TaxTMI 
TaxTMI 
2020 (8) TMI 35
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.... in Section 147 of the Act and there being no reason to believe that any income chargeable to tax had escaped assessment. 2.1 That the reassessment proceeding was initiated beyond four years and in the absence of any allegation of the appellant not disclosing truly and fully material facts, reassessment were barred by limitation. 2.2 That the CIT(A) erred in sustaining the validity of reassessment proceedings in the absence of any reason to believe that any income of the appellant chargeable to tax has escaped assessment. 2.3 That the CIT(A) erred in sustaining the reassessment proceedings when the same were barred by limitation under the proviso to section 147 of the Act. 2.4 That the CIT(A) erred in sustaining the reassessment proceedings while not appreciating that the sole basis for initiating such proceedings was on account of reliance placed on the statements of expatriate employees of the appellant which were not admissible and could not form the basis of initiating such proceedings. WITHOUT PREJUDICE 3. That the AO/CIT(A) erred in making/sustaining an addition of Rs. 13,09,82,982 under section 40(a)(i) of the Act while holding that Appellant was required to dedu....
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....ting that all transactions between the Appellant and the non-resident associated enterprises (AE's) had been determined at arm's length basis and in view of the Article 9 of the Double Tax Treaties, no further income could be attributed to the AE. 9 Without prejudice to the above grounds, that on the facts and circumstances of the case and in law, the CIT(A) has erred in following the order of the Hon'ble Dispute Resolution Panel ('DRP') in attributing 25% of the total income to the activities of the AE's in India alleging that selling of raw material, consumable spare parts, etc. has been carried in India when none of the selling operation is carried in India. 10 Without prejudice to the above grounds, that the CIT(A) has grossly erred in law and facts in applying the adjusted global profit ratio of the AE's as considered by the Hon'ble DRP after making disallowance of research and development (R&O). 10.1 That on the facts and circumstances of the case and in law, the CIT(A) has erred in accepting increase in the global operating profit ratio by 5.34% (on the basis of global accounts) stating that R&D expense does not relate to HMJ's PE in Ind....
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....International Taxation, Noida on 24.06.2010 and 19.12.2012 and during the survey proceedings, statements of the employees and expatriates recorded and intimation obtained during the survey proceedings that the non-resident parent company and other affiliate companies had a business connection and a Permanent Establishment (PE) in India as per the provisions of section 9(1)(i) of the Act and relevant tax treaties. It was also noticed from Form No.3CEB report that assessee had made various payments totaling Rs. 1057,30,04,248/- to the Associate Enterprise (AE) during the Financial Year (FY) 2005-06 relevant to Assessment Year (AY) 2006-07. Detail of such payment is extracted as under :- S. No. Payment made to Nature of payment as per 3CEB Amount 1 Honda Motor, Japan Purchase of raw materials 3,83,29,63,108 2 Honda Trading, Japan Purchase of raw materials 4,81,26,038 3 Asian Honda, Thailand Purchase of raw materials 2,95,98,64,281 4 Honda Cars, Philippines Purchase of raw materials 2,18,87,798 5 Honda Automobiles, Thailand Purchase of raw materials 2,01,65,969 6 American Honda, America Purchase of raw materials 2,92,62,299 7 PT Honda....
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....the failure on the part of the assessee to disclose all material facts truly and fully, income of Rs. 1057,30,04,248/- had escaped assessment and consequently initiated the proceedings u/s 147 of the Act. 5. AO noticed that the assessee has made payments to various non-resident companies without deduction of tax u/s 195 of the Act, detailed as under :- S. No. Payment made to Nature of payment as per 3CEB Amount (in Rs.) 1 Honda Motor Co. Ltd., Japan Purchase of raw materials 5,86,07,09,109 Purchase of spare parts 23,32,089 2 Asian Honda Motor Co. Ltd. Purchase of raw materials 628,97,48,438 Purchase of spare parts 4,87,681 3 Honda Trading (Thailand) Co. Ltd. Purchase of raw materials 7,04,84,068 Purchase of consumables 39,25,351 4 Honda Trading Corporation Purchase of consumables 36,37,335 Purchase of raw materials 2,02,25,846 Purchase of spare parts 79,88,490 5 Honda Automobile (Thailand) Co. Ltd. Purchase of raw materials 63,14,799 6 Honda Access Asia & Oceania Co. Ltd. Purchase of raw materials 4,55,03,300 Purchase of spare parts 1,07,383 7 Honda Cars Philippines Inc. Purchase of spare parts 17,295 8 H....
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....l. 8. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUNDS NO.1 & 2 9. Grounds No.1 & 2 are dismissed having become infructuous as the reassessment proceedings have been quashed by the Hon'ble Supreme Court in the case of Assistant Director of Income-tax, Noida vs. Honda Motors Co. Ltd., Japan in case cited as (2019) 108 taxmann.com 300 (SC), copy available at page 17 of the synopsis. GROUNDS NO.4 to 7 & 9 to 15 10. Grounds No.4 to 7 & 9 to 15 have been dismissed having not been pressed during the course of arguments by the ld. Counsel for the assessee. GROUNDS NO.3 & 8 11. Undisputedly, when arm's length principle has been followed, there cannot be further profit attributable to a person even if it has PE in India as has been held by Hon'ble Supreme Court in case cited as Assistant Director of Income-tax, Noida vs. Honda Motors Co. Ltd., Japan in case cited as (2019) 108 taxmann.com 300 (SC), operative part thereof is as under :- "Section 92, read with section 147, of the Income-tax Act, 1971 -....
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....iland, the dispute resolution panel (DRP) held that the non-resident company had no PE in India and accordingly, the Tribunal reversed the finding of the Ld. CIT-(A)that Asia Honda Thailand had a PE in India, and held that section 195 and consequently 40(a)(i) were not applicable related to the payment to Asia Honda Thailand. Regarding the payment to Honda Motor Co. Ltd Japan, the Tribunal observed that this issue of PE was not adjudicated by the Assessing Officer of that company and therefore disallowance u/s 40(a)(i) of the Act was adjudicated by the ITAT invoking nondiscrimination clause of the DTAA. The Tribunal deleted the disallowance related to payment to Honda Motor Japan applying the proposition of law laid down by the Hon'ble Delhi High Court in the case of CIT Vs. Herbalife International India Private Limited (supra) regarding interpretation of the nondiscretionary article in the Double Taxation Avoidance Agreement(DTAA)between India and Japan. The relevant finding of the Tribunal is reproduced as under: "13. We have heard the rival contentions. On a careful consideration of the facts and circumstances of the case and perusal of the papers on record and the orders of t....
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....dia Pvt. Ltd., judgment dated 13th May, 2016, has, after considering the argument of the intervener, Mitsubishi Corporation, and the provisions of the Indo- Japanese DTAA has on the issue of 'other disbursements' in para 38 to 42, held as follows:- "38. The question that next arises is whether the payment by the Assessee to HIAI qualifies as 'other disbursements' for the purpose of Article 26 (3)DTAA? 39. To recapitulate, the case of the Revenue is that the expression 'other disbursements' should take colour from the context and would apply only to income which is of passive character just like interest and royalties. The Revenue invokes the doctrines of 'noscitur-a-sociis' and 'ejusdem generis'. It is submitted that FTS does not qualify as 'other disbursements' since it is not a passive character like royalties and interest. 40. The Court is unable to agree with the above submissions of the Revenue. In the context of which the expression 'other disbursement' occurs in Article 26 (3), it connotes something other than 'interest and royalties'. If the intention was that 'other disbursements' should also be ....
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....business'. 47. Article 26(3)of the DTAA calls for an enquiry into whether the above condition imposed as far as the payment made to HIAI, i.e., payment made to anon-resident, is any different as far as allowability of such payment as a deduction when it is made to a resident. 48. Section 40(a) (i) of the Act, as it was during the AY in question i.e. 2001-02, did not provide for deduction in the TDS where the payment was made in India. The requirement of deduction of TDS on payments made in India to residents was inserted, for the first time by way of Section 40(a) (ia) of the Act with effect from 1st April 2005. Then again as pointed out by Mr. M.S. Syali, learned Senior Advocate for the Intervener, Section 40(a) (ia) refers only to payments of ―interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts payable to a ITA No. 7/2007 Page 27 of 35 contractor or subcontractor‖ etc. It does not include an amount paid towards purchases. Correspondingly, there is no requirement of TDS having to be deducted while making such payment. 49. However, the element of discrimination arises not only bec....
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....rofits of the payer. No such consequence was envisaged in terms of Section 40(a) (i) of the Act as it stood as far as payment to a resident was concerned. This, therefore, attracts the non-discrimination rule under Article 26 (3)of the DTAA. 51. The arguments of counsel on both sides focussed on the expression ̳same conditions' in Article 26(3)of the DTAA. To recapitulate, a comparison was drawn by learned counsel for the Revenue with Article 26(1) which speaks of preventing discrimination on the basis of nationality and which provision employs the phrase ̳same circumstances'. Article 26 (2)which talks of prevention of discrimination vis-a-vis computing tax liability of PEs and employs the expression ̳same activities'. The expression used in Article 26 (3)is ̳same conditions'. Learned counsel for the Revenue sought to justify the difference in the treatment of payments made to non-residents by referring to Article 14of the Constitution of India and contended that the line of enquiry envisaged examining whether (a) the classification was based on an intelligible differentia and (b) whether the classification had a rational nexus with the object ....
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....ication of a classification under a treaty like the DTAA, the line of enquiry cannot possibly be whether the classification has nexus to the object of the ̳statute' for the purposes ofArticle14of the Constitution of India, but whether the classification brought about by Section 40(a) (i) of the Act defeats the object of the DTAA. 56. The argument of the Revenue also overlooks the fact that the condition under which deductibility is disallowed in respect of payments to non-residents, is plainly different from that when made to a resident. Under Section 40(a) (i), as it then stood, the allowability of the deduction of the payment to a non-resident mandatorily required deduction of TDS at the time of payment. On the other hand, payments to residents were neither subject to the condition of deduction of TDS nor, naturally, to the further consequence of disallowance of the payment as deduction. The expression ̳under the same conditions' in Article 26 (3) of the DTAA clarifies the nature of the receipt and conditions of its deductibility. It is relatable not merely to the compliance requirement of deduction of TDS. The lack of parity in the allowing of the payment a....
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....ifically intended to enable and empower the Central Government to issue a notification for implementation of the terms of a double taxation avoidance agreement. When that happens, the provisions of such an agreement, with respect to cases to which where they apply, would operate even if inconsistent with the provisions of the Income Tax Act. We approve of the reasoning in the decisions which we have noticed. If it was not the intention of the Legislature to make a departure from the general principle of chargeability to tax under Section 4 and the general principle of ascertainment of total income under Section 5 of the Act, then there was no purpose in making those sections ̳subject to the provision of the Act. The very object of grafting the said two sections with the said clause is to enable the Central Government to issue a notification under Section 90towards implementation of the terms of the DTAs which would automatically override the provisions of the Income tax Act in the matter of ascertainment of chargeability to income tax and ascertainment of total income, to the extent of inconsistency with the terms of the DTAC. 59. Consequently, the Court negatives the plea o....
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....ous and elaborate submissions bringing out certain issues raised by the AO, to persuade us that TPO was wrong in coming to the conclusion that the transactions between the AEs and the assessee are at arm's length. We find that the TPO has passed the order after the surveys were conducted on the assessee. If the AO had certain additional material facts, he could have brought it to the notice of the TPO and asked for a fresh report. In our view, this argument of the Ld. D.R. is erroneous, as the revenue wants to take a stand that the transactions between the assessee and its AE are not at arm's length for the limited purpose of denying the benefit of the non-discrimination article in the DTAA to the assessee and not for making any additions under the transfer pricing provisions. Year after year, the transfer pricing officer has given a finding that the transactions between the assessee and the AE are at arm's length. The ld. DR, without specifically pointing out as to what is the difference between the arm's length price and the price at which the transactions have taken place between the assessee and the AE and without quantifying the excess/shortage in the price, se....