DEPUTY COMMISSIONER OF INCOME -TAX, CENTRAL CIRCLE-1(1), AHMEDABAD, AHMEDABAD vs. BEST OASIS LIMITED, MUMBAI

ITSSA 48/AHD/2024Status: DisposedITAT Ahmedabad05 May 2025AY 2012-1321 pages
AI SummaryRemanded

What were the facts?

The Revenue filed two appeals against the order of the CIT(A) for Assessment Years (AYs) 2012-13 and 2016-17. The assessee, Best Oasis Limited, a Hong Kong-based foreign company and a subsidiary of Priya Blue Industries Pvt. Ltd. (PBIPL), was found to be carrying out business operations in India through PBIPL's employees. A search on PBIPL revealed that the Mumbai office also functioned as Best Oasis Ltd.'s key office, with significant activities managed from there. The Assessing Officer (AO) determined that this constituted a business connection in India, deeming the income taxable. The AO quantified the taxable income at Rs. 4,98,11,358/- for AY 2012-13 and Rs. 1,57,90,918/- for AY 2016-17, applying the Profit Attribution Theory based on the Proviso to Section 9(1)(i) of the Income Tax Act, 1961, read with Rule 10. The CIT(A) deleted these additions, holding that since the Transfer Pricing Officer (TPO) did not make any upward adjustment to the Arm's Length Price (ALP) of international transactions, no profit attribution was permissible.

What did the Tribunal hold?

The Tribunal found that the AO had attributed profit to the PE by applying a formula proposed by the CBDT via a letter dated 18th August 2019. The assessee had objected to this method before the AO, as the proposed rules were not finalized and incorporated into the statute or rules. The Tribunal held that the AO was not correct in working out the profit of the PE using a formula suggested by an Expert Committee, especially since the proposed rules were not yet part of the statute and could not be applied retrospectively. The Tribunal noted that Rule 10 of the Income Tax Rules provides for determining income in the case of non-residents. Since the profit attributed by the AO was not in accordance with an approved statutory method, the Tribunal set aside the matter to the file of the AO. The AO was directed to re-allocate the profit attributable to the PE in accordance with Rule 10, considering methodologies prescribed therein, including examining the assessee's suggested method based on 'cost incurred by the assessee for its Indian operators'. The AO was given liberty to apply the most suitable methodology and was instructed to provide a categorical finding after hearing the assessee. The Tribunal explicitly stated that it had not examined the assessee's suggested methodology.

What were the issues?

1. Whether the CIT(A) erred in deleting the addition of Rs. 4,98,11,358/- (for AY 2012-13) and Rs. 1,57,90,918/- (for AY 2016-17) on account of deemed income computed as per Section 9(1)(i) of the Income Tax Act, 1961, read with Rule 10. Assessee's contentions: The AO referred the matter to the TPO for determining the ALP of international transactions. The TPO did not recommend any upward adjustment. It is a settled proposition that once the ALP of transactions with associated enterprises (AEs) is determined, there cannot be any profit attribution, even if a Permanent Establishment (PE) is assumed to exist in India. Reliance was placed on decisions in Morgan Stanley & Co., Celltick Technologies Ltd., E-Funds IT Solution Inc., and various Honda Motors Co. Ltd. cases. Revenue's contentions: The assessee had a business connection in India as its business was carried out through PBIPL's employees. All income accruing or arising through such business connection is taxable in India. The AO correctly worked out the income arising from the business connection by applying Rule 10. The CIT(A) was incorrect in deleting the addition, especially since the CIT(A) upheld the AO's finding of a Permanent Establishment (PE) in India. The income of the PE is taxable in India as per the Act and the India-Hong Kong Double Taxation Avoidance Agreement (DTAA).

Which sections of the Income-tax Act were involved?

Section 9(1)(i),Section 92CA(3),Section 153A,Section 143(3),Section 92(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD

Before: Ms. SUCHITRA KAMBLE & SHRI NARENDRA PRASAD SINHA

For Appellant: Shri Parimalsinh B. Parmar, A.R
For Respondent: Shri Abhay Thakur, CIT. DR &, Shri B. P. Srivastava, Sr. DR
Pronounced: 05/05/2025

PER SHRI NARENDRA PRASAD SINHA, AM: These two appeals are filed by the Revenue against the combined order of the Commissioner of Income-Tax (Appeals)- 11, Ahmedabad, (in short ‘the CIT(A)’), dated 28.03.2024 for the A.Ys. 2012-13 & 2016-17, respectively.

2.

Since, facts of the two cases are identical, both the matters were heard together and are being disposed of vide this common order for the sake of convenience.

3.

The brief facts of the case are that the as

The order continues below.

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