DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1), AHMEDABAD vs. AIA ENGINEERING LIMITED, AHMEDABAD

The Revenue has raised the following Grounds of Appeal: “(1) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.1,28,27,21,612/- made on account of treating Vega Industries (Middle East) FZC as the assessee's proprietary concern, and in holding it to be an independent body corporate under section 2(17) of the IT Act, 1961, without appreciating that the very issue is presently sub judice before the Hon'ble Gujarat High Court in the Department's appeal against the ITAT's combined order for A.Y. 2008-09 to 2013-14, and has accordingly not attained finality?" (2) The appellant craves leave to amend or alter any ground on add a new ground, which may be necessary. (3) It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored?"

In the course of hearing before us Shri Tushar Hemani Sr. Advocate submitted that the issue raised by the Revenue is covered in favour of the assessee by orders of the ITAT for the Asst. Years 2006-07 to 2021-22. The Revenue has challenged the ITAT orders in the preceding year in appeal before the Hon’ble Gujarat High Court and has filed the present appeal to keep the issue alive.

Ld. CIT-DR Shri Ram Tiwari agrees with the submission of the Ld. A.R. and states that the issue is covered in favour of the assessee in the preceding years and the Revenue is in appeal because of the pending appeals for the preceding years before the Hon’ble Gujarat High Court.

The issue in controversy arises from the assessing officer treating one Vega Industries (Middle East) FZC as a proprietary concern and not as a body corporate as contended by the assessee. The Ld. CIT(A) accepted the assessee’s contention holding as under: 7.3. I have carefully considered the facts of the case, the assessment order, the grounds of appeal, and the submissions made by the appellant. The core issue for determination is whether Vega ME, an entity incorporated in the United Arab Emirates, qualifies as an independent body corporate under section 2(17) of the Income-tax Act, 1961, or if it must be treated as a proprietary concern of the appellant. 7.4. The appellant has robustly argued, supported by the Memorandum of Incorporation, Articles of Association, and Tax Residence Certificate from the UAE authorities, that Vega ME is a separate legal entity, managed and controlled entirely outside India. The appellant correctly asserts that section 2(17) of the Act defines a company to include "anybody corporate incorporated by or under the laws of a country outside India". The Assessing Officer's argument against this, relying merely on consistency with past assessment orders and the pendency of a departmental appeal in the High Court, is legally untenable. 7.5. Judicial discipline mandates that the decisions of the higher appellate authorities, particularly the jurisdictional ITAT, are binding on the lower authorities unless stayed by a competent higher court. The counter-argument mounted by the Assessing Officer that the Department's non-acceptance of the ITAT ruling justifies defying the precedent is dismissed. The Hon'ble ITAT, Ahmedabad, in the appellant's own case across numerous assessment years (including the recent orders dated 14 August 2025 covering A.Y. 2017-18 to 2021-22, and 01 October 2025 for A.Y. 2014 15), has conclusively examined this precise factual matrix. The Tribunal categorically established that Vega ME is duly incorporated under the laws of a foreign country and must be accepted as a company within the framework of section 2(17) of the Act. The Tribunal explicitly ruled that treating Vega ME as a sole proprietorship concern simply because the appellant holds 100% shareholding is unsustainable in law. 7.6. Since the highest fact-finding authority has persistently held Vega ME to be an independent corporate body, applying the ratio of the aforementioned ITAT decisions strictly to the current facts leaves no room for ambiguity. The real-world commercial practice of establishing wholly owned international subsidiaries for global distribution does not extinguish their separate legal and corporate identity under local and international laws. Consequently, the Assessing Officer's action of piercing the corporate veil without justification to tax the subsidiary's income in the hands of the appellant is invalid. Ground No. 1 is decided in favour of the appellant, and the addition of INR 1,28,27,21,612/- is directed to be deleted.”

In view of the decisions of the Co-ordinate Benches in the assessee’s own case for the preceding years, we find no error in the order of the Ld. CIT(A) and uphold the same.

In the result, the appeal of the Revenue is dismissed.