Gate Gourmet Switzerland GMBH, Switzerland V. DCIT Circle International Tax 1(3)(1), New Delhi

ITA 673/DEL/2023

AI Insights

The case involves GATE GOURMET SWITZERLAND GMBH, a non-resident corporate entity from Switzerland, appealing against the final assessment order passed by the Deputy Commissioner of Income Tax, Circle- International Tax- 1(3)(1), New Delhi. The appeal was primarily concerned with the non-implementation of the DRP's directions by the Assessing Officer in the final assessment order. The assessee had initially not filed a return of income for the assessment year 2014-15 but later filed it after the assessment was reopened. The DRP had directed the Assessing Officer to consider additional evidences provided by the assessee, which were not initially considered. However, the Assessing Officer did not comply with these directions in the final assessment order, leading to the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 300594 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 14-05-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 12-03-2023
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; Additional evidence; Set aside
• Section: 147; 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘D’ NEW DELHI BEFORE SHRI G.S. PANNU, HON’BLE PRESIDENT AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA No.673/Del/2023 Assessment Year: 2014-15 GATE GOURMET SWITZERLAND GMBH, Balz, Zimmermann Strasse 7, 8302 Kloten, Canton of Zurich, Switzerland Vs. Deputy Commissioner of Income Tax, Circle- International Tax- 1(3)(1), New Delhi PAN :AAECG8280F (Appellant) (Respondent) ORDER PER SAKTIJIT DEY, JM: Captioned appeal by the assessee has been filed against the final assessment order dated 21.01.2023 passed under section 147 read with section 144C(13) of the Income-tax Act, 1961 (in short ‘the Act’) pertaining to assessment year 2014-15, in pursuance to the directions of learned Dispute Resolution Panel (DRP). Appellant by Sh. Ajit Jain, Advocate Respondent by Sh. Vizay B. Vasanta, CIT (DR) Date of hearing 15.05.2023 Date of pronouncement 15.05.2023 ITA No.673/Del/2023 AY: 2014-15 2 | P a g e 2. Though, the assessee has raised multiple grounds, both, on legal issues as well as on merits, however, the basic grievance of the assessee before us is, while passing the final assessment order, the Assessing Officer has not implemented the directions of learned DRP in letter and spirit as per the mandate of section 144C(13) of the Act. 3. As could be seen from the facts on record, the assessee is a non-resident corporate entity, incorporated in Switzerland and a tax resident of Switzerland. In the previous year relevant to the assessment year under dispute, the assessee had received an amount of Rs.58,85,733/- from its Indian Associated Enterprise (AE) and a further amount of Rs.16,21,275/- from Mumbai Airport Lounge Services Pvt. Ltd. It is a fact on record that for the year under consideration, the assessee had originally not filed any return of income. Subsequently, the assessment was reopened under section 147 of the Act and in response to the notice issued under section 148, the assessee filed its return of income on 24.11.2021, declaring income of Rs.3,10,35,460/- and paid tax at the rate of 10% by applying the beneficial provisions of India – Switzerland Double Taxation Avoidance Agreement (DTAA). In course of assessment proceeding, as alleged by the Assessing ITA No.673/Del/2023 AY: 2014-15 3 | P a g e Officer, the assessee did not comply with various queries made. The Assessing Officer observed that the assessee has not submitted its Tax Residency Certificate (TRC), hence, cannot claim benefit of the treaty provision. He further observed that neither the assessee furnished the underlying contract from which it earned receipts, nor it furnished a no Permanent Establishment (PE) Certificate. The assessee even has not filed any report in Form 3CEB. Thus, ultimately, the Assessing Officer proposed a draft assessment order determining income of Rs.3,10,35,460/- and taxed it at the rate of 40% by applying the domestic law. Against the draft assessment order, assessee filed objections before learned DRP. In course of proceedings before learned DRP, the assessee furnished fresh evidences such as TRC, no-PE Certificate, contract document etc. The additional evidences furnished before learned DRP were forwarded to the Assessing Officer for factual verification and necessary comments. 4. After considering the remand report, learned DRP issued certain directions to the Assessing Officer in the matter of addition proposed in the draft assessment order. However, without carrying out the directions of learned DRP, the Assessing ITA No.673/Del/2023 AY: 2014-15 4 | P a g e Officer passed the final assessment order repeating the addition made in the draft assessment order. 5. Having considered rival submissions, we find, though, in course of assessment proceeding, the assessee, for whatever may be the reason, could not furnish certain documentary evidences, such as, TRC, underlying agreement with Indian parties, no PE Certificate etc., however, before learned DRP, the assessee did furnish the aforesaid evidences by way of additional evidence. 6. After admitting the additional evidences, learned DRP forwarded them to the Assessing Officer for factual verification and report. It is observed, in the remand report, the Assessing Officer has not only objected to the admission of additional evidences, but also questioned the authority of learned DRP in admitting additional evidences. In our view, by doing so, the Assessing Officer has exceeded his jurisdiction. As per sub- section (8) of section 144C of the Act, DRP has been vested with powers to confirm, reduce or enhance the variations proposed in the draft assessment order. However, the provision makes it clear that the DRP cannot set aside the proposed variation, or issue any direction for further inquiry and passing of the assessment order. Sub-section (10) of section 144C makes it clear, every ITA No.673/Del/2023 AY: 2014-15 5 | P a g e direction issued by the DRP shall be binding on the Assessing Officer. Sub-section (11) of section 144C provides that no direction under sub-section (5) shall be issued by the DRP unless opportunity of being heard is provided to the assessee and the Assessing Officer on such directions, which are prejudicial to the interest of the assessee or the interest of Revenue respectively. Sub-section (13) of section 144C mandates the Assessing Officer to pass the final assessment order in conformity with directions of learned DRP. 7. Thus, the aforesaid provisions make it clear that not only the DRP has been vested with wide powers while deciding objections, but the directions of learned DRP are binding on the Assessing Officer. Further, Rule 9 of DRP Rules empowers the DRP to call upon or permit the assessee to produce any document or examine any witness or file any evidence to enable it to issue proper direction. Thus, when the statute confers power on the DRP to call upon and admit additional evidences, the Assessing Officer cannot challenge the authority of learned DRP in admitting the additional evidences. Pertinently, while rejecting the objections of the Assessing Officer on the issue of admission of ITA No.673/Del/2023 AY: 2014-15 6 | P a g e additional evidences, learned DRP has given the following directions to the Assessing Officer on merits: “3.21 The Panel, accordingly, directs the AO to verify from his records if he had asked for any further details/clarification from the assessee during the remand proceedings, which the assessee did not furnish. If this is so, this addition would be retained. If the AO did not ask for any clarif ication or conduct any enquiry during the remand proceedings, the Panel directs the AO, while passing the final order, must record as to why and under what circumstances, he did not conduct such enquiry and merely proceeded to speculate on the deficiency on the part of the assessee, relating to the manner of delivery of services or proof of employees visiting India for rendering such services or the copies of any such communication/email etc., without even adverting to the assessee, despite the additional evidence on the issue being remitted to him by the Panel which clearly directed the AO to give opportunity to the assessee in this regard. The AO shall adjudicate this issue accordingly. The Panel reiterates that the AO shall pass a speaking order in this regard, while deciding this issue. It is noticed this matter was remanded to the AO on 30-08-2022 and the remand report was submitted by him after three months, that too after several reminders. The Panel h a s t e n s to add th a t th e A O s h all n o t co n d u c t an y f u r t he r in q u ir y wh i c h is no t permitted under the statute.” 8. As could be seen from the aforesaid observations of learned DRP, it has issued a specific direction to the Assessing Officer to verify from his records whether he has asked for further details/query from the assessee during the remand proceeding, which the assessee did not furnish. In case, it is so, the addition ITA No.673/Del/2023 AY: 2014-15 7 | P a g e to be retained. Learned DRP had further directed, in case, the Assessing Officer has not asked for any clarification or conducted any inquiry during the remand proceeding, the Assessing Officer must record, as to why and under what circumstances, he did not conduct any inquiry relating to the manner of delivery of services or proof of employees visiting India for rendering such services, that too, without providing any opportunity to the assessee. Learned DRP also directed the Assessing Officer to pass a speaking order. However, on a reading of the final assessment order, more particularly, the observations of the Assessing Officer in paragraphs 8 and 9, we are of the view that the Assessing Officer has completely disregarded the specific directions of learned DRP and has passed the final assessment order in a perfunctory and cavalier manner. Thus, in our view, the Assessing Officer has disobeyed the statutory mandate. 9. In view of the aforesaid, we are inclined to set aside the final assessment order and restore the matter back to the Assessing Officer for fresh adjudication of the issues contested by the assessee in course of proceeding before learned DRP and before us, as well. The Assessing Officer is directed to consider the additional evidences furnished by the assessee before learned ITA No.673/Del/2023 AY: 2014-15 8 | P a g e DRP on their own merits and pass assessment order with proper reasoning in the light of the directions issued by learned DRP. Before passing the order, the Assessing Officer must provide reasonable opportunity of being heard to the assessee. Grounds are allowed for statistical purposes. 10. In the result, the appeal is allowed for statistical purposes. Order pronounced in the open court on 15 th May, 2023 Sd/- Sd/- (G.S. PANNU) (SAKTIJIT DEY) PRESIDENT JUDICIAL MEMBER Dated: 15 th May, 2023. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi