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2016 (1) TMI 302 - AT - Income TaxAccrual of income in India - AO held that a part of the direct sales made in India by SJMHK and the assessee was attributable to the Indian Branch of SJMHK and accordingly taxable in India. The AO made an adhoc estimate of 20% of the direct sales made in India by SJMHK and the assessee and the same was attributed to the PE/business connection and taxed accordingly. - Computation of returned income on receipts related to services provided to both SJMH and SJMI - Management fee for work done for the Hongkong company as well as for the US company inclusion Held that - It is held that even if any amount is to be taxed in the hands of SJMI (the appellant) by virtue of having a Permanent Establishment in India or otherwise, the amount that can be taxed is Rs. Nil, as the Permanent Establishment has been compensated at arm s length and has offered the said compensation for tax in India which satisfies any charge in view of inter alia the decision of the Supreme Court in the case of DIT Vs Morgan Stanley & Co. (2007 (7) TMI 201 - SUPREME Court) and the order of the TPO. Decided in favour of the assessee.
Issues:
1. Validity of re-assessment proceedings 2. Ex-parte assessment 3. Presence of a Permanent Establishment in India 4. Estimation of gross profit Issue 1: Validity of re-assessment proceedings The appellant contested the re-opening of assessment under section 148 of the Income-tax Act, 1961. The Commissioner of Income-tax (Appeals) upheld the action of the Assessing Officer, leading to the appellant challenging the validity of the re-assessment proceedings. The appellant argued that the re-opening was not in accordance with the law and should be deemed void ab-initio. The Tribunal analyzed the facts and circumstances, finding in favor of the appellant, citing legal precedents and the law prevailing on the subject. Issue 2: Ex-parte assessment The Commissioner of Income-tax (Appeals) confirmed the action of the Assessing Officer in passing an ex-parte assessment order, which the appellant disputed. The appellant contended that they had complied with all statutory notices, and there was no justification for an ex-parte assessment order. The Tribunal examined the facts and legal provisions, ultimately ruling in favor of the appellant, declaring the ex-parte assessment and the order passed as bad in law and should be struck down. Issue 3: Presence of a Permanent Establishment in India The Assessing Officer held that the appellant had a Permanent Establishment (PE) in India, a decision confirmed by the Commissioner of Income-tax (Appeals). However, the appellant argued that they had no PE in India, challenging the stand taken by the Assessing Officer. The Tribunal reviewed the facts and legal aspects, concluding that the Assessing Officer's decision was erroneous, misconceived, and not in accordance with the law. The Tribunal directed the Assessing Officer to recompute the total income accordingly. Issue 4: Estimation of gross profit The Commissioner of Income-tax (Appeals) upheld the action of the Assessing Officer in attributing 20% of the sales made in India as profits taxable in India. The appellant contended that this attribution was erroneous, misconceived, and illegal. The Tribunal analyzed the facts, including the Transfer Pricing Officer's findings, and previous orders related to gross profit attribution. The Tribunal ruled in favor of the appellant, citing precedents and directing the Assessing Officer to delete the addition made on this count. In summary, the Tribunal addressed various issues raised by the appellant concerning re-assessment proceedings, ex-parte assessment, the presence of a Permanent Establishment in India, and the estimation of gross profit. The Tribunal carefully examined the facts, legal arguments, and relevant precedents to deliver a comprehensive judgment in favor of the appellant, ultimately allowing all appeals filed by the assessee.
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