There is no satisfaction recorded by AO before initiating proceedings under section 153C. Inspite of giving sufficiently adequate time to the Revenue for production of the necessary records and considering the fact that AO refused to allow inspection to assessee as recorded by the bench on 20.04.2011, we have no option than to take an adverse view that no satisfaction was recorded by AO before issuance of notice under section 1 53C.
The Revenue has not been able to show any satisfaction recorded either in the case of searched person or in the case of assessee and consequently in view of the principles laid down by the Hon’ble Supreme Court in the case of Manish Maheshwari vs. ACIT (Supra), a notice issued under section 153C r.w.s. 153A is liable to be held as invalid. Thus, the consequential assessments passed under section 153C r.w.s. 144C are annulled on account of the invalidity of the notices under section 153C. Assessee’s additional grounds are accordingly allowed in all the impugned assessment years. Since assessee’s additional ground is allowed on the preliminary issue of jurisdiction, there is no need for adjudicating the issues on merit in any of the assessment years. Accordingly, the other grounds raised are considered academic and hence, not adjudicated.
INCOME TAX APPELLATE TRIBUNAL, MUMBAI
ITA Nos.8133, 8137,8138,8136, 8135 & 8132/Mum/2010
(Assessment years: 2002-03 to 2007-08)
Ingram Micro (India) Exports Private Limited
Vs.
Dy. Director of Income Tax
Date of Pronouncement: 21/12/ 2012
ORDER
Per Bench
These six appeals are by assessee, a foreign company registered in Singapore against whom proceedings under section 153C were initiated and orders under section 144C(13) r.w.s. 143(3) were passed vide the orders dated 18.10.2010. As the said orders were covered by the proceedings of the DRP under section 144C(5), assessee preferred the present appeals before the ITAT questioning the various issues. In all the orders the issues are similar, therefore, for the sake of record the grounds raised in assessment year 2002- 03 are extracted for this purpose:
1:0 Re.: Holding that the Appellant has a Permanent Establishment (“PE”) in India:
1:1 The Assessing Officer has erred in holding that the Appellant has a Permanent Establishment (“PE”9 in India through which it carries out its sales in India.
1 : 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it has no PE in India and the stand taken by the Assessing Officer in this regard is erroneous, misconceived and not in accordance with law.
1 : 3 The Appellant submits that the Assessing Officer has erred in arriving at various unwarranted and erroneous conclusions unsupported by any relevant material to hold that the Appellant had a PE in India. Further he also failed to consider the contrary material and evidence adduced by the Appellant.
1: 4 The Appellant submits that the Assessing Officer be directed to recompute its total income accordingly.
Without prejudice to the foregoing:
2:0 Re.: Attribution of profits:
2: 1 The Assessing Officer has erred in attributing the profits made by the Appellant.
2 : 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject and in particular considering the functions carried out by Ingram Micro India Ltd. it is apparent that the said Ingram Micro India Ltd. has been remunerated on an appropriate basis through the incentive mechanism and hence no further attribution of income is called for.
2: 3 The Appellant submits that the Assessing Officer be directed to delete the addition so made by him and to recompute its total income accordingly.
Without prejudice to the foregoing:
3:0 Re.: Estimation of business income taxable in India:
3: 1 The Assessing Officer has erred in holding that 90% of the business income earned by the Appellant is attributable to its Indian PE.
3 : 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject 90% of its business income cannot be attributed to the Indian PE and said to be its profits taxable in India and the stand taken by the Assessing Officer in respect thereof is erroneous, misconceived and illegal.
3: 3 The Appellant submits that the Assessing Officer be directed to recompute its total income accordingly.
4:0 Re. : Non-consideration for details placed on record:
4: 1 The Assessing Officer has erred in not considering all the details placed on record by the Appellant and in passing an order in violation of the principles of natural justice.
5:0 Re.: Levy of interest u/s. 234A and 234B of the Income-tax Act, 1961:
5: 1 The Assessing Officer has erred in levying interest u/s. 234A and 234B of the Income- tax Act, 1961 on the Appellant.
5 : 2 The Appellant submits that considering the facts and circumstances of its case and in the particular the fact that the Appellant is a non-resident as also the law prevailing on the subject, no interest u/s. 234A and 234B of the Income-tax Act, 1961 should be levied on it.
5: 3 The Appellant submits that the Assessing Officer be directed to delete the interest levied on it.
6:0 Re.: General:
6: 1 Each of the above grounds of appeal is without prejudice to the other
6 : 2 The Appellant craves leave to add, alter, amend, substitute and I or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal.
2. Consequent to raising of substantial demands, assessee preferred stay applications and vide the orders dated 21.01.2011, stay was granted for a period of 180 days i.e. till 20th July, 2011 and the case was originally posted on 06.04.2011. As the matters involved were of international transactions, the cases were transferred to ‘L’ Bench and on 20.04.2011 the learned Counsel for assessee submitted that assessee had sought inspection of records and the copies of certain documents which AO has not allowed so far. Therefore, the case was adjourned to 30.06.2011 with a direction to the learned DR to produce the relevant assessment records in order to expedite the disposal of these stay granted appeals. Subsequently due to various reasons the cases were not heard either because the DR sought adjournment or because the Bench was not functioning. Accordingly assessee’s stay was extended periodically by the orders dated 05.08.2011, 10.02.20 12 and further order dated 07.09.20 12. The stay of demand granted in these cases will expire on 3 1.12.2012.
3. In the course of appeal proceedings as the inspection was not permitted by AO, as submitted by the learned Counsel, vide letter dated 19.04.2011 assessee raised additional grounds on the validity of the orders passed under section 153C of the IT Act 1961 as under:-
“1 .0 Re: Validity of order passed under section 1 53C of the Income Tax Act, 1961:
1.1 AO has erred in passing the impugned assessment order under section 144C(13) r.w.s. 153C r.w.s. 143(3) without complying with the mandatory provisions of section 1 53C.
1.2 The appellant submits that the considering the facts and circumstances of its case and the law prevailing on the subject the impugned assessment order has been passed without complying with the mandatory provisions of section 153C of the Income Tax Act, 1961 and hence the same is void ab-initio.
1.3 The proceedings under section 153C and the assessment order passed under section 144C (13) r.w.s. 153C r.w.s. 143(3) are bad in law in as much as no satisfaction as contemplated under section 153C of the Income Tax Act, 1961 has been recorded prior to initiation of proceedings under section 1 53C.
1.4. The appellant submits that the impugned assessment order be held to be bad in law and struck down”.
4. There is a direction from the Bench to produce the relevant assessment records vide entry dated 20.04.2011 and consequent to this, the learned DR has written letters to AOs and copies were filed explaining that the required documents were not submitted by the AO concerned. The learned CIT (DR) sought adjournments, originally to 25.04.2012 for complying with the directions of the Bench and the case was adjourned to 11.06.2012. He further sought adjournment in writing as the relevant records were not submitted by AO and the case was adjourned further to 02.08.2012. Again the learned CIT (DR) sought adjournment on the reason that the DDIT concerned was requested to comply with the said direction and also has deputed his Inspector for collecting the requisite material and the matter was being pursued with the DCIT (CC) (OSD) Central Range-7, Mumbai to locate the requisite documents. On his request the case was adjourned to 02.08.20 12. This letter of adjournment request was accompanied by a letter from DDIT(IT)3(1) dated 31/07/2012 intimating the position that the efforts made by the said Officer with other Officers for procurement of the relevant documents. Subsequently, the case came up for hearing on 03.09.2012, 06.11.2012 and 06.12.2012. On 06.12.2012 the Bench finally gave a last opportunity with a direction to the learned CIT (DR) to produce the assessment records and the correspondence between AOs if any, so that assessee’s contention that there is no satisfaction recorded before initiating the proceedings under section 153C can be verified. It was further noted that since these are stay granted matters, which was extended four times so far, no further adjournment in this case would be granted and the parties were informed accordingly. Therefore, the case was taken up on 19.12.2012 on which date the learned CIT (DR) furnished the correspondence addressed by the Asstt. Director (IT) (Invest.) Unit 7(2) Mumbai to Additional DR (IT) International Taxation Range-3 Mumbai and a letter by DDIT(IT)3(1) dated 13.12.2012. After placing the above two correspondence on record, the learned CIT (DR) submitted that the original record with reference to satisfaction note is not made available to his office so far and on the basis of the letter addressed by the Asstt. Director of Income Tax (Invest.), ACIT (OSD)-2 Central Range Mumbai would have recorded satisfaction for the purpose of initiating proceedings under section 153C and therefore, since the record was not available at the moment, it was the submission that the matters can be set aside to AO to furnish the satisfaction to assessee and then complete the assessment if required, as this issue was not raised by either before AO or before the DRP and have been raised for the first time before the ITAT as an additional ground.
5. The learned Counsel submitted that this matter being adjourned from 20.04.2011 and referred to various order sheet notings recorded and opportunities were given to the Revenue for furnishing the necessary documents to satisfy that the satisfaction was recorded before initiating proceedings under section 1 53C and submitted that since assessee has got the stay extended for the last two years which is expiring on 31.12.2012, it was prayed that no further opportunity should be given and assessee’s preliminary objection on the jurisdiction itself can be decided in view of the judgment of the Hon’ble Supreme Court in the case of Manish Maheshwari vs. ACIT, 289 ITR 341 (SC) which in turn was followed by the Coordinate Bench in the case of P. Satyanarayana vs. ACIT, Central Chennai reported as 50 SOT 168 Chennai (URO)/20 Taxmann.com 56, Chennai. He also placed on record the judgment of the Hon’ble High Court of Delhi in the case of SSP Aviation Ltd vs. DCIT 20 Taxmann.com 214 (Del) for the proposition that in view of the provisions of section 1 53C satisfaction that required to be reached by AO having jurisdiction over searched persons is that valuable article of books of account or documents seized during the search belongs to a person other than searched persons and it is not necessary that the documents so seized must reflect undisclosed income. He also placed Coordinate Bench decision in the case of M/s Apex Time P. Ltd vs. DCIT in ITSS(A) No.34/Mum/2008 for the block period from 09.09.1996 to 09.01.2010 dated 30.03.2011 wherein on similar facts the ITAT quashed the block assessment order following the judgment of the Hon’ble Supreme Court in the case of Manish Maheshwari vs. ACIT, 289 ITR 341 (SC).
6. We have considered the rival submissions and examined the record as placed before us. The preliminary issue raised by assessee by way of additional ground is with reference to the validity of the proceedings under section 153C. The issue arose on the following facts. A search & seizure action under section 132(1) of the Act was carried out in the case of Ingram Micro India Pvt. Ltd/M/s Tech. Pacific (India) Ltd at their business premises at Gate No. 1A, Godrej Industries Complex, Pirojshah Nagar, Vikhroli (E) Mumbai 400079 on 06/07.09.2007. The basic allegation against the group was that Ingram Micro India Exports Pte Ltd/Tech Pacific India (Exports) Pte Ltd Singapore based company is not paying any Income Tax in India though it is having a permanent establishment in India though Ingram Micron India Limited/Tech Pacific India Ltd. It was communicated from the Investigating Wing that the proceedings are required to be initiated in this case to bring to tax the profits of Ingram Micro India Exports Pte Ltd/Tech Pacific India (Exports) Pte. Ltd.
7. A notices under section 153C dated 18.11.2008 were issued in the case of Ingram Micro India Exports (P) Ltd for assessment years 2002-03 to 2007-08 and stated to be duly served upon assessee. In response assessee filed returns of income on 12.12.2008 declaring total income at Nil and in the notes to the return of income, it was stated that return of income is being filed in protest and in response to the notice under section 153C as assessee does not have a PE in India as defined in Article 5 of the DTAA and accordingly profits arising to its from its Indian operations will not be liable to tax in India under Article 7 of the DTAA with Singapore. The further facts recorded by AO in page 2 of the order as under:
M/s Ingram Micro India Pvt. Ltd and M/s Tech Pacific (India) Ltd are into the business of trading in computer peripherals and software to customers in India and abroad. TPIL had a wholly owned subsidiary by name and style of Tech Pacific (India) Exports Pte Ltd (TPIEPL) registered at Singapore. In November 2004, the company known as Ingram Micro, USA has acquired all the shares of Tech Pacific, one of the Asia Pacific’s largest Technology Distributors for 730 million Australian Dollars. After this take over, TPIEPL came to be known as M/s Ingram Micro India Exports Pte. Ltd (IMIEPL).
A. The set up of the Ingram group of companies is as under:
(i) M/s Ingram Micro India Exports Pte Ltd formerly Tech Pacific (India) Exports Pte. Ltd is a Singapore based company and is a wholly owned subsidiary of Ingram Micro India Pvt. Ltd having its registered office at Bangalore.
(ii) M/s Ingram Micro India Pvt. Ltd is substantially (87.60%) owned by M/s Ingram Micro Asia Ltd, a Mauritius based company, which in turn is substantially (99.98%) owned by M/s. Ingram Micro Inc., a California based company.
B. The set of Tech Pacific group of companies is as under:
(i) Tech Pacific (India) Exports Pte. Ltd is a Singapore based company and is a wholly owned subsidiary of M/s Tech Pacific (India) Ltd, a Mumbai based company, having 12.40% shareholding in Ingram Micro India Pvt. Ltd, a Bangalore based company.
(ii). Tech Pacific (India) Ltd is wholly owned by Tech pacific Mauritius Ltd., a company registered in British Virginia Island.
(iii) Tech Pacific Mauritius Ltd is wholly owned by M/s Tech Pacific Asia Ltd, a company registered in British Virginia Island.
(iv) Tech Pacific Asia Ltd is wholly owned by M/s Tech Pac. Holdings, a Bermuda based company.
After the acquisition of the Tech. Pac. Holdings’ shares by Ingram Micro Inc. in Nov. 2004,TPIEPL has come to be known as IMIEPL.
For the calendar years 2001 to 2002 Tech Pacific (India) Ltd was known as Godrej Pacific Technology”.
8. In the course of search, certain documents, email correspondence etc., were seized by the Department and after analysis of the same, AO came to the conclusion that assessee had a permanent establishment in India and accordingly on the basis of the seized documents arrived at the incomes in the respective assessment years and proposed a draft assessment order. Assessee objected to the draft assessment order before the DRP-I and DRP-I vide direction dated 29.09.2010 affirmed the stand of AO that there is a permanent establishment and also computation of income. However, vide Para 6 of the order, instead of assessing the 100% income of assessee as attributable to PE in India, the DRP directed that 90% of the income to be assessed as attributable to PE in India, whereas the balance 10% can be treated as activities related to Singapore. Consequent to the directions of the DRP, AO assessed the incomes in the respective assessment years as under:
