY POWER OR JURISDICTION TO RE-WRITE THE TERMS OF THE AGREEMENT ENTERED INTO, PARTICULARLY IN VIEW OF THE FACT THAT THERE IS NO COGENT EVIDENCE ON RECORDS TO SUGGEST THAT THE PARTIES WERE NOT UNDERTAKING THEIR RESPECTIVE DUTIES. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION O F THE DELHI HIGH COURT IN THE CASE OF D. S. BIST & SONS VS . CIT DELHI (CENTRAL) [1984]149 ITR 276 (DEL). THE APPELLANT AND DAIPL HAD ENTERED INTO A COMMISSION AGREEMENT FOR DIRECT SALES TO CUSTOMERS (REFER PAGE 48 TO 57 OF PAPER BOOK). AS PER THE AGREEMENT, DAIPL WAS - TO FORWARD THE CUSTOMER'S REQUEST FOR PROCURING PRODUCTS FROM DIL TO DIL - TO FORWARD DIL'S QUOTATION AND CONTRACTUAL PROPOSAL TO THE CUSTOMER FROM THE ABOVE, IT IS CLEAR THAT DAIPL WAS ONLY RESPONSIBLE FOR ACTING AS A MEDIUM THROUGH WHICH APPELLANT' USED TO COMMUNICATE WITH CUSTOMERS IN INDIA. DAIPL ACTED AS A COMMUNICATION CHANNEL BETWEEN CUSTOMERS AND DIL TO FACILITATE FLOW OF INFORMATION AND DOCUMENTS LIKE ENQUIRIES, PROPOSALS , QUOTATIONS, PURCHASE ORDERS, INVOICES, ETC DAIPL DID NOT HAVE ANY AUTHORITY TO CARRY OUT NEGOTIATIONS WITH CUSTOMERS IN INDIA, WHICH WAS EXERCISABLE ONLY BY THE APPELLANT. ITA NO. 3005/DEL/2011 19 THE AO HAS, WITHOUT ADDUCING ANY EVIDENCE TO THE CONTRARY, HELD THAT DAIPL NEGOTIATED THE PRICES ON BEHALF OF APPELLANT, MERELY BECAUSE THE APPELLANT H AS NOT PROVED TO THE CONTRARY. IT IS RESPECTFULLY SUBMI TTED THAT THE EXPLICIT TERMS OF A CONTRACT BETWEEN TWO PARTIES CANNOT BE IGNORED WITHOUT BRINGING ON RECOR D ANY MATERIAL WHICH INDICATES ANYTHING TO THE CONTRAR Y. AN ADVERSE CONCLUSION CANNOT BE DRAWN ON CONJECTURES AND SURMISES. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING DECISIONS, WHERE IT HAS BEEN HELD THAT IRRELEVANT MATERIAL! LACK OF MATERIAL CANNOT BE THE BASIS FOR ARRIVING AT A CONCLUSION ADVERSE TO THE ASSESSEE MERELY ON CONJECTURES AND SURMISES: DHIRAJLAL GIRDHARILAL VS CIT [1954]26ITR 736 (SC) IN THIS CASE, THE ASSESSEE HAD FILED A SPECIAL LEAVE PETITION BEFORE THE SUPREME COURT ('SC') WHICH ALLOWED THE APPEAL OF THE ASSESSEE AND OBSERVED AS FOLLOWS: ' ...IF THE COURT OF FACT WHOSE DECISION ON A QUESTION OF FACT IS FINAL ARRIVES AT A DECISION BY CONSIDERING MATERIAL WHICH IS IRRELEVANT TO THE QUERY OR BY CONSIDERING MATERIAL JUST PARTLY RELEVANT OR PARTLY IRRELEVANT OR BASIS ITS DECISION PARTLY ON CONJECTURES, SURMISES OR SUSPICIONS, AND PARTLY ON EVIDENCE, THEN IN SUCH A SITUATION, IT IS IMPOSSIBLE TO SAY TO WHAT EXTENT THE MIND OF ITA NO. 3005/DEL/2011 20 THE COURT WAS AFFECTED BY THE IRRELEVANT MATERIAL USED BY IT IN ARRIVING AT ITS FINDINGS AND SUCH A FINDING IS VITIATED BECAUSE OF USE OF IN-ADMISSIBLE MATERIAL ... ' NARAYAN CHANDRA BAIDYA VS CIT [1951] 20 ITR 287 (CAL) IN THIS CASE, THE HIGH COURT ('HC') HELD IN FAVOUR OF THE ASSESSEE AND OBSERVED AS FOLLOWS: ' ... EVEN AFTER AN INCOME-TAX OFFICER REJECTS THE EVIDENCE ADDUCED BY THE ASSESSEE, HE MUST INDICATE IN HIS ORDER ON WHAT MATERIAL HE ULTIMATELY BASIS HIS CONCLUSION IT IS NOT CLEAR FROM THE RECORD THAT THE INCOME- TAX OFFICER PROCEEDED ON ANY DEFINITE MATERIAL AND THE TRIBUNAL HAD NOT FOUND THAT HE DID. THE DEFINITE MATERIAL NEED NOT NECESSARILY BE IN THE FORM OF LEGAL EVIDENCE BUT THERE MUST BE SOMETHING WHICH AT THE FIRST STAGE SHOULD BE BROUGHT TO THE NOTICE OF THE ASSESSEE AND IF THE INCOME-TAX OFFICER IN DEFAULT OF ANY RESPONSE FROM THE ASSESSEE ADDS SOMETHING MORE THE ADDITIONAL MATERIAL ALSO SHOULD APPEAR IN THE ORDER ... ' ONUS NOT DISCHARGED BY THE REVENUE ITA NO. 3005/DEL/2011 21 THE ONUS WAS ON THE AO TO BRING ON RECORD EVIDENCE TO DEMONSTRATE THE ACTION ON PART OF DAIPL OF NEGOTIATIN G AND CONCLUDING CONTRACTS. MERELY STATING THAT THE APPELLANT HAS FAILED TO PROVE THE CONTRARY CANNOT B E ADEQUATE TO HOLD THAT SUCH ACTS WERE ACTUALLY PERFORMED BY DAIPL AND A PE CAME INTO EXISTENCE. THE ONUS TO SHOW THAT A PE EXISTS IS ON THE REVENUE. IN THIS REGARD, KIND ATTENTION IS INVITED TO THE DE CISION OF THE DELHI BENCH OF INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF DCIT VS. MIS SOFEMA SA BEARING ITA NO. 3900/DEL/2002 ORDER DATED MAY 5,2006. THE ITAT INTER ALIA HELD AS UNDER: ' ... WE ARE FURTHER OF THE CONSIDERED VIEW THAT IN THE ABSENCE OF ANY EVIDENCE ON RECORD WITH REGARD TO COMMERCIAL ACTIVITY HAVING BEEN DONE BY THE ASSESSEE COMPANY IN INDIA., ITS LIAISON OFFICE CANNOT BE CONSIDERED TO BE PERMANENT ESTABLISHMENT IN INDIA, AS PROVIDED FOR IN DTAA BETWEEN INDIA AND GOVERNMENT OF FRANCE . THE ORDER PASSED BY THE IT AT IN SOFEMA'S CASE HAS SINCE BEEN UPHELD BY THE JURISDICTIONAL DELHI HIGH COURT IN ITA NO. 1764/2006 VIDE ORDER DATED DECEMBER 18, 2006. THE SLP FILED BY REVENUE HAS BEEN DISMISSED BY THE SUPREME COURT (CIVIL APPEAL NO. 5260 OF 2008 VIDE ORDER DATED 26TH AUGUST 2008) , WHEREIN THE APEX COURT HAS OBSERVED AS FOLLOWS: ITA NO. 3005/DEL/2011 22 ' ... IN THE PRESENT CASE, THERE A CONCURRENT FINDI NG THAT SOFEMA SA, RESPONDENT HEREIN, IS NOT A PE UNDER THE DTAA. HOWEVER, WE FIND THAT THIS FINDING HAS BE EN GIVEN ON THE BASIS THAT THERE IS NO EVIDENCE OR JUSTIFICATION FORTHCOMING FROM THE SIDE OF THE DEPARTMENT TO SHOW THAT THE RESPONDENT IS A PE. ON THAT ACCOUNT ALONE, WE DO NOT WISH TO INTERFERE IN THIS MATTER. RELIANCE IN THIS REGARD IS FURTHER PLACED ON THE RE CENT DECISION OF THE DELHI BENCH OF THE ITAT IN METAL ON E CORPORATION VS DDIT ITA NO 5377/DEL-20111 [2012] 22 TAXMANN.COM 77 (DELHI). IN THIS CASE, THE HON'BLE BENCH OF THE DELHI TRIBUNAL PLACED RELIANCE ON THE SC DECISION IN THE CASE OF SOFEMA (SUPRA) AND HELD AS UNDER: 5.15 IN THE CASE OF DCIT VS. SOFEMA SA, I.T.A. NO. 3900/DEL/2002 FOR ASSESSMENT YEAR 97-98 DATED 05/05/2006, A COPY OF WHICH HAS BEEN PLACED BEFORE US, THE FACTS ARE THAT THE ASSESSEE HAS AN OFFICE I N INDIA AND IT IS A TRADER IN DEFENCE EQUIPMENTS. IT SUPPLIES GOODS TO VARIOUS COMPANIES AND GOVERNMENT DEPARTMENTS IN INDIA. THE ASSESSEE MAINTAINS OFFICE AT DELHI AND BANGALORE IN WHICH HUGE AMOUNTS HAVE BEEN SPENT. THE FINDING OF THE TRIBUNAL IS THAT IN ABSENCE OF ANY EVIDENCE ON RECORD IN RESPECT OF COMMERCIAL ACTIVITY HAVING BEEN UNDERTAKEN BY THE ASSESSEE IN INDIA, ITS LO CANNOT BE TREATED AS A PE . IN ITA NO. 3005/DEL/2011 23 THIS CONNECTION RELIANCE HAS BEEN PLACED IN THE DECISION IN THE CASE OF LAC VS. MITSUI & CO. LTD. 39 ITD 59 =(2003-TII-94-ITATDELSB-INTL). THIS DECISION HAS BEEN CONFIRMED BY HON'BLE DELHI HIGH COURT ON 18/12/2006 WITH THE REMARK THAT NO SUBSTANTIAL QUESTION OF LAW ARISES. THE CIVIL APPEAL FILED BY T HE REVENUE HAS ALSO BEEN DISMISSED BY THE HON'BLE SUPREME COURT. IT HAS BEEN MENTIONED THAT THE FINDIN G HAS BEEN GIVEN ON THE BASIS THAT THERE IS NO EVIDEN CE OR JUSTIFICATION FORTHCOMING FROM THE REVENUE TO SHO W THAT THE ASSESSEE HAS A PE. ON THIS ACCOUNT ALONE, THE COURT DOES NOT WISH TO INTERFERE IN THE MATTER' DOCUMENTS SUBMITTED BY THE APPELLANT NOT CONSIDERED FURTHER, THE APPELLANT HAD FILED DETAILS OF VISITS O F ITS EMPLOYEES TO INDIA AT VARIOUS TIMES DURING THE SUBJEC T ASSESSMENT YEAR (REFER PAGE 46 OF THE PAPER BOOK). A PERUSAL OF THE DETAILS WILL CLEARLY INDICATE THAT T HE EMPLOYEES INCLUDE PEOPLE FROM SALES AND MARKETING WHO HAD MADE FREQUENT VISITS TO INDIA. SUCH PERSONN EL WERE RESPONSIBLE FOR DISCUSSING PROPOSALS AND TO NEGOTIATE THE TERMS AND CONDITIONS AND PRICES WITH T HE INDIAN CUSTOMERS. MOREOVER, DOCUMENTS LIKE PROFORMA INVOICE, INVOICE, QUOTATION FROM APPELLANT TO CUSTOMER, ACCEPTANCE OF THE QUOTATION, PACKING LIST, BILL OF LADING, INSURA NCE DOCUMENTS, CERTIFICATE OF FUMIGATION WERE SUBMITTED ITA NO. 3005/DEL/2011 24 BEFORE THE AO IN RELATION TO SALES MADE TO SOME PARTIES (REFER PAGE 103 TO 167 OF THE PAPER BOOK). IT IS PERTINENT TO NOTE THAT ALL DOCUMENTS ARE BETW EEN THE APPELLANT AND CUSTOMERS. THE QUOTATIONS WERE RAISED BY THE APPELLANT ON THE CUSTOMER AND IN TURN THE CUSTOMER HAS GIVEN THE ACCEPTANCE TO THE APPELLANT ONLY. DAIPL WAS, THUS, ONLY RESPONSIBLE FO R FORWARDING THE DOCUMENTS BETWEEN THE APPELLANT AND THE CUSTOMER. THE AO/CIT(A) HAVE, HOWEVER, BRUSHED ASIDE ALL THE DOCUMENTS AND HELD THAT NO EVIDENCE WAS PRODUCED BY THE APPELLANT. IF THE AO WAS TO REJECT SUCH EVID ENCE THEN SOME POSITIVE EVIDENCE SHOULD HAVE BEEN BROUGHT ON RECORD TO PROVE OTHERWISE. 9. THE SUBMISSIONS OF THE LD. DEPARTMENTAL REPRESENTA TIVE ARE AS UNDER:- (A) PERMANENT ESTABLISHMENT: THE DEPARTMENT'S STAND IS THAT DAIKIN AIRCONDITIONI NG INDIA (P) LTD. (DAIPL) WHO IS A 99.99% SUBSIDIARY OF THE ASSESSEE VIZ. DAIKIN INDUSTRIES LTD.{ DIL) IS A PE OF THE ASSESSEE WITHIN THE MEANING OF PARAGRAPH 7{A) AND (C) OF ARTICLE 5 OF INDO- JAPAN TREATY (PB 222). THI S IS FOR THE FOLLOWING REASONS:- 1. THE ASSESSEE WAS REPEATEDLY ASKED BY THE A.O. TO FURNISH DOCUMENTARY EVIDENCE IN SUPPORT OF THE CLAI M THAT PRICES WERE NEGOTIATED AND CONTRACTS WERE ITA NO. 3005/DEL/2011 25 ENTERED BY THE ASSESSEE DIRECTLY WITH THE END CUSTOMERS IN INDIA AND THE INDIAN ENTITY HAD NO ROL E TO PLAY IN THIS REGARD (PAGE 4 PARA II; PAGE 10 PARA 3 AND PAGE 11 PARA 3.1 OF THE AO'S ORDER). 2. THE ASSESSEE IN ITS REPLY DATED 22-12-2008 (PAGE 13, LAST PARA OF THE AO'S ORDER) EXPRESSED ITS INAB ILITY TO PRODUCE RELEVANT DOCUMENTS/DETAILS EXCEPT THE DOCUMENTS FURNISHED EARLIER. THE AO HAS DISCUSSED THIS REPLY OF THE ASSESSEE ON PAGE 17 PARA 5.5. AND 5.6 OF THE ORDER. 3. THE ASSESSEE HAD SUBMITTED CERTAIN DOCUMENTS VIDE REPLY DATED 12-122008 IN SUPPORT OF ITS CLAIM (PB 101 TO 167). THE AO HAS DISCUSSED THE ASSESSEE'S REPLY ON PAGE 18 PARA 5.8 AND HELD THAT THE SAME WA S AND SATISFACTORY AS IT DID NOT PROVE THAT THE ASSES SEE ARID THE END CUSTOMERS DIRECTLY DECIDED THE PRICES A ND THE TERMS AND CONDITIONS. FURTHER, MERE ACCEPTANCE LETTER GIVEN BY THE PURCHASER IS NOT A SUFFICIENT EVIDENCE AS (I) WHEN THE QUOTATION WAS ISSUED BY TH E ASSESSEE THE ACCEPTANCE, AS A NATURAL COROLLARY, HA D TO BE IN THE NAME OF THE ASSESSEE AND (II) DAIPL WITH WHOM END CUSTOMERS WERE DEALING WAS, IN ANY CASE, IN A POSITION TO TAKE ACCEPTANCE LETTER IN THE NAME OF THE ASSESSEE. 4. THE OTHER EVIDENCE SUBMITTED BY THE ASSESSEE WAS THAT ITS EMPLOYEES VISITED INDIA FOR PRICE NEGOTIATI ONS (DETAILS OF SUCH EMPLOYEES ARE AT PB 47). THE AO HAS ITA NO. 3005/DEL/2011 26 DISCUSSED THIS ISSUE ON PAGE 17 PARA 5.7 OF HIS ORD ER. HE HAS RIGHTLY HELD THAT MERELY ON THIS BASIS IT CA NNOT BE SAID THAT EMPLOYEES HAD VISITED INDIA FOR NEGOTIATING WITH END CUSTOMERS. 5. EXCEPT THE ABOVE DOCUMENTS NO OTHER EVIDENCE WHATSOEVER WAS SUBMITTED BY THE ASSESSEE IN THE FORM OF EMAILS OR OTHER COMMUNICATIONS TO SHOW THAT THE END CUSTOMERS DIRECTLY NEGOTIATED THE PRICE AND OTHER TERMS AND CONDITIONS WITH THE ASSESSEE (PAGE 16 PARA - 5.1 TO 5.4 OF THE AD'S ORDER). 6. IT IS DIFFICULT TO BELIEVE THAT THE END CUSTOMER S IN INDIA, WHO WERE LARGE IN NUMBER ( PB 11 TO 23 ), WOULD DIRECTLY CONTACT AND NEGOTIATE THE PRICE WITH THE ASSESSEE AT THEIR OWN COST IN JAPAN HAVING DIFFEREN T TIMES ZONE AND DIFFERENT LANGUAGE (PARTICULARLY WHE N THE ASSESSEE'S REPRESENTATIVE IN THE FORM OF DAIPL WITH WHOM THEY HAD DISCUSSED THE PURCHASE PROPOSALS ETC WAS AVAILABLE IN INDIA). THIS IS MORE SO WHEN T HERE ARE LARGE NUMBER OF COMPETITORS SELLING AIR CONDITIONERS IN INDIA. IT IS ALSO DIFFICULT TO BELI EVE THAT IN NOT SINGLE CASE THE QUOTED PRICE WAS NOT ACCEPTE D BY THE END CUSTOMER AND THE PRICE HAD TO BE RE NEGOTIATED. IN VIEW OF THE AFORESAID IT WAS IMPERATI VE ON THE PART OF THE ASSESSEE TO PRODUCE CLINCHING EVIDENCE IN SUPPORT OF ITS CLAIM. FAILURE TO _DO SO CLEARLY PROVES THAT IT IS THE INDIAN ENTITY (DAIPL) WHICH ITA NO. 3005/DEL/2011 27 IN EFFECT CONCLUDED THE PRICE AND OTHER TERMS AND CONDITIONS. 7. THE COMMISSION AGREEMENT (PB 48 TO 57) HAS BEEN ENTERED INTO AND SIGNED ON 22-12-2005 (PB 49 AND 56). THE EFFECTIVE DATE' HAS BEEN DEFINED AS D ATE OF EXECUTION OF THE AGREEMENT (PB 50 CLAUSE 1.1.3) AND THE TERMS AND CONDITIONS CLEARLY STATE THAT AGREEMENT WOULD BE DEEMED TO COME INTO FORCE FROM THE EFFECTIVE DATE(PB 53 CLAUSE 6.1).NO INDEPENDENT PERSON WITHOUT ANY AGREEMENT IN PLACE WOULD UNDERTAKE THE MARKETING ACTIVITIES. THE FACT THAT TH E INDIAN ENTITY UNDERTOOK THE MARKETING ACTIVITIES FO R THE PERIOD PRIOR TO THE AGREEMENT VIZ. 1-4-2005 TO 21-1 2- 2005 CLEARLY SHOWS THAT I) BOTH THE PARTIES ACTED BEYOND THE TERMS OF AGREEMENT AND II) THE INDIAN ENTITY VIZ. DAIPL WAS NOT A PERSON OF INDEPENDENT STATUS AND WAS IN COMPLETE CONTROL OF THE ASSESSEE. 8. THE AO THUS IN PARA 5.10, PAGE 18 OF THE ORDER H AS RIGHTLY CONCLUDED THAT THE ASSESSEE HAS DEPENDENT AGENT PE IN TERMS OF PARA 7(A) & PARA 7(C) OF ARTICLE 5 OF THE TREATY. 9. EVEN IF FOR THE ARGUMENT'S SAKE IT IS ACCEPTED THAT THERE IS NO PE UNDER ARTICLE 5(7)(A), THE APPELLANT'S CASE SQUARELY FALLS UNDER ARTICLE 5(7)( C) (PB 222) AS DAIPL IS HABITUALLY SECURING ORDERS FOR T HE ASSESSEE. REFERENCE BY THE ASSESSEE TO THE LETTER EXCHANGED BETWEEN INDIA AND THE USA IS OF NO HELP A S ITA NO. 3005/DEL/2011 28 THE SAME HAS EFFECT ONLY BETWEEN THESE TWO COUNTRIES AND COULD NOT BE APPLIED TO OTHER TREATIES. THIS IS MORE SO WHEN NOT ONLY STRICT RULES OF INTERPRETATION OF STATUTE APPLIES TO THE INTERPRETATION OF TREATIES B UT ALSO THE TREATIES ARE UNDERSTANDING BETWEEN THE TWO COUNTRIES AND HENCE CANNOT BE APPLIED FOR OTHER TREATIES. THIS ALSO CLEAR FROM THE LETTER REFERRED TO BY THE LEARNED AR. IN ANY CASE, THE FACT OF THE PRESEN T CASE CLEARLY SHOWS THAT ALL THE CONDITIONS MENTIONED ALL THE LETTER ARE FULFILLED. THE OEDC GUIDELINES: PARAGRAPHS 31 TO 33 ( INCLUDING PARAGRAPH 32.1 REPRODUCED BY THE AO IN HIS ORDER ON PAGE 18 ) OF T HE DECO COMMENTARY ON ARTICLE 5 AS SUBMITTED BY THE LEARNED AR, CLEARLY SUPPORT THE CASE OF THE DEPARTM ENT WHEREIN IT IS CLEARLY MENTIONED THAT PERSONS WHO IN VIEW OF THE SCOPE OF THEIR AUTHORITY OR THE NATURE OF THEIR ACTIVITY INVOLVE THE ENTERPRISE TO A PARTICUL AR EXTENT IN BUSINESS ACTIVITIES IN THE STATE CONCERNE D MAY BE TREATED AS AN AGENT (PARA32). IT ALSO STATES THAT A PERSON WHO IS AUTHORISED TO NEGOTIATE ALL ELEMENTS AND DETAILS OF A CONTRACT IN AWAY BINDING ON THE ENTERPRISE CAN BE SAID TO EXERCISE THIS AUTHORI TY 'IN THAT STATE' EVEN IF THE CONTRACT IS SIGNED BY ANOTH ER PERSON IN THE STATE IN WHICH THE ENTERPRISE IS SITU ATED ,OR ,IF THE FIRST PERSON HAS NOT FORMALLY BEEN GIVEN THE POWER OF REPRESENTATION (PARA 33). AS MENTIONED ITA NO. 3005/DEL/2011 29 ABOVE, PARA 32.1 RE-PRODUCED BY THE AO IN THE ORDER (PAGE 18) CLINCHES THE ISSUE THE FAVOUR OF THE DEPARTMENT. THE VIEWS OF KLAUS VOGEL REPRODUCED IN THE AAR'S DECISION IN THE CASE OF TVM LTD. VS. CLT ON PAGE CONTAINING PARA 18 WHEREIN IT IS MENTIONED THAT SUBSTANCE OVER FORM SHOULD BE SEEN AND AFTER CONSIDERING THE ACTUAL BEHAVIOUR OF THE PARTIES A PERMANENT ESTABLISHMENT MAY BE DEEMED TO EXIST IRRESPECTIVE OF WHAT THE FORMAL ARRANGEMENTS WERE, FURTHER SUPPORT THE DEPARTMENT'S CASE. CASE LAWS: THE DEPARTMENT RELIES ON THE FOLLOWING CASE LAWS:- I) ARAMEX INTERNATIONAL LOGISTICS (P) LTD.; AAR, 20 12- TII-29-ARA-INTL ( PARA 15 & 16 - PAGE 9 ) II) M/S. ROLLS ROYCE PLC, ITAT, DELHI; 2007-TII-32-I TAT- DEL-INTL ( PARA 23 PAGE 20/21) III) M/S. ROLLS ROYCE PLC, DELHI HIGH COURT 2011-TII- 35- HC-DEL-INTL (PARA 17 PAG~ 7) IV) M/S. ROLLS ROYCE SINGAPORE (P) LTD.-2011-13 TAXMANN.COM 81 (DELHI) ( PARA 29 & 30). DURING THE HEARING THE LEARNED AR REFERRED TO THE AAR'S DECISION IN THE CASE OF TVM LTD. THIS DECISION IS NOT APPLICABLE AS INDO- MAURITIUS TREATY ( ITA NO. 3005/DEL/2011 30 REPRODUCED ON PAGE CONTAINING PARA 9 OF TVM DECISION) DOES NOT CONTAIN CLAUSE (C) OF ARTICLE 5( 7) OF THE INDO- JAPANESE TREATY ( PB 222) . DURING THE HEARING IT WAS ARGUED BY THE LEARNED AR THAT THE AO HAS NO POWER TO GO BEYOND THE COMMISSION AGREEMENT OR TO RE-WRITE THE AGREEMENT. IT IS SUBMITTED THAT THE AO HAS NOT RE-WRITTEN THE AGREEMENT. WHILE AN AGREEMENT FORMS THE STARTING' POINT FOR EXAMINING A TRANSACTION BUT THE CONDUCT OF THE PARTIES HAS TO BE SEEN. IF THE CONDUCT OF THE P ARTIES IS NOT IN ACCORDANCE WITH THE TERMS OF AGREEMENT THEN THE AO HAS POWER TO TRAVEL BEYOND IT. THE JURISPRUDENCE ON THE CONCEPT OF 'SUBSTANCE OVER FORM ' IS WELL DEVELOPED AND NEEDS NO ELABORATION. THIS CONCEPT IS ALSO RECOGNIZED BY THE DECO. THE SAME IS 'ALSO DISCUSSED IN TVM'S CASE (SUPRA) (PARA 16 AND PAGE CONTAINING PARA 18). IN VIEW OF THE ABOVE DISCUSSION THE AO'S ACTION IN TREATING DAIPL AS PE OF THE APPELLANT MAY KINDLY BE UPHELD. 10. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT IT IS ASSESSEES CONTENTI ON IS THAT DAIPL ACTED AS A COMMUNICATION CHANNEL BETWEEN THE PROSPECTIVE CUSTOMERS AND ASSESSEE. DAIPL FACILITATED THE FLOW OF INFORMATION AND DOCUMENTS LIKE ENQUIRIES, PROPOSALS, QUOTATIONS, PURCHASE OR DERS, INVOICE ETC. BETWEEN THE ASSESSEE AND THE CUSTOMERS. ITA NO. 3005/DEL/2011 31 10.1 IN THIS CONNECTION, ASSESSEE HAS RELIED UP ON THE AGREEMENT DATED 22.12.2005, WHICH STATES THE ROLES AND RESPO NSIBILITY OF DAIPL AS BELOW:- I) TO FORWARD THE CUSTOMERS REQUEST FOR PROCURING PRODUCTS FROM DIL TO DIL. II) TO FORWARD DILS QUOTATION AND CONTRACTUAL PROP OSALS TO THE CUSTOMERS. 10.2 HERE WE FIND THAT FROM 1 ST APRIL, 2005 TO 21.12.2005, THERE WAS NO AGREEMENT BETWEEN DAIPL AND THE ASSESSEE. 10.3 IN THIS CONNECTION, ASSESSING OFFICER HAS OBS ERVED THAT ASSESSEE DID NOT SUBMIT ANY DOCUMENT TO PROVE THAT ENQUIRIES, PROPOSALS RECEIVED FROM THE CUSTOMERS WERE RECEIVED BY IT. FROM THIS IT HAS BEEN DEDUCED THAT NO SUCH ENQUIRIES OR PROPOSALS W ERE RECEIVED FROM THE CUSTOMERS BY THE ASSESSEE AND THESE FUNCTIONS WE RE PERFORMED BY DAIPL. 10.4 IT HAS BEEN CLAIMED BY THE ASSESSEE THAT FROM P LAIN READING OF THE COMMISSION AGREEMENT, IT IS CLEAR THAT DAIPL DOE S NOT HAVE ANY AUTHORITY TO EVEN NEGOTIATE CONTRACTS MUCH LESS CONC LUDE CONTRACTS ON BEHALF OF THE ASSESSEE. HOWEVER, IT IS ASSESSING OFFICERS CASE THAT ASSESSING OFFICER HAD REQUESTED THE EMAILS/ CORRES PONDENCE WITH THE DIRECT CUSTOMERS IN INDIA, WITH REGARD TO THE RECEIP T OF PROPOSALS, RELATING TO PRICE NEGOTIATIONS AND OTHER THE DOCUME NTS WHICH WERE NOT PRODUCED. IN THIS REGARD, THE ASSESSING OFFICE R HAS NOTED ASSESSEES RESPONSE THAT ASSESSEE WAS TRYING ITS BE ST TO PROCURE THE RELEVANT DOCUMENTS/ DETAILS. HOWEVER, SUBSTANTIA L RECORD FOR THE YEAR UNDER QUESTION WERE NOT TRACEABLE WITH ASSESSE E. ASSESSING ITA NO. 3005/DEL/2011 32 OFFICER HAS FURTHER NOTED ASSESSEES RESPONSE THAT INSPITE OF THE LIMITATIONS THE ASSESSEE HAD FURNISHED WHATEVER DOC UMENTATION RELATING TO SPECIFIED CUSTOMERS, IT HAS BEEN ABLE TO SEARCH OUT SO FAR. IT IS ALSO RESPECTFULLY SUBMITTED THAT THE PERSON RE SPONSIBLE FOR HANDLING TAX MATTERS OF THE ASSESSEE HAS NOT BEEN A BLE TO ATTEND OFFICE FOR SOMETIME ON ACCOUNT OF ILL HEALTH, WHICH HAS AL SO ADDED TO THE DIFFICULTY IN PROCURING AND FURNISHING THE REQUIRED DOCUMENTS. HOWEVER, ASSESSING OFFICER HAS NOT ACCEPTED THE A BOVE. HE OBSERVED THAT REQUIRED DOCUMENTS WERE NOT SUPPOSED TO BE IN THE POSSESSION OF PERSON HANDLING THE TAX MATTERS. ASSESSING OFFI CER HAS HELD THAT IN ABSENCE OF THESE DOCUMENTS ONE IS REQUIRED TO DRAW THE CONCLUSION THAT THE EMPLOYEES OF DAIPL OR THE PERSONS OF THE ASS ESSEE, WHO ARE DEPUTED WITH DAIPL ONLY, ARE DECIDING THE PRICES OF T HE PRODUCTS AND ONLY THOSE PERSONS ARE SECURING THE ORDERS FOR THE ASSESSEE. LD. COMMISSIONER OF INCOME TAX (A) HAS ALSO OBSERVED THA T THE ASSESSEE DID NOT SUPPLY ANY DOCUMENT BEFORE THE REVENUE TO PROVE THAT ENQUIRIES, PROPOSALS, FROM CUSTOMERS WERE RECEIVED B Y IT. 10.5 THE ASSESSEE HAS FURTHER CLAIMED BEFORE THE ASS ESSING OFFICER THAT CONSULTANT / CONTRACTOR/ARCHITECT REPRESENT SE VERAL PRICES AND ARE IN CONTACT WITH THE ASSESSEE GENERALLY FOR THEIR RE QUIREMENT, ON A REGULAR BASIS AND THE DECISIONS ABOUT THE PRICES TA KE PLACE GENERALLY BETWEEN THE CONSULTANT OF THE INDIVIDUAL AND THE AS SESSEE. HOWEVER, THE SUBMISSIONS WERE NOT ACCEPTED BY THE ASSESSING O FFICER AS HE OBSERVED EVEN FOR THIS CLAIM NOT A SINGLE DOCUMENTA RY EVIDENCE WAS FILED. 10.6 ASSESSEE HAS FURTHER CLAIMED THAT ITS EMPLOYEES , WHO VISITED INDIA INCLUDE PERSONS FROM SALES AND MARKETING, WHO HAVE MADE ITA NO. 3005/DEL/2011 33 FREQUENT VISITS, SUCH PERSONNEL WERE RESPONSIBLE FO R DISCUSSING PROPOSALS AND TO NEGOTIATE THE TERMS AND CONDITIONS AND PRICES WITH THE CUSTOMERS. ASSESSING OFFICER HAS REJECTED THE ABOVE CLAIM BY OBSERVING THAT VERY FEW EMPLOYEES HAD BUSINESS MEETI NGS WITH CUSTOMERS. THESE BUSINESS MEETINGS WILL NOT BE O NLY FOR THE PURPOSE OF DIRECT SALES BY DIL BUT ALSO FOR THE SALES MADE T HROUGH DAIPL. 10.7 WE FURTHER NOTE THAT ASSESSING OFFICER HAS OB SERVED THAT REASONS FOR DIRECT IMPORT BY CUSTOMERS ARE CERTAINLY ON ACCOU NT OF EXEMPTIONS FROM CUSTOMERS FROM CUSTOM DUTY. IN THIS REGARD, IT WAS FURTHER BEEN CLAIMED BY THE REVENUE THAT IT IS DIFFICULT TO BELIE VE THAT THE END CUSTOMERS IN INDIA, WHO ARE LARGE IN NUMBER, WOULD D IRECTLY CONTACT AND NEGOTIATE THE PRICE WITH THE ASSESSEE AT TH EIR OWN COST IN JAPAN HAVING DIFFERENT TIME ZONES AND DIFFERENT LANGUAGE. 10.8 FROM THE ABOVE DISCUSSION, WE NOTE THAT ASSESS ING OFFICER HAS NOT ACCEPTED ASSESSEES EXPLANATION AS REQUIRED DOC UMENTARY EVIDENCES WERE NOT FURNISHED. ASSESSEE HAS CLAIME D THAT DOCUMENTS LIKE PROFORMA INVOICE, INVOICE, QUOTATIONS FROM ASSE SSEE TO CUSTOMERS ACCEPTANCE OF THE QUOTATION, PACKING LIST, BILL OF LOADING, INSURANCE DOCUMENTS, CERTIFICATE OF FUMIGATION WERE SUBMITTED BEFORE THE ASSESSING OFFICER IN RELATION TO SALES MADE TO SOME PARTIES. 10.9 WE FURTHER NOTE THAT WITH REGARD TO ATTRIBUTIO N OF PROFITS TO THE PE ASSESSEE HAS INTER-ALIA CLAIMED THAT WITHOUT PREJUDI CE TO THE CLAIM OF THE ASSESSEE THAT A PE DOES NOT EXIST IN INDIA, THE AMOUNT ATTRIBUTED BY THE ASSESSING OFFICER IS UNJUSTIFIED KEEPING IN MIND THE GLOBAL PROFITABILITY OF THE ASSESSEE. IN THIS REGARD LD. COUNSEL OF THE ASSESSEE ITA NO. 3005/DEL/2011 34 ADMITTED THAT THIS CLAIM WAS NOT MADE BEFORE THE ASSE SSING OFFICER. HOWEVER, CLAIM IN THIS REGARD WAS MADE BEFORE THE LD . COMMISSIONER OF INCOME TAX (A), BUT THE SAME WAS IGNORED BY THE LD . COMMISSIONER OF INCOME TAX (A), AND NO FINDING IN THIS REGARD H AS BEEN GIVEN IN HIS APPELLATE ORDER. 10.10 FURTHER AS REGARDS LEVY OF INTEREST U/S. 234 B BY THE ASSESSING OFFICER, ASSESSEE HAS CONTENDED BEFO RE THE LD. COMMISSIONER OF INCOME TAX (A) THAT SECTION 234B IS NOT APPLICABLE WHERE THE INCOME IS LIABLE TO DEDUCTION OF TAX AT S OURCE. IF THE ASSESSING OFFICERS ALLEGATION THAT ASSESSEE HAS A PE IN INDIA IS TO BE ACCEPTED, THEN ITS INCOME WAS SUBJECT TO DEDUCTION O F TAX AT SOURCE UNDER SECTION 195 OF THE ACT. LD. COMMISSIONER OF IN COME TAX (A) HAS NOT DISCUSSED THIS ISSUE. HE HAS HELD THAT CHARGE OF INTEREST U/S. 234B IS CONSEQUENTIAL AND NO APPEAL LIES AGAINST SUCH OR DER. 11. FROM THE ABOVE DISCUSSION WE ARE OF THE OPINION T HAT THERE ARE CONFLICTING CLAIM BY THE REVENUE AND THE ASSESSEE. THE LOWER AUTHORITIES HAVE HELD THAT ASSESSEE HAS NOT PROVIDE D THE NECESSARY EVIDENCE IN SUPPORT OF ITS CLAIM. ON THE OTHER HAN D, ASSESSEE HAS PLEADED THAT ALL THE INFORMATION TO THE EXTENT POSSI BLE WERE SUBMITTED. WE HAVE ALSO NOTED THAT BEFORE THE ASSESSING OFFICE R ASSESSEE HAD PLEADED THAT THE PERSON WHO WAS IN CHARGE OF THE R EQUISITE DETAILS HAD FALLEN ILL. IT HAS ALSO BEEN A CLAIM OF THE ASSESSE E THAT ITS SUBMISSION HAD NOT BEEN APPRECIATED PROPERLY. ON SOME ISSUES IT IS THE CLAIM OF THE ASSESSEE THAT PROPER ADJUDICATION HAS NOT BEEN DONE. ITA NO. 3005/DEL/2011 35 12. IN THE BACKGROUND OF THE AFORESAID DISCUSSION, WE ARE OF THE CONSIDERED OPINION, THAT INTEREST OF JUSTICE WILL BE SERVED, IF THE ISSUES ARE REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION. ACCORDINGLY, WE REMIT THE ISSUES IN THIS CASE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13/7/2012. SD/- SD/- [ [[ [U.B.S. BEDI U.B.S. BEDI U.B.S. BEDI U.B.S. BEDI] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 13/7/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES