ACIT (International Taxation), New Delhi V. M/s. Mitsui & Co. Ltd., New Delhi

ITA 5901/DEL/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2423 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 18-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SEETPAL GULATI
• Keywords: Transfer pricing; Double taxation relief; Permanent establishment; FORM 26AS
• Section: 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCING) IT A NO. 5901 /DEL/20 1 6 ASSESSMENT YEAR: 20 13 - 14 ASSTT. COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), CIRCLE-2(2)(1), NEW DELHI. V. M/S. MITSUI & CO. LTD., PLOT NO.-D1, 4 TH FLOOR, SALCON RAS VILAS, DISTRICT CENTRE, SAKET, NEW DELHI. TAN/PAN: AAACM5469Q (APPELLANT) (RESPONDENT) CO NO. 28 /DEL/20 17 ASSESSMENT YEAR: 20 13 - 14 M/S. MITSUI & CO. LTD., PLOT NO.-D1, 4 TH FLOOR, SALCON RAS VILAS, DISTRICT CENTRE, SAKET, NEW DELHI. V. ASSTT. COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), CIRCLE-2(2)(1), NEW DELHI. TAN/PAN: AAACM5469Q (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VED JAIN, SR. ADV. & SHRI AKSHIT GOEL, CA RESPONDENT BY: SHRI SEETPAL GULATI, CIT. DATE OF HEARING: 15 10 2020 DATE OF PRONOUNCEMENT: 27 11 2020 O R D E R PER AMIT SHUKLA, JUDICIAL MEMBER: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE AGAINST THE IMPUGNE D ORDER DATED 22.09.2016 PASSED BY LD. CIT(A)-XLIII, NEW DE LHI FOR ITA NO.5901/DEL/2016 & CO NO.28/DEL/2017 2 THE QUANTUM OF ASSESSMENT PASSED U/S.143(3)/144C FO R THE ASSESSMENT YEAR 2013-14. IN THE REVENUES APPEAL, F OLLOWING GROUNDS HAVE BEEN RAISED:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, WHETHER THE LD. CIT(A) ERRED HOLDING THAT ONLY 20% OF THE GROSS TRA DING PROFIT OUT OF THE OPERATIONS IN INDIA, WAS ATTRIBUTABLE TO THE PE RMANENT ESTABLISHMENT OF MITSUI & CO. LTD. (ASSESSEE) IN INDIA AS AGAINST 50% AS WAS DETERMINED BY THE ASSESSING OFFICER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, WHETHER THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION OF COMMISSION TO THE PERMANENT ESTABLISHMENT OF THE ASSESSEE AT RS. 1,32,13,29,525 /- AS AGAINST RS. 35.30.09,057/- WHICH WAS DETERMINED BY THE ASSESSIN G OFFICER. WHEREAS IN THE CROSS OBJECTION, ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] IS BAD, BOTH IN THE EYES OF LAW AS WELL AS ON FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN UPHOLDING THE V IEW OF THE AO THAT MITSUI INDIA PVT. LTD. HAS BEEN CONSTITUTED AS A DE PENDENT AGENCY PERMANENT ESTABLISHMENT OF THE ASSESSEE COMPANY IN INDIA. 3. WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALTERN ATIVE, THE LEARNED CIT(A) HAS ERRED IN NOT ACCEPTING THE FACT THAT THE TRANSACTION BETWEEN THE ASSESSEE AND MITSUI INDIA PVT. LTD. BEING AT AR MS LENGTH ONLY, NO FURTHER PROFIT COULD BE ATTRIBUTABLE TO THE ASSESSE E. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN HOLDING 20% OF THE GROSS TRADING PROFITS T O BE ATTRIBUTABLE TO THE OPERATIONS OF ASSESSEE IN INDIA WITHOUT THERE B EING ANY BASIS FOR THE SAME. ITA NO.5901/DEL/2016 & CO NO.28/DEL/2017 3 5(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.6 4,02,653/- MADE BY THE AO ON ACCOUNT OF GUARANTEE FEES. (II) THAT THE ADDITION HAS BEEN CONFIRMED DESPITE T HE FACT THAT THE SAID INCOME APPEARING IN FORM 26AS IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE. 6 (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.6 ,84,72,989/- MADE BY THE AO ON ACCOUNT OF NETWORK MAINTENANCE SERVICE FEES. (II) THAT THE ADDITION HAS BEEN CONFIRMED DESPITE T HE FACT THAT THE SAID INCOME APPEARING IN FORM 26AS IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE. 7. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.5 ,24,118/- MADE BY THE AO ON ACCOUNT OF USANCE INTEREST ON LC FROM SHR I RAM PISTONS AND RINGS LTD. (II) THAT THE ADDITION HAS BEEN CONFIRMED DESPITE THE FACT THAT THE SAID INCOME APPEARING IN FORM 26AS IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE. 8. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.5 ,57,215/- MADE BY THE AO ON ACCOUNT OF USANCE INTEREST ON LC FROM DSM SINOCHEM PHARMACEUTICALS INDIA PVT. LTD. (II) THAT THE ADDITION HAS BEEN CONFIRMED DESPITE THE FACT THAT THE SAID INCOME APPEARING IN FORM 26AS IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE. 9. THAT THE RESPONDENT CRAVES LEAVE TO ADD, AMEND O R ALTER ANY OF THE GROUNDS OF APPEAL. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE-COMPANY IS ITA NO.5901/DEL/2016 & CO NO.28/DEL/2017 4 INCORPORATED IN JAPAN AND HAD A SUBSIDIARY IN INDIA , MITSUI INDIA PVT. LTD. (MIPL). IN INDIA, ASSESSEE HAS UNDE RTAKEN SEVERAL PROJECTS IN CONNECTION WITH BIG NATURAL INS TALLMENT AND POWER PROJECTS DURING THE RELEVANT YEAR THROUGH ITS PROJECT OFFICE. THE ASSESSING OFFICER HELD THAT MIT SUI INDIA PVT. LTD., I.E., SUBSIDIARY OF ASSESSEE-COMPANY IS A DEPENDENT AGENT PERMANENT ESTABLISHMENT (DAPE) OF MITSUI, JAP AN IN INDIA. ACCORDINGLY HE HAS ATTRIBUTED PROFIT ATTRIBU TABLE TO INDIAN OPERATIONS BY TAKING 50% OF SUCH PROFITS I.E. RS.40,43,19,773/- WAS ATTRIBUTED ON TOTAL TRADING T URNOVER IN INDIA. TOTAL INCOME OF PE WAS COMPUTED AT RS. 5,13,10,716/- AS PER COMPUTATION, GIVEN AT PAGE 4 OF THE IMPUGNED AS SESSMENT ORDER. 3. THE LD. CIT (A) HAS UPHELD THE ACTION OF THE ASS ESSING OFFICER, HOLDING THAT MITSUI INDIA PVT. LTD. IS A D APE OF THE ASSESSEE-COMPANY. HOWEVER, HE HAS DELETED THE INCOM E ATTRIBUTED TO THE PE AFTER OBSERVING AND HOLDING AS UNDER: FURTHER THE PROFIT ATTRIBUTABLE TO INDIAN OPERATIO NS IS RESTRICTED TO 20% / AS HELD BY ME IN PRECEDING AY 2 009-10, 2010-11,AY2011-12 AND AY 2012-13. THE A.O. HAS WORK ED OUT PROFIT OF INR 80,86,39,545/- @ 2.04%, BASED ON THE NON CONSOLIDATED BALANCE SHEET OF MITSUI & COP JAPAN W HEN APPLIED ON THE TOTAL TRADING TURNOVER IN INDIA, OF {INR) 39,639,193,403/-. THE 50% OF SUCH PROFITS I.E. RS.40,43,19,773/- WAS ATTRIBUTED ON TOTAL TRADING T URNOVER IN INDIA BY THE AO. BY APPLYING PROFIT, ATTRIBUTABLE RATE OF 20% ON THE TOTAL TRADING ITA NO.5901/DEL/2016 & CO NO.28/DEL/2017 5 T.O, IN INDIA THE PROFIT ON INDIAN OPERATION SHALL COME TO RS. 16,17,27,909/- AS AGAINST RS.40,43,19,773/- COMPUTE D BY THE AO. 5.11 FURTHER M/S. MITSUI INDIA PVT. LTD. HAS BEEN P AID A COMMISSION OF RS. 132,13,29,595/- ON THE TOTAL SALE . THE AO HAS RESTRICTED THIS COMMISSION TO RS.35,30,09,057/- BY APPLYING PERCENTAGE AT 0.8905556%. IN THE YEAR UNDE R CONSIDERATION THE REPORT OF THE TPO IN THE CASE OF MITSUI INDIA P LTD HAS BEEN RECEIVED AND TPO HAS ACCEPTED THE PAYM ENT OF RS. 1,32,13,29,595/- AT AN ARMS LENGTH. ACCORDINGL Y THE COMMISSION TO THE EXTENT OF RS. 132,13,29,595/- HAS TO BE ALLOWED AS CLAIMED BY THE ASSESSEE IN VIEW OF TPOS REPORT. ACCORDINGLY I HOLD THAT THE AO WAS NOT JUSTIFIED, I N RESTRICTING THE COMMISSION ALLOWABLE TO RS. 35,30,09,057/- AS A GAINST RS. 132,13,29,595/-PAID BY THE ASSESSEE. IN VIEW OF THE ABOVE, THE INCOME OF RS. 16,17,27,90 9/-ACCRUING TO INDIA STANDS FULLY CONSUMED BY THE PAYMENT OF RS . 132,13,29,595/- MADE TO AGENT IN INDIA AND THERE IS NO INCOME LEFT TO BE TAXED IN INDIA. IT IS A MATTER OF RECORD THAT THE DAPE WAS PAID COMMISSION OF RS. 132,13,29,595/- WHICH HA S ALSO BEEN TAXED IN INDIA AS AGAINST GROSS PROFIT AT THE RATE OF 20% I.E. RS. 16,17,27,909/-ATTRIBUTABLE TO INDIAN OPERA TIONS AS CALCULATED HEREINABOVE. IN VIEW THEREOF, THE ACTION OF THE AO, IN CONSIDERING INCOME OF RS. 5,13,10,716/- FROM PERMAN ENT ESTABLISHMENT (DAPE) IS HEREBY HELD TO BE UNJUSTIFI ED AND ADDITION MADE ON THIS ACCOUNT IS ACCORDINGLY DELETE D. 4. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE IMPUGNED ORDER AND THE ISSUES INVOLVED, WE FIND THA T GROUNDS ITA NO.5901/DEL/2016 & CO NO.28/DEL/2017 6 NO.1 AND 2 IN REVENUES APPEAL AND GROUNDS NO.3 TO 5 IN ASSESSEES CROSS OBJECTION ARE COMMON WHICH HAS BEE N POINTED OUT BY THE LD. COUNSEL BEFORE US THAT, THE SAME IS COVERED BY THE ORDER OF THE ITAT IN ASSESSEES OWN CASE RIGHT FROM THE ASSESSMENT YEARS 2005-06 TO 2008-09 AND 20 10-11, WHEREIN ITAT HAS CONSISTENTLY HELD THAT MIPL IS NOT A DAPE OF ASSESSEE COMPANY. THE ASSESSING OFFICER HAS FOLL OWED THE EARLIER YEAR ORDER WHEREIN MITSUI INDIA PVT. LTD. H AS BEEN HELD TO DAPE OF THE ASSESSEE-COMPANY AND HAS ATTRIB UTED 50% OF THE GROSS TRADING PROFITS OF MIPL AS INCOME OF THE ASSESSEE-COMPANY AND THE COMMISSION PAID BY THE ASS ESSEE TO MIPL WAS REGISTERED @ 0.8905556% OF THE TOTAL SA LE. THE LD. CIT (A) HAS THOUGH UPHOLD THE ACTION OF THE ASS ESSING OFFICER THAT THE MIPL IS A DAPE BUT HAS ATTRIBUTED ONLY 20% OF THE GROSS TRADING PROFIT OF MIPL. LD. CIT(A) FUR THER HELD THAT COMMISSION PAID BY THE ASSESSEE-COMPANY TO MIP L HAVE BEEN ACCEPTED AT ARMS LENGTH PRICE TO THE TPO THAT NO DISCOUNT OF COMMISSION HAS TO BE MADE THAT SINCE TH E COMMISSION PAID WAS MORE THAN 20% ATTRIBUTED TO DAP E, THE ENTIRE ADDITION MADE BY THE ASSESSING OFFICER WAS D ELETED. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF LD. C IT (A) QUESTIONING THE ORDER OF GROSS PROFIT OF SALES AND DELETING THE DISALLOWANCE OF COMMISSION. 5. NOW THAT THE ISSUES ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT FOR THE ASSESSMENT YEAR 20 05-06 IN ITA NO.2335/DEL/2011 ORDER DATED 14.09.2017, WHEREI N IT HAS BEEN HELD THAT MIPL IS NOT DAPE OF THE ASSESSEE - ITA NO.5901/DEL/2016 & CO NO.28/DEL/2017 7 COMPANY. THE SAID ORDER HAS BEEN FOLLOWED FROM ASSE SSMENT YEARS 2006-07 TO 2008-09 AND 2010-11. ONCE MIPL IS NOT HELD TO BE DAPE OF ASSESSEE-COMPANY, THEN OSTENSIBL Y NO INCOME CAN BE ATTRIBUTED TO THE ASSESSEE COMPANY UN DER ARTICLE 7 OF DTAA, AND THEREFORE, THERE CANNOT BE A NY QUESTION OF COMPUTING INCOME OF PE OR ANY DISALLOWA NCE OF COMMISSION WHICH IS OTHERWISE AT ARMS LENGTH PRICE AS ACCEPTED BY THE TPO. SIMILAR GROUNDS RAISED BY THE REVENUE HAS BEEN DISMISSED BY THE TRIBUNAL VIDE ITS LATEST ORDER DATED 09.09.2020 FOR THE ASSESSMENT YEAR 2010-11. THUS, T HE GROUNDS RAISED BY THE REVENUE ARE DISMISSED AND THE GROUNDS NO.3 TO 5 AS RAISED BY THE ASSESSEE IN CROS S OBJECTION IS ALLOWED. THE OTHER GROUNDS ARE TREATED AS ACADEMIC IN NATURE AND TAX NEUTRAL; THEREFORE, SAME ARE DISMISSED AS INFRUCTUOUS. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND THE CROSS OBJECTION OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH NOVEMBER, 2020 SD/- SD/- [N.K. BILLAIYA] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27 TH NOVEMBER, 2020 PKK