DCIT, (IT)-2(1)(2), MUMBAI V. DNV SE- INDIA BRANCH, MUMBAI

ITA 3139/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5338 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 11-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SREEKAR
• Assessee Lawyers: MRS HEMLATA BHUNGAVE ARS; HARSH KOTHARI KUNAL SHAH
• Keywords: Transfer pricing; Double taxation relief; International transaction; Permanent establishment; Arm length price; Set aside
• Section: 92C; 143(3); 144C

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL I BENCH MUMB AI BEFORE SHRI G.S. PANNU, VICE- PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 3139/MUM/2018 (ASSESSMENT YEAR 2011-12 ) DCIT (IT)-2(1)(2), ROOM NO. 1612, 16 TH FLOOR, AIR INDIA BUILDING, MUMBAI-400021. VS. M/S DNV GL SE-INDIA BRANCH, EQUINOX BUSINESS PARK, TOWER -3, 6 TH FLOOR, LBS MARG, OFF BANDRA KURLA COMPLEX, KURLA (WEST ), MUMBAI-400070 PAN: AAACG7903R APPELLANT RESPONDE NT APPELLANT BY : SH. V. SREEKAR CIT-DR RESPONDENT BY : SH. HARSH KOTHARI, KUNAL SHAH & MRS. HEMLATA BHUNGAVE ARS DATE OF HEARING : 14.05.2018 DATE OF PRONOUNCEMEN T : 29.05.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY REVENUE UNDER SECTION 253 OF THE INC OME-TAX ACT (THE ACT) IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)- 56, MUMBAI DATED 15.02.2017, WHICH IN TURN ARISES FROM THE ASSESSMEN T ORDER UNDER SECTION 143(3) RWS 144C(3) ON 25.05.2015, PASSED IN PURSUA NCE OF DIRECTION OF DISPUTE RESOLUTION PENAL (DRP) FOR ASSESSMENT YEAR 2011-12. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS A TAX RESIDENT OF GERMANY AND ENGAGED IN THE BUSINESS OF INSPECTION A ND CERTIFICATION SERVICES IN MARINE INDUSTRIES, FILED ITS RETURN OF INCOME ON 30.11.2011 DECLARING TOTAL INCOME OF RS. 30,57930/-. THE RETUR N OF INCOME WAS ITA NO. 3139/MUM/2018 DNV SE-INDIA BRANCH 2 SELECTED FOR SCRUTINY. IN THE RETURN OF INCOME THE ASSESSEE REPORTED INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTER PRISES (AE). THE ASSESSEE SELECTED COMPARABLE UNCONTROLLED PRICE (CU P) AS MOST APPROPRIATE METHOD TO CONCLUDE THE TRANSACTION AT A RMS LENGTH. THE ASSESSING OFFICER MADE REFERENCE UNDER SECTION 92CA (1) TO TRANSFER PRICING OFFICER (TPO) FOR COMPUTATION OF ARMS LENGT H PRICE (ALP). THE LEARNED TPO AFTER GRANTING OPPORTUNITY TO THE ASSES SEE SUGGESTED UPWARD OF ADJUSTMENT OF RS. 2,78,87350/-. THE ASSESSING O FFICER WHILE PASSING THE FINAL ASSESSMENT ORDER ALSO MADE ADDITION OF RS . 1,43,48,061/- ON ACCOUNT OF HEAD OFFICE SHARE OF INCOME IN INVOICE R AISED BY HEARD OFFICE AND ADDITION OF RS. 1,35,39,289/- ON ACCOUNT OF HEA D OFFICE SHARE OF INCOME IN INVOICE RAISED BY BRANCH. THE ASSESSING O FFICER MADE ADDITIONS BY TAKING HIS VIEW THAT, THOUGH, THE ASSESSEE HAD G IVEN BREAKUP OF INVOICES BILL WISE SHOWING THE SHARE OF HEAD OFFI CE AND SHEER OFFERED BY THE ASSESSEE IN THEIR HANDS, NO CONVINCING REPLY WA S OFFERED IS TOO HIGH HEAD OFFICE SHARE WAS NOT OFFERED FOR TAXATION IN I NDIA. THE ASSESSEE IS A BRANCH AND THEREFORE PE OF THE PRINCIPLE. THOUGH, S ERVICES WERE RENDERED IN INDIA AND SOURCE OF INCOME IN INDIA. THEREFORE T HE ENTIRE RECEIPT RESULTING OUT OF ACTIVITIES OF THE BRANCH OFFICE IN INDIA ARISE IN INDIA. THERE IS NO BASIS OF TREATING HEAD OFFICE SHARE EXE MPT AS WHOLE INCOME GENERATED FROM ACTIVITIES OF BRANCH OFFICE IN INDIA . ALL THE ACTIVITIES WERE ITA NO. 3139/MUM/2018 DNV SE-INDIA BRANCH 3 HELD IN INDIAN WHAT AND THERE WAS NO SPECIFIC WORK LOCATED TO THE HEAD OFFICE FOR WHICH INCOME ARISE IN INDIAN TERRITORY H AVE TO PAY TO HEAD OFFICE BRANCH IN SUCH BIG RATIO. THE ALLOCATION OF REVENUE BASED ON A SPLIT RATIO, PROVIDED BY HEAD OFFICE IS PRESUMPTIVE AND N OT ACTUAL. THEREFORE, THE ASSESSING OFFICER TOOK THE VIEW THAT IN ABSENCE OF SPECIFIC FINDING, AND FAILURE ON THE PART OF ASSESSEE TO SUBSTANTIATE ITS CLAIM ADEQUATELY, THE HEAD OFFICE SHARE IS ALSO TAXABLE IN INDIA. THE ASS ESSING OFFICER AFTER RECEIPT OF THE REPORT/ ORDER OF TPO PASSED AND SERV ED DRAFT ASSESSMENT ORDER UNDER SECTION 143(3) RWS 144C (1) ON 31.03.20 15 TO THE ASSESSEE. THE ASSESSING OFFICER RECORDED THAT THE ASSESSEE N EITHER FILED ITS OBJECTION BEFORE DISPUTES RESOLUTION PENAL (DRP) NOR INTIMAT ED THE ASSESSING OFFICER FOR EXERCISING THE OPTION TO FILE APPEAL B EFORE LD CIT(A), THEREFORE, THE ASSESSING OFFICER PASSED FINAL ASSES SMENT ORDER UNDER SECTION 143(3) RWS 144C(3) ON 25.05.2015. IN THE FI NAL ASSESSMENT ORDER THE ASSESSING OFFICER MADE ADDITION OF RS.2,78,8735 0/- AS SUGGESTED BY TPO. 3. ON APPEAL BEFORE THE LD. CIT(A), THE ADDITIONS ADDI TION OF RS. 1,43,48,061/- ON ACCOUNT OF HEAD OFFICE SHARE OF I NCOME BY HEARD OFFICE AND ADDITION OF RS. 1,35,39,289/- ON ACCOUNT OF HEA D OFFICE SHARE OF INCOME BY BRANCH WAS DELETED. THE UPWARD ADJUSTMENT SUGGESTED BY TPO OF RS.2,78,87350/- WAS ALSO DELETED. WHILE DELETING THE TRANSFER PRICING ITA NO. 3139/MUM/2018 DNV SE-INDIA BRANCH 4 ADJUSTMENT LD CIT(A) HOLD THAT THE WHILE DETERMINAT ION OF APL, WHEN THE TPO CONCLUDED THAT THE CUP CANNOT BE APPLIED, TPO SHOULD HAVE ADOPTED ONE OF THE FIVE METHOD PRESCRIBED UNDER THE SECTION 92C OF THE ACT. THE LD. COMMISSIONER (APPEALS) CONCLUDED THAT THE TPO HAS NOT DETERMINED ALP IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92C, THEREFORE, THE ORDER OF TPO IS NOT CORRECT. BEING A GGRIEVED AGAINST THE ORDER OF LEARNED CIT(A) THE REVENUE HAS FILED THE P RESENT APPEAL BY RAISING THE FOLLOWING GROUNDS OF APPEAL. (1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED COMMISSIONER (APPEALS) WAS CORRECT IN DELET ING THE ADDITION MADE BY ASSESSING OFFICER WITHOUT APPRECIATING THE FACT THA T ASSESSEE IS A BRANCH OFFICE AND SOURCE OF INCOME IN INDIA AND THE WHOLE INCOME IS GENERATED FROM THE ACTIVITIES OF THE BRANCH OFFICE IN INDIA (2) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED COMMISSIONER (APPEALS) WAS CORRECT IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER WITHOUT APPRECIATING THE FACT THA T ASSESSEE HAS NOT BEEN ABLE TO JUSTIFY THAT ANY FUNCTION HAS BEEN CARRIED BY THE H EAD OFFICE CORRESPONDING RECEIPT OF PE IN INDIA. (3) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED COMMISSIONER (APPEALS) ERRED IN NOT APPLYIN G ARTICLE 12 (5) READ WITH ARTICLE 12 TO OF INDO GERMAN DTAA WHILE APPLYING TH E PROTOCOL OF ARTICLE 7, PARAGRAPH 1(B) OF THE DTAA. (4) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED COMMISSIONER (APPEALS) ERRED IN DELETING TH E TP ADJUSTMENT AMOUNTING TO RS. 2,78,87,350/- BY MERELY SAYING THAT TPO DID NOT USE ANY PRESCRIBED METHOD, WITHOUT PROVIDING ANY ALTERNATIVE METHOD OF BENCHMARKING, DESPITE THE TPOS FINDING THAT CUP METHOD IS APPLIED BY THE AS SESSEE IS INCORRECT. (5) WITHOUT PREJUDICE TO THE ABOVE, WHETHER ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER (A PPEALS) ERRED IN NOT GIVING A POSITIVE FINDING EVEN IF IT REQUIRED REMANDED THE MATTER TO THE TPO AND SEEKING HIS REPORT BEFORE PASSING THE ORDER. (6) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER (APPEALS) ERRED IN DELETING THE TP ADJ USTMENT AMOUNTING TO RS. 27887350/- , WITHOUT CONSIDERING JURISDICTIONAL ITA T JUDGMENT IN CASE OF ACIT VS M/S GIVAUDAN FLAVOURS (INDIA) PRIVATE LTD IN ITA NO.4820 /MUMBAI/2009 ITA NO. 3139/MUM/2018 DNV SE-INDIA BRANCH 5 AND ERRED IN NOT CORRECTLY BENCHMARKING THE TRANSAC TION AS PER PROVISIONS OF INCOME TAX ACT WHICH HE WAS BOUND TO DO. (7) THE APPELLANT PRAYS THAT THE ORDER OF LEARNED COMMI SSIONER (APPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ORDER OF ASSESSING OFFICER BE RESTORED. (8) THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUND OR AT A NEW GROUND WHICH MAY BE NECESSARY . 4. WE HAVE HEARD THE SUBMISSION OF LEARNED DEPARTMENTA L REPRESENTATIVE (DR) FOR THE REVENUE AND THE LEARNED AUTHORIZED REP RESENTATIVE (AR) OF THE ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET OF HEARING THE LEARNED AR OF THE ASSESSEE SUBMITS THAT THE GROUNDS NO. 1 TO 3 OF THE APPEAL ARE COVERED IN FAVOUR OF ASSESSEE B Y THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08, WHEREIN IT WAS HELD REVENUE EARNED BY THE HEAD OFFICE SHOULD NOT BE SUBJECT TO TAX IN INDIA. IT WAS SUBMITTED THAT THERE IS NO CHANGE IN THE FACTS FOR THE YEAR UNDER CONSIDERATION. SO FAR AS THE GROUND NO. 4 TO 6 ARE CONCERNED, THE LEARNED AR FOR THE ASSESSEE SUBMITS THAT REVENUE HA S RAISED GROUNDS ON ACCOUNT OF DELETION OF TRANSFER PRICING ADJUSTMENT AS PROPOSED BY TPO. IT WAS CANVASSED THAT IT IS EVIDENT FROM THE ORDER OF LEARNED ASSESSING OFFICER, AS WELL AS TPO HAVE MADE AN ADJUSTMENT OF THE SAME AMOUNT, THE AMOUNT REPRESENTING THE HEAD OFFICE SHARE IN THE IN VOICE RAISED EITHER BY THE BRANCH OR HEAD OFFICE, TOTALING TO RS. 2,78,87 ,350/-. THUS THERE IS DOUBLE ADDITION OF THE SAME AMOUNT. IN THE GROUNDS OF APPEAL THE REVENUE HAS RELIED UPON THE DECISION OF MUMBAI TRIB UNAL IN GIVAUDAN FLAVOURS (INDIA) PRIVATE LTD ( SUPRA). THE LEARNED AR FOR THE ASSESSEE ITA NO. 3139/MUM/2018 DNV SE-INDIA BRANCH 6 SUBMITS THAT THE FACTS OF THE SAID CASE ARE COMPLET ELY DIFFER TO THE FACTS OF THE PRESENT CASE. THE TRIBUNAL IN THE DECISION OF G IVAUDAN FLAVOURS (INDIA) PRIVATE LTD ( SUPRA) OBSERVED THAT IT WAS A FIT CASE FOR REMAND T HE MATTER TO THE ASSESSING OFFICER SINCE THE PROVISION OF THE ACT AND THE RULE WERE TOTALLY IGNORED IN THE SAID CASE. HOWEVER, THE RE IS NO IS SUCH SITUATION IN THE PRESENT CASE. THE ASSESSEE DURING THE COURSE OF TRANSFER PRICING STUDY AS WELL AS DURING ASSESSMENT PROCEEDI NG SUBMITTED TRANSFER PRICING STUDY REPORT AND ALL THE SUPPORTING DOCUMEN TS TO SUBSTANTIATE ITS CLAIM, A FACT WHICH HAS NOT BEEN DISPUTED BY THE R EVENUE AUTHORITY AT ANY POINT OF TIME. THE TPO HAD AN AMPLE OPPORTUNITY TO DECIDE ON THE MERIT OF THE CASE DURING THE COURSE OF HEARING BEFORE HIM . THEREFORE, THE REQUEST OF REMAND OF CASE TO ASSESSING OFFICER OR T PO AND THE DECISION OF GIVAUDAN FLAVOURS (INDIA) PRIVATE LTD (SUPRA) TO EXAMINE THE DOCUMENT FROM TRANSFER PRICING PROSPECTIVE WOULD BE AKIN TO THE GRANTING ANOTHER OPPORTUNITY THE REVENUE, WHEREIN THERE HAS BEEN NO CHANGE IN THE FACT AND CIRCUMSTANCES AS OF TODAY AS COMPARED TO THE TIME W HEN THE TRANSFER PRICING/ASSESSMENT PROCEEDING WERE UNDERTAKEN. THER EFORE, THE LEARNED AR FOR THE ASSESSEE PRAYED THAT THE FACTS OF PRESEN T CASE ARE ABSOLUTELY DIFFERENT FROM THE SAID CASE. 5. IN WITHOUT PREJUDICE SUBMISSION, THE LEARNED AR OF THE ASSESSEE SUBMITS THAT THE TRANSFER PRICING ANALYSES AND ADJUDICATION OF ARMS LENGTH PRICE ITA NO. 3139/MUM/2018 DNV SE-INDIA BRANCH 7 IS CASE SUBSET OF THE OVERALL PROFIT ATTRIBUTION EX ERCISE OF A FOREIGN TAXPAYER IN INDIA. ONCE THE OVERALL ATTRIBUTION AND TAXABILITY THEREON HAS BEEN ACCEPTED, THE TRANSFER PRICING ANALYSES WILL N OT YIELD ANY RESULT/ FINDING CONTRARY TO THE ATTRIBUTION EVALUATION. IN SUPPORT OF HIS SUBMISSION THE LEARNED AR OF THE ASSESSEE RELIED UPON THE DECI SION OF HONBLE SUPREME COURT IN CASE OF MORGAN STANLEY & CO. (62 T AXMAN 165) WHEREIN IT WAS HELD AS UNDER: AS REGARDS TO CONTRIBUTION TO FURTHER PROFIT TO PE OF MORGAN STANLEY COMPANY WHERE THE TRANSACTION BETWEEN THE TWO ARE HELD TO BE AT ARMS-LENGTH, WE HOLD THAT THE RULING IS CORRECT IN PRINCIPLE PROVIDED TH AT THE ASSOCIATED ENTERPRISES (THAT ALSO CONSTITUTED PE) IS REMANDED DATED OR ARM S-LENGTH BASIS TAKING INTO ACCOUNT ALL THE RISK-TAKING FUNCTION OF THE MULTINA TIONAL ENTERPRISES. IN SUCH A CASE NOTHING FURTHER WOULD BE LEFT TO ATTRIBUTE TO THE PE. THE SITUATION WOULD BE DIFFERENT IF THE TRANSFER PRICING ANALYSES DOES NOT ADEQUATELY REFLECT THE FUNCTIONS PERFORMED AND THE RISK ASSUMED BY THE ENT ERPRISES. IN SUCH A CASE, THERE WOULD BE MADE TO ATTRIBUTE PROFIT TO THE PE F OR THOSE FUNCTIONS/ RISK THAT HAVE NOT BEEN CONSIDERED. 6. THE LEARNED AR FOR THE ASSESSEE FURTHER SUBMITS THA T THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 AND ASSESSMENT YEAR 2005-06, WHILE DEALING WITH THE TAXABILITY OF THE H EAD OFFICE OF THE ASSESSEE HAS ACCEPTED THE AMOUNT ATTRIBUTED BY THE ASSESSEE BRANCH TO HEAD OFFICE. IN THE LIGHT OF DECISION OF TRIBUNAL I N ASSESSEES OWN CASE, THE REMAND PROCEEDING ON THE TRANSFER PRICING WOULD NOT YIELD ANY DIFFERENT RESULT AS COMPARED TO THE RESULT ARRIVED AT NORMAL PROCEEDING AND WOULD BE AN EXERCISE IN FUTILITY. ITA NO. 3139/MUM/2018 DNV SE-INDIA BRANCH 8 7. ON THE CONTRARY THE LEARNED DR FOR THE REVENUE SUPP ORTED THE ORDER OF ASSESSING OFFICER. ON THE DELETION OF THE ADDITION OF RS. 1,43,48,061/- ON ACCOUNT OF HEAD OFFICE SHARE OF INCOME IN INVOICE R AISED BY HEARD OFFICE AND ADDITION OF RS. 1,35,39,289/- ON ACCOUNT OF HEA D OFFICE SHARE OF INCOME IN INVOICE RAISED BY BRANCH, THE LD DR FAIRL Y AGREED THAT SIMILAR ADDITION WAS DELETED BY THE TRIBUNAL IN APPEAL FOR ASSESSMENT YEAR 2007- 08. 8. FOR GROUND NO.4 TO 6 THE LEARNED DR FOR THE REVENUE FURTHER SUBMITS THAT IF THE LEARNED COMMISSIONER (APPEALS) WAS OF THE VI EW THAT THE TPO HAS NOT APPLIED ANY PRESCRIBED METHOD FOR BENCHMARKING, THE LEARNED COMMISSIONER (APPEALS) INSTEAD OF ALLOWING THE APPE AL OF THE ASSESSEE SHOULD HAVE REQUIRED THE REMAND REPORT FROM THE TPO BEFORE PASSING THE IMPUGNED ORDER. THE LEARNED DR FOR THE REVENUE PRAY ED FOR DEMANDING THE CASE TO THE TPO/ASSESSING OFFICER FOR COMPUTATI ON OF ARM LENGTH PRICE AFRESH. IN SUPPORT OF HIS SUBMISSIONS THE LD DR FOR THE REVENUE RELIED ON THE DECISION OF TRIBUNAL IN ACIT VS M/S GIVAUDAN FL AVOURS (INDIA) PRIVATE LTD.(SUPRA). 9. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. GROUND NO. 1 TO 3 RELATES TO DELETING THE ADDITION OF ADDITION OF RS. 1,43,48,06 1/- ON ACCOUNT OF HEAD OFFICE SHARE OF INCOME IN INVOICE RAISED BY HEARD O FFICE AND DELETING THE ITA NO. 3139/MUM/2018 DNV SE-INDIA BRANCH 9 ADDITION OF RS. 1,35,39,289/- ON ACCOUNT OF HEAD OF FICE SHARE OF INCOME IN INVOICE RAISED BY BRANCH. WE HAVE NOTED THAT SIMILA R ADDITION ON ACCOUNT OF ATTRIBUTION OF INCOME TOWARD HEAD OFFICE BY INDI AN BRANCH AND THE EXPENSES INCURRED BY HEAD OFFICE ON BEHALF OF INDIA N BRANCH OFFICER WAS MADE IN ASSESSMENT YEAR 2007-08, WHICH WERE AFFIRME D BY DRP, HOWEVER, ON APPEAL BEFORE TRIBUNAL THE ADDITIONS WE RE DELETED VIDE ORDER DATED 05.06.2013 IN ITA NO. 8975/M/2010. THE OPERAT IVE PORTION OF THE ORDER IS EXTRACTED BELOW: 27. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIE S AT LENGTH AND PERUSED THE MATERIAL PLACED BEFORE US. THE THREE ISSUES PERTAIN ING TO ATTRIBUTION OF RS. 58,13,506/-, TO THE HO, RS. 22,32,586/- BEING HO SH ARE OF FEE AND RS. 3,00,754/- BEING EXPENSES INCURRED BY HO ON BEHALF OF THE BO ARE BEING TAKEN UP TOGETHER. 28. IT IS AN UNDISPUTED FACT THAT INDIA BRANCH OFFI CES ARE UNDER THE KOREAN REGISTRY WHEREIN THE INDIA BO UNDERTAKES INSPECTION AND VALIDATION OF OCEAN FAIRING VESSELS BY PHYSICALLY EXAMINING THE VESSELS . AFTER PHYSICAL EXAMINATION, THE REPORTS ARE SENT TO HO LOCATED IN GERMANY, WHO ISSUES VALIDATION CERTIFICATE, REGARDING THE FITNESS OF TH E VESSEL. 29. THE BUSINESS MODEL FOLLOWED BY THE ASSESSEE AND ITS PARENT IN GERMANY ARE, SHIPS AND VESSELS, IN ORDER TO OPERATE IN SEA ARE REQUIRED TO BE CLASSIFIED BY A CLASSIFICATION SOCIETY APPROVED BY AN AUTHORITY. THE CLASSIFICATION IS DONE AT THE INSISTENCE OF THE SHIP OWNER ON BEHALF OF THE R ESPECTIVE GOVERNMENT. IN CERTAIN INSTANCES, CLASSIFICATION IS DONE AS PER RE PORT COMING DIRECTLY FROM THE SHIP OWNER. IN EITHER CASE, THE POST EXAMINATION AP PROVAL REPORTS ARE SUBMITTED TO THE RESPECTIVE GOVERNMENT, WHICH IS THEN HANDS I T OVER TO THE SHIP, WHOSE FLAG IT IS CARRYING. 30. THE INDIAN OPERATIONS WERE STARTED FROM 06.11.1 989 AS A BRANCH OF ITS GERMAN PARENT, WHO IN TURN IS A MEMBER OF INTERNATI ONAL ASSOCIATION OF CLASSIFICATION SOCIETIES, WHO DECIDES THE SCOPE OF MONITORING ACTIVITIES OF ITS MEMBERS. THE SCOPE OF INDIAN BRANCH COULD BE SUMMAR IZED AS : A) CLASSIFICATION AND CERTIFICATION OF SHIPS. B) CERTIFICATION OF MARINE RELATED MATERIALS AND CO MPONENTS. C) CERTIFICATION RELATING TO INTERNATIONAL SAFETY M ANAGEMENT CO. ITA NO. 3139/MUM/2018 DNV SE-INDIA BRANCH 10 31. THESE ACTIVITIES ARE CARRIED OUT WITH THE TECHN ICAL ASSISTANCE AND COOPERATION OF ITS HO IN GERMANY, WHO, AS SUBMITTED ARE AVAILABLE 24X7. ON COMPUTATION OF ITS CLASSIFICATION, INVOICE IS RAISE D BY THE INDIAN BO OR THE GERMAN HO, AS THE CASE MAY BE, AND THE RECEIPTS ARE ASSIGNED AS PER THE AGREED STANDARD MODULE HEREIN FOLLOWED GLOBALLY, WHEREBY, THE HO RETAINS 30% AND THE BO RETAIN 70% AS PER FEE SPLITTING ARRANGEMENT. 32. WE FIND THAT AS PER ARTICLE 7 OF THE INDIA GERMANY DTAA, THE BUSINESS PROFITS OF THE PERMANENT ESTABLISHMENT IN INDIA, ON LY ARE OFFERED TO TAX. 33. TREADING STRICTLY ON THE DTAA ROUTE, THE ISSUE BECOMES CLEAR, THAT THE SPLIT OF FEE WHICH IS ATTRIBUTED TO ITS GERMAN PARENT HO, BECOME NON TAXABLE UNDER THE INDIAN TAX REGIME. THIS WOULD BECOME APPLICABLE ON ALL THE THREE FIGURES THAT ARE IMPUGNED BEFORE US, BECAUSE THE SHARE OF R S. 22,55,981/- IS ALSO OF THE SIMILAR NATURE & CHARACTER, AS THAT OF FEE ATTRIBUT ED TOWARDS HO BY THE INDIAN BO AT RS. 58,13,506/- AND THE EXPENSES INCURRED BY THE HO ON BEHALF OF INDIA BO AT RS. 3,00,754/- U/S 40A(2)(B). 34. WE ARE IN AGREEMENT WITH THE DECISION OF INTERG RAFIA PRINT & PACK GMBH (SUPRA), WHERE AFTER FOLLOWING THE INDIA GERMAN DTA A TREATY, THE COORDINATE BENCH AT DELHI HAD APPROVED OF THE FEE SPLIT ARRANG EMENT. WE ARE ALSO IN AGREEMENT TO THE DECISION OF THE ASSESSEE OWN CASE IN PENALTY PROCEEDINGS, WHEREIN, THE CIT(A) CAME TO A FACTUAL FINDING THAT, 'FOLLOWING A WELL DEFINED SYSTEM, THE REVENUE EARNED FROM THE ACTIVITIES OF T HE HO CANNOT BE TAXED IN INDIA', WHICH ULTIMATELY HAS BEEN ATTRIBUTED TO THE HO AND FULLY BACKED BY THE INDIA GERMAN DTAA AND PARA1(B) OF THE PROTOCOL, AS WAS RECITED BY THE AR AND REPRODUCED BY US EARLIER. 35. IN THESE CIRCUMSTANCES, WE REVERSE THE DECISION TAKEN BY THE DRP AND DIRECT THE AO TO DELETE THE THREE IMPUGNED AMOUNTS OF RS. 58,13,506/-, RS. 22,55,981/- AND RS. 3,00,754/- FROM THE INCOME OF T HE ASSESSEE. 10. CONSIDERING THE DECISION OF THE COORDINATE BENCH OF TRIBUNAL FOR ASSESSMENT YEAR 2007-08, ON SIMILAR SET OF FACTS, A ND WHEREIN NO VARIATION IN FACTS IS BROUGHT ON RECORD, THUS, WE RESPECTFULL Y FOLLOWING THE SAME, WE HOLD THAT THESE GROUNDS OF APPEAL RAISED BY THE REV ENUE ARE COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER (APP EALS). IN THE RESULT THE GROUNDS OF APPEAL NO. 1 TO 3 ARE DISMISSED. ITA NO. 3139/MUM/2018 DNV SE-INDIA BRANCH 11 11. GROUND NO.4 TO 6 RELATES TO DELETING THE TP ADJUSTM ENT. THE LD. REPRESENTATIVES OF THE PARTIES MADE THEIR RESPECTIV E SUBMISSIONS WHICH WE HAVE NOTED IN PARA NO. 4 TO 8 ABOVE. AS EVIDENT FRO M THE ORDER OF LOWER AUTHORITY WHILE CONDUCTING TP STUDY REPORT THE ASSE SSEE APPLIED CUP METHOD AND CLAIMED THAT THEIR TRANSACTION WITH ITS AE IS AT ARMS LENGTH. THE TPO WHILE CONDUCTING ENQUIRY IN THE REFERENCE U NDER SECTION 92CA(1) CONCLUDED THAT CUP CANNOT BE APPLIED. THE T PO SUGGESTED UPWARD ADJUSTMENT OF RS. 27,87,350/-. THE ASSESSING OFFICER MADE THE SAME ADDITION WITH REGARD TO HEAD OFFICE SHARE INVO ICES RAISED BY BRANCH OFFICE AND BRANCH OFFICE SHARE IN INVOICES RAISED B Y HEAD OFFICE. THE TPO NOT SELECTED ANY OF THE METHOD AS PRESCRIBED UN DER SECTION 92C. THE LD. CIT (A) DELETED THE ADDITION HOLDING THAT THE A DJUSTMENT SUGGESTED BY TPO IN HIS ORDER UNDER SECTION 92CA(3) IS NOT CORRE CT. BEFORE US, THE LD. AR OF THE ASSESSEE VEHEMENTLY SUBMITTED THAT ONCE O VERALL ATTRIBUTION AND TAXABILITY THEREON FOR HEAD OFFICE AS WELL AS BRANC H OFFICE HAS BEEN ACCEPTED, THE TP ANALYSIS WILL NOT YIELD ANY RESULT . THE CONTENTION OF LD AR FOR THE ASSESSEE IS ACCEPTABLE TO US. SIMILAR VI EW WAS TAKEN BY HONBLE APEX COURT IN MORGAN SATNLEY & CO (SUPRA). THE SUBMISSIONS OF THE LD DR FOR THE REVENUE FOR REMANDING THE ISSU E TO THE TPO/ ASSESSING OFFICER IS ALSO NOT ACCEPTABLE TO US, AS WE HAVE ALREADY ACCEPTED THE ATTRIBUTION AND TAXABILITY OF HEARD OFFICER AND BRANCH OFFICE. ITA NO. 3139/MUM/2018 DNV SE-INDIA BRANCH 12 12. IN THE RESULT THE GROUND NO. 4 TO 6 OF THE APPEAL I S ALSO DISMISSED. 13. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/05/2019. SD/- SD/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER MUMBAI, DATE: 29.05.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR I BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI