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2024 (2) TMI 987 - AT - Income TaxAccrual of income in India - existence of DAPE - PE in India or not? - AO's conclusion of the assessee having a PE in India and consequently attributing 25% of receipts on account of Software License Fees from Indian clients as taxable in India as business income - As argued there being no dependent agent PE in India still the Ld. AO in final assessment order has held about existence of the DAPE. HELD THAT - On considering the findings of Ld. DRP we are of the considered view that Ld. DRP seems to have fallen in factual error in mentioning the plea of the assessee that the issue of DAPE of the assessee in India has been considered by the Tribunal in AY 2018-19 and 2019-20. While that is not correct as with regard to the fixed place PE of the assessee the issue certainly stands settled in favour of the assessee. DRP has erred in not dealing with the issue of assessee company having a DAPE in India on merits and erroneously directed AO for verifying if the issue of DAPE was decided in favour of assessee by the Tribunal in AY 2018-19 and 2019-20, which admittedly is not covered in earlier years. Thus, we are inclined to set aside the order of the Ld. DRP with regard to examination of the question of existence of DAPE in the relevant assessment year. Resultantly the impugned final assessment order is set aside. The Ld. DRP, after giving an opportunity of hearing to the assessee, shall pass fresh order in regard to the issue of existence of DAPE and consequential directions be accordingly issued to the AO.
Issues Involved:
1. Validity of the Final Assessment Order and Demand Notice. 2. Existence of Dependent Agent Permanent Establishment (DAPE). 3. Attribution of income to DAPE. 4. Nature of services provided by Automation Anywhere Software Private Limited (AASPL). 5. Arm's length compensation to AASPL. 6. Equalization levy and its impact on taxable income. 7. Attribution of income despite global losses. 8. Transfer Pricing Officer's (TPO) order. 9. Attribution of total receipts to Indian customers. 10. Levy of interest under Section 234A. 11. Initiation of penalty proceedings under Section 270A. 12. Calculation error in computing tax liability. Summary: First Ground of Appeal: The Assessee contended that the Final Assessment Order under Section 143(3) read with Section 144C and the Demand Notice issued under Section 156 are "bad in law and on facts of the case," arguing that the assessment was based on suspicion and conjectures without considering material on record. Second Ground of Appeal: The Assessee challenged the AO's conclusion of the existence of a "Dependent Agent Permanent Establishment" (DAPE) based on the conditions of paragraph 4 of Article 5 of the DTAA between India and the USA. Third Ground of Appeal: The AO erred in concluding that AASPL secured orders for the Assessee without considering the material on record, relying merely on conjectures and suspicion. Fourth Ground of Appeal: The AO incorrectly held that AASPL is an agent, whereas the services provided by AASPL to the Assessee under the inter-company agreement are on a "Principal to Principal" basis. Fifth Ground of Appeal: The AO disregarded material on record showing that AASPL is compensated at arm's length price, thus incorrectly concluding that AASPL is the DAPE of the Assessee. Sixth Ground of Appeal: The AO attributed income to DAPE without considering that the Assessee paid the equalization levy under the Finance Act, 2016, on the income earned from the sale of licenses through the e-commerce platform. Seventh Ground of Appeal: The AO added income to the alleged DAPE without appreciating that the Assessee incurred global losses in AY 2021-22, ignoring audited financial statements. Eighth Ground of Appeal: The AO did not consider the TPO's order that all transactions between AASPL and the Assessee were determined at arm's length, thus no further income could be attributed to the Assessee. Ninth Ground of Appeal: The AO attributed 100% of total receipts from Indian customers without appreciating that the rights or property in licenses are transferred outside India under contractual obligations. Tenth Ground of Appeal: The AO levied interest under Section 234A despite the Assessee filing its income tax return before the due date. Eleventh Ground of Appeal: The AO initiated penalty proceedings under Section 270A for misreporting or underreporting of income. Twelfth Ground of Appeal: The AO committed a calculation error of Rs. 50,53,010/- in computing the tax liability. Judgment Details: The Tribunal found that the AO's conclusion of the Assessee having a PE in India and attributing 25% of receipts on account of Software License Fees from Indian clients as taxable in India was based on previous findings for AY 2018-19 and 2019-20. However, the DRP erred in not dealing with the issue of the Assessee company having a DAPE in India on merits and erroneously directed the AO for verification. The Tribunal set aside the order of the DRP regarding the examination of the question of the existence of DAPE in the relevant assessment year. The appeal was allowed for statistical purposes, and the DRP was directed to pass a fresh order after giving an opportunity of hearing to the Assessee. Order Pronounced: The order was pronounced in the open court on 19.02.2024.
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