AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 299
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....ther 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 Team' were actually identifying the customers, neg....
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.... 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 PE has been remanded for fresh consideration. 3. The pet....
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....a-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 be derived by using RDPL's profit margin on total sales for the relevant financial year, based on its audited financial statement....
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....ssee 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 customers, vendor negotiations, and concluding the terms of sales Only documents like the packing list, the airway bill, etc., were prepared by the Singapore company. The premises of the Indian Holding Company were at the disposal of the appellant, and th....
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....s 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 the premises of the Indian Holding Company. This was upheld by the Honourable Tribunal. The existence of PE was never admitted by the appellant in its return of income nor was corresponding taxes on the Indian profits of the appellant being paid in India. There was no disclosure whatsoever of the....
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....tems 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 assessee's case, the Ld. Sr Counsel argued that, the view entertained by the assessee that it did not have a PE in India was a plausible one and thus the assessee cannot be held to be guilty for furnishing inaccurate particulars of income. To substantiate the bonafides of the assessee, he pointed out that the assessee had been offering the royalty income to tax....
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....ally 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 authorities and confirm the levy of penalty. 16. We have heard both the parties and perused the material placed before us. It is well settled in law that, the penalty proceedings are separate and independent from the assessment proceedings. Only because an addition or a disallowance which was made in the assessment has attained finality may not ispo facto w....
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....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 are possible. Therefore, there is merit in the assessee's plea that, it had acted on a bonafide belief that, it didn't have any PE in India; and only because, their interpretation of the definition of PE was not acceded to by the coordinate bench of this Tribunal, it cannot lead to a presumption that, the assessee had furnished inaccurate particulars of income, which would war....
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....eal 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, the impugned addition would not have been made and thus it was a case of furnishing of inaccurate particulars by the assessee. We however are unable to countenance these findings of the Ld. CIT(A) in light of the facts placed before us. It is noticed that, the assessee had never claimed that RIL or its employees were not rendering support services to it. Instead, it was the assessee's cas....
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....ettlement, 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 the assessee's taxable income in Singapore to ensure avoidance of double taxation in Singapore on the income being brought to tax in India. We thus observe that, the alternate remedy was availed by the assessee only for settling the issue, without admitting that PE existed in India; and the final settlement agreed upon not only ensured a substantially low estimated adjustment to their taxabl....
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....he 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 of penalty to be unjustified. 24. Before parting, we also find the reliance placed by the assessee on the decision of DCIT v. Raytheon Company (supra) to be relevant and applicable to their case. In the decided case also, the assessee, a foreign company had filed NIL return of income in India. The AO in the course of assessment was of the view that the assessee had a PE in India and that the ro....
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....enue 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 has PE in India which in fact is not correct. As we said earlier it is only on assumption that the assessee has PE in India and by way of deeming fiction the profits were attributed for such assumed PE by the authorities in the MAP proceedings. 9. The case law relied on by the Ld. DR in the case of Toyota Kirloskar Motor Private Limited Vs. Union of India (supra), we observe that in that case the assessee has challenged the ....