TaxTMI 
TaxTMI 
2019 (7) TMI 173
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.... General ground 1. The learned ACIT, Central Circle 2(1), Pune (i.e. "AO") and learned DRP-3, Mumbai (i.e. "DRP") and the learned DCIT/ Transfer Pricing 1(1) (i.e. TPO) erred in law and on facts in determining taxable income of the appellant at Rs. 9,20,58,860 instead of income of Rs. 1,16,95,864 as per return of income, by making addition of Rs. 8,03,63,000 to the taxable income of the appellant. Powers of DRP & TPO 2.1 The learned DRP erred in law and on facts in benchmarking the international transactions of supply of goods reported in form no. 3CEB despite the fact that, the said transaction of supply of goods was not benchmarked by the learned TPO conspicuously. 2.2 The learned DRP ought to have appreciated that since, the learned TPO has taxed the global profits of SAVA group in Appellant's hands by lifting the corporate veil and by treating the global entities as sham / bogus and since, the said analogy of the learned TPO was disapproved / overruled by the learned DRP in Para-10.3 to Para-10.3.4 of the DRP order; no further any deliberations and additions are permissible in the DRP proceedings as per provisions of section 144C (8)....
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....o have appreciated that there is no evidence to infer any such events. 4.2 The learned DRP erred in law and on facts in converting, equating the allegation of learned TPO as to "Control & Management from India" into some presumption/hypothetical services provided by the appellant to AE Parties. 4.3 The learned DRP erred in law and on facts in recording conflicting observations regarding TPO's allegation as regards "control and management from India" revealing from Para 5.3 to Para 5.3.2 as against Para 10.1.7.3 of the DRP order. Search material 5.1 The learned TPO / DRP / AO erred in law and on facts in not appreciating that, in a search based assessment, no any addition to the taxable income is plausible, in absence of any Incriminating Material found / seized during the course of search u/s 132 of ITA, 1961. 5.2 The learned I-T authorities erred in law and on facts in not appreciating that, the programmatic screenshots seized during search, were not found on, and seized from, computers of the appellant and as such, do not partake character of incriminating material. 5.3 The learned I-T authorities further erred on facts in....
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.... materially different than domestic sales activity. 7.3 The learned DRP erred in law and on facts in not appreciating that, if the OP : OC PLI is taken instead of Gross Profit for the very same selected companies, then the average margin earned by appellant is well within +/- 5% permissible limit as envisaged by ITA, 1961. 7.4 The learned DRP erred in law and on facts in providing adjustment on account of marketing functions in an incorrect manner. 7.5 The learned DRP erred in law and on facts in not providing any working capital adjustment to the appellant. Residual Approach under PSM method 8.1 The learned DRP erred in law and on facts in working out the residual profits to be attributed to the appellant, considering each AE as a separate entity. The learned DRP erred on facts in testing each AE entity separately on the one hand; and; making FAR analysis of all the AEs on totality basis on the other hand. The learned DRP ought to have considered all the AEs together while working out residual profits. 8.2 The learned DRP erred in law and on facts in comparing PLI of the domestic comparable companies with PLI of AEs to determin....
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.... the preliminary issue raised in the grounds of appeal i.e. against exercise of jurisdiction by the Transfer Pricing Officer (TPO) and the powers of Dispute Resolution Panel (DRP) as well as of the requirement under section 92C(3) of the Act. The assessee in this regard, has raised grounds of appeal No.1 to 4.3 on this issue along with modified ground of appeal No.1, which we shall deal with in the first instance. 6. Briefly, in the facts of the case, the assessee for the year under consideration had furnished the return of income on 30.10.2007 declaring total income of Rs. 1,16,95,864/-. Search action under section 132 of the Act was conducted on Sava group of cases on 31.10.2012. The assessee was covered as part of this group. Since warrant of authorization under section 132(1) of the Act was executed in the case of assessee, notice under section 153A of the Act was issued to the assessee and served upon the assessee. In response thereto, the assessee filed letter dated 21.06.2003 stating that the return of income filed under section 139(5) of the Act may be treated as return of income filed in response to notice under section 153A of the Act. The case of assessee was picked u....
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.... were levied on income. The AE's in Mauritius and Dubai had earned huge income on these trading, as compared to the Indian entities. The income shown in the hands of AE's in Mauritius and Dubai was subsequently brought back to India, by way of dividend and salary to Mr. Vinod Jadhav. The TPO in this regard noted that Mr. Vinod Jadhav claimed the income as exempt on the ground that he was Non-resident. In assessment year 2010-11, Mr. Vinod Jadhav had received salary of Rs. 39.20 crores from AE's in Dubai and also claimed it as exempt. It was further noted by him that subsequently the Settlement Commission rejected the claim of Mr. Vinod Jadhav and declared him as Resident. In such backdrop, Search and Seizure under section 132 of the Act was carried out in the premises of group on 31.10.2012. The Investigation Team observed that affairs of these group companies revealed that the assessee was selling medicines and drugs from India to the customers in various parts of world using the route of Singapore. The proceeds of sale on such products were realized in the bank accounts of the companies registered in Mauritius / UAE. All of such sales to customers and various countrie....
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....The concern Dhanvantari Botanicals Pvt. Ltd. was engaged in manufacturing and production of herbal products and preparations. 8. The TPO further enlisted UAE based companies. He further observed that the assessee group had incorporated many companies in UAE in March, 2007, which were located in Free Trade Zone, where no taxes on income were payable. The address of these companies were shown either as PO Box 9523, SAIF Zone Sharjah, UAE or PO Box 9562, SAIF Zone, Sharjah, UAE. The TPO noted that the companies were Free Zone Companies (FZC) formed under instructions issued by the Chairman of the General Authority of the Administration of Sharjah Free Zones and FZC company could be converted into Free Zone Establishment (FZE) as per Article 31 of the said Decree and it could be done only when number of shareholders were reduced to one only. The TPO was of the view that assessee had incorporated FZEs only when the said FZEs were incorporated as wholly owned subsidiaries of Anagha Pharma Pvt. Ltd. He was further of the view that group had been changing the corporate structure or the name of AE's in Dubai, almost every year. He then, enlisted the companies floated by assessee. Similar....
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....s contracted to DHL. Hence, neither the assessee, not its AE's are having their own Investments in Singapore. The warehouse in Singapore is hired by the AE in Sharjah. vii) The stock position in Singapore, is based on the 6 months inventory and advance orders, hence there is also no risk involved in stock maintenance also, viii) The orders are received by emails or other online method, in India and these orders are processed in India only, ix) All sales are made by the assessee on CIF basis. No indirect taxes are levied on the export. x) The routing of bills through, Mauritius and UAE, is made in order to avoid payment of taxes, in India on the huge profits earned in this business. Such profits are repatriated by the promoter of the group Shri Vinod Jadhav in the guise of salaries, commission etc., and he has claimed the same as exempt by claiming himself to be non-resident Indian (NRI) for the F.Y. 2009-10. 10. The TPO on analysis of information, came to a finding that no activity was found to have been carried out either in Mauritius or UAE and hence, the Ld. AR was asked to submit details of employees of AE's in certain format. In r....
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....harma was connected to the warehouses in Singapore and Mauritius. The warehouse personnel updated the JadePharma with the data about stock position in these warehouses. Based on this the stock report sheet was prepared and forwarded to the Supply Chain Management personnel in SAVA Pune. ii) Supply chain management procures the goods/products from open market or wholesalers in Sadashiv Peth, Pune iii) Such products are shipped by Anagha Pharma Pvt. Ltd. to the warehouses in Singapore and Mauritius. This is generally done once in 15 days. The bills are raised on UAE based company as it is shown as the buyer and legal owner of the stocks in Singapore and Mauritius. However, it is a fact that all of this process is carried out by Pune based employees without any involvement of UAE based companies. iv) For some of the products, these are procured from Mauritius, Singapore and some other countries. The quantum of such procurements as per their purchase invoices is not much. v) The processed orders are available on JadePharma for which access was given to the warehouses. Based on the processed orders and the labels prepared and sent to these warehouses ....
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....ributors in Pune and Mumbai viii) Shipping the material to warehouses in Singapore and Mauritius ix) Shipping the material to different countries based on the orders in some cases x) Preparing the packing slips to be pasted on the shipments xi) Tracking the expiry date of the medicines in warehouses in Singapore and Mauritius as well as India and the shipped goods in transit. xii) Ensuring the shipping of the goods from all the warehouses xiii) Feeding the data of shipping in JadePharma which is connected to www.savaordersystem.biz. xiv) Before JadePharma V2 such data was manually uploaded to www.savaordersystem.biz. xv) Tracking of the shipments. xvi) Solving the problems of the customers linked to tracking of the shipments and receipt of the orders- customer care, xvii) Ensuring that the orders are not processed if there is no confirmation of payment from the customer as all the payments are received In advance. xviii) Generation of various reports of UAE based companies like stock report sheet, sales report, purchase report, daily sates reports etc. xix) Generation of the ....
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....t the same are not being reproduced for the sake of brevity. 14. The TPO noted that the assessee had treated TNMM method as most appropriate method and PLI of assessee was shown at 16.72% as against average PLI of comparables at 2.77%, on which basis the assessee claimed that its international transactions were at arm's length price. But vide para 14.2 he was of the view that as the management and control of affairs of assessee found to have been situated wholly in India, the correct profitability of transactions entered by the assessee could not be ascertained by using TNMM method. From diagram of JadePharma, he observed that it makes it clear that the AE's in Dubai and Mauritius were not doing any functions other than receiving and sending money; that too, these functions were operated from India, using internet banking facilities. He thus, concluded that TNMM method was not most appropriate method for benchmarking such complex transactions, which as per him were designed to escape the legitimate taxation in India and which have been made with the sole intent of tax evasion. He thus, proposed that Profit Split Method was the best method to benchmark transactions undertaken....
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....rch and even the statement of software developer was recorded. He also referred to about 400 e-mails obtained during the course of search proceedings. He again then refers to JadePharma Ver.1, which was developed as desktop based system without access through web to multiple locations. The said system was installed onsite by Bytzsoft Technologies Pvt. Ltd. in the earlier office of Sava group in Ramwadi, Viman Nagar, Pune. The TPO observed that screenshots clearly show that various modules and procedure existing in the software and various reports enabled through this software. He then, analyzed procedure wherein sale orders were received by assessee group based in Pune through e-mail attachments from different customers, buyers and affiliates based all over the world. During the course of search proceedings, the assessee had consistently tried to show that orders were received through its AEs but since the assessee could not produce evidences in support, the TPO observed that there was no need for the orders to either originate from UAE or get routed through it. The epicentre of the process, as per him, was situated in software managed and controlled by the employees of SPL, Pune. ....
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....s of various documents seized and investigation carried out, the TPO was of the view that the sole purpose of creating AEs in Dubai and Mauritius was to evade taxes on income in India. He has then tabulated turnover of assessee and all the AEs in Mauritius and Dubai and observed that as the turnover went on increasing, the employees cost of assessee in India also went on increasing steadily. He thus, observed that the same conclusively proved that entire control and management of affairs of assessee group was wholly situated in India. He then, analyzed asset base of the concerns in Dubai and Mauritius and observed that AEs did not have any asset base in Dubai and Mauritius to carry out activities of AEs located in those countries and all the activities were carried out by assessee in India. As per him, it was therefore, conclusively proved that entire control and management of affairs of assessee was wholly situated in India. He then, referred to role of DHL and observed that actual delivery of goods to the customers had never been taken by AE in Dubai. The AE's in Dubai had taken the godown on rent and all activities of actual delivery were being outsourced to DHL vide agreement d....
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....tiality clause was rejected. The TPO was of the view that in the present circumstance, there was necessity to lift the corporate veil. He stressed vide para 25.1 that day-to-day activities of AEs in Mauritius and Dubai were operated from India. He further observed that there were no employees in Mauritius and the employee cost, other than the amount paid to Shri Vinod Jadhav was negligible. However, the employee cost in Pune based company was very high. Hence, it was obvious that all the above activities were carried out in India, in Pune on the directions of Shri Vinod Jadhav. He thus, concluded by holding that affairs of parent company i.e. assessee and AEs in Mauritius and Dubai needed to be treated as wholly. All the brain and functions of group was situated in India and minuscule work of receiving and sending money was left with the AEs in UAE and Mauritius. 17. The TPO then rejected TNMM method and thought it appropriate to benchmark the transactions by treating Profit Split Method as most appropriate method. During the course of TP proceedings, the assessee had submitted the copies of financials of AEs and also the detailed working of PLI of assessee and its AEs were also....
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....fferent countries and based on the said finding, the FAR analysis of assessee and AE's in Mauritius and Dubai were finalized as under:- Function UAE based company Singapore (through DHL) Mauritius based company Anagha Pharma Pvt. Ltd., India Sava Medica Ltd. Development of business No No No Yes Yes Receipt of orders customers from No No No Yes Yes Customer care No No No Yes Yes Merchandising procurement and No No No Yes Yes Packing No Yes No Yes Yes Shipping No Yes No Yes Yes Tracking of the shipments No No No Yes Yes Pricing of the products No No No Yes Yes Receipt of sales consideration Yes No Yes No No Generation and preparation of the bills and invoices No No No Yes Yes Maintenance of books of account Yes No Yes Yes Yes 18. The TPO further reiterated that since the AE's were not doing functions other than receiving and sending money which was similar to banking sector, for which not more than 2% to 3% would be charged as commission. He thus, proposed to allocate ....
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....94,987 28,02,26,600 4,66,98,148 23,35,28,452 TOTAL 1,52,51,54,021 20,75,00,929 1,31,76,53,092 6,15,98,483 1,25,60,54,609 20. So, for the year under consideration, he proposed an adjustment of Rs. 91,21,109/-. 21. The Assessing Officer on receipt of order of TPO under section 92CA(3) of the Act, completed assessment and issued draft assessment order for the respective assessment years. The assessee filed objections before the Dispute Resolution Panel (DRP) and proceedings started before the DRP against order of Assessing Officer/TPO. After considering the facts of case and submissions made by assessee, the DRP issued reference to the TPO vide office letter dated 23.11.2016 to carry out certain examinations and report. The first point which the TPO was asked to verify and report was the transaction of supply of goods for Sava Medica Ltd., another concern of assessee which came into existence from assessment year 2011-12. Vide para 6 of show cause notice, the Panel observed that arm's length price of supply of goods could not be determined by applying OP/OR of AEs as PLI. Therefore, the TPO was to get the transactions of supply of goods to AE bench....
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....ection in considering global transactions of AE's for the purpose of benchmarking. The assessee also stated that the said transactions were not listed in section 92B of the Act. The TPO rejected this objection of assessee after considering entire facts gathered during the course of investigation and submissions made by assessee before him, detailed show cause notice was issued to the assessee. From the evidences, it was clear that the assessee group's entire global business was being controlled and managed from India, hence as natural corollary in the show cause notice, the entire global business of assessee was proposed to be benchmarked as in none of the communications, there was any indication to benchmark only the transactions, which were reported in Form 3CEB. Further objection of assessee that only transactions in section 92B of the Act could be benchmarked was held to be totally wrong. It was further observed by the TPO in the said report that under section 92B of the Act, even the transactions between non-AE's can be treated as international transactions, if certain situations exist. The TPO further observed that in the instant case, it was proved beyond doubt that foreign ....
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....urisdiction assumed by the TPO was a failure as testing of control and management of AE parties was not prerogative of the TPO. It could be that of Assessing Officer from International Taxation Cell of IT Department, but in such case, the officer would be different, the assessee therein could be different. He further stated that the assessee was not challenging the right of TPO to benchmark such a transaction but control and management of AE entities was not a transaction. The assessee stressed that only technical point raised was such a POEM phenomenon was not an international transaction perse. It was further submitted that if this was part of international transaction, then there was no need for amendment to section 6(3) of the Act, since from the same fact of testing for POEM phenomenon could have been reached through TP proceedings. However, the Legislature in its wisdom has amended section 6(3) of the Act with heavy intent and purpose behind it, to rope in any sham entity. It was stressed that TPO's action of testing POEM transaction was clearly contrary to the scheme of IT Act and contrary to the Legislative thinking. The assessee also filed elaborate submissions on each of ....
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....auritius were valid and genuine legal entities making all legal compliances. The TPO by making false conjectures had treated all the entities as sham and proceeded to lift corporate veil, which act was overreach by TPO. In fact, all the entities had strong commercial substance and were engaged in trading activities involving the global procurement, logistics, global marketing, etc. 26. The Panel then considered background facts of the case as noted by TPO and vide paras 5.2.1 to 5.3.2 decided the issue of benchmarking all the transactions. The Panel was of the view that the TPO had examined business model of assessee group, development and upgradation of software JadePharma Ver.1.0, JadePharma Ver.2 and concluded that Profit Split Method was the most appropriate method to benchmark international transactions. Based on various evidences in his possession, the TPO had also rebutted objections of assessee raised during proceedings. It was further noted that TPO had also held that no activity was carried out at Dubai and also that AE's in Singapore and Mauritius were not playing any role other than payment of godown rent. Based on all these, the TPO concluded that entire control....
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.... no application to assessment years under consideration. The Panel observed that the aspect which was relevant in assessment years under consideration was whether a company resident of India, if the control and management of the company in such year is situated wholly in India, for which facts have to be looked into and the provisions of Income Tax Act would apply to such company as if, it was an Indian company. It was further held that income of foreign company held to be resident in India involving provisions of section 6(3) of the Act was assessable only in the hands of such company and it could not be assessed in the hands of another Indian company even if such Indian company was an AE of such foreign company. The Panel thus, held that the TPO had not recorded any such finding and reiterated that if the assessees were assessed to tax as if they are resident companies, the income of AE's from all sources would be assessable in their hands and not in the hands of assessee. Hence, the argument of assessee that order of TPO was in contradiction to the concept of POEM and provisions of section 6(3) of the Act were held to be misconceived and rejected. It was further held that TP....
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....the object of TPO in calling such entities as sham appeared to be on the ground that they could not do necessary functions as required for the business activities claimed and most of the functions on their behalf were held to be carried out in India by Sava group. For this reason, the TPO held that they were doing only banking functions and attributed 3% of global profits of group to AE's. The Panel thus, held for this reason alone, it can be concluded that the TPO himself is not holding such entities to be sham. He also held them to genuine legal entities. The TPO on the other hand, had held that control and management of such entities was situated wholly in India. Reference was then made to order of Settlement Commission in the case of Shri Vinod Jadhav, in whose hands the global profits of Sava group including foreign entities was sought to be taxed; then vide order dated 20.03.2014, the Settlement Commission held that we are of the considered view that on the basis of evidences presented before us, the profits of foreign entities belonging to Sava group cannot be brought to tax in the hands of applicant. The DRP thus, vide para 10.3.4 concluded as under:- "10.3.4 C....
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....pe-2 license of wholesaler wherein sales are made within and outside India so as to sell the stock, back to back. On each packs MRP is mentioned and the assessee has to sell the same at either MRP or at any other rate. It was further explained by the Ld. AR that similar drugs or same drugs were manufactured at different places at different rates and sold at arbitrary prices and the role of assessee was of buying company in India, whereas the AE's were in Dubai, but the warehouse was in Singapore. He explained that Singapore was the hub for distribution of medicine and within 48 hours, the said medicine could be dispatched to different parts of world. The Ld. AR mentioned that search on assessee's premises took place in October, 2012. However, prior to search, Summons under section 131 of the Act were served on Shri Vinod Jadhav and his statement was recorded to understand the model of business. He stressed that during the course of search, nothing was found, however, surrender of Rs. 14 crores was made with respect to deal with Biodeal i.e. takeover of Biodeal Laboratories Pvt. Ltd. This declaration was made by Shri Vinod Jadhav, in his individual capacity and not by assessee compa....
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....liance on CBDT Instruction No.3/2016, dated 10.03.2016 placed at pages 1443 to 1450 of Paper Book-4. On the basis of decision of the Hon'ble Bombay High Court and CBDT Instruction, he then pointed out the instances where cases have to be referred by Assessing Officer to the TPO and the objection raised by assessee in this regard was that the Assessing Officer must provide an opportunity of being heard to taxpayer before recording his satisfaction or otherwise, for making reference to TPO. He then referred to provisions of section 92C(3) of the Act and proviso thereunder and also the amended law w.e.f. 01.06.2007 in section 92CA(4) of the Act. He stressed that after amendment, the word used is 'in conformity', whereas in pre-amended provisions, expression used was 'having regard'. The Ld. AR pointed out that appeals in the case of assessee are from assessment year 2007-08 onwards, hence amended provisions are applicable. 31. He then took us through various paras of decision in the case of Vodafone India Services Pvt. Ltd. (supra) and stressed that in the facts of case, where no notice was received from the Assessing Officer under section 92C(3) of the Act, proceedings were not co....
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....anies and the TPO then goes on to lift corporate veil and after perusing, he holds that PSM method was most appropriate method and he has carried out quantification accordingly. Referring to the order of TPO, he points out that it has been held that control and management of business was in India and for holistic approach, he says all control in India. Referring to amendment to section 6 of the Act w.e.f. assessment year 2015-16, the Ld. AR pointed out that it now defined the effective control and management of company. In the pre-amended section 6(3) of the Act, talk was of complete control and management of affairs in India, whereas now law w.e.f. 01.04.2017 talks of effective place of management and the Explanation thereunder defines POEM. He stressed that amendment is w.e.f. 01.04.2017 and in earlier regime the definition was at variance. According to TPO, all control and management in India and all AE's are shell companies, so he wants to take route of control and management of affairs in India but in such scenario, where whole control and management was in India, where is the need to apply transfer pricing provisions. The Ld. AR stressed that whether wholly and completely....
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....ein also the TPO was of the view that entire development of software and its maintenance and operations were managed and controlled by Shri Vinod Jadhav and the employees of Sava Pvt. Ltd. However, on 29.01.2016, the Assessing Officer, Incharge of the assessee company holds that entire operations were managed by the assessee and he comes to a finding that entire global operations were carried out by Pune based companies of Sava group. He stressed that the order of TPO in holding AE entities to be sham is not correct as they were genuine, legal entities. Coming to the order of DRP, it was pointed out by the Ld. AR that it is held by the Panel that control and management of the affairs of business was not an issue decided. He then, drew our attention to submissions made before the DRP by the assessee to prove that AEs were not sham and then referring to the order of DRP, it was pointed out that all the case laws which are relied upon in paras 4.1 and 4.2 at page 95 relate to the period prior to assessment year 2006-07 except case law in the case of Headstrong Services India Pvt. Ltd. (TS-45-ITAT-2016(Del)-TP). He stressed that after amendment to section 92C(3) of the Act, the Assessi....
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....ith profit or income element. Referring to decision of the Hon'ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. (supra) with special reference to para 32, she pointed out that the said decision was very specific on its facts, where qualifying remarks were given in para 5. In the present case, however, the TPO makes FAR analysis and in the course of FAR analysis, he can look into any aspect of international transaction. It was stressed by her that whether the assessee is doing business legally or illegally, that aspect has no meaning as income is to be assessed in the hands of assessee. It was stressed by her that there is no requirement that the Assessing Officer to record satisfaction or give any opportunity of hearing to the assessee. 34. On the next date of hearing, the Ld. DR furnished written submissions along with Note of TPO and stressed that grounds raised were invalid. The Ld. DR stressed that reference is to be made by the Assessing Officer under section 92CA(1) of the Act and such reference was correctly made by the Assessing Officer. Further, the TPO in FAR analysis finds that control and management of business was in India, so there was no ques....
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....RP's order and also remand report of TPO / DRP, wherein the TPO is very clear that it was benchmarking global transactions and not only the reported transactions. It was stressed by the Ld. AR that control and management of assessee was status and admittedly, not international transactions. The question which arises is whether the provisions of section 92C(3) of the Act were breached or not. It was stressed by the Ld. AR that the TPO had exceeded his jurisdiction in assessing transactions which were not reported in the audit report. The Ld. AR stressed that various issues need to be addressed in such proceedings; first was whether where the Assessing Officer while making reference never confronts the assessee about contents of reference, then there is denial of safeguard to the assessee and how can the assessee be safeguarded. In this regard, the learned Authorized Representative for the assessee stressed that the reference note of Assessing Officer was never confronted to assessee. The Ld. AR raised the issue of non satisfaction of conditions laid down in section 92CA(1) of the Act, for which he stated that already submissions have been made and reference has been made to the d....
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....oking at jurisdiction of TPO and whether the same was confined to international transactions referred to him by Assessing Officer for determination of arm's length price or whether such jurisdiction was extendable to other international transactions which come to his notice during the course of proceedings before him. He stressed that the said ratio was contrary to the view in the case of Vodafone India Services Pvt. Ltd. (supra) with special reference to paras 44 and 45, wherein it has been held that it was the obligation of Assessing Officer to follow the principles of natural justice as read into section 92(A)(1) of the Act, because once the Assessing Officer refers the transactions to TPO, he will be bound to act in conformity with the order of TPO as mandated by section 92CA(4) of the Act. The Ld. AR referred to Instruction No.3/2003, dated 20.05.2013, which is under old scheme, copy of which is placed at pages 1432 to 1434 of Paper Book, wherein also the Assessing Officer was obliged to give formal opportunity to the taxpayer on receipt of TPO's order. Then, he referred to Instruction No.15/2015, dated 16.10.2015 placed at pages 1435 to 1441 of Paper Book-4, wherein it is....
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....R in this regard refers to the proceedings before the DRP with special reference to pages 1247 to 1255. He again stressed that if all the AEs were sham, then no TP provision was to be applied and it was at best theory of control and management as per section 6(3) of the Act; so outside the domain of TPO and no TP proceedings could have been carried out; at best in such scenario, the Assessing Officer had to use its powers which he failed to use though while making reference to the TPO, he talks of all the investigation carried out by search party and also the complexity of the issue and made reference to the TPO. Referring to arguments of Ld. DR, wherein she has said that TPO had never said this and even we presume that the TPO had not said this, but the same has been corrected by DRP and the TPO's order was merged with DRP. Referring to order of DRP, the Ld. AR pointed out that DRP in the final analysis applies Profit Split Method and hold that 70% of profits are attributable to Indian companies. He points out that routine profits of assessee company were first determined by DRP and for balance profits, profit split was done between Indian entities and the foreign entities. The DR....
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....535/PUN/2013 & 1354/PUN/2016, relating to assessment years 2004-05 & 2005-06 and ITA No.21/PUN/2015, relating to assessment year 2004-05, order dated 16.08.2017 b) CIT Vs. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC) c) CIT Vs. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) d) DCIT Vs. Sandvik Information Technology AB (2017) 80 taxmann.com 295 (Pune-Trib.) 42. The Ld. DR in reply to the arguments of assessee vis-a-vis grounds of appeal No.2.1, 2.2 and 2.3 stated that allegations of assessee were that there were two transactions. However, transactions are inter-dependent and whole business operandi was such that multi transactions could not be benchmarked separately; thus, have been benchmarked as a whole as the modus operandi of assessee cannot be ignored. For the sake of argument, she pointed out that even if we take transactions as separate transactions but the DRP has power to benchmark it. With regard to powers of DRP, reference was made to decision in Vodafone India Services Pvt. Ltd. Vs. Addl. CIT & Ors. (2014) 361 ITR 531 (Bom) in para 47, wherein it is mentioned that powers of DRP were to correct order of Assessing Officer. ....
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....mpany is held resident in India, then profits are to be assessed in their hands. However, the TPO had not so held, as it had clearly held the said concerns to be sham. Reference was made to remand report of TPO at page 33, wherein it has been very clearly observed by TPO that control and management of all companies was in India; so the TPO attempted to benchmark the transactions which were otherwise not reported in form No.3CEB. In last few lines of para, the TPO hold that AEs were proven to be sham. The Ld. AR here stressed that, be that as may, the DRP has given a finding that AEs are not sham at page 187 of DRP's order starting from para 10.3.1 with finding in para 10.3.4. On the other hand, he points out that TPO in substance hold that all control and management was in India, so applies provisions of section 6(3) of the Act. He does talk of Profit Split Method but in true sense not applied it as all control and management was in India. Further, the TPO has not gone into transaction of attribution of profits to AEs as he taxed 97% of world profits in the hands of assessee and asked the Assessing Officer to tax balance 3% in the hands of assessee. Now, the DRP in such circumstanc....
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.... before the DRP were continuation of proceedings before the TPO; then where the assessee had filed objections to the proposal of DRP, which were not dealt in by speaking order and final order was passed, then such final order cannot stand in the eyes of law. In this regard, he drew strength from provisions of section 148 of the Act, wherein the Courts have clearly laid down that a speaking order needs to be passed dealing with objections raised by assessee. He then, referred to Circular No.3/2016, dated 10.03.2016 which postulates a speaking order in such circumstances. The Ld. AR stressed that if there was violation of principles of natural justice, then it was an error which cannot be cured. Relying on the decision in the case of Videocon Oil Ventures Ltd. Vs. DCIT in ITA No.6630/Mum/2016, relating to assessment year 2012-13, order dated 20.09.2017, he pointed out that assessment order in such circumstances was to be struck down. At the close of hearing, it was pointed out that the TPO had applied simultaneous approach to the transactions of both the assessee and also Sava Medica Ltd. and at the end attributed some parts of profits to Sava Medica Ltd. We have heard the parties up....
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....e of events of the present case i.e. pre-search, search period and post-search. The assessee has filed events chart in Paper Book-2 along with relevant documents. Shri Vinod Jadhav was the promoter of assessee company and he was the shareholder and director of assessee company which was incorporated on 25.10.2004. The assessee company was engaged in exporting third party branded pharmaceutical products. Another company M/s. Sava Medica Ltd. was incorporated on 10.02.2010, which is engaged in contract, manufacturing and trading in own branded pharma products. The third concern was incorporated on 17.09.2009 by the name and style of Sava Pvt. Ltd., which was engaged in data entry services, web development services and IT support services. Thereafter, the assessee acquires in financial year 2010-11 an independent concern M/s. Biodeal Laboratories Pvt. Ltd., which was a manufacturing and trading concern. One concern Sava Pharma Ltd. was incorporated on 02.11.2011 which was also engaged in manufacturing, buying and selling, importing of pharma products. 49. First Summons which were issued by Investigation Wing were as early as 03.08.2012 to Shri Vinod Jadhav along with questionnaire ....
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....vt. Ltd. 54 03-04-13 19-04-13 Statement of employee of Sava Private Ltd. (Group Concern) a) Vikram Taware along with emails b) Ravindra Dasarwar c) Sample Email communications (Annexure D of TP order) 55 22-04-13 Statement Recorded u/s 131 by DDIT(Inv), Pune of Mr. Vinod Jadhav Invoices raised by AE on Third party (Annexure C of TP Order) 50. It may also be pointed out herein itself that assessee company was filing returns of income along with audited statements for the assessment years under dispute and in response to notice issued under section 153A of the Act, the same income has been disclosed. 51. On 16.12.2013, the Assessing Officer, Central Circle, Pune makes reference to the TPO for determination of arm's length price in the case of assessee company, pursuant to letter of CIT(C), Pune, dated 14.11.2013. The said letter reads as under:- "No.Pn/DCIT 2(1)/2013-14/TPO/1213 Date: 16/12/2013 To The Director of Income Tax (Transfer Pricing & I.T) Pune Sir, SUB: - Reference to Transfer Pricing Officer for determining the Arm Length Price in the case of Anagha Pharma Pvt. ....
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.... in UAE, Singapore and Mauritius also make it imperative that these cases should be referred to the Transfer Pricing Officer. The detailed justification for the same also forms the part of the Appraisal Report, a copy of the Appraisal Report is enclosed for your kind reference. 06. The transaction of domestic company namely, M/s. Anagha Pharma Pvt. Ltd. with the associated enterprises are shown in the Audit Report in form 3CEB which are as follows for various years: Assessment Year Amount of transaction (Amt. in crores) 2008-09 12.85 2009-10 17.84 2010-11 18.38 2011-12 22.68 Copies of form No.3CEB are attached for your reference 07. The CIT(C), Pune vide his letter dated 14.11.2013 has accorded the necessary approval to refer the above case to T.P.O. Pune. (Copy enclosed) 08. In view of the above, the undersigned is forwarding the cases for determination of the Arm Length Price in this case. Yours faithfully, Sd/- (SUDHA GUPTA) Dy. Commissioner of Income Tax Central Circle 2(1), Pune Copy to: 1. The CIT Central, Pune 2. The Jt. CIT, CR-1, Pune Dy....
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....adhav, copy of which is placed at page 1333 of Paper Book and under rule 9 of Income-tax Settlement Commission (Procedure Rules), report of the Commissioner of Income-tax (Central). Vide para 3, it was alleged that application of applicant may be treated as invalid application as it did not contain a full and true disclosure of his income. The said report is placed at pages 1346 onwards of Paper Book with special reference to page 1348. Further, while passing order under section 245D(4), dated 27.08.2015 in the case of Shri Vinod Jadhav, the Settlement Commission vide para 8 refers to the arguments of CIT-DR on the issue of control, management and functioning of foreign entities and bringing to tax global profits of Sava group to be taxed in the hands of appellant (Vinod Jadhav). The contention of assessee was that all foreign entities were independent, corporate entities in complete legal compliance of concerned jurisdiction, as regards preparing accounts, filing reports, paying taxes as per applicable laws. It was further stressed that global pharma activities (e-pharmacy business) could not be done in India due to restrictions as explained in the settlement application. The Sett....
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....,387/- 2,08,33,360/- 2008-09 30-09-2008 1,59,69,100/- 11,82,68,790/- 15,47,38,428/- 26,128/- 17,07,33,660/- 2009-10 15-10-2009 4,03,29,350/- 17,84,50,128/- 27,16,05,499/- 35,125/- 31,19,69,974/- 2010-11 15-10-2010 5,84,95,250/- 18,38,34,713/- 7,80,76,943/- Nil 13,65,72,193/- 2011-12 29-11-2011 2,57,97,043/- 22,68,79,029/- 44,51,11,876/- 1,79,290/- 47,10,88,210/- 2012-13 26-08-2013 6,40,91,200/- 33,84,09,581/- 6,38,72,402/- 2,53,060/- 12,82,16,662/- 2013-14 30-11-2013 4,34,03,670/- 35,16,85,750/- 23,35,28,452/- 2,07,007/- 27,71,39,029/- 56. The order of TPO is dated 29.01.2016 i.e. after the findings of Settlement Commission vide order dated 27.08.2015. The TPO has held that entire business model is brainchild of Shri Vinod Jadhav, despite the findings of Settlement Commission that profits of foreign entities could not be taxed in the hands of Shri Vinod Jadhav. The TPO further goes on to hold that entire operations are managed by assessee company after holding that the business model is of brainchild of an individual Shri Vinod Jadhav. It may be mentio....
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....us assessment years in the case of Anagha Pharma Pvt. Ltd. i.e. assessee and Sava Medica Ltd. The FAR analysis carried out by the TPO and the Profit Split Method applied by TPO and after splitting of combined profit, the adjustments made in the hands of assessee totalling Rs. 131.76 crores for assessment years 2007-08 to 2013-14 and also the computation of adjustment in the hands of Sava Medica Ltd. and further proceedings before the DRP, who had finally worked out the adjustment in the hands of Anagha Pharma Pvt. Ltd. for the combined years at Rs. 49.81 crores. The DCIT takes notes of observations of DRP with regard to AEs having no infrastructure and then holding that sales of Singapore entity were in effect the sale of Dubai entity only and services for all these sales were from India. Therefore, for benchmarking purpose, the transactions of Singapore entity were considered as transactions of Dubai entities. The DCIT in para 4 notes that the assessee which was the foreign company was carrying on its activities through Sava Healthcare Ltd. and the employees of group companies who were resident in India were using assets, intangibles and employees of Sava Healthcare Ltd.; thus, it....
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....eunder provides that allowance for any expenses or interest arising from an international transaction shall also be determined having regard to arm's length price, so, section talks of income arising from an international transaction and its computation having regard to arm's length price of said transaction. 60. Under section 92A of the Act, associate enterprise is defined and there is no issue raised on this aspect in the present case and hence, we need not go into the details of various conditions laid down therein. 61. Section 92B of the Act defines international transaction to be a transaction between two or more associated enterprises, either or both of whom are non-resident. So, it is incumbent that one of the parties has to be non-resident for invoking provisions of section 92B of the Act. Then, it talks of various transactions which would be covered as international transactions. 62. Section 92BA of the Act talks of specified domestic transactions with which we are not concerned at present. 63. Coming to section 92C of the Act which provides steps to be taken for computation of arm's length price in relation to an international transaction. Sub-section....
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....o determine ALP of international transactions in the given circumstances. The Revenue has time and again announced value of international transactions, wherein if the value of international transactions is less than threshold limits, then such power is exercised by Assessing Officer and in case it is above the threshold limit then power vests with the TPO to determine ALP of international transactions undertaken by assessee. 64. Such a provision is provided under section 92CA(1) of the Act. The said sub-section reads as under:- "92CA. Reference to Transfer Pricing Officer. - (1) Where any person, being the assessee, has entered into an international transaction in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the Commissioner, refer the computation of the arm's length price in relation to the said international transaction under section 92C to the Transfer Pricing Officer. 65. In other words, where the assessee had entered into an international transaction, in any previous year and if the Assessing Officer considers it necessary or expedient to do so, he may with the previous approval ....
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....rnational transactions. The Ld. DR in this regard has strongly relied on the ratio laid down by the Hon'ble Delhi High Court in Sony India (P.) Ltd. Vs. CBDT & Anr. (supra). 69. The first argument of assessee before us by way of grounds of appeal No.3.1 and 3.2 is that where the Assessing Officer has not fulfilled the conditions laid down in section 92C(3) of the Act i.e. it has not given any opportunity calling upon the assessee to show cause as to why ALP of transfer of profit passing should not be determined, then order passed by the TPO under section 92CA(3) of the Act cannot stand. The next plea raised by assessee by way of oral submission before us in relying on the ratio laid down by jurisdictional High Court in the case of Vodafone India Services Pvt. Ltd. (supra) is that such an opportunity of hearing to the assessee before making reference to TPO to benchmark ALP of international transactions, is also to be read into section 92CA(1) of the Act. 70. First, we will take up the plea of assessee with regard to non satisfaction of conditions laid down in section 92C(3) of the Act. We find no merit in the plea of Ld. AR in this regard as the said provisions of section 92C....
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....r expedient to refer the matter to the TPO. The Hon'ble High Court further held that in case no objection is raised by assessee to the applicability of Chapter X, then the prima facie view of Assessing Officer would be sufficient to make reference to TPO. However, wherein objection is raised about the applicability of Chapter X by the assessee, then the requirement for taking a decision after taking on board the objection becomes necessary. The Hon'ble High Court further held that if this issue is considered at the very threshold by the Assessing Officer, it could save an elaborate exercise of determining the ALP, which may turn out to be entirely academic. The Hon'ble High Court thus, held that it is for the above reason that grant of personal hearing before referring the matter to TPO has to be read into section 92CA(1) in cases where the very jurisdiction to tax under Chapter X is challenged by the assessee. 72. The Ld. DR has placed reliance on the ratio laid down in Sony India (P.) Ltd. Vs. CBDT & Anr. (supra) and the Hon'ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. (supra). The panel had placed reliance on the ratio laid down by the Hon'ble Gujara....
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....ransfer Pricing Officer. (emphasis supplied) Therefore in the context of the preamendment law as then existing hearing on jurisdictional issues could take place after the order of the TPO which is not possible post amendment of 2007. In any case, the fact situation existing in this case of viz. a question of jurisdiction was not in issue in the above cases and therefore these two cases can have no application to the present case." 73. The Hon'ble High Court in the case of Vodafone India Services Pvt. Ltd. (supra) concluded by holding as under:- "40. In our view, once the AO gives hearing to the assessee before making a reference to TPO, the TPO would be bound by formation of opinion of AO that there was international transaction in the relevant year and that income arises or is affected by the international transaction and the TPO is bound to determine the ALP of the international transaction under consideration, since ultimately it is the duty and responsibility of AO to assess chargeable income of the assessee on the basis of the provisions . Hence, there would be sufficient compliance with the principles of natural justice, if AO gives an opportunit....
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....th edition of his monumental work had observed as under:- "The Law and Practice of Income Tax" observed: "Every Government has a right to levy taxes. But no Government has the right, in the process of extracting tax, to cause misery and harassment to the taxpayer and the gnawing feeling that he is made the victim of palpable injustice" 75. The Hon'ble High Court took note of the fact that where both the Assessing Officer and TPO did not deal with preliminary objection raised by assessee, then it was natural for the assessee to feel harassed. The TPO does not deal with petitioner's objection about applicability of Chapter X on the ground that it would be dealt in by the Assessing Officer. Thereafter, when the petitioner raises the same issue before the Assessing Officer, he does not deal with the same on the ground that he is bound to complete assessment in terms of ALP determined by TPO. In the facts of the case before the Hon'ble High Court, the assessee in Form No.3CEB audit report had reported a transaction of share investment and had pointed out that it was not an international transaction. This preliminary objection of petitioner was not dealt in by any of....
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.... of the Act and vide paras 14 and 15 has held as under:- "14. Section 92CA reveals that there are certain jurisdictional perquisites for the making of a reference by the AO to the TPO. In the first place, the AO has to be satisfied that the Assessee has entered into an international transaction or a specified domestic transaction. Where, as in the present case, the Assessee raises a threshold objection that it has not entered into any international transaction within the meaning of Section 92B of the Act, it is imperative for the AO to deal with such an objection. If the AO decides to nevertheless make a reference, he has to record the reasons, even prima facie, why he considers it necessary and expedient to make such a reference to the TPO. 15. What is referred to the TPO is the determination of the ALP of the said international transaction or specified domestic transaction. Therefore, the satisfaction to be arrived at by the AO regarding the existence of the international transaction or specified domestic transaction, even prima facie, is a sine qua non for making the reference to the TPO. Where such an Accountant's report is submitted by the Assessee in For....
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....e. The AO has to deal with the objections raised by the Assessee. It is only thereafter that the AO can come to the conclusion, even prime facie, that it is necessary and expedient to make the reference. This has to be done prior to making a reference." 78. The Hon'ble High Court in Indorama Synthetics (India) Ltd. Vs. ACIT (supra), judgment dated 25.07.2016 then referred to the ratio laid down in the case of Vodafone India Services Pvt. Ltd. (supra) and held that it concurred with the said issue. It further observed that it appears that CBDT had specifically accepted the legal position as explained by the Hon'ble High Court in the case of Vodafone India Services Pvt. Ltd. (supra) and has not gone by the decision of Hon'ble Gujarat High Court in Veer Gems Vs. ACIT & Anr. (supra). It was further observed that Instruction No.15/2015, dated 16.10.2015 issued by CBDT, which sets out, inter-alia, the procedure to be followed by Assessing Officer, has since been replaced by Instruction No.3/2016, dated 10.03.2016. The relevant para 3.4 of said Circular dated 10.03.2016 was reproduced, in which three situations are enlisted and it has been directed by CBDT that in the said three situat....
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....tice was issued to assessee by Assessing Officer that there was international transaction within meaning of section 92B of the Act between branch units and the unit in India. The assessee did file an objection to the same but no opportunity of hearing was afforded to petitioner. The Assessing Officer did not decide the jurisdictional fact as to whether the transaction requires the attention of TPO. The TPO started proceedings of transfer pricing and the assessee did participate. The proceedings before the DRP were restrained by the Court referring to Circular dated 10.03.2016, which admittedly, came into force subsequent to the decision of Assessing Officer to refer the matter to TPO. It was held that transaction noted in clause 3.3 thereof, if involved, would give rise to jurisdictional requirement and it was incumbent upon the Assessing Officer to provide an opportunity of hearing to the assessee before recording his satisfaction or otherwise, he should pass a speaking order to comply with principles of natural justice. The Hon'ble High Court vide para 8 held that though the Circular was not invoked at the relevant point of time, the applicability of principles of natural justice....
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....the Assessing Officer must give an opportunity of hearing to assessee, in case if an objection challenging jurisdiction is raised by assessee before the Assessing Officer. It is pointed out that, whereas in the present case, the issue raised is whether Assessing Officer is required to record satisfaction that too, a detailed one, demonstrating that there is shifting of profits, before referring the matter to TPO. It is argued by the Ld. DR in this regard that the said issue cannot be said to be covered by the ratio laid down in the case of Vodafone India Services Pvt. Ltd. (supra). Referring to provisions of section 92(1) of the Act and for the purpose of applying Chapter X, the Ld. DR argues that only requirement is there must be income arising from international transactions reported in Form No.3CEB and the Assessing Officer must be satisfied about the same. Then, she raised the question for consideration, in given facts, is that in such situation, how would Assessing Officer know / be satisfied that there is an element of income arising from the reported international transactions. Referring to observations of Hon'ble High Court in different paras, it was reiterated by the Ld. D....
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....drugs formulation and method applied by assessee, TNMM method. 84. Now, coming to paras 3 to 5 of reference letter issued by Assessing Officer, wherein it is pointed out that transactions envisaged by Investigation Team were cross border transactions amongst various AEs of assessee group. The major business of group was supplying medicine to online pharmacies and customers of online pharmacies in different countries and particularly those in North America. It was explained that the assessee group was selling medicines and drugs from India to customers in various parts of world using the route of Singapore and Mauritius for the purpose of packing the products. All the sales to customers in various countries were shown to be made by UAE based companies and income was shown to be earned by them. The modus operandi was adopted not to pay taxes on the huge profits earned in its business. Further, such huge profits were repatriated by the promoter of assessee group Shri Vinod Jadhav in the guise of salaries, commission, etc. and he has claimed the same as exempt by claiming himself to be a non- resident Indian. The perusal of said reference letter clearly reflects that the Assessing O....
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....ed to the exercise of powers by TPO alleging that no international transaction arises on the premise of benchmarking transaction of control and management of AE parties from India and that too, through assessee's hands, but the said objection has not been dealt with by TPO or DRP and an order under section 92CA(3) of the Act passed by TPO, which has been partially modified by DRP. After such an order has been passed, the Assessing Officer, as per amended provisions of section 92CA(4) of the Act is bound to act in conformity with the said adjustment made. This is the mandate of section 92CA(4) of the Act. Hence, the jurisdictional issue raised by assessee i.e. whether it is an international transaction or not has not been answered by any of the authorities and the TP proceedings have been completed against assessee in violation of mandate of section 92CA(1) of the Act. 86. Now, we will refer to strong reliance placed upon by the Ld. DR on series of decisions in support of its contention that mandate of section 92CA(1) of the Act is to make reference to TPO and there is no necessity to give any opportunity of hearing to the assessee before making such reference. We have in the par....
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....has specifically stated that the said transaction was not covered by Chapter X, as this issue of shares does not give rise or effect income. Further, even during TP proceedings while replying to the show cause notice, the assessee had in its reply protested to jurisdiction of TPO to apply Chapter X. Further, the Hon'ble High Court also referred to decision in Hindalco Industries Ltd. Vs. Addl.CIT (2012) 211 Taxman 315 (Bom) of the said Court itself to refuse to entertain Writ Petition on that ground that the petitioner had willingly participated in the proceedings before the TPO and hence, the Court refused to entertain the petition. In view of the same, the Hon'ble High Court held that none of the said decisions were applicable. 88. It has already been pointed out in the paras above that the Hon'ble High Court vide paras 34 and 35 of the judgment held that the decision in Sony India (P.) Ltd. Vs. CBDT & Anr. (supra) and Aztee Software & Technology Services Ltd. Vs. ACIT 2007 (294) (AT) 32 were under the pre-amended provisions of the Act and were not applicable to the cases which are covered by amended section 92CA(4) of the Act. The Hon'ble Gujarat High Court in Veer Gems Vs. A....
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.... the said proposition but as pointed out in the paras hereinabove, the reported transaction in the hands of assessee in Form No.3CEB was the export trading of medicines and not world profits of various entities, of which the control and management was in India, as per finding of TPO. 92. The next reliance placed upon by the Ld. DR was on Techbooks International (P.) Ltd. Vs. ACIT (2014) 45 taxmann.com 528 (Delhi-Trib.), which vide its order dated 28.04.2014 had applied the decision of the Hon'ble Delhi High Court in Sony India (P.) Ltd. Vs. CBDT & Anr. (supra) and had held that at the time of making reference to TPO, the Assessing Officer was not required to record detailed satisfaction. However, we find that jurisdictional High Court in the case of Vodafone India Services Pvt. Ltd. (supra) had taken a contrary view, which was not referred or quoted before the Delhi Bench of Tribunal. Further, in the said decision, reliance was placed on the ratio laid down in Coca Cola Inc. Vs. ACIT (2009) 309 ITR 194 (P&H), which has been reversed by the Hon'ble Supreme Court in the said case itself and the same is taken note in the case of Vodafone India Services Pvt. Ltd. (supra). 93.....
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....g Officer hearing the assessee before making reference to TPO would be an empty formality and futile exercise. The Hon'ble High Court vide para 44 noted this and vide para 45 holds as under:- "45. We are unable to accept the above submission of the revenue. CBDT Circular regarding distribution of files depending on value of transaction cannot detract from the obligation of AO to follow the principles of natural justice, which we have read into Section 92(A)(1), because once AO refers the transaction to TPO, AO will be bound to act in conformity with the order of TPO, as mandated by Sec.92 CA(4), in all respects including jurisdictional issue as held by this Court in Vodafone II case." 94. Vide para 46, it holds that there is no merit in the contention of Revenue that no hearing is required to be given to assessee in respect of jurisdictional issue. There has to be consideration of petitioner's objection to the applicability of Chapter X, the same should atleast have found place in the impugned draft assessment order. The failure on the part of Assessing Officer in not having examined the issue of income arising or not from an international transaction is an illegality. ....
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....essee and its AEs and profits earned by then, not only the transactions are complex, but its correct profitability in India cannot be ascertained by using TNMM method as the most appropriate method. He further holds that It is therefore conclusively proved that the entire control and management of the affairs of the assessee group is wholly situated in India. Then, he applies FAR analysis and lifts corporate veil and vide para 25.1, he holds that he has no doubt in his mind that day to day activities of the AE's in Mauritius and Dubai are operated from India and concludes by holding in para 25.2 that the affairs of parent company i.e. Anagha Pharma Ltd. i.e. assessee and AE's in Mauritius and Dubai were therefore, need to be treated as wholly. All the brain and functions of the group is situated in India and only minuscule work of receiving and sending money is left with the AE's in UAE and Mauritius. He benchmarks by applying PSM method. 96. Before the DRP, the assessee challenged that the adjustment was made on account of imaginary transactions, which do not exist. In other words, both before the TPO and Assessing Officer, the assessee had challenged jurisdiction t....
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....atables (India) Ltd. Vs. DCIT (2016) 389 ITR 385 (P&H), wherein it was held that failure to supply satisfaction notice to assessee before making reference of international transaction to TPO was at the highest mere irregularity, which does not make reference made void ab-initio. It may also be pointed out that the decision in Hon'ble High Court of Punjab & Haryana was in a Writ Petition. The said proposition of Hon'ble High Court of Punjab & Haryana is contrary to the view expressed by the Hon'ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. (supra), Hon'ble High Court of Delhi in Indorama Synthetics (India) Ltd. Vs. ACIT and by a latest decision dated 11.08.2017 by Hon'ble High Court of Calcutta in PCM Strescon Overseas Ventures Ltd. Vs. DCIT (supra). 99. Admittedly, the assessee before us has raised the issue vide grounds of appeal No.3.1 and 3.2 against jurisdiction taken by Assessing Officer and applied under section 92C(3) of the Act. The Ld. AR in rejoinder and also during oral hearing before us has stressed that it was not in his knowledge that the Assessing Officer had while making reference under section 92CA(1) of the Act, referred this issue of p....
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....lm of determining ALP of international transactions. This is the exercise to be carried out under section 6(3) of the Act, which is the domain of Assessing Officer to interpret and decide and it is beyond domain of TPO to venture into such a finding. 101. Section 6(3) of the Act at the relevant time read as under:- "6. For the purposes of this Act, - (1)..... (2)..... (3) A company is said to be resident in India in any previous year, if - (i) it is an Indian company; or (ii) during that year, the control and management of its affairs is situated wholly in India. 102. There is an amendment to section 6(3) of the Act by Finance Act, 2015 w.e.f. 01.04.2016 and amended section 6(3) of the Act reads as under:- "6. For the purposes of this Act, - (1)..... (2)..... (3) A company is said to be resident in India in any previous year, if - (i) it is an Indian company; or (ii) its place of effective management, in that year, is in India Explanation.- For the purposes of this clause "place of effective management" means a place where key management and commercial decision....
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....o charge of income tax in India, the definition of resident company has undergone change and such change is to be applied prospectively. We find no merit in the stand of Ld. DR that the contention of assessee that TPO had benchmarked the transaction of control and management is highly misleading, as the TPO had not benchmarked any transaction of control and management. In the written note, it is being reiterated that the TPO had only benchmarked the transactions referred by Assessing Officer under section 92CA(1) of the Act and what the TPO had done was in accordance with procedure laid down in the Act and had conducted FAR analysis, in which he had found control and management of affairs of assessee company was in India. The next issue raised is against contention of assessee that Chapter X becomes inapplicable to it as the TPO had no power to benchmark transactions of control and management was argued to be misplaced, as the TPO had not benchmarked any such transaction of control and management. The Ld. DR has placed reliance on the report of TPO/Assessing Officer in this regard, which is filed along with her written submissions. 105. The perusal of order of TPO clearly shows ....
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....ofit Split Method was to be applied. So, we find no merit in the stand of Revenue and also written submissions filed by Ld. DR and the report of Assessing Officer in this regard that the TPO had not carried out any such exercise. The TPO in the present set of facts had carried out exercise of determining control and management of affairs of assessee group and had come to a finding that it was wholly situated in India. Such an exercise is outside the domain of TPO. Again, we may refer to provisions of section 92CA(1) of the Act, which mandates the TPO to determine ALP of international transactions undertaken by assessee and by applying one of the methods as the most appropriate method to determine whether any adjustment is warranted or not. The TPO in the present facts has first, carried out exercise to conclusively prove that entire control and management of the affairs of assessee group, was wholly situated in India and then in the end, he applies Profit Split Method, which also had not been applied as per rules, as no comparables had been picked up to benchmark the said international transactions. The exercise carried out by TPO in fact is the exercise which had to be undertaken ....
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....sed variation or issue any direction under sub-section (5) for further enquiry and passing of assessment order. In other words, the Panel while exercising its jurisdiction may confirm, reduce or enhance the variation. The question which arises is that while doing so, can the Panel, in this regard (a) benchmark new transaction than the one benchmarked by TPO and / or (b) benchmark altogether new transactions of alleged provision of services by assessee to AE entities, where no such transactions were reported in Form No.3CEB and no such transactions were benchmarked by TPO. 110. The Hon'ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. (supra) has vide para 47 observed that proceeding before the DRP is continuation of assessment proceedings and only thereafter would a final appealable assessment order be passed. The proceedings before DRP are not appellate proceedings but correcting mechanism in the nature of second look at the proposed assessment order by high functionaries of Revenue keeping in mind the interest of assessee. In other words, the powers which have to be exercised by DRP are not as wide as the powers which can be exercised by CIT(A). 111.....
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....ew source is to be considered, then the power of remand should be exercised. By the exercise of the power to assess fresh sources of income, the assessee is deprived of a finding by two tribunals and one right of appeal. 9. The question is whether we should accept the interpretation suggested by the Commissioner in preference to the one, which has held the field for nearly 37 years. In view of the provisions of sections 34 and 33B by which escaped income can be brought to tax, there is reason to think that the view expressed uniformly about the limits of the powers of the Appellate Assistant Commissioner to enhance the assessment has been accepted by the legislature as the true exposition of the words of the section. If it were not, one would expect that the legislature would have amended section 31 and specified the other intention in express words. The Income tax Act was amended several times in the last 37 years, but no amendment of section 31(3) was undertaken to nullify the rulings, to which we have referred. In view of this, we do not think that we should interpret section 31 differently from what has been accepted in India as its true import, particularly as that vi....
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.... issue of the power of enhancement of the Commissioner of Income Tax (Appeals) had relied on the ratio laid down in the following decisions : i. CIT Vs. Shapoorji Pallonji Mistry 44 ITR 891 (SC). ii. CIT Vs. Rai Bahadur Hardutroy Motilal Chamaria 66 ITR 443 (SC). iii. CIT Vs. Sardarilal and Company 120 taxmann 295 (Delhi). iv. CIT Vs. Union tyres 107 taxmann 447 (Delhi). 14. The Tribunal after considering the factual aspects of the case held as under : "14. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find during the course of assessment proceedings, on being questioned by the AO, the assessee vide letter dated 10-12-2010 had clarified that all the advances received and paid have already been properly recorded in the regularly maintained books of accounts. It was also brought to the notice of the AO that during the survey operation the partner Shri Prakash Sanklecha was upset and could not give proper answers due to tension. Relying on v....
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.... appellate authority. The Hon'ble Delhi High Court in the case of Union Tyres (Supra) has also held similar view and held that it is not open to the appellate commissioner to introduce in assessment a new source of income and assessment has to be confined to those items of income which was subject matter of original assessment. The relevant observations of Hon'ble Delhi High Court at para Nos. 11 to 13 of the order reads as under : "11. A question regarding powers of the first appellate authority came up for consideration before the Supreme Court recently in CIT v. Nirbheram Daluram [1977] 224 ITR 610/ 91 Taxman 181. Following their earlier decisions in Kanpur Coal Syndicate's case (supra) and Jute Corpn. of India Ltd.'s case (supra) though their Lordships reiterated that the appellate powers conferred on the Commissioner under section 251 could not be confined to the matter which had been considered by the ITO, as the Commissioner is vested with all the plenary powers which the ITO may have while making the assessment, but did not comment on the issue whether these wide powers also include the power to discover a new source of income. Therefore, the principle of l....
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.... sales and gross profit rate adopted by the Assessing Officer. In our. opinion, any addition on account of unexplained investment would constitute a new source of income which was not the subject-matter of assessment before the Assessing Officer and, therefore, it was not open to the first appellate authority to direct the Assessing Officer to conduct enquiry on the said four points. 14. For the foregoing reasons, we answer the question in the affirmative, i.e., in favour of the assessee and against the revenue. No order as to costs." 14.2 In view of the above decisions we hold that the Ld.CIT(A) has no power to enhance the income of the assessee by introducing a new source of income which had not been considered by the AO. Addition, if any, on that account can be made by taking recourse into provisions of section 147/148 and section 263. We accordingly hold that both factually as well as legally the Ld.CIT(A) is not justified in enhancing the income of the assessee by Rs. 25 lakhs. We accordingly set aside the order of the CIT(A) on this issue and direct the AO to delete the addition." 15. The issue before the Hon'ble Delhi High Court in CIT Vs. Unio....
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.... were the subject matter of original assessment. Accordingly, we reverse the order of CIT(A) in this regard and delete the addition of Rs. 1.05 crores. The grounds of appeal raised by the assessee are thus, allowed." 113. The Ld. AR has placed reliance on the above said decision and has pointed out that where the TPO had erred in view that his benchmarking was for a different alleged transaction of control and management from India, then the DRP having powers parallel to that of TPO could not proceed to benchmark the alleged transactions of provision of services by assessee and also the second international transaction of supply of goods reported in Form No.3CEB, despite the fact that the same was not benchmarked by the TPO. He pointed out that DRP has no power to annul assessment and it has limited powers when compared with powers of CIT(A). So, where the CIT(A) could decide only those domains / issues in which the Assessing Officer has travelled, then the DRP in the present case has exceeded his jurisdiction. 114. Though, we have referred to the facts time and again, but what is material is the finding of TPO. In this case, wherein he has came to a finding that control and ....