2013 (5) TMI 73 - AT - Income Tax

Appeal by assessee company who is a resident of Singapore, contesting the action of AO and the DRP on the issue of holding that assessee has a permanent establishment in India and without prejudice the profits attributable to the PE in India were determined arbitrarily by estimating the business income at 90% of the business profits and also non consideration of details placed on record, levy of interest etc. in its six grounds of appeal raised. Held that - As seen from the orders placed on record, the first objection with reference to possible bias on the part of the jurisdictional Commissioner cannot be rejected outright, as the jurisdictional Commissioner is part of the DRP which rejected assessee objections. We set aside the orders of AO and DRP and restore the entire assessment to the file of AO, leaving the issues contested now open for examination at a later time, if required. Since the entire assessment was restored to the file of AO, there is no need to discuss the issue of PE and attribution of profits now, which may have to be considered when it arises in the re-assessment procedure.

Summary

Issues:
1. Bias of jurisdictional Commissioner on the DRP panel
2. Appropriately remunerating Indian entity at arms length
3. Cross-examination of individuals whose statements were relied upon

Analysis:

1. The first issue raised in the appeal was regarding the possible bias of the jurisdictional Commissioner on the Dispute Resolution Panel (DRP). The appellant requested the restoration of the appeal to the file of the Assessing Officer (AO) due to concerns about bias, citing precedents and principles laid down by the High Court and ITAT. The objection was supported by evidence of the jurisdictional Commissioner's involvement in the entire assessment process, leading to a request for fresh consideration without delving into the merits of the case.

2. The second issue pertained to the contention that the Indian entity had been appropriately remunerated at arms length, supported by documents showing rebates/incentives paid directly to the Indian entity by vendors. The appellant argued that these documents were not considered by the AO or the DRP, necessitating a fresh examination by the AO. The appellant also highlighted the failure to provide an opportunity for cross-examining individuals whose statements were crucial to the case.

3. The third issue revolved around the denial of the opportunity for cross-examination of individuals whose statements were relied upon by the Revenue. The appellant contended that natural justice principles were not adhered to, emphasizing the importance of examining the remuneration of the Indian entity and conducting cross-examination. The appellant sought a restoration of the matter to the AO for a comprehensive reevaluation of all relevant issues.

4. After considering the contentions of both parties, the Tribunal acknowledged the concerns regarding bias and directed the matter to be set aside to the file of the DRP without the jurisdictional Commissioner. The Tribunal also recognized the need for a fresh examination by the AO on the issues of remuneration and cross-examination, emphasizing the importance of natural justice principles and the right to cross-examine individuals whose statements were used against the appellant.

5. Ultimately, the Tribunal allowed the appeal for statistical purposes, setting aside the orders of the AO and the DRP and restoring the entire assessment procedure to the file of the AO for a fresh examination. The Tribunal emphasized the need for a fair and thorough reconsideration of the issues raised by the appellant, ensuring that all relevant documents and contentions are duly considered in the reassessment process.