DDIT vs Mitsubishi Corporation

“1 . On the facts and in the circum stances of the case, the ld. CIT(A ) has err ed i n holding t hat G.P . rate from standalo ne fi nanci als of the India n Branch Office s hould be adopted.

2.

In respec t of t he above and on the facts and i n the circumstances of the case, the l d. CIT(A) has failed to appr eciate that financials of Branch Offic e in the A udit reports do not quali fy such standalone tur nove r and gross pr ofits.

3.

On t he fac ts and in the ci rcumsta nces o f the c as e, l d. CIT(A) has erred in not appreciati ng that for the purpose of attributi on o f income, gross pr ofit on consolidated acco unts of the Head Office has ri ghtly been adopted by the AO. ”

“Gro unds relating to Corporate tax matters – MC Branch o ffice (MC BO)

1.

That on the facts and circumstances of t he c ase, the Hon’bl e Commissi oner of Inc ome Tax (A ppeals ) -XXIX, New D el hi [he rei nafter referred as “H on’bl e CIT(A)”] has:

1.1

grossly er red i n fact and law, in rejecting the ret urned income whic h declared correc t pr ofits attributabl e to appella nt’s branc h office (B O). The Ho n’bl e CIT(A) furt her err ed i n holdi ng that TPO ’s role is limited and Transfer P ricing O fficer (“TPO”) cannot det ermi ne pr ofi t attributabl e to Perma nent Establishment (“PE”).

1.2

grossly erred in fac t and law, in ass umi ng tha t functions of MC B O carri ed o ut for effecti ng sales in India were not before TPO a nd we re not anal ysed by the TPO.

1.3

fai led to point out whic h f unctions were not analyse d by TPO whic h requir ed furt her attribution. Thus, the order passed by Hon’bl e C IT(A ) is non-speaki ng on facts.

2.

That the Hon’ble C IT(A ) has erred i n ass umi ng t hat MC BO has wor ked for al l the divisions of the appellant and therefore profit ne eds to be at tri buted to MC BO in res pect of ‘Direct sal es’.

2.1

That t he H on’ble CIT(A ) has :

2.1.1

err ed in hol di ng that no s pecific qualification is requir ed for perf ormi ng activities which MC B O is performing

2.1.2

erred i n holdi ng tha t the appellant has furnished only a fe w selective emails - when app ellant had not only f ur nis hed sample .emails but also mont hl y reports for the enti re yea r cl early establ is hi ng that MC BO has worked only for machi nery gr oup.

2.1.3

fai led to understand the busi ness model of the appellant while assumi ng that customers will be dealing wi th MC BO and not Head O ffice directly. The Ho n’bl e C IT(A) failed to consider the evide nces t hat MC BO was not required as i nter face as generally manufacturers were already in contact with the Indian cust omers.

3.

That on the f acts and circumst ances of the case and i n law, the Hon’ble CIT(A) was not justifi ed and err ed i n all owi ng the deducti on for the expenses incurred by the BO i n India only to the exte nt of 5 0% without r ecogni zing the fact that the said expenses were allowa ble i n full as per t he provision contai ned under Article 7 of Double Ta xati on A voi da nce A gr eement (“DTAA ”) b etween India and Japan.

4.

That on the f acts and circumst ances of the case and i n law, the Hon’ble CIT (A) has er red i n upholdi ng attributio n of 50% of the total income t o t he acti vities of the BO i n India as the same is unreas onable and excessive bas ed on the functi ons performed by BO in Indi a.

Grounds relating to Corpor ate tax ma tters - M C Project o ffices (MC POs)

5.

That on the f acts and circumst ances of the case and i n law, the Ho n’ble CIT(A) has er red i n not appr eciati ng the methodology adopte d by the appellant for a ttributi on of income from Metro contracts re venue to tax (to t he extent attributabl e to activiti es perf ormed by the POs ) in India. In doi ng s o:

5.1

the Hon’ble CIT(A ) has erred i n law i n not appr eciati ng that once ar m’s l ength mark-up has been attributed t o t he PE i n India, no additional income can be brought to t ax in India.

5.2

the H on’bl e CIT(A) has f ailed to appreciate tha t appella nt’s i ncome pertai ni ng to a ctivities of the MC-RS1 PO in India ha s bee n offered t o tax o n cost-plus ar m’s length mark-up basis i.e . 9 perc ent ; and tha t income pertaini ng t o ac tivities of MC - RS3 PO i n Indi a has been offere d to tax on cos t pl us ar m’s lengt h mar k-up of 9% a nd further for l ocal supplies bei ng made under Co ntract RS3, pr oject management and t esti ng & commissioni ng activities has been offered to tax on net i ncome basis.

6.

Witho ut prej udice to Ground No. 5 above, the Ho n’bl e CIT(A) has erred in holdi ng that “DMRC sale s” are effect ed through appellant’s PO w hen t he sales contracts were entered befo re Proj ect Offic es came i nto existence . Further:

6.1

the Hon’ble C IT(A ) has grossly err ed in law i n holdi ng t hat pri nci ple of r estricted force of attraction is applicable t o “DMR C sal es ” and even “direct sal es made b y Head Office wil l be attributed t o the PO” when S upreme court i n case of Is hikawajima Harima He avy Indust ries Ltd. vs DIT [2007] [3 SCC 481] has clearly held that there is no forc e of attraction i n the DTAA betwee n India and Japa n.

6.2

the H on’bl e CIT(A) has e rred i n holding t ha t unl ess equipment are succ essful ly test ed, i nst alled and c ommissioned, mere manufact uring and suppl y is not of much signi ficanc e.

7.

Witho ut prej udice to Ground No. 5 above, the Ho n’bl e CIT(A) ha s erred i n law and on the facts of the case in applying the principles laid und er secti on 44BBB of the Act holdi ng that si nce the natur e of j ob i ncl udes testi ng and i ns tall ation, provisions of s ecti on 44BBB ar e applicabl e in principl e.; and consequentl y computing profits from “DMR C sales” a t a deemed profit rate of 10 percent and not as per the pr ovisions co ntai ned under Article 7 of DTAA between India and Japan. He further err ed i n not co nside ri ng t he act ual gross profi t ra te of 1.69 percent as per t he sta ndal one financial statement of the appellant .

8.

Witho ut pr ejudice to Ground No. 5 above, on the facts and circ umstanc es of the case and i n l aw, the Ho n’bl e C IT(A ) has erred i n upholdi ng a ttribution of 50% of the total i nc ome to the activities of appellant’s POs i n Indi a without mentioni ng any reason for same. S uch 50% rate bei ng hi ghl y excessive, exorbitant and arbit rary , a nd unreasonabl e based on the functio ns performed by appel lant’s POs i n India. T he Hon’ bl e CIT(A) has failed to provide any basis for adopti on of such exorbitant at tribution r ate of 5 0 percent.

9.

Witho ut pr ejudice to Ground No. 5 above, on the facts and circ umstanc es of the case and i n l aw, the Ho n’bl e CIT (A) has erred i n directing t he Assessi ng offic er t o verify and not del eti ng appellant ’s claim for doubl e taxation of:

9.1

rec eipts in res pect of DMRC Co ntract RSI for Cos t C ent er ‘G’ a nd ‘J’ whic h have been suo-m oto offered to tax by appel lant as ‘F ees for Technical servic es’ on gross basis and r eceipts offered t o t ax as rev enue of MC-RS1 PO (under cost -pl us met hodology ); and

9.2

rec eipts i n respect of DMR C C ont ract RS3 offered to tax by t he appellant as revenue of MC -RS3 PO (under cost-plus met hodology and f or local supplies bei ng made o n net i ncome basis).

Other gro unds rela ting to Corporate tax m atter s

10.

The Hon’ble CIT (A) has err ed in law and i n fact , in levyi ng i nterest under S ec tion 234B and 234C of the Act on the appellant ignori ng the fact that the appellant is a non-reside nt and tax is deductible from the i ncome of the appellant.

10.1

The Hon’bl e CIT(A) erred i n not f ollowi ng jurisdictio nal Hi gh Cour t order i n appellant ’s own case.

11.

That on the f acts and circumst ances of the case and in law, the Hon’ble CIT(A ) has erred in directi ng the Assessi ng office r to verify appellant ’s claim for grant o f prepaid taxes and not exerci sing hi s powers c onfe rred under section 250 of the Act in respec t to exa mi ne the doc uments already available on record, and not allowing the credit of such pr epaid taxes.

12.

The Ld. AO err ed in law in i nitiating penalty proc eedi ngs under s ecti on 271(1) (c) of the Act.

13.

That on the facts of the cas e and i n law, the order is bad i n law a nd liabl e t o be quashed.

Grounds re la ting to Transfer Pr ic ing ma tter s - MC Branch Office (“M C BO”)

1.

That o n t he facts and in the circ umstances o f the case and i n law, Hon’ble CIT(A ) erred i n upholdi ng order under sec tio n 92CA(3) the Act pass ed by the Ld. Transf er Pricing Of ficer (“Ld. TPO”).

2.

That on the f acts and circumst ances of the case and in law, the H on’bl e CIT(A ) erred i n und ers tanding BO’s busi ness model and functional & risk profile.

3.

That on the f acts and circumst ances of the case and in la w, wi thout prejudice to any other gro und, the Ho n’bl e C IT(A ) erred i n consideri ng c ompani es functionally differe nt fro m br anch office, as compara bles .

4.

That on the f acts and circumst ances of the case and in law, t he Ho n’ble C IT(A ) erre d in disregardi ng the functional comparability of the c ompani es c onsi dered compara ble at t he tim e of documentati on by the appellant.

5.

That on the f acts and circumst ances of the case and i n law, without prej udice to any other grounds, the Ho n’bl e CIT(A ) has er red in upholding the ord er of the Ld. Transf er Pricing Officer wit hout considering appellant’s co ntentions with regar d to t he applicati on of tur nover filter to reject compani es havi ng i ncome less tha n INR 1 Cror e.

6.

That on the f acts and circumst ances of the case and i n la w, and without prej udice to any other grounds, the Ho n’ble C IT(A ) er red i n upholding t he or der of the Ld. Transf er Pricing Officer wit hout considering appellant’s contentions wit h regard to the rejec tion o f certai n comparabl e companies having differ ent fi nancial ye ar e nding.

7.

That on the f acts and circumst ances of the case and i n la w, and without prej udice to any other grounds, the Ho n’ble C IT(A ) er red i n upholding t he or der of the Ld. Transf er Pricing Officer wit hout considering appellant’s contentions with regard to making appr opriate adj us tments to ac count for differenc es in worki ng capital employed by the appellant vis -à-vi s the compara bles and in the p rocess also ignoring the provisions of the Indian transfer pri ci ng re gul ati ons and judicial pronounce ments o n t his subject.

8.

That on the f acts and circumst ances of the case and i n la w, and without prej udice to any other grounds, the Ho n’ble C IT(A ) er red i n upholding t he or der of the Ld. Transf er Pricing Officer wit hout considering appellant’s cont entions wi th r egard to non-allowanc e of ec onomic adjustme nts for differenc es on account of risks assumed by the appell ant vis-à -vis the c omparabl e compani es.

9.

That on the f acts and circumst ances of the case and i n law the H on’ble CIT (A ) erred in not consideri ng the fact that, the appellant did not have any i ncentive to tr ansfer the pr ofits to the tax j urisdiction of Japan.

10.

That on the f acts and circumst ances of the case and i n law, without prej udice to the a ny othe r grounds, the Ho n’ble C IT(A ) er red i n upholding t he or der of the Ld. Transf er Pricing Officer wit hout considering appellant’s contentio ns wi th r egard to usage of si ngle ye ar data as agains t t he mul tiple year data used by the appellant, to comput e the arm’s length pric e of the inte rnational transacti on of the appel lant usi ng TNMM met hod.

11.

That on the f acts and circumst ances of the case and i n law, and without prej udice to t he any other grounds, the Hon’ ble CIT(A ) erred in not applying the Pro viso to secti on 92C(2) of the Act and not allowi ng the benefit of an upward v ariatio n o f 5 percent in det ermi ni ng the Arm’s Length Price to the appellant.

12.

The abov e grounds are i ndependent and wit hout prejudice to eac h other unl ess mentioned specifically.

Grounds re la ting to Transfer Pr ic ing ma tter s - MC RS3 PO

1.

That o n t he facts and in the circ umstances o f the case and i n law, Hon’ble CIT(A ) erred i n upholdi ng order under secti on 92CA(3) t he Income Tax Act, 1961 (“the Act ”) passed by the Ld. Transfer Pric ing Officer.

2.

That on the f acts and circumst ances of the case and in law, the H on’bl e CIT(A ) erred i n unders tanding PO’s business model and functional & ris k profile.

3.

That on the f acts and circumst ances of the case and i n la w, the Hon’ble CIT(A) erred by not t aking cogni zance of t he fac t that same i nternational tr ansactions of the appellant has been acce pted by rev enue authoriti es to be at arm’s le ngth i n previo us ye ars .

4.

That on the f acts and circumst ances of the case and i n law, and without prej udice t o any other gr ound, the Hon’ble CIT(A) erred in c onsideri ng companies functionally differe nt from MC - RS 3 PO , as c omparable.

5.

That on the f acts and circumst ances of the case and in law, the Hon’ble CIT(A ) has e rred i n disregarding the functi onal compar ability of the compani es c onsidered compara ble at t he tim e of documentati on by the appellant.

6.

That on the f acts and circumst ances of the case and i n la w, and without prej udice to any other grounds, the Ho n’ble C IT(A ) er red i n upholding t he or der of the Ld. Transf er Pricing Officer wit hout considering appellant’s co ntentions with regar d to t he applicati on of tur nover filter to reject compani es havi ng i ncome less tha n INR 1 Cror e.

7.

That on the f acts and circumst ances of the case and i n law, and without prej udice t o any other gr ound, the Ho n’ble C IT(A ) er red i n upholding t he or der of the Ld. Transf er Pricing Officer wit hout considering appellant’s contentions wit h regard to the rejec tion o f certai n comparabl e companies having differ ent fi nancial ye ar e nding.

8.

That on the f acts and circumst ances of the case and i n law, and without prej udice t o any other gr ound, the Ho n’ble C IT(A ) er red i n upholding t he or der of the Ld. Transf er Pricing Officer witho ut consideri ng the appellant’s contentions with regard to making appr opriate adj us tments to ac count for differenc es in worki ng capital employed by the appellant vis -à-vi s the compara bles and in the p rocess also ignoring the provisions of the Indian transfer pri ci ng re gul ati ons and judicial pronounce ments o n t his subject.

9.

That on the f acts and circumst ances of the case and i n la w, and without prej udice to any other grounds, the H on’ble CIT(A) i n upholdi ng the order of the Ld. Transf er Pricing Officer without consideri ng appellant’s contentions with regard to not allowanc e of ec onomic adj ustments for di fferences on a cc ount of risks assumed by the appellant vi s-à-vis t he comparable compani es .

10.

That on the f acts and circumst ances of the case and i n law, t he Hon’ble CIT(A ) err ed in not consideri ng the fact that the appell ant did not have any i nce ntive to tr ansfer the pr ofits to the tax j urisdiction of Japan.

11.

That on the f acts and circumst ances of the case and i n law, and without prej udice t o any other gr ound, the Ho n’ble C IT(A ) er red i n upholding t he or der of the Ld. Transf er Pricing Officer wit hout considering appellant’s contentio ns wi th r egard to usage of si ngle ye ar data as agains t t he mul tiple year data used by the appellant, to comput e the arm’s length pric e of the inte rnational transacti on of the appel lant usi ng TNMM met hod.

12.

That on the f acts and circumst ances of the case and i n law, and without prej udice t o any other gr ound, the H on’bl e C IT(A) err ed in not applying t he Provis o to section 92C(2 ) of the Act and not allowi ng the benefit of upwar d variati on of 5 perce nt i n determi ni ng t he Arm’s Length Price to the appellant .”

“(a)

Income fro m Branch Office Rs.2,48,38,609/-

(b)

Income fro m Pro ject Office RS1 Rs.66,64,240/-

(c)

Income fro m Pro ject Office RS3 Rs.64,79,070/-

(d)

FTS taxed @ 10% as per

Article 12(2) of DTAA Rs.1,65,077/-

(i)

Addition to income of Branch

Office Rs.158,01,97,503/-

(ii)

Addition to income of Project

Offices for DMRC Sales Rs.2,92,98 ,854/-

(iii)

Undeclared Supervisory Fees Rs.6,61,43 ,123/-

(iv)

Transfer Pr icing Adjustment Rs.1 ,15,18,552/-

“4 . Ther e is a history of litigation between A’ and rev enue. Earl ier A' had a Liaison O ffice {“L O ” for sho rt} whic h was established on 02 February 1976. A s urvey u/s 133A of t he Act was conducted by t he AO on 2 4th February 2005 on the L O. Post surv ey ass ess ments were framed for AYs 1998-99 to 2004-05. It was held that LO was A ’s PE’ i n Indi a as per provisions of Article 5 o f India - Japan DTAA. An attributio n formulae was also agreed upon between the A’ and t ax departm ent. A agreed to apply pr ofit rate of 2.75% and attri bute 50% of sales to Indi a & purc hase s from Indi a and paid tax t her eon. Despit e A co ntention that there was no PE i n India t axes were paid with the obj ective to buy peac e wit h t he tax department and the orders of assessment for AYs 1998-99 to 2004-05 we re acc epted.

4.1

For A Ys 2005-06 t o 2008-09, return of i ncome was filed by t he A bas ed on the attribution for mula e adopted by the AO while frami ng a ssessm ent for AY 1998-99 to AY 2004-05 for m ai ntai ni ng the consistency wi t h earlier ye ars and ‘A ’ paid taxes on all sales made by i t t o India. Ho wever, duri ng assessment , AO refus ed t o follow settlement formulae. Theref ore, i n appellat e proc eedi ngs additi onal gr ounds were rai sed by the ‘A before I TAT and CIT(A) to determi ne the correct taxability of LO in India. When the appeals for AYs 2005-06 to 2008-09 came up for conside ration befor e ITA T vide order dated 30th May 2019 (copy enclos ed at pages CT-343 to CT -356) it held as under:

“7 . Undis putedly, initially assess es has sought reli ef from Id. CIT (A) by applying t he agreed form ula f or AYs 1998-99 to 2004-05 by foll owi ng the rul e of consistency. It is also not i n dispute that duri ng t he appellate proceedings, assessee raised addi tional grounds which were admitted. For ready perusal, additi onal grounds are extracted as under:-

"1 ..... ...

2

3.

Without p rejudi ce t o the appellant’s mer e i ntention to buy peac e and avoi d litigati on in not challengi ng the assessment order, t he Assessi ng Officer erred i n not appreciati ng that the LO of the appellant handl ed only the Machi nery Division and si nce LO was held to be a PE, the sales made by o ther divisions of MC Japan (witho ut a ny involvem ent of LO ) should not be incl uded in the tur nover for the purpose of com puting the total income.

4

4.1.. ...... ...

4.2.. ...... ...

4.3.. ...... ...

5.

That on the facts of t he c ase and i n law, t he Assessi ng Offic er erred i n allowi ng t he deduction f or the expens es i ncurred i n relation to the operati ons of the LO only to t he ext ent of 50% inspit e of t he facts tha t as per the provisions of the law s uc h expenses shoul d be allowed to the ext ent of 100%.

6.

That on the facts of t he c ase and i n law, t he Assessi ng Officer erred i n appl ying the rate of 50%o for t he purpos e of attributi ng i ncome to the operati ons of La wit hout c onsideri ng the fac t t hat t he maj or rev enue generati ng activiti es were perfo rmed outside Indi a and not by the LO."

8.

Assess ee by raising ad ditional grounds sought not to decide the iss ue o n the basis of settlement bet ween the assess ee and t he R evenue for AYs 1998-99 to 2004-05.

9.

By way of r aising additional grounds, t he assessee has challenged the taxabil ity whereas Id. CIT (A) has only decided GP rate, so the i ssue as to chal lengi ng the taxabil ity was In fact not before the A O earlier.

...

12.

We are of the c onsidered view that when t he Id. CIT (A) has admitt ed the additional gr ounds rais ed by the assess ee to decide the issue on merit, t he iss ue was not to be d ecided by t he Id. CIT (A) on the basis of agr eed se ttlem ent for mula by applying t he r ul e of consistency. The Id. CIT (A ) has merely decided the issue per tai ni ng to applicabili ty of co rrect gross profi t rat e by a pplyi ng the rule of c onsist ency. The Id. C IT (A ) has also deci ded the applicability of gross profit rat e of 10% per taini ng to DMRC projec t but has not decided the issue of excl usion fr om turnover . L d. C IT (A ) in order t o test t he applicability of gross profit rat e of 10% has merel y rel ied upon the order of AY 2006-07. All other grounds remai ned un-adj udicated.

13.

In vi ew of what has been di scuss ed above, we are of the considered vi ew that si nce the ass essee has set up a ne w case by raising addi tional grounds by departi ng from the rul e of consistency, all the grounds were r equired to be decided by the Id. CIT (A ) on merits . However, at the s ame time, we are of t he considered view that si nc e t he assesse e has rais ed many of the new grounds first time before the Id. C IT (A ) qua whic h no materi al was there b efor e the AO at the ti me of frami ng assessment, it woul d be in t he inte rest o f justice to remand the c ase back to AO to decide afr esh after gi ving an opportuni ty of bei ng heard to the assessee. Cons equently, the appeal bei ng ITA No.4659/D el /2011 for AY 2005-06 is allo wed f or statistical purposes.

14.

In the li ght of the fi ndings ret urned i n the precedi ng paras , we are of the c onsid ered view t hat since iss ue pertaini ng t o AYs 2006-07, 2007-08 and 2008-09 are also identical to AY 2005-06 except the difference that for thes e years , t he assess ee has filed appeal before the Tribunal c hallengi ng the assessme nt order pass ed by the AO pursuant to the dir ection of Id. DRP but issue s raised in t he grounds ar e identical in AYs 2006-07, 2007-08 & 2008-09 to AY 2005-06.

15.

In AY 2006-07, grounds as have been raised by t he assessee be fore the Id. CIT(A) by way of additi onal ground s in AY 2005-06 hav e been raised before the Tribunal. Likewise, i n AY 2007-08 and 2008-09, similar claim as has been rais ed by way of additi onal gr ounds i n AY 2005-06 was made befor e t he AO as well as Id. DRP whic h has been r ejected by followi ng the decision r endered by the Hon’ble Ap ex Court in Goetze India Lt d. 284 ITR 323 (SC ) which is not applicable on the power of appellat e authority to consider t he revised cl aim as has bee n held i n Rites Ltd. vs. CIT (2017) 83 taxmann.c om 267 (Del .) and CIT vs. Jal Parabol ic Spri ngs Ltd. - 3 06 ITR 42 (Del .).

4.2

ITAT t heref ore r emanded the case bac k to t he rec ords of AO for a fres h c onsiderati on i n accordanc e with law. In rema nd vide order dated 30th S eptember 2021, t he AO declined to ent er tai n fres h claims whic h woul d ha ve an effect of as sessing t otal inc ome of the ‘A’ fall ing bel ow t hat was disclos ed in t he retur n of i nc ome. This was challenged by t he ‘A ’ before Ho n’bl e Delhi High Court and vide order dated 30th July 2024 i n WP(C) 12911/2021 and others Hon’ble High C ourt hel d as under:

“18.

As is evident fr om t he enunci ation of the legal position in the decisions aforenot ed, whil e ordi narily an assessee may be bound by the Ret ur n of Income as furnished, in case the Tribunal we re to admit a questi on and proceed to accord relief, the same cannot be deni ed or be made s ubject to a Ret urn of Income bei ng revised. The insistence of the res pondents on a revision of the ret urn bei ng a precondition cl early fail s to ta ke i nt o considerati on t he plenar y po wers which stand c onferred upon t he Tri bunal by virt ue of Section 254 of the Act.

19.

In light of our co ncl usi ons on the pri ncipal questi on which stood posit ed, we obser ve t hat t he challenge to t he Ci rcular of the CB DT does not really merit further c onsiderati on. All t hat ne ed be obser ved is that once t he Tribunal had calle d upon the AO to exami ne the i ssue afr esh, the said directio n could not hav e been disr egarded by ref erence to a Circular iss ue by the CBD T.

20.

We accordi ngly allow t he writ p eti tio ns and quash the fi nal as sess ment orders dat ed 30 Novem ber 2021 insofar as they negate c onsideratio n of t he additi onal grounds which had be en urged by the writ petitioners. The AO shall consequently consid er t he same a nd pass f resh ord ers i n accor dance with law. We, in light of t he above, also quas h the consequential demand and pena lty notices also dated 30 November 2021."

Post Hi gh C ourt decisio n as above t he AO has passed a draft assessment order dat ed 31-07- 2025 which is currently pending finalizati on as it is pendi ng scruti ny by the DRP.”

5.

Before proc eedi ng furt her, it will also be relevant to submit that the LO has been closed, a nd no activities are bei ng done in L O after March 2008. In his o rder of assessment for A Y 2009-10 {at page 2, top para} i t is alleged by A O that “no evidence of clos ure of LO has bee n furnished by the assessee”. Then at page 20, last para it is further erroneously held by AO that functi ons performed by L O ar e now bei ng done by BO, t herefore, there exi sts a PE in form of B O. These fi ndi ngs were challenged i n appeal before C IT(A). CIT (A) acce pts that LO has closed d uring the year under consid eratio n (r efer page 7 , par a 7 ). These fi ndi ngs / observati ons of C IT(A ) hav e not been challenged by t he revenue before ITAT.

6.

As s ubmitted ab ove for the year under consideratio n i.e. AY 2009-10, income of BO pert ai ni ng to activities i n India was offered t o tax at a sum of Rs 2,48,38,609/-. {refer c omputati on of tot al Income @ page C T-508}. BO accounts ar e encl osed at pages CT 457 to 471 and P&L account of BO is enclosed @ page C T-458 of PB. Income credited t o P&L acc ount i s Service Fee of Rs 12,40,38,160/- reimbursed by HO to t he BO . S ervice Fe es received by BO are as per terms of S ervice Agreem ent dated 13th March 2009 (made effecti ve from 01st April 2008) exec uted between HO and BO. C opy encl os ed at pages CT-339 to CT- 341. Scope of S ervices to be Performed are stated at page CT-339, Article 1. Modus of s ervices fee is stated in Article 2 t o be “Full Cos t pl us appropriate mark-up on suc h cost as maybe agre ed dependi ng upon die mar ket condition”. This was subsequently agr eed at C ost + 16%.It will be rel evant to not e he re that t he TPO has a also exami ned the FAR of BO. TPO notes that B O is supporti ng o nl y EPC business of Mac hi nery Group. Refer ence is i nvited to paper bo ok page CT- 20, para 6 of t he TP order for AY 2009-10 wherei n TPO has described t he r ol e of B O as follo ws:

“6 . Mitsubis hi Cor poration - Br anch Office (MC -BO)

6.1

The assessee is a branch office of Mitsubishi Corporation (‘MC’), Japan. On the basis of det ailed scruti ny of t he pr ofile of the emplo yees of MC- B O it has bee n obs erve d that the activiti es carried out by MC-BO in India primarily relate to mar keti ng support servic es for EPC business for MC Japan. MC-B O enga ges i n c arryi ng out acti vities such as c ollecti on of informati on, for wardi ng of vari ous mar ket enquires, te nder noti ces /proposals from potential Indian cust omers to MC Japan, arrange me eti ng bet ween visiting r epres entatives fro m MC Japan a nd Indian Par ti es. The r ole o f MC BO is limited t o rend eri ng support services in relati on to MC Japan’s Machi ne ry Division.”

7.

The A O howe ver ref uses to accept t hat BO of t he ‘A’ was only cat eri ng to Mac hi nery Divi sion. D uring the course of ass essm ent AO show caus ed t he ‘A’ {refer pa ge 6, para 3.4 of ass essm ent order} as to why ass essment for AY 2009-10 not be frame d in tune with c oncl usi ons rec orde d by his in earlier yea rs and theref ore “sales made in or through India c an be attributable to the BO/LO i n respect of all divisi ons, be not taxabl e in Indi a”. Af ter consideri ng the reply fil ed by the ‘A’ it is held by AO t hat ‘A’ has undertaken s ubstantial Sal es “i n or thr ough India” incom e of which has not been offered to tax i n RO I even though it has a BO i n India a nd in earlier y ears upt o AY 2008-09 the ‘A’ had offered such income to tax i n ROI.

...

9.

AO and C IT(A ) have erred i n relyi ng upon assessments framed f or earl ier years - Main thr ust of case ma de out by both the lower autho rities is str uctured on the fact that i n proceedi ngs years t he ‘A ’ acqui es ced to taxability i n India for direct sales made by all i ts divisions. AO has er red i n adj udicating upon the iss ue in dispute premised merely upo n o utcome of earlier year assessment proceedi ngs for AYs 2008-09 a nd earlier. As stat ed above in AYs 2005-06 to 2008-09 Ho n’bl e ITA T vide its or der dated 20th May 2019 has held that “assess ee has set up a new case by r aising additi onal grounds by depart ing from the rule of co nsistency”. For the year under consideration bot h the AO and C IT(A) did not have the benefi t of ITAT order for AYs 2005-06 to 2008-09. More over, it is also relevant to note that Survey u/s 133A was car ried out on 24t h Febr uary 2 005 when the BO was not even i n existe nce. Surv ey conclusi on of the year based on what was noticed in t he course of s urvey could not be extrapolat ed to the ot her ye ars . {Re fer CIT vs. G upta Abhusha n L td. 312 ITR 166 (Del ) @ Para 5}. Moreover, mer ely because i n earl ier ye ars it was held that A ’ had a PE in India for all the divisions, that by itsel f cannot lead t o t he concl usio n that a similar PE must be i n existence in subsequent years and that t oo wit hout looki ng i nto the additi onal facts whic h । were spec ifically filed by the ‘A’ to demonstrat e tha t the BO was o nly cater ing mac hi nery/ divisi on. BO can’t be presumed to be functi oni ng like LO.”

In t erms o f the prevailing For ei gn Exchange R egul ations , the existi ng Liaison Offices cannot render professi onal or co nsultancy s ervi ces, no r carr y out res earc h work for proj ect devel opment a nd infrastr uc ture relat ed busi ness. Therefore, MC submits this Application al ong wi th requisite doc uments t o clos e t he. Liaison offic es and setup new Branch Offices i n New Del hi , Mumbai, Kol kata, Chennai, Bangal uru & Bhubanes hwar .

Subject to the rec eipt of y our approval, the Li aison Offices will be cl osed effective Marc h 31, 2008 and we will open and operat e new Bra nch Of fi ces with eff ect fr om April 1,2008.1 hereb y co nfirm that any of the liabilities of our Liai son Offices i n Indi a up to the peri od endi ng 31^{s t} Marc h, 2008, shall be dis char ged by MC. ”

“2 . Havi ng noted from t he document s furnis hed here wi th tha t your co mpany is enga ged i n the busi ness of general tr adi ng, Reserve B ank of India grant s you permi ssion for upgradati on of your fiv e Liaison Offices at New Delhi, Mumbai , Kolkata, Ba ngal ore and Bhubaneswar into Branch Offices. ”

“2 . The Branch Office may carry on the f ollowi ng activities i n India:

i)

Expo rt/Impo rt of goods

ii) Renderi ng profes sio nal or cons ul tancy servi ces.

iii) Carrying out res earch work, i n which the parent company is engaged.

iv) Pro moti ng techni cal or fi nancial collabo rations bet ween Indian compani es and parent or overs eas group company .

v)

Repres enti ng the parent company in India and acti ng as buyi ng/selling age nt in India.

vi) Renderi ng s ervices in infor mation Technol ogy and dev elopment of software i n India.

vii) Renderi ng techni cal suppor t to the products supplied by parent /gr oup companies .

The Branch offic e shall no t undertake Retail Trading activities i n India or any nature.”