M/s. IDIADA Automotive Technology S.A., New Delhi V. ITO, New Delhi

ITA 5299/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4233 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 25-03-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 26-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Keywords: Business income; Double taxation relief; Principle of natural justice; Permanent establishment
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI DELHI DELHI DELHI, , , , BENCH BENCH BENCH BENCH C CC C , NEW DELHI , NEW DELHI , NEW DELHI , NEW DELHI BEFORE SHRI C. L. SETHI, JUDICIAL MEMBER AND SHRI K. D. RANJAN, ACCOUNTANT MEMBER ITA NO. 5299/DEL/2010 (ASSESSMENT YEAR 2007-08) M/S. IDIADA AUTOMOTIVE TECHNOLOGY S.A. VS. ITO, WAR D 11(3), C/O MR. NAGESWAR RAO AMARCHAND & NEW DELHI. MANGALDAS & CO., AMARCHAND TOWERS, 216, OKHLA INDUSTRIAL ESTATE, PHASE III, NEW DELHI- 110 020 (APPELLANT) (RESPONDENT) PAN AABCI5985Q APPELLANT BY: SHRI NAGESWAR RAO, ADV., SHRI PRANAV BHASKARA, ADV. RESPONDENT BY: SMT. MONA MOHANTY, SR. DR ORDER ORDER ORDER ORDER PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: 1. THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-08 ARISES OUT OF THE ORDER OF ASSESSMENT ORDER MADE U/ S 143(3) READ WITH SECTION 144C OF THE ACT. THE RELEVANT GROUNDS OF APPEAL ARE REPRODUCED AS UNDER: 1) THE DIRECTIONS ISSUED BY DISPUTE RESOLUTION PA NEL-II (HEREIN AFTER REFERRED TO AS DRP-II) DATED 27 TH SEPTEMBER, 2010 AND CONSEQUENT IMPUGNED ORDER OF INCOME TAX OFFICER, WARD 11(3), NEW DELHI UNDER SECTION 143(3) DATED 25 TH OCTOBER, 2010 IN APPELLANTS CASE ARE BAD IN LAW A ND ON FACTS, ILLEGAL AND UNLAWFUL. 2) THE IMPUGNED ASSESSMENT ORDER PASSED PURSUANT TO DIRECTIONS OF DRP-II DATED 27 TH SEPTEMBER, 2010 IS BAD IN LAW. THE DRP-II ROUTINELY PROCEEDED TO CONFIRM THE PROPOSALS MADE IN DRAFT ASSESSMENT ORDER DATED 31ST S OCTOBER, 2009, REACHED CONCLUSIONS ARBITRARILY IN G ROSS VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE WITH OUT CONSIDERING THE GROUNDS OF OBJECTIONS RAISED, SUBMI SSIONS MADE AND FACTS AVAILABLE ON RECORD RELEVANT TO APPE LLANTS I.T.A.NO. 5299/DEL/2010 2 CASE AND WITHOUT DEALING WITH THE OBJECTIONS RAISED ON FACTS AND LAW VIDE ITS PETITION DATED 28 TH JANUARY 2010. 3) THE IMPUGNED ASSESSMENT ORDER ERRED IN RE- COMPUTING THE TAX ON GROSS BASIS BY ASSUMING EXISTE NCE OF PERMANENT ESTABLISHMENT. THE AMOUNT IN QUESTION CA N RIGHTFULLY BE TAXED ONLY AS TECHNICAL SERVICES. 4) THE DIRECTIONS ISSUED BY DRP II AND CONSEQUENTLY THE IMPUGNED ORDER ARE BAD IN LAW IN SO FAR AS THEY FAI L TO APPRECIATE THAT THE AMOUNTS RECEIVED DURING ASSESSM ENT Y EAR UNDER CONSIDERATION WERE TOWARDS SERVICES ACTUA LLY RENDERED FROM OUTSIDE INDIA AND SUCH SERVICES ARE D ISTINCT, MUCH EARLIER TO AND SEPARATE FROM INCOME RELATING T O SUPERVISORY SERVICES RENDERED FROM OFFICE SUBSEQUEN TLY ESTABLISHED IN INDIA. 5) THE DIRECTIONS OF DRP-II AND CONSEQUENTLY THE IMPUGNED ORDER ERRED IN NOT CONSIDERING THE SUBMISS IONS AND MATERIAL FACTS SUBMITTED ON RECORD AND WRONGLY PROCEEDED ON ASSUMPTION THAT CERTAIN RELEVANT DATA WAS NOT SUBMITTED BY THE APPELLANT. 6) THE DIRECTIONS OF THE DRP-II AND CONSEQUENTLY TH E IMPUGNED ORDER FAIL TO APPRECIATE THAT THE AMOUNTS RECEIVED DURING RELEVANT ASSESSMENT YEAR RELATED TO SERVICES RENDERED OVERSEAS AND WRONGLY PROCEEDED TO CONCLUDE THAT THE SHORT VISITS TO INDIA MADE BY FEW EMPLOYEES OF THE APPELLANT RESULT IN A PERMANENT ESTABLISHMENT OF THE APPELLANT IN INDIA ON THE ASSU MPTION THAT THE PLACE SUCH EMPLOYEES WORKED FROM DURING SU CH VISITS CONSTITUTED AN OFFICE. WITHOUT PREJUDICE TO ANY OF ABOVE GROUNDS AND FURTH ER WITHOUT PREJUDICE TO EACH OTHER, THE IMPUGNED ORDER AND DEMAND ARE BAD IN LAW FOR THE FOLLOWING REASONS: 7) THE IMPUGNED ORDER ERRED IN WRONGLY PROCEEDING T O TREAT THE VISITING EMPLOYEES AS CONSTITUTING A DEPE NDENT AGENT PERMANENT ESTABLISHMENT AND ATTRIBUTING ALL I NCOME IN QUESTION TO SUCH PERMANENT ESTABLISHMENT. 8) THE IMPUGNED ORDER WRONGLY PROCEEDS TO ATTRIBUTE ALL THE PROFITS TO AN ASSUMED PERMANENT ESTABLISHMENT I N INDIA WITHOUT CONSIDERING THE EVIDENCE PRODUCED TO SUPPORT THAT THE RELEVANT SERVICES WERE IN FACT RENDERED OV ERSEAS BY THE APPELLANT ENGAGING SERVICES OF SOME OTHER PA RTIES ALSO. I.T.A.NO. 5299/DEL/2010 3 9) THE IMPUGNED ORDER WRONGLY PROCEEDS TO CONSIDER THE ENTIRE AMOUNT OF GROSS RECEIPTS AS INCOME AND COMPLETELY IGNORES THE EVIDENCE PRODUCED ON RECORD FOR EXPENDITURE DIRECTLY RELATED TO PROVIDING SERVICES IN QUESTION ALTHOUGH THE RELEVANT EVIDENCE IN PART OF RECORD. 10) THE IMPUGNED ORDER ERRED IN WRONGLY DETERMINING THE INCOME OF THE APPELLANT BY APPLYING PROVISIONS OF SECTION 44DA AND FURTHER ERRED IN NOT ALLOWING EXPE NDITURE DIRECTLY RELATABLE TO EARNING OF INCOME, DETAILS FO R WHICH WERE AVAILABLE ON RECORD. 11) THE IMPUGNED ORDER WRONGLY DISALLOWS EXPENDITUR E DIRECTLY RELATED TO EARNING OF INCOME ERRED IN IMPO SING INTEREST AND ALSO WRONGLY PROPOSING PENALTY. 12) THE DISPUTED TAX DEMAND CONTAINS MANY ERRORS APPARENT FROM RECORD FOR WHICH AN RECTIFICATION APP LICATION HAS ALSO BEEN FILED. THE IMPUGNED ORDER DOES NOT A LSO GRANT CREDIT FOR THE FULL AMOUNT OF TAX DEDUCTED AT SOURCE. 13) THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEA L AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL . ANY CONSEQUENTIAL RELIEF, TO WHICH THE APPELLANT MAY BE ENTITLED UNDER THE LAW IN PURSUANT OF THE AFORESAID GROUNDS OF APPEAL, OR OTHERWISE, MAY BE THUS GRANTED. 2. THE ONLY ISSUE FOR CONSIDERATION RELATES TO CONF IRMATION OF DRAFT ORDER OF THE ASSESSING OFFICER BY DISPUTE RES OLUTION PENAL (DRP) U/S 144C OF THE ACT. THE FACTS STATED IN BRI EF ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SHOW N A RECEIPT OF ` 7,40,91,233/- FROM NATRIP IMPLEMENTATION SOCIETY ON ACCOUNT OF PROJECT CONSULTANCY AGREEMENT ENTERED INTO BY A CON SORTIUM WHICH INCLUDED THE ASSESSEE, ICRA MANAGEMENT CONSULTANCY SERVICES AND AVL IV ERICA, S.A. THE ASSESSEE CLAIMED THE SAID R ECEIPT IN THE NATURE OF FEE FOR TECHNICAL SERVICES. THE ASSESSEE CLAIMED THAT THERE WAS NO PERMANENT ESTABLISHMENT IN INDIA (PE) IN RESPECT OF RENDERING OF THESE SERVICES AND THE SERVICES WERE R ENDERED FROM OUTSIDE INDIA AND, THEREFORE, THE CONSIDERATION WAS NOT TAXABLE U/S 115A OF THE INCOME TAX ACT, 1961. THE ASSESSING OF FICER IN ORDER TO EXAMINE THE CONTENTION OF THE ASSESSEE REQUIRED IT TO PROVIDE COPY I.T.A.NO. 5299/DEL/2010 4 OF CONSORTIUM AGREEMENT. HOWEVER, THE ASSESSEE COU LD NOT PROVIDE THE CONSORTIUM AGREEMENT. THE ASSESSING OFFICER FU RTHER EXAMINED THE CASE WITH REFERENCE TO THE EMPLOYEES VISITED IN DIA IN RESPECT OF CONTRACT AND RENDERING OF SERVICES. THE ASSESSING OFFICER HOWEVER HELD THAT BEFORE START OF THE PROJECT OFFICE, THERE EXISTED A PE IN INDIA AND THE ACTIVITIES FOR WHICH CONSIDERATION HAD BEEN RECEIVED WERE OBVIOUSLY CONNECTED WITH SUCH PE UNDER THE DOMESTIC LAW. ONCE THE RECEIPT FELL UNDER ARTICLE 7 OF DTAA, IT HAS TO BE COMPUTED AS PER THE PROVISIONS OF GOVERNING COMPUTATION OF INCOME FROM BUSINESS & PROFESSION. 3. THE ASSESSING OFFICER ASSESSED THE INCOME U/S 44 DA. AND SENT THE DRAFT ASSESSMENT ORDER TO DRP. BEFORE DR P, THE ASSESSEE RAISED OBJECTION TO DRAFT ORDER MADE BY THE ASSESSI NG OFFICER. IT WAS SUBMITTED THAT SERVICES WERE RENDERED BY THE CONSUL TANCY AGREEMENT WITH THE SOCIETY AND WAS DIVIDED IN THREE ESSENTIAL PARTS I.E. (I) EXPLORING THE DETAILS PROJECT IMPLANTATION REPORT; (II) ENGINEERING; AND (III) CONSTRUCTION SUPERVISION. T HE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT FEE RECEIVED IN THE PREVIOU S YEAR RELATED TO THE ACTIVITIES ONLY IN RESPECT OF EXPLORATION OF DE TAILED PROJECT IMPLEMENTATION REPORT WHICH WORK WAS DONE BY THE EM PLOYEES OF THE ASSESSEE WHO CAME FROM ABROAD AND STAYED IN HOT ELS AND REPORTS WERE PREPARED BY VISITING PLACES IN THE COU NTRY. IT WAS SUBMITTED THAT THE FOREIGN EMPLOYEES DID NOT STAY I N INDIA FOR MORE THAN 15 DAYS AT A STRETCH AND THEREFORE, THERE WAS NO PE IN INDIA. 4. THE LD. DRP CONSIDERED THE SUBMISSIONS MADE BY T HE ASSESSEE. IT HAS BEEN OBSERVED THAT THE ASSESSEE H AD FILED IN THE PAPER BOOK ONLY THE BILLS OF THE HOTELS WHERE THE E MPLOYEES HAD STAYED BUT NO DETAILS OF ANY OTHER EXPENDITURE CONN ECTED WITH THE BRANCH RELATING TO IT OBTAINING NECESSARY INFORMATI ON, CONDUCTING DETAILS OF SERVICES AND EXPLORATION AND DETAILED RE PORTS HAVE BEEN FURNISHED. IT HAS ALSO BEEN OBSERVED THAT IT WAS N OT SHOWN AS TO I.T.A.NO. 5299/DEL/2010 5 WHERE THOSE EXPENSES NECESSARY FOR EXPLORATION AND REPORTS, HAVE BEEN DEBITED. THE PRESUMPTION WAS THAT ASSESSEE HA D DEBITED ALL THOSE EXPENSES AS PREOPERATIVE EXPENSES TO AMORTIZE THE SAME IN THE LAST YEAR. NO BREAKUP DETAILS OF THESE EXPENSE S WERE FURNISHED EITHER BEFORE THE ASSESSING OFFICER OR BEFORE DRP N OR THE VOUCHERS AND BILLS RELATING TO THOSE EXPENSES WERE FURNISHED . DRP FURTHER NOTED THAT THE ASSESSEE HAD NOT FURNISHED CONSORTIU M AGREEMENT TO FIND OUT THE EXACT RESPONSIBILITY OF THE ASSESSEE S O FAR AS THE RENDERING OF SERVICES WERE CONCERNED. IN VIEW OF T HESE FACTS DRP OBSERVED THAT IT WAS NECESSARY TO EXAMINE THE NATUR E OF EXPENDITURE INCLUDED IN THE PREOPERATIVE EXPENSES C LAIMED TO BE AMORTIZED IN THE LASTS YEAR TO FIND OUT WHETHER THE RE WAS ANY PE OR NOT. SINCE THE ASSESSEE HAD NOT FILED THESE DOCUME NTS THE CONCLUSION TO BE ARRIVED AT WAS THAT THE ASSESSEE W AS AVOIDING PROPER EXAMINATION OF ITS STATE OF AFFAIRS. IN THE ABSENCE OF CLEAR FACTS BE MADE AVAILABLE BY THE ASSESSEE, THE DRP CO NCLUDED THAT PE OF THE ASSESSEE HAD EXISTED IN INDIA IN THE PREVIOU S YEAR AND THE RENDERING OF SERVICES WERE CLOSELY CONNECTED WITH T HAT PE. THEREFORE, THE RECEIPTS WERE TAXABLE AS BUSINESS IN COME. THE ASSESSING OFFICER ON RECEIPT OF THE ORDER FROM DRP ASSESSED THE INCOME OF ` 7,34,28,060/- AS BUSINESS INCOME. 5. BEFORE US, LD. A.R. FOR THE ASSESSEE SUBMITTED T HAT DRP HAS NOT CONSIDERED THE ISSUE IN ITS RIGHT PERSPECTIVE. LD. A.R. FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF ITAT DE LHI BENCH C, NEW DELHI IN THE CASE OF GAP INTERNATIONAL SOURCING INDIA PVT. LTD. VS DCIT IN I.T.A. NO. 4073/DEL/2010 FOR THE ASSESSM ENT YEAR 2006- 07 DATED 10.12.2010 AND THE DECISION OF HON'BLE HIG H COURT OF DELHI IN THE CASES OF VODAFONE ESSAR LTD. AND REQUESTED T HAT THE MATTER SHOULD BE REMANDED BACK TO THE AUTHORITIES FOR FRES H ADJUDICATION. ON THE OTHER HAND, LD. SR. DR SUPPORTED THE ORDER O F THE ASSESSING OFFICER. I.T.A.NO. 5299/DEL/2010 6 6. WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE HA D NOT FURNISHED THE COPY OF THE CONSORTIUM AGREEMENT NEIT HER BEFORE THE ASSESSING OFFICER NOR BEFORE DRP. THE ASSESSEE HAS NOT GIVEN THE DETAILS OF EXPENDITURE INCURRED RELATING TO THE REP ORT PREPARED BY THE VISITING EMPLOYEES IN RESPECT OF PREPARATION OF DETAILED PROJECT IMPLEMENTATION REPORT. IN VIEW OF THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS NOT FURNIS HED DETAILS NECESSARY FOR ARRIVING AT THE ISSUE RELATING TO PE. WE, THEREFORE, SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFIC ER WITH THE DIRECTION TO EXAMINE THE CASE OF THE ASSESSEE AND M AKE A FRESH REFERENCE TO DRP FOR DECIDING THE ISSUE AFRESH ON M ERITS. THE ASSESSEE IS ALSO DIRECTED TO SUPPLY THE COPIES OF C ONSORTIUM AGREEMENT AND OTHER DETAILS NECESSARY FOR ARRIVING AT THE CONCLUSION WHETHER THERE IS PE IN INDIA OR NOT. WE ORDER ACCO RDINGLY. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. 8. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST APR., 2011. SD./- SD./- (C. L. SETHI) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21 ST APR., 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI