TMI Blog2024 (2) TMI 1327X X X X Extracts X X X X X X X X Extracts X X X X ..... E PRESIDENT DR. B. R. R. KUMAR, ACCOUNTANT MEMBER For the Appellant : Sh. Nageshwar Rao, Adv. and Sh. Akshey Uppal, Adv. For the Respondent : Sh. Vizay B.Vasanta, CIT-DR ORDER Per Dr. B. R. R. Kumar:- The present appeal has been filed by assessee against the order of Dispute Resolution Panel-2 New Delhi dated 30.11.2022. 2. The assessee has raised the following grounds of appeal are as under:- 1. The learned AO/Hon'ble DRP has erred in making adjustment aggregating to IN 48,20,43,605 to the returned income of the Appellant and thereby, has erred in law and on facts in assessing the total income of the Appellant at INR 77,69,81,839. 2. The impugned order and Directions issued by the Hon'ble DRP are based on non/ incorrect appreciation of facts, ignoring to consider submissions and material on record as also wrong interpretation and application of law and therefore, are bad in law. 3. The learned AO/Hon'ble DRP, grossly erred, in alleging that Appellant has a Fixed place Permanent Establishment ( PE ) for business in India, to carry on the business of sale of software products without indicating any basis for same. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia procuring orders and executing sales on behalf of Appellant is ex-facie erroneous and without any basis consequently, destroying very basis of allegation on existence of Agency PE. 4. The learned AO has failed to appreciate that significant portion of the goods and software sold by the Appellant to NCR India were used by NCR India in its manufacturing business and thus, the allegation made by the learned AO regarding NCR India being a dependent agent PE of the Appellant is erroneous and without any basis. 5. Learned AO/Hon'ble DRP has failed to discharge the burden of proof while arbitrarily holding that Appellant has a place of business in India and that NCR India has satisfied the conditions to be treated either as a Fixed place PE or has an Agency PE in India. 5.1. Hon'ble DRP has erred in law and on facts, in placing reliance on its directions issued for AY 2018-19 and AY 2019-20 wherein adverse conclusion on existence of Agency PE and Fixed place PE is drawn merely by placing reliance on clause 6. 1(a) and 6. 1(b) of the Distribution Agreement in vacuum without appreciating the business model of the Appellant and NCR India. 5.2. Both learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et in totaling the interest under Section 234A (INR 32,77,152) and Section 234B (INR 2,70,36,504) at INR 3,28,86,212 instead of INR 2,94,94,369. 12. The learned AO has in calculating interest under Section 234A for the period of 4 months instead of 3 months i.e., till the date of filing of return of income by the Appellant. 13. The learned AO has erred, in law and on facts, in considering INR 57,30,832 as a refund issued to the Appellant without appreciating that this amount pertains to tax deducted at source on interest on income-tax refund which is pending to be issued to the Appellant, and thereby has erred in raising a tax demand in this regard. 14. The learned AO has erred, in law and on facts, in initiating penalty proceedings under Section 270A of the Act. 3. At the outset, it was brought to our notice that the issues involved have been squarely covered by the order of the coordinate bench in ITA no. 1756 1776/Del/2022. The ld. DR fairly, accepted to this fact. For the sake of ready reference the relevant portion of the said order is reproduced herewith:- 7. We have heard Ld. Authorized Representatives of the parties and perused the material avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Service PE in India under Article 5(2)(l), though only on account of the services to be performed by the deputationists deployed by MSCo and not on account of stewardship activities. As regards income attributable to the PE (MSAS) we hold that the Transactional Net Margin Method was the appropriate method for determination of the arm's length price in respect of transaction between MSCo and MSAS. We accept as correct the computation of the remuneration based on cost plus mark-up worked out at 29% on the operating costs of MSAS. This position is also accepted by the Assessing Officer in his order dated 29.12.06 (after the impugned ruling) and also by the transfer pricing officer vide order dated 22.9.06. As regards attribution of further profits to the PE of MSCo where the transaction between the two are held to be at arm's length, we hold that the ruling is correct in principle provided that an associated enterprise (that also constitutes a PE) is remunerated on arm's length basis taking into account all the risk-taking functions of the multinational enterprise. In such a case nothing further would be left to attribute to the PE. The situation would be different if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of cases enumerated by us in paragraph 4 of this judgment. 9. Looking to the facts of the present case, we find merit into the contention of the assessee that the Assessing Authority was not justified in making addition in the hands of the assessee when in the case of alleged PE of the assessee, the transactions have been treated to be arm s length price. Furthermore, the assessee has pointed out that while making addition, the AO has also included the transaction related to hardware whereas allegation of PE is related to software. In the light of the binding precedents, we are of the considered view that the authorities below erred in making the impugned additions. We therefore, direct the AO to delete the same. Ground Nos. 1 to 10 raised by the assessee are hence, allowed. 10. Ground No.11 raised by the assessee is against the levy of interest u/s 234B of the Act. The levy being consequential in nature we hold, accordingly. 11. Ground No.12 raised by the assessee is against the initiation of penalty us/ 270A of the Act. This ground being premature hence, dismissed. 12. In the result, the appeal of the assessee is partly allowed. ITA No.1776/Del/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia ), an independent legal entity conducting its own business, without indicating an iota of evidence to support that the place of business of NCR India is used or is at the disposal of the Appellant, either formally or informally and in the process ignoring material placed on record by the Appellant. 3.4. Impugned order erred in assuming that the Appellant is procuring orders and executing sales to Indian customers through NCR India without appreciating that NCR India transacts with Indian customers on its own account on a principal-to-principal basis and not as an Agent of the Appellant. 3.5. Ld. AO/ Ld. DRP have lightly ignored the fact on record that significant portion of the goods and software sold by the Appellant to NCR India were used by NCR India itself in its manufacturing business and thus, the allegation of NCR India procuring orders and executing sales on behalf of Appellant is ex-facie erroneous and without any basis consequently destroying very basis of allegation on existence of Agency PE. 4. Ld. AO erred and Ld DRP erred in confirming the allegation that NCR India is acting as an agent on behalf of the Appellant and thus, the Appellant has an Age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proach. 8. Without prejudice to the above grounds of appeal, Ld AO/ Ld DRP erred, in law and on facts, in including consideration received towards sale of hardware amounting to INR 1,08,21,81,046 while computing the alleged income attributable to the PE without appreciating that existence of PE has been alleged only in respect of the software distribution activities and sale of hardware has not even been alleged to be connected to the PE. 9. Without prejudice to the above grounds of appeal, Ld. AO/ Ld. DRP has erred, in law and on facts, in assuming 35% of the gross amount of international transactions as the business income accruing from the business of Appellant in India on an arbitrary basis without any basis, explanation and reasoning. 10. Without prejudice to the above grounds of appeal, Ld AO/ Ld DRP has erred, in law and on facts, in arbitrarily considering 70% of the business income to be attributable to the alleged PE in India, on the pretext that substantial sales and marketing activities are being carried out in India. Computation of tax payable: 11. Ld AO has erred, in law and on facts', in calculating tax on income from royalty at th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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