TaxTMI 
TaxTMI 
2017 (3) TMI 1670
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.... and style of M/s. Arrow Electronics India Limited which in turn had immediately opened a liaison office (LO) in Bangalore in 1994, obtaining approval of the RBI. Later on, this company opened branches of the LO at Hyderabad, Mumbai, New Delhi & Pune. However, the main operations and control remained with Bangalore office where 59 employees were working as against 16 employees in all other branches put together. The Singapore based company was exclusively set up to service the customers in India only and they constitute the entire customer base of the company. 03. Arrow Group started a fully owned subsidiary of M/s. Arrow Asia Pac limited in the name of M/s. Arrow Electronics India Private Limited in December 2002. However, till July 2003, no effective operation was carried out by the subsidiary. The LO itself was taking care of the operations till July 2003. Subsequently, it became in- operative. The sales of the Indian subsidiary are shown from July 2003, it continues till date and is reported to be filing its return from July 2003. A survey was conducted on 28.08.2006 on the liaison office premises in Bangalore where the office of the Indian subsidiary is also located. Th....
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....against the finding that the Singapore Company had a PE in India and determination of 40% of the total profits as attributable to the Indian operations etc, the assessee filed appeals before the CIT (A). The CIT (A) dismissed them for ays 2000-01& 2001-02. However, in the appeals related to ays 2002-03 to 2004-05, the CIT(A) gave part relief on the adjustments made by the TPO. Aggrieved, the assessee filed two appeals in I.T (TP). A Nos. 209 & 210/Bang/2011 for ays 2000-01& 2001-02 with similar grounds of appeal. One of the appeal grounds is extracted as under: 04. The assessee also filed similar additional grounds of appeals for ays 2000-01& 2001-02, one of the appeal grounds is extracted as under: Additional grounds of appeal no 2: The CIT (A) ought to have appreciated that on the facts and in the circumstances of the case, no interest was chargeable u/s.234B of the Act and consequently he ought to have directed the AO to delete the interest charged u/s.234B of the Act. Additional grounds no 3 : 1. The learned CIT (A) erred in confirming the assessment order u/s.143(3) r.w.s.147 of the Act dt.28.12.2007, which was based entirely on statements recorded u/s.133A of the A....
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....ded that the LO was virtually doing the business but was carefully avoiding the outcome of the act by ensuring the goods delivery by HO and receipt of payments was in Singapore. LO was surviving on remittances received from Singapore office and it was taking care of its expenses out of these remittances. This was essentially done in order to adhere to the stipulation of the RBI. The LO was not permitted to do any activity pertaining to industrial, commercial or trading in nature. Apart from that, any income arising from a business connection in India was liable to be charged to tax in India as per provisions of section 9(1)(1). The appellant wanted to avoid that also as also the provisions of 7 and Article 5 of India Singapore DTAA. The AO finally concluded that the appellant should have apportioned a portion of the profit to Singapore operation and the balance to Indian Operations since the LO could have been regarded as Indian permanent establishment. The AO did exactly that, which was not done by the appellant. AO held that there is no mathematical formula for working out the profits of Indian operations and that of Singapore operations and finally concluded that Functions, Asse....
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....nts they have quoted judgment of the Hon'ble Supreme Court in the case of DIT vs. Morgan Stanley and Company Inc. It is held that this judgment was applicable only to the facts of the relevant case and it has no application to the facts of the appellant's case and hence is not relevant. Incidentally this judgment was based on clarification issued by the CBDT in circular no.23 of 1969. Since the circular itself is now withdrawn, the facts of the case are no longer relevant to the appellant's case. The appellant has also argued that preparatory to the auxiliary activities, the Indian LO carried on certain activities and their case is covered under Article 5(7) of the tax treaty between India and Singapore. It is held that that the Indian LO was carrying on activities right from the year 1996 and it was not a preparatory activity and accordingly the appellant's argument does not survive. The restriction of the activities by the RBI is cited as one of the reasons to claim that they have-not conducted any business operations nor they had a PE. Incidentally the conduct of the appellant as found out after conducting survey u/s 133A and the appellant's own admission of ....
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....o mention that the appellant themselves have filed returns in response to the notices u/s 148 by declaring income on the cost +6% basis. By filing the returns in response to the notices u/s 148 the appellant has categorically admitted that a portion of income was earned in India and was taxable in India. The only issue which remained to be decided was whether the quantification of profits of LO to HO was 40:60 or otherwise. Considering the appellant's submissions the AO was asked to submit the remand report and in turn the AO has submitted the remand report where-in he has reiterated whatever is stated in the assessment order. However, the AO has reiterated the fact that the appellant's themselves admitted to the activities of the .LO are taxable in India by showing income at cost + 6% basis. In view of the appellant's own admission by showing income attributable to the Indian operations, the appellant has indirectly accepted the Fact that they had business connection in India and also the Indian LO as the PE of A rrow Si ngap ore. Th e appel l ant's arguments deserve no consideration in view of the detailed reasons given by the AO in the assessment order as also in....
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....lant's arguments that their case is not covered under Section 9 (1) (i) as also their argument about existence of PE in India. It is also further held that the AO has taken enormous pains in quantifying the percentage of profit attributable to Indian operations at 40% as depicted in page 16 and 17 of the assessment order. It is held that the AO was reasonable in considering sectoral weightage at 50:25:25 for functions performed, assets employed and risks involved. Further, it is held that AO was correct in taking only 10% towards assets and risks in the intra sectoral ratio pertaining to LO and the balance 90% to the HO. Even in the functions performed, the 8 broad parameters as discussed in page 16 of the assessment order practically cover every aspect of functions performed and relative weightage allocation is also held to be proper and the final quantification of 565 to LO and 235 to HO on a scale of 800 is held to be perfectly justified and accordingly quantification of 70 : 30 between the LO and the HO is upheld. The final quantification of profits attributable to the LO and the HO as per the table 1 , above , as per para 5 at 40 : 60 is also upheld. Before us, the assesse....
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....le to the Indian operations and against the determination of adjustment u/s 92CA for these years etc, the assessee filed appeals before the CIT(A). The CIT (A) gave a part relief on the adjustments made by the TPO . Aggrieved, the Revenue filed three appeals I.T (TP).A Nos.617 to 619/Bang/2011for assessment years 2002-03, 2003-04 & 2004-05 with similar grounds of appeal. One of the appeal grounds is extracted as under: 09. The assessee filed three cross -objections Nos.31 to33/Bang/2011 on I.T (TP). A Nos.617 to 619/Bang/2011 for assessment years 2002-03, 2003-04 & 2004-05 with simila r grounds of appeal. One of the cross -objection's grounds is extracted as under: 10. The assessee also filed similar additional grounds of appeals for ays 2002-03 to 2004-05, one of the additional grounds is extracted as under: Additional grounds of appeal no 2: The CIT (A) ought to have appreciated that on the facts and in the circumstances of the case, no interest was chargeable u/s.234B of the Act and consequently he ought to have directed the AO to delete the interest charged u/s.234B of the Act. Additional ground no 3 : 1. The learned CIT (A) erred in confirming the assessment order u/s.14....
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....f at 40%. of the global sales. Besides that, it was stated that by not giving working capital adjustment of 2.75%, 2.81% and 1.92%, the TPO has arrived at a much higher figure as compared to what the AO under identical circumstances has computed. The appellant has also relied on the following judgments in support of the working capital adjustment: (a) Philips Software Centre Pvt. Ltd Vs. ACT (119 TTJ 721) (b) Sony India Pvt. Ltd Vs. CIT (315 ITR 150) (C)Egain Communications Pvt. Ltd (Delhi Tribunal in ITA No.1885/PM/2007). (d) Mentor Graphics P. Ltd., [109 ITD 101] [2007] [Delhi] After considering the appellant's arguments on these issues only two issues have to be determined. (i) Whether the determined margin of ALP for three years are to be applied on the total turnover or on the turnover of the LO which is determined to be 40% of the total turnover. (ii) Whether the appellant can be given working capital adjustment as claimed by them. To be in consistent with the departmental stand for AY 00-01 & 01- 02 which is also confirmed by the CIT (A) as also in view of the AO's protective assessment wherein he has taken 40 : 60 to LO HO it is to be held that ....
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....s AO has allowed the same." 11. We heard the rival submissions and gone through relevant material, From the above, it is clear that the CIT (A, consistent with the departmental stand for a ys 2000-01 & 01-02 which is also confirmed by the CIT (A) as also in view of the AO's protective assessment wherein he has taken 40 : 60 to the LO :HO, held that the percentage of ALP as determined by the TPO should have been applied only on 40% of the total sales and the ALP should have been determined accordingly. When there is no uniformity in adoption of the PLR rate as determined by the CMIE, it is not possible to allow working capital adjustment as requested by the appellant though the appellant is right in asking for certain percentage of working capital a dj u s t m e n t . Considering the fact that the AO has independently determined the profit attributable to the LO, corresponding to this determination the working capital adjustment could be given. Accordingly, the working capital adjustment of 0.906% and 1.459% could be given in ay's 02-03 & 03-04, respectively. Thus, the CIT (A) re-determined the ALP margin for a ys 02-03 & 03-04. For a y 04- 05, the CIT (A) found that ....