REDINGTON DISTRIBUTION PTE LTD.,SINGAPORE vs. ACIT, INTL TAXN CIRCLE-2(1), CHENNAI

According to the survey team, the employees of the 'Dollar Team' were actually identifying the customers, negotiating and fixing the prices, undertaking the sales and also collecting the receivables and that, the assessee was only raising the invoices from Singapore to meet the import requirements (USD billing) of the Indian customers. Based on these documents and details gathered in the course of survey inter alia including e-mails and correspondences between the employees of RIL in India and the assessee, and also the statements obtained from the employees of the 'Dollar Team', the survey team was of the view that the assessee had a permanent establishment (in short 'PE') in India. On the basis of the findings of the survey team, it is noted that the case of the assessee was reopened u/s 148 of the Act for AYs 2011-12 to 2018-19 on different dates and that the case for AY 2020-21 was taken up for regular scrutiny u/s 148 of the Act. The AO after making necessary enquiries is noted to have concluded that, the assessee had both a fixed place PE and to 1217/Chny/2025 (AYs 2017-18, 2018-19 & 2020-21) M/s. Redington Distribution Pte. Ltd. a dependent agent PE in India. The AO thereafter attributed the profits to this PE on the basis of the total employee cost of RIL and the assessee, and also the asset base across all the AYs. It is noted that, the AO inter- alia attributed the following rate of the profits to the alleged PE in India in the AYs 2017-18, 2018-19 & 2020-21 which are impugned before us.

Assessment Profit Impugned addition Assessed Income Year attribution rate made by the AO 2017-18 90.7% INR 64,52,20,406 INR 80,01,77,664

2018-19 89.86% INR 56,69,66,044 INR 79,90,03,308

2020-21 90.63% INR 56,38,96,273 INR 72,23,40,563

“The order imposing penalty u/s.270A of the Act, is an appealable order u/s.246A of the Act before the First Appellate Authority. If penalty u/s.270A of the Act, has been mandatory, there have not been any provision of appeal u/s.246A of the Act. Since, the order imposing penalty Sec.270A of the Act, is an appealable order, then, it cannot be said that penalty u/s.270A of the Act, is not mandatory in nature. Since, penalty u/s.270A of the Act, is not mandatory in nature, the AO is required to give an opportunity to the assessee to show cause 'as to why' penalty should not be levied in terms of sec.274 of the Act. Admittedly, the AO issued notice u/s.274 r.w.s.270A of the Act. Sec.274 of the Act deals with the procedure for levy of penalty, wherein, it directs that no order imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of hearing. Thus, it is evident that the penalty u/s.270A of the Act, cannot be imposed unless the assessee has given a reasonable opportunity and the assessee is being heard. Once, the AO is bound to act to hear the assessee and give reasonable opportunity to explain its case, then, there is no mandatory requirement of imposing penalty, because the opportunity of hearing is not a mere formality, but it is to adhere to the principle of natural justice. Therefore, in our considered view, the penalty u/s.270A of the Act, is not mandatory and it is based on the facts and merits placed before the AO.” to 1217/Chny/2025 (AYs 2017-18, 2018-19 & 2020-21) M/s. Redington Distribution Pte. Ltd. :: 8 ::

“(6) The under-reported income, for the purposes of this section, shall not include the following, namely:—

(a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered;

(b) the amount of under-reported income determined on the basis of an estimate, if the accounts are correct and complete to the satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, but the method employed is such that the income cannot properly be deduced therefrom;

(c) the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance;

(d) the amount of under-reported income represented by any addition made in conformity with the arm's length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and (e) the amount of undisclosed income referred to in section 271AAB.”

(emphasis supplied)

“16. We have heard both the parties and perused the material placed before us. It is well settled in law that, the penalty proceedings are separate and independent from the assessment proceedings. Only because an addition or a disallowance which was made in the assessment has attained finality may not ispo facto warrant levy of penalty. The levy of penalty is not automatic and it also cannot be levied solely on a presumption. The provisions of Section 271(1)(c) of the Act provides that only where the AO is satisfied that, the assessee has either concealed the particulars of his income or furnished inaccurate particulars of income that, the AO may direct levy of penalty. In the present case, the AO has sought to levy penalty by holding the assessee to be guilty of furnishing inaccurate particulars of income. In our considered view, in order to do so, it is necessary for the AO to show with material that, there was inaccurate reporting of the particulars of income by the assessee. In the present case, we find that, it is not in dispute between the parties that, the employees of RIL also known as 'RIL Dollar Team' was providing certain business support services to the to 1217/Chny/2025 (AYs 2017-18, 2018-19 & 2020-21) M/s. Redington Distribution Pte. Ltd. assessee. It is noticed that, the assessee had disclosed all material facts relating to this aspect in the course of assessment. According to the assessee, the support services rendered by the 'RIL Dollar Team' did not give rise to any fixed place PE or dependent agency PE in India. This bonafide belief of the assessee is found to have emanated from their interpretation of the decisions of E- Funds IT Solution Inc. (supra) & Morgan Stanley & Co (supra) amongst several other decisions, which were also cited before us. The Revenue however was of the view that the nature of services rendered by the 'RIL Dollar Team' was not back office or auxiliary or preparatory services, as claimed by the assessee, but it constituted the back bone of the business model of the assessee and therefore the Revenue was of the view that the 'RIL Dollar Team' constituted both fixed place PE and also a dependent agent PE of the assessee in India. We find that, the coordinate bench of this Tribunal upheld the Revenue's finding that there did exist a PE of the assessee in India, and answered the question against the assessee. However, we note that, the Hon'ble High Court has admitted the appeal of the assessee on the issue of existence of a PE in India as and by way of a substantial question of law, which, for the sake of convenience, is again reproduced below:-

……

"Both the CIT(A) as well as the ITAT have set aside the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act. 1961 on the ground that the issue of deduction under section 14A of the Act was a debatable issue. We may also to 1217/Chny/2025 (AYs 2017-18, 2018-19 & 2020-21) M/s. Redington Distribution Pte. Ltd. note that against the quantum assessment whereunder deduction under section 14A of the Act was prescribed to the appellant. The appellant has preferred an appeal in this Court under section 260A of the Act which has also been admitted and substantial question of law framed. This itself shows that the issue is debatable. For these reasons. we are of the opinion that no question of law arises in the present case. This appeal is accordingly dismissed."

and had disclosed all material facts relating to the impugned issue. It is observed that, there was a difference of opinion between the assessee and the Revenue regarding the existence of a PE in India, having regard to the nature of services rendered by the 'RIL Dollar Team'. The assessee has been able to demonstrate before us that, it was under a bonafide belief that it did not have a PE in India and therefore, as a corollary, it did not disclose any income in India. Hence, only because the impugned addition finally retained, was not declared in the return of income cannot be viewed as an inaccurate reporting by the assessee. We find that, the matter of existence of PE in India was being all along agitated by the assessee and the same was pending adjudication before the Hon'ble High Court. It is also observed that, having regard to the prima facie case made out by the assessee, not only had the Hon'ble High Court granted interim stay on the operation of assessment order passed by the AO, pursuant to the directions of the Tribunal, but it had admitted this very precise issue regarding the question of PE in India by way of substantial question of law. In the meanwhile, as the assessee had also simultaneously opted for an alternate dispute resolution mechanism by way of a MAP under Article 27 of the DTAA between India and Singapore and mutual agreement was reached between the parties, the appeal before the Hon'ble High Court stood rendered academic. However, the fact that the Hon'ble High Court had admitted the appeal on a substantial question of law being involved did show that the issue was debatable.

avoidance of double taxation in Singapore on the income being brought to tax in India. We thus observe that, the alternate remedy was availed by the assessee only for settling the issue, without admitting that PE existed in India; and the final settlement agreed upon not only ensured a substantially low estimated adjustment to their taxable income in India, but the assessee was also allowed corresponding adjustment to their income in Singapore which resulted in lower tax liability in that State. Thus, according to us therefore, the agreed terms of MAP resolution doesn't in any manner suggest that, the assessee had acceded to existence of a PE in India.

was not due to concealment of income or furnishing of inaccurate particulars and therefore, it was not liable to penalty. In our considered view, on the given facts before us, this decision is of no assistance to the Revenue. Rather, it supports the case of the assessee, as the Hon'ble High Court had observed that, only because an adjustment is made pursuant to MAP resolution, will not automatically lead to penalty. As noted by us above, the assessee has made out a case that, there was no inaccurate reporting of particulars qua the adjustment made pursuant to MAP resolution, and for that reason, we hold the imposition of penalty to be unjustified.

…

Order pronounced on the 26th day of September, 2025, in Chennai.