TaxTMI 
TaxTMI 
2025 (8) TMI 299
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....hich will apply mutatismutandis for all the other five (5) appeals. 3. The brief facts are that, the assessee, M/s. Redington Distribution Pte Ltd ('RDPL'), is a foreign company incorporated in Singapore and a wholly owned subsidiary of M/s. Redington Limited (formerly known as 'Redington (India) Limited') ('RIL'). For AY 2011-12, the assessee had not filed any tax return in India as it did not earn any income in India. From AY 2012-13 and onwards, the assessee had derived royalty income in India which was offered to tax under the head 'Income from Other Sources'. Later on, a tax survey was conducted at the premises of their parent company, RIL, in India in the month of December, 2017. In the course of survey, the survey team identified a team of employees termed as 'Dollar Business' which were managing the USD business of Indian customers. It was noticed by the survey authorities that, for this 'Dollar Business', the Indian employees were overseeing the import requirements of the Indian customers who wanted the billings to be done in USD instead of INR so as to avail the import duty benefits. According to the survey team, the employees of the 'Dollar Tea....
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....ed that, the audited financial statements and the profit margin of the assessee be used as the starting point for attribution. 5. The assessee is noted to have preferred a Miscellaneous Application ('MA') before the Tribunal against the appellate order on 14.02.2023. During the pendency of the MA, the AO passed the draft assessment order pursuant to the directions of the Tribunal on 28.02.2023. In the meanwhile, the assessee is noted to have filed an appeal before the Hon'ble Madras High Court against the order of the Tribunal and also inter alia sought interim stay against the draft assessment order dated 28.02.2023 passed by the AO. It is observed that the Hon'ble Madras High Court granted interim stay by observing as under: "2. The impugned order is a draft order under Section 144C (1) of the Income Tax Act, 1961 (in short 'Act). This order has been passed consequent upon a remand by the Income Tax Appellate Tribunal (in short "Tribunal/ITAT) on 16.11.2022. The Tribunal has, therein, confirmed the findings of the Assessing Officer to the effect that the petitioner has a Permanent Establishment (PE) in India. However, the question of attribution of profits to the ....
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....mpugned dispute in terms of the Mutual Agreement Procedure (in short 'MAP') under Article 27 of the India-Singapore DTAA to the Competent Authority of Singapore. It was brought to our notice that, the Competent Authority (CA) of Singapore accepted their application vide their communication dated 18.02.2022 and also requested the Competent Authority of India to resolve the dispute. The Ld. AR pointed out to us that, the Competent Authority at India had accepted this request and pursuant to the negotiations, mutual agreement was arrived at between the two Competent Authorities, which read as follows: "2. Agreed Terms The CAs have agreed to disagree on the question of existence of a permanent establishment of RDPL in India, and further agreed to set aside the same to arrive at the following terms of resolution: (i) The adjustment to RDPL's income in India shall be reduced to 25% of the profits derived from the turnover of RDPL in India from channel partner sales and direct sales made in India. A downward corresponding adjustment to RDPL to the extent of 15% of such profits shall be provided in Singapore. (ii) The profits on such turnover shall b....
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....nal adjustment of Rs. 17,61,12,836/- made in AY 2011-12 to Rs. 2,18,18,978/-. 9. The AO thereafter initiated and levied penalty u/s 271(1)(c) in relation to the addition finally confirmed under the MAP resolution on the premise that the assessee did not offer the said income in its original return of income. The AO was of the view that, the MAP resolution did not reduce the adjustment to NIL which shows that, the assessee had furnished inaccurate particulars of income in India. Relying upon the decision of the Hon'ble Karnataka High Court in the case of Toyota Kirloskar Motor (P) Ltd vs. Union of India (422 ITR 138), the AO levied penalty of 100% of the tax arising on the income added pursuant to the MAP resolution being Rs. 92,14,154/-. 10. Being aggrieved by the above penalty order of the AO, the assessee carried the matter in appeal before the Ld. CIT(A) who confirmed the penalty by observing as follows: "5.5.6 It is relevant to note that the Honourable ITAT in IT (TP) A No.14/Chny/2020 for AY 2011-12 held based on the facts, that the Dollar Team of the Indian Holding Company assisted the Singapore Subsidiary le the appellant in seeking orders, giving quotes to cu....
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....able High Court of Karnataka in Toyota Kirloskar Motor Private Limited(supra). Order passed under MAP does not bar the levy of penalty if it is liveable otherwise. In view of these discussions, ground no's 3, 4, 8 and 10 are dismissed. 5.6 Ground No 5: As per this ground, the appellant states that the question of law on the existence of PE was admitted by the Honourable High Court of Madras. It is pertinent to note that as per Rule 44G (8), the assessee's acceptance of the resolution shall be accompanied by proof of withdrawal of appeal, if any, pending on the issues that were the subject matter of the resolution arrived at under sub-rule (4). Thus ground no 5 has become infructuous and is accordingly dismissed. 5.7 Ground Nos 6 and 7: As per these grounds, the appellant contends that the existence of PE was only a change of opinion and that all facts relevant to the dispute were provided during the assessment proceedings. As discussed in the preceding paras, the existence of PE in India was brought to light in the wake of a TDS survey that unearthed documentary evidence that the appellant was operating in India through the Dollar Team and th....
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....(ITA No. 240 of 2009) (Del HC) − Nayan Builders & Developer [2014]368 ITR 722 (Bom HC) − Harsh International (P.) Ltd.,[2021] 431 ITR 118(Delhi HC) − Thomson Press India Ltd.,2014 (3) TMI 1174,(Delhi HC); − Dr. Harsha N. Biliangady (379 ITR 529) (Kar HC) − Perot Systems TSI (India) (P.) Ltd. [(2018) 94 taxmann.com 625] (Delhi ITAT) − TTK Healthcare Limited (ITA No. 2028/Mds/2011) (Chennai ITAT) − Smt. Hemalatha Rajan (ITA No. 2/Mds/2016) (Chennai ITAT) 13. The Ld. Sr Counsel further submitted that, it was not a case that the assessee had furnished any inaccurate particulars of income. Rather, according to him, the assessee was under a bonafide belief that the ancilliary support services received from the employees of RIL in India did not result in any fixed place or dependent agent PE in India. The Ld. Counsel took us through the decisions of the Hon'ble Supreme Court in the cases of E-Funds IT Solution Inc (399 ITR 34) & Morgan Stanley & Co (292 ITR 416), basis which the assessee had formed a view that it did not have a PE in India. Narrating the facts involved in the assess....
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....eleted the penalty levied on the addition agreed and retained under MAP resolution. The Ld. Senior Counsel also filed written submissions in support of his arguments which has been taken on record. 15. Per contra, the Ld. CIT, DR Shri Shiva Srinivas, vehemently supported the order of the lower authorities. According to him, only because the dispute was finally resolved through a MAP resolution will not absolve the assessee from penal consequence. He pointed out that the Hon'ble Karnataka High Court in the case of Toyota Kirloskar (supra) had held that, penal action can be invoked in relation to the additions made under MAP resolution. He contended that, this Tribunal had confirmed the existence of PE of the assessee in India, which showed that the assessee had furnished inaccurate particulars while filing their return of income in India. According to him, the fact that the Competent Authority of Singapore had agreed to attribution of profits in India, though lower than what was computed by the AO, shows that they also agreed that the assessee had a PE in India and for that reason it had agreed to pay tax thereon. He therefore urged us not to interfere with the order of the lower....
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....itted the appeal of the assessee on the issue of existence of a PE in India as and by way of a substantial question of law, which, for the sake of convenience, is again reproduced below:- "1. Whether in the facts and circumstances of the case, the Hon'ble ITAT was right in law in holding that the Appellant has a fixed place Permanent Establishment ("PE") in India under Article 5(1) of the India- Singapore DTAA and thus, the income of the Appellant is liable to tax in India for the subject Assessment Year? 2. Whether in the facts and circumstances of the case, the Hon'ble ITAT was right in law in holding that the Appellant has a dependant agent Permanent Establishment ("DAPE") in India under Article 5(8) of the India-Singapore DTAA and thus, the income of the Appellant is liable to tax in India for the subject Assessment Year?" 17. We find force in the contention of the Ld. Senior counsel Shri Percy Pardiwala, that, when the impugned issue has been admitted by way of a substantial question of law by the Hon'ble High Court, it does suggest that, the issue as to whether the assessee can be said to have a PE in India or not, is debatable on which two views ....
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....l, it was brought to the notice of the Tribunal that, though the quantum was confirmed by the coordinate bench of the Tribunal, but subsequently, the Hon'ble High Court had admitted the main issue by way of a substantial question of law. Taking note of the same, and referring to the above decision of the Hon'ble Delhi High Court (supra), this Tribunal held that the admission of the appeal by the High Court evidenced that the issue was debatable and therefore, the question of levy of penalty would not arise. The Tribunal accordingly deleted the penalty, having regard to the complexity and issue being debatable 19. In light of the above decisions (supra), we again revert back to the given facts of the present case before us. It is noted that, the Ld. CIT(A) while confirming the penalty had emphasized on the TDS survey which was conducted upon RIL, which according to him, led to discovery of evidence that the assessee had a PE in India. The Ld. CIT(A) was of the view that the analysis of evidences unearthed in the course of survey had revealed that the assessee was having a PE in India, which was also affirmed by this Tribunal. According to him, had the survey not been conducted, t....
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....red by the Revenue which suggested that it had a PE in India. We find these observations to be based on suspicion and surmise. Rather, according to us, the MAP resolution and the agreed terms supports the case of the assessee that the impugned issue was a debatable one. It is noticed that, under the MAP resolution, the Competent Authorities of both the countries had mutually arrived at a settlement, in terms of which, both the parties agreed to disagree on the question of existence of a PE of the assessee in India. This particular agreement between the parties reveals that even though the coordinate bench of this Tribunal had confirmed the Revenue's view that, the assessee had a PE in India, and the Competent Authority of India having agreed to disagree on its existence proceeded solely on an assumption to make adjustment to the assessee's total income in India. It is found that, in fact a substantial downward adjustment to the addition confirmed in the assessment / appeal of the assessee was made, which as noted earlier, is not even 15% of the original addition. The Ld. Senior Counsel also pointed out that, the Singapore tax authority also made equivalent downward adjustment to th....
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....ity of Section 271(1)(c) in so far as it related to imposition of penalty on the amount determined pursuant to mutual agreement in terms of the DTAA. The Hon'ble High Court only held that, the AO is not prohibited from initiating penalty in relation to amount adjusted after incorporating the decision under MAP resolution. The Hon'ble High Court at the same time is noted to have clarified that, the penalty proceedings are distinct and independent from the assessment proceedings and it remained open for the assessee to show that the addition confirmed in MAP resolution was not due to concealment of income or furnishing of inaccurate particulars and therefore, it was not liable to penalty. In our considered view, on the given facts before us, this decision is of no assistance to the Revenue. Rather, it supports the case of the assessee, as the Hon'ble High Court had observed that, only because an adjustment is made pursuant to MAP resolution, will not automatically lead to penalty. As noted by us above, the assessee has made out a case that, there was no inaccurate reporting of particulars qua the adjustment made pursuant to MAP resolution, and for that reason, we hold the imposition ....
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....acts are deemed to be attributed to the assumed PE and taxed in India at 30% of the profits arrived. We observe that even in the MAP proceedings it is only by way of an assumption that the authorities have concluded that the assessee has PE and on such assumption of PE the business profits were attributed to the PE for the purpose of settling the issues. No corroborative evidence is brought on record by the Revenue Authorities to suggest that the assessee has PE in India. Further the Ld.CIT(A) in all these assessment years in fact deleted the additions holding that Assessee does not have a PE in India. .......... 8. The Ld.CIT(A) has considered all the aspects of the material and concluded that the assessee has disclosed all material facts during the assessment as well as MAP proceedings and has not concealed any particulars of income. We see no infirmity in the order passed. We further observe that at best it is only a difference of opinion as to whether there exists PE in India for Assessee or not. There is no conclusive proof that the assessee has PE in India. In the penalty proceedings the AO simply relied on the MAP proceedings in holding that the assessee ha....