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2013 (6) TMI 421 - ITAT MUMBAIEstimation of income of SJMI [St. Jude Medical Inc. USA] in assessee's hand - AO treated assessee's liaison office in India as a PE for the SJMI and taxed both the incomes attributable to sales made by SJMH as well as SJMI USA in one assessment order - Held that:- Procedure adopted by AO is not correct as there should be separate proceedings for two separate companies established in different countries. Assessee here is the Hongkong company of which the branch is under consideration. In a situation, what can be considered for taxability is income that accrues directly to the assessee from its operations in India, which may be attributable to the existence of branch in India. As it is legally not possible to consider the profits attributable to SJMI in the hands of assessee, agreeing with the opinion of CIT(A) and direct AO to exclude the profits of St. Jude Medical Inc. USA brought to tax in assessee's hands. Accordingly the additional grounds are considered allowed. Some of the reports impounded by the Revenue are nothing but the correspondence with the Head Office about the sales in India, as a part of liaison office, but not as a sales unit. There are monthly reports also given which indicate the budget, projected targets, achievements, but nowhere this indicate that assessee was involved in direct sales activity except coordinating and liaisoning with the various distributors and the doctors who are to use the products. These documents does not establish at all that assessee was involved in business activity before it became a branch office. Therefore, AO's contention that assessee was involved in business activity cannot be accepted. As in the earlier year also i.e. AY 1998-99 for which also assessee filed the return at Nil were accepted without any addition in that year and also the fact that assessee claimed various expenditures for the three month period from 1st January, 2000 in AY 2000-01 which was allowed by the CIT (A) on which there is no cross appeal, assessee was involved in liaison activities upto 31.3.1999 and not in sales activity as opined by AO. Therefore, there is no question of estimating the profits in AY 1999-2000 when assessee does not have any business connection or business activity though its liaison office. So the attribution of income and estimation of gross profits in AY 1999-2000 does not arise at all. The grounds raised by assessee are allowed. With reference to the AY 2000-01, there is business activity for a period of three months in the year, once assessee established the branch. Therefore, the profits attributable to the branch office for the sales made in the three month period from Jan 2000 to March 2000 are to be confirmed. AO is directed to examine the sales made during that period and arrive at the profits at 10% as determined by the CIT (A) for the period of three months. The expenditure claimed by assessee for the above period, which was allowed by the CIT (A) need to be set off after due verification as directed by CIT(A). Order to that extent was confirmed. Therefore, the addition of business profits of SJMI USA is directed to be deleted in total in both years and profits attributable to the liaison period as determined by AO also gets deleted - assessee's appeals are treated as allowed.
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