AB Sciex Pte Ltd., Singapore V. ACIT,Circle Int. Tax. 1(1)(1), New Delhi

ITA 515/DEL/2021

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7561 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 12-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA ANAND
• Keywords: Business income; Double taxation relief; Opportunity of cross examination; Permanent establishment; Third party statement; Assessment record
• Section: 147; 131; 148; 6; 143(3); 234B; 201; 144C

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI (Through Video Conferencing) BEFORE SHRI O. P. KANT, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No. 515/Del/2021 Asstt. Year 2012-13 M/s. AB Sciex Pte. Ltd. Block 33, 46 Marsiling Industrial Estate 30406, Singapore 739256 PAN AANCA1192P Vs. ACIT, Circle Int. Tax. 1(1)(1), New Delhi. (Appellant) (Respondent) O R D E R PER SUCHITRA KAMBLE,JM This appeal is filed by the assessee against the order dated 16.4.2021 passed by the Income Tax Department, India for Assessment Year 2012-13. 2. The grounds of appeal are as under:- Assessee by: Shri Ajay Vohra, Sr. Advocate Ms. Suchita Kanodia, CA Department by : Mrs. Anupama Anand, CIT Date of Hearing 11/11/2021 Date of pronouncement 26/11/2021 ITA No. 515/Del/2021 2 “On the facts and in the circumstances of the case and in law, the Assistant Commissioner of Income Tax International Taxation, Circe 1 (1 )(1), Delhi (‘Ld. AO’) has erred in passing the assessment order under Section 143(3) read with Section 144C(13) of the Income- tax Act, 1961 (the Act) and the Hon’ble Dispute Resolution Panel (‘DRP’), New Delhi has erred in confirming the assessment order which is wrong and bad in law. The impugned assessment order has been passed on assumptions, ignoring facts and legal submissions and hence, liable to be quashed. Grounds with respect to validity of Re-assessment Proceedings Ground 1: That on the facts and in the circumstances of the case, the reassessment proceedings initiated by the Ld. AO is wrong, bad in law and without jurisdiction and void ab initio. Ground 2: That on the facts and in the circumstances of the case and in law, the notice issued u/s 148 of the Act and the proceedings u/s 147 / 148 of the Act initiated by the Ld. AO is wrong and bad in law being without jurisdiction as the notice was issued by a non- jurisdictional AO and the subsequent transfer of the case by the Income Tax officer (‘ITO’), International Taxation Ward -1(1), Bangalore [TTO, Bangalore’] to the Ld AO does not make the reassessment proceedings valid. Hence, the reassessment proceedings are invalid and unsustainable. Ground 3: Without prejudice, on the facts and in circumstances of the case and in law, the reassessment proceedings and the order passed by the Ld. AO and confirmed by DRP is bad in law as both the Ld. AO as well as DRP failed in adjudicating on the issue and reasons on the basis of which the reassessment ITA No. 515/Del/2021 3 proceedings were initiated. Hence, the order passed is invalid, null and void. Ground 4: That the DRP has erred in making an incorrect statement that the Ld. AO has discussed the issue on which the re-assessment proceedings were initiated and thus in holding that re-assessment proceedings are valid. Ground 5: Without prejudice, on the facts and in circumstances of the case and in law, the Ld. AO as well as DRP grossly erred in alleging PE of the Appellant and determining the attribution of income on the basis of assessment order passed for AY 2017-18 for deciding the issue on merits for AY 2012-13, which is erroneous, arbitrary, unreasonable, without independent application of mind and correct appreciation of facts and law. Hence, the proposed adjustment is liable to be deleted. Ground 6: On the facts and circumstances of the case and in law, the Ld. AO as well as DRP has erred in assessing the total income of the Appellant under section 143(3) read with section 144C of the Act, for the AY 2012-13 at INR 1,18,72,442 as against the returned income of INR NIL. Ground 7: On the facts and circumstances of the case and in law, the Ld. AO erred in ignoring the principle of natural justice by not according the Appellant an opportunity of being heard and has passed the order which is erroneous and unsustainable. Grounds with respect to allegation of constitution of Permanent Establishment (‘PE’) in India Ground 8: On the facts and in the circumstances of the case and in law, the Ld. AO as well as DRP has erred in holding that the appellant has a Fixed Place PE in India ITA No. 515/Del/2021 4 by ignoring facts of the case and provisions of the law and merely placing reliance on a third party statement in response to summon issued to it under section 131 of the Act. The allegations are unfounded, without any cogent material and on the basis of surmises and conjectures. Ground 9: On the facts and circumstances of the case and in law, the Ld. AO as well as DRP has erred in holding that DHR Holding India Private Limited (‘DHR India’) constitutes a dependent agency PE of the Appellant in India by ignoring facts of the case and provisions of the law and merely placing reliance on a third party statement in response to summon issued to it under section 131 of the Act. The allegations are unfounded, without any cogent material and on the basis of surmises and conjectures. Ground 10: On the facts and circumstances of the case and in law, both the Ld. AO as well as DRP has erred in alleging that the Appellant has fixed place PE and dependant agency PE in India without appreciating the additional evidences filed by the Appellant during the course of DRP proceeding, which are crucial for establishing the non-existence of PE in India. Grounds with respect to attribution of profits to the alleged PE Ground 11: The Ld. AO and the Hon’ble DRP grossly erred in law, in attributing profits to the alleged PE on an unrealistic and ad-hoc basis which are in complete violation of the various legal principles, applicable provisions of DTAA (Double tax Avoidance Agreement) and international guidance set out in this regard. Ground 12 : The Ld. AO and the Hon’ble DRP grossly erred in law in ignoring the jurisprudence of the Hon’ble Supreme Court in the case of DITvs. Morgan Stanley [2007] 7 SCC 1 holding that once the AE is remunerated ITA No. 515/Del/2021 5 on arm’s length basis, there should be no further attribution. Ground 13: On the facts and circumstances of the case, the Ld. AO/ Hon’ble DRP erred in attributing excessive profits to the alleged PE on an ad-hoc and arbitrary basis, by not considering commercial and economic factors governing the business ofthe Appellant and completely ignoring all submissions of the Appellant in this regard. In doing so, the Ld. AO erred in: 13.1 Applying an ad-hoc methodology to attribute unreasonable profits to the alleged PE. In this regard, the AO erred in benchmarking the profits attributable to the alleged PE with the resale discounts agreed by the Appellant with its AE, DHR India, under a buy-sell distribution arrangement, which is a controlled transaction; 13.2 Ignoring the significantly higher level of functions performed, assets employed and risks assumed by DHR India under the distribution arrangement versus those alleged to have been performed by the PE, leading to excessive and unreasonable profits attribution. Ground 14: On the facts and circumstances of the case, the Ld. AO/Hon’ble DRP erred in summarily rejecting the contentions placed by the Appellant for a reasonable profit attribution, without appreciating the additional evidences and analysis filed by the Appellant during the course of DRP proceeding. In doing so, the Ld. AO/ Hon’ble DRP erred in: 14.1 Ignoring a third-party arrangement furnished by the Appellant that is comparable to the functions alleged to have been performed by the PE; 14.2 Ignoring an analysis furnished by the Appellant determining the profit attribution based on resale ITA No. 515/Del/2021 6 margins earned by independent distributors in uncontrolled transactions. Ground 15: On the facts and in law, the Ld. AO erred on facts and in law in initiating penalty under section 271 (l)(c) of the Act when the facts of the case and provision of the law do not warrant such initiation of penalty proceedings. All the above grounds of objections are mutually exclusive and without prejudice to each other. The Appellant prays for leave to add, alter, amend, rescind from or withdraw any of the above grounds of appeal at or before the time of hearing of the appeal.” Additional Grounds “Ground No. 16. On the facts and the circumstances of the case and in law, the Ld. AO and the Hon’ble DRP both erred in levying interest u/s 234B of the Act. Ground No. 17. On the facts and the circumstances of the case and in law, the Ld. A.O and the Hon’ble DRP both erred in levying interest u/s 234C of the Act.” 3. The assessee company is a non-resident company in the terms of Section 6 of the Income Tax Act. The assessee company is engaged in the business of manufacture and sale of scientific research instruments and peripherals to improve the clinical tests and empower pharmaceutical companies to develop more effective ITA No. 515/Del/2021 7 drugs, more quickly and at a lower cost. The product sold by the assessee requires maintenance services to its customers world wide including India. During the course of proceedings u/s 201 of the Income Tax Act, in case of M/s Eurofins Advinus Ltd. for the Assessment Year 2012-13, it was noticed by the Revenue that the said company entered into an agreement with the assessee company to provide annual maintenance service. The assessee offered maintenance services to its customers with respect to the products for which the assessee on certain annual maintenance contract (AMC) revenue from customers in India which was not considered taxable in India considering with these services do not make available any technical knowhow skills etc. As per Article 12 of India-Singapore DTAA income from the routine maintenance services provided Indian Customers were not subject to tax in India by the assessee Company. Therefore, the income on during the year was not offered to tax in India during the relevant assessment year. The Assessing Officer attributed profits as under:- Methodology Amount in INR Step 1- AB Sciex’s direct total sale to Indian Customers (A) 1,531,031,985 Step 2- AB Sciex’s receipt from selling of Annual Maintenance Contracts to Indian Customers (B) 89,673,757 Total (C=A+B) 1,620,705,742 Step 3- Considered profit on sale made to India basis AB Sciex’s entity level PBY/sales for December, 2017 @ 9.5%. 153,967,045 Step 4- Computed amount attributable to the alleged PE of AB Sciex by considering the % age of resale discount extended to DHR India (as per distribution agreement), reduced by the % age of commission and cost plus income earned by DHR India as a percentage of total sales (46.17%= 29%). 44,650,443 Thus, the Assessing Officer assessed total income of Rs. 1,18,72,442/- vide order dated 16/4/2021. ITA No. 515/Del/2021 8 4. Being aggrieved by the assessment order, the assessee has filed present appeal before us. 5. The Ld. AR submitted that the proceedings of reassessment are invalid as the reopening initiated by non jurisdictional assessing officer. Thus, the same is illegal and bad in law. The Ld. AR further submitted that transferring the case records of jurisdictional Assessing Officer does not make the reopening proceedings valid. The Ld. AR relied upon the decision of Inder Mohan Kohli Vs. ITO (ITA No. 5170/Del/2010) as well as ITO Vs. Kushal Timber Pvt. Ltd. (ITA No. 578/Del/2010 dated 21/10/2015). The Ld. AR relied upon the decision of Hon’ble Bombay High Court in case of CIT Vs. Jet Airways Pvt. Ltd. (2010) 195 Taxman 117 as well as Ranbaxy Laboratories Ltd. Vs. CIT (2011) 336 ITR 136 (Del HC). 6. The Ld. DR submitted that the re-assessment proceedings were very much proper and the Assessing Officer who has initiated reopeneing as a valid jurisdiction. Thus, the Ld. DR relied upon the assessment order. The Ld. DR mentioned that the assessee withdrawn the writ petition in respect of challenged of jurisdiction of the Assessing Officer, namely, ITO, Intl. Taxn. Ward - 1(1), Banglore. The Ld. DR relied upon the order of the DRP and the Assessing Officer. 7. The Ld. AR submitted that the writ petition though was filed, but the withdrawal was with liberty to raise the issue of ITA No. 515/Del/2021 9 jurisdiction of the Assessing Officer, namely Income Tax Officer, International Taxation, Ward -1 (1), Banglore to issue the notice under Section 148 of the Income Tax Act dated 29.11.2019 before the Assessing Officer. 8. We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that the reasons recorded for reopening the proceedings in assessee’s case was recorded by the ITO(IT)W-1(1) Banglore. The Notice u/s 148 of the Act was issued on 31.03.2019 by ITO, Ward 1(1) International taxation 1(1), Banglore for A.Y. 2012-13 which is at the fag-end of the 6 years limitation to issue notice. The notice was replied by the assessee on 18.04.2019 whereby the assessee contended that it does not have a PE in India and Routine Maintenance services to Indian customers are not subject to tax in India and therefore it did not file return of income in India. The assessee also raised objection that correct jurisdictional Assessing Officer is not ITO, Ward 1(1) International taxation 1(1), Banglore, but ACIT International Taxation, Circle 1(1)(1), New Delhi. It is pertinent to note that merely transferring the assessment records to the ACIT, International Taxation, Circle 1(1)(1), New Delhi which was received on 04.09.2019 and thereafter issuing notice u/s 129 to the assessee cannot be construed as the proper implementation of the reopening of the assessment proceedings under Section 148 of the Income Tax Act. The jurisdictional Assessing Officer i.e. ACIT International Taxation, Circle 1(1)(1), New Delhi has simply passed assessment order after the transfer of records without issuing a valid notice under Section 148 of the ITA No. 515/Del/2021 10 Act which is a mandatory procedure under the Income Tax Act. Since the notice under section 148 is issued by the non- jurisdictional Revenue authority, the assessment does not survive. Thus, the Assessment Order itself is void-ab-intio. Since, the very basis of the Assessment order is bad, we are not deciding the issue on merits. Hence, appeal of the assessee is allowed. 9. In result, appeal of the assessee is allowed. The order is pronounced in the open court on 26 th Day of November, 2021. Sd/- Sd/- (O.P. KANT) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 26/11/2021 Veena/R.N Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi