Assessment without providing Assessee opportunity to cross examining persons whose statements are used against assessee not justified

IN THE ITAT MUMBAI BENCH ‘L’

Ingram Micro (India) Exports (P.) Ltd.

versus

Deputy Director of Income-tax (International Taxation)-3(1)

IT Appeal NO. 8134 (MUM.) OF 2010
[ASSESSMENT YEAR 2008-09]

FEBRUARY  7, 2013

ORDER

 B. Ramakotaiah, Accountant Member

This is an 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.

2. At the outset the learned Counsel requested for restoring the appeal afresh to the file of AO on the reasons stated by him without going to the merits of the case about the PE and the attribution of profits. The reasons for request for restoration are that the jurisdictional Commissioner was on the Dispute Resolution Panel which heard the objections filed by assessee against the draft assessment order. Following the principles laid down by the Hon’ble Uttarakhand High Court in the case of Hyundai Heavy Industries Ltd. v. Union of India [2011] 201 Taxman 237  followed by ITAT in the case of Lionbridge Technologies (P.) Ltd. v. Dy. CIT 51 SOT 40 (Mum.) (URO) and Huntsman International (India) (P.) Ltd. v. Addl. CIT [2012] 54 SOT 35  on the reason of possible bias/conflict of interest, the Ld. counsel objected to the presence of jurisdictional CIT on the DRP panel. In support the learned Counsel placed on record the posting order of Mrs. Poonam Dutt as DIT (IT) who was the jurisdictional Commissioner not only at the time of passing the draft assessment order but also part of DRP and at the time of final order. Therefore, the first objection is with reference to the above issue.

3. The next objection is that the contention of assessee that Indian entity has been appropriately remunerated at arms length separately by way of rebates/incentives paid to Indian entity Ingram Micro (India) Pvt. Ltd directly by various vendors, supported by various documents placed on record, which were rejected by the AO without examination and not considered by the DRP inspite of raising objections on this issue. He has mentioned that this aspect has to be examined by AO. The third reason is that the learned DDIT erred in not giving opportunity for cross examining the individuals whose statements were recorded during the search and seizure operations and relied upon by Revenue, the request of which was made before the authorities in the proceedings, but not considered.

4. In support of the above contentions, the learned Counsel placed on record the orders of the posting of the jurisdictional Commissioner, the papers submitted to AO/DRP on the above issues and request for cross examination which were not considered. In view of this, the learned Counsel’s submission was that the order be restored to the file of AO for fresh consideration without going to the merits of the grounds raised on which detailed submissions are required. The learned Counsel also placed on record certain documents in the form of financial statements of Ingram Micro (India) Pvt. Ltd for the year ended March, 2008 and its extracts and draft orders in support of the contentions about the rebates/incentives received from the Indian vendors on all the sales made through the Singapore Company, stating that these documents were directed by the bench of ITAT earlier to file.

5. The learned DR objected to the filing of new documents as directed by the ITAT, when the ITAT is only directed to file only the order of the assessment of the Indian Company. Further, he also objected to the contentions of the learned Counsel on the possibility of bias of the jurisdiction on the reason that assessee has not raised any additional grounds and therefore, following the principles laid down in the case of Dresdner Bank Ag v. Asstt. DIT in ITA No.2962/Mum/2004 dated 16.01.2013, this plea of assessee cannot be accepted. Further, with reference to the contentions that the rebates and incentives were passed on to the Indian Companies, he referred to the segmental profits stated by the assessee company to submit that if the entire profits were passed on to the Indian Company as stated by the learned Counsel, how there are further substantial profits in the hands of the Singapore Company, as disclosed in accounts.

6. With reference to the objection that the cross examination was not allowed, he has referred to the orders of AO that the entire documents placed on record were taken during the search/survey and nowhere this issue was raised. Further, it is also submitted that assessee has not undertaken any FAR analysis and has not gone through the TP provisions to determine the Arms Length Price and relied on the decision of the Hon’ble Delhi High Court in the case of Rolls Royce Singapore (P.) Ltd. v. Asstt. DIT [2011] 13 taxmann.com 81 to contend that assessee cannot agitate if he has not undertaken the FAR analysis. It was further submitted that the entire income earned by the Singapore Company was from the operations from India and so PE profits were attributed at 90% after analyzing the voluminous documents. Tt was the learned DR’s submission that there is no need to set aside the issue to the file of the DRP/AO and the issue can be decided on merits.

7. Countering the contentions of the learned DR, the learned Counsel submitted that non-adherence to the principles of natural justice, non examination of the contention of Indian entity being remunerated at arms length and not providing the cross examination form the very basis of the order which require reconsideration by AO. With reference to the objection that assessee has not raised any additional ground, he relied on the Rule 11 of the ITAT Rules and the principles laid down in the case of Amines Plasticizers Ltd. v. CIT [1997] 223 ITR 173 (Gau.) and in the case of Assam Carbon Products Ltd. v. CIT [1997] 224 ITR 57. Since this issue goes to the root of the jurisdiction and also examination on facts, it was only prayer that the matter may be restored to the file of AO for fresh examination. With reference to the objections raised by the DR that the FAR analysis was not done and transfer pricing procedure not undertaken, the learned Counsel referred to the paper book from pages 173 to 270 to submit that the FAR analysis was undertaken and these matters were before AO and the DRP. It was further submitted that AO did not make any TP reference. Since the issue of jurisdiction itself was raised, the prayer is for restoring to AO for fresh examination of all the issues.

8. We have considered the contentions raised by both the parties. 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. Various Benches of ITAT, following the principles laid down by the Hon’ble High Court of Uttarakhand in the case of Hyundai Heavy Industries Ltd. (supra), is setting aside the orders of the DRP with a direction to reconstitute the DRP without the jurisdictional Commissioner and pass fresh orders. Therefore, on first objection itself the order has to be set aside to the file of the DRP.

9. However, the plea is to restore to the file of AO as the other two issues regarding appropriately remunerating Indian entity at arms length and allowing the cross examination of the persons whose statement was recorded and used against assessee are to be undertaken by AO. Even though AO was seized of the matter of receiving rebates/incentives from the Indian vendor Companies, there seems to be no detailed examination of assessee’s contentions on the basis of the letters filed from the vendors. AO rejected the contentions as the said rebate was not shown as the income by the Singapore Company and also not shown as expenditure. Prima facie, there seems to be justification in assessee’s contention that the entire rebate/ incentives on the sales made in India are directly passed on to the Indian company and no part of it was received by the Singapore Company. There is also justification in the DR’s contentions that if the Indian entity was appropriately remunerated at arms length, there cannot be any further profit in the Singapore Company on the Indian operations. However, these aspects require fresh examination on the basis relevant agreement/understanding if any and details of incentives received and profit attribution which was to be done after examination of facts. Therefore, we are of the opinion that the matter should be restored to the file of AO, without going into the issue of PE/ attribution of profits. AO is directed to give an opportunity to assessee for cross examining persons whose statements are used against assessee. The statements have been recorded from the Indian personnel and might have been examined with reference to the Indian Company, however, assessee’s contention that being a foreign company, it has a right to cross examine the persons who gave statements cannot be denied. It is already on record that assessee has made the request before AO as well as the DRP on this issue. Therefore, we direct AO to allow the assessee to cross examine the individuals whose statements were recorded and were relied upon by the Revenue so that assessee can contest/justify/accept the statements.

10. In view of this, accepting the request of the learned Counsel, 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. With these observations and directions, we set aside the orders of AO and the DRP and restore the entire assessment procedure to the file of AO for doing it afresh. Assessee is free to submit the relevant documents and make contentions and AO is also free to make necessary inquires before finalizing draft order. DRP which should be without the jurisdictional CIT/DIT, should also consider the objections, if any, raised by assessee by examining the facts and legal principles and issue necessary directions in this regard.

11. In the result, appeal filed by assessee is allowed for statistical purposes.

IN THE ITAT MUMBAI BENCH ‘L’

Ingram Micro (India) Exports (P.) Ltd.

v.

Deputy Director of Income-tax (International Taxation)-3(1)

IT Appeal NO. 8134 (MUM.) OF 2010
[ASSESSMENT YEAR 2008-09]

FEBRUARY  7, 2013 

ORDER

 B. Ramakotaiah, Accountant Member – This is an 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.

2. At the outset the learned Counsel requested for restoring the appeal afresh to the file of AO on the reasons stated by him without going to the merits of the case about the PE and the attribution of profits. The reasons for request for restoration are that the jurisdictional Commissioner was on the Dispute Resolution Panel which heard the objections filed by assessee against the draft assessment order. Following the principles laid down by the Hon’ble Uttarakhand High Court in the case of Hyundai Heavy Industries Ltd. v. Union of India [2011] 201 Taxman 237  followed by ITAT in the case of Lionbridge Technologies (P.) Ltd. v. Dy. CIT 51 SOT 40 (Mum.) (URO) and Huntsman International (India) (P.) Ltd. v. Addl. CIT [2012] 54 SOT 35  on the reason of possible bias/conflict of interest, the Ld. counsel objected to the presence of jurisdictional CIT on the DRP panel. In support the learned Counsel placed on record the posting order of Mrs. Poonam Dutt as DIT (IT) who was the jurisdictional Commissioner not only at the time of passing the draft assessment order but also part of DRP and at the time of final order. Therefore, the first objection is with reference to the above issue.

3. The next objection is that the contention of assessee that Indian entity has been appropriately remunerated at arms length separately by way of rebates/incentives paid to Indian entity Ingram Micro (India) Pvt. Ltd directly by various vendors, supported by various documents placed on record, which were rejected by the AO without examination and not considered by the DRP inspite of raising objections on this issue. He has mentioned that this aspect has to be examined by AO. The third reason is that the learned DDIT erred in not giving opportunity for cross examining the individuals whose statements were recorded during the search and seizure operations and relied upon by Revenue, the request of which was made before the authorities in the proceedings, but not considered.

4. In support of the above contentions, the learned Counsel placed on record the orders of the posting of the jurisdictional Commissioner, the papers submitted to AO/DRP on the above issues and request for cross examination which were not considered. In view of this, the learned Counsel’s submission was that the order be restored to the file of AO for fresh consideration without going to the merits of the grounds raised on which detailed submissions are required. The learned Counsel also placed on record certain documents in the form of financial statements of Ingram Micro (India) Pvt. Ltd for the year ended March, 2008 and its extracts and draft orders in support of the contentions about the rebates/incentives received from the Indian vendors on all the sales made through the Singapore Company, stating that these documents were directed by the bench of ITAT earlier to file.

5. The learned DR objected to the filing of new documents as directed by the ITAT, when the ITAT is only directed to file only the order of the assessment of the Indian Company. Further, he also objected to the contentions of the learned Counsel on the possibility of bias of the jurisdiction on the reason that assessee has not raised any additional grounds and therefore, following the principles laid down in the case of Dresdner Bank Ag v. Asstt. DIT in ITA No.2962/Mum/2004 dated 16.01.2013, this plea of assessee cannot be accepted. Further, with reference to the contentions that the rebates and incentives were passed on to the Indian Companies, he referred to the segmental profits stated by the assessee company to submit that if the entire profits were passed on to the Indian Company as stated by the learned Counsel, how there are further substantial profits in the hands of the Singapore Company, as disclosed in accounts.

6. With reference to the objection that the cross examination was not allowed, he has referred to the orders of AO that the entire documents placed on record were taken during the search/survey and nowhere this issue was raised. Further, it is also submitted that assessee has not undertaken any FAR analysis and has not gone through the TP provisions to determine the Arms Length Price and relied on the decision of the Hon’ble Delhi High Court in the case of Rolls Royce Singapore (P.) Ltd. v. Asstt. DIT [2011] 13 taxmann.com 81 to contend that assessee cannot agitate if he has not undertaken the FAR analysis. It was further submitted that the entire income earned by the Singapore Company was from the operations from India and so PE profits were attributed at 90% after analyzing the voluminous documents. Tt was the learned DR’s submission that there is no need to set aside the issue to the file of the DRP/AO and the issue can be decided on merits.

7. Countering the contentions of the learned DR, the learned Counsel submitted that non-adherence to the principles of natural justice, non examination of the contention of Indian entity being remunerated at arms length and not providing the cross examination form the very basis of the order which require reconsideration by AO. With reference to the objection that assessee has not raised any additional ground, he relied on the Rule 11 of the ITAT Rules and the principles laid down in the case of Amines Plasticizers Ltd. v. CIT [1997] 223 ITR 173 (Gau.) and in the case of Assam Carbon Products Ltd. v. CIT [1997] 224 ITR 57. Since this issue goes to the root of the jurisdiction and also examination on facts, it was only prayer that the matter may be restored to the file of AO for fresh examination. With reference to the objections raised by the DR that the FAR analysis was not done and transfer pricing procedure not undertaken, the learned Counsel referred to the paper book from pages 173 to 270 to submit that the FAR analysis was undertaken and these matters were before AO and the DRP. It was further submitted that AO did not make any TP reference. Since the issue of jurisdiction itself was raised, the prayer is for restoring to AO for fresh examination of all the issues.

8. We have considered the contentions raised by both the parties. 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. Various Benches of ITAT, following the principles laid down by the Hon’ble High Court of Uttarakhand in the case of Hyundai Heavy Industries Ltd. (supra), is setting aside the orders of the DRP with a direction to reconstitute the DRP without the jurisdictional Commissioner and pass fresh orders. Therefore, on first objection itself the order has to be set aside to the file of the DRP.

9. However, the plea is to restore to the file of AO as the other two issues regarding appropriately remunerating Indian entity at arms length and allowing the cross examination of the persons whose statement was recorded and used against assessee are to be undertaken by AO. Even though AO was seized of the matter of receiving rebates/incentives from the Indian vendor Companies, there seems to be no detailed examination of assessee’s contentions on the basis of the letters filed from the vendors. AO rejected the contentions as the said rebate was not shown as the income by the Singapore Company and also not shown as expenditure. Prima facie, there seems to be justification in assessee’s contention that the entire rebate/ incentives on the sales made in India are directly passed on to the Indian company and no part of it was received by the Singapore Company. There is also justification in the DR’s contentions that if the Indian entity was appropriately remunerated at arms length, there cannot be any further profit in the Singapore Company on the Indian operations. However, these aspects require fresh examination on the basis relevant agreement/understanding if any and details of incentives received and profit attribution which was to be done after examination of facts. Therefore, we are of the opinion that the matter should be restored to the file of AO, without going into the issue of PE/ attribution of profits. AO is directed to give an opportunity to assessee for cross examining persons whose statements are used against assessee. The statements have been recorded from the Indian personnel and might have been examined with reference to the Indian Company, however, assessee’s contention that being a foreign company, it has a right to cross examine the persons who gave statements cannot be denied. It is already on record that assessee has made the request before AO as well as the DRP on this issue. Therefore, we direct AO to allow the assessee to cross examine the individuals whose statements were recorded and were relied upon by the Revenue so that assessee can contest/justify/accept the statements.

10. In view of this, accepting the request of the learned Counsel, 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. With these observations and directions, we set aside the orders of AO and the DRP and restore the entire assessment procedure to the file of AO for doing it afresh. Assessee is free to submit the relevant documents and make contentions and AO is also free to make necessary inquires before finalizing draft order. DRP which should be without the jurisdictional CIT/DIT, should also consider the objections, if any, raised by assessee by examining the facts and legal principles and issue necessary directions in this regard.

11. In the result, appeal filed by assessee is allowed for statistical purposes.