JUDGMENT

[Physical Hearing/Hybrid Hearing (as per request)]

Rajiv Shakdher, J.

Preface

1. This appeal concerns Assessment Year (AY) 2006-07. Via the instant appeal, the appellant/revenue seeks to assail the order dated 23.08.2013 passed by the Income Tax Appellate Tribunal [in short, "Tribunal"].

1.1. The record shows that the instant appeal was admitted on 29.04.2014 when the coordinate bench framed the following questions of law:

"(i) Whether the ITAT fell into error in holding that Section 40(a)(i) of the Income Tax Act, 1961 cannot be applied in view of the provisions of the Double Tax Avoidance Agreement between the Indian (sic) and Japan and India and the US?

(ii) Whether the ITAT fell in error in reversing the findings of the DRP with respect to the existence of the PEs in India?.

2. Since there was a difference of opinion between the judges who comprised the division bench concerning the answers to the questions of law framed on 29.04.2014, the matter was referred to a third judge. In the first instance, the bench which rendered the decision consisted of Hon'ble Mr Justice S. Muralidhar (as he then was) and Hon'ble Ms Justice Prathiba M. Singh.

2.1. A perusal of the decision dated 17.11.2017 discloses that while Hon'ble Mr Justice S. Muralidhar answered both questions in favour of the respondent/assessee, Hon'ble Ms Justice Prathiba M. Singh took a converse view, i.e., answered the questions in favour of the appellant/revenue.

3. The record also discloses that via the order dated 27.04.2018, the division bench stated the points of law on which they had differed while rendering their respective decisions on 17.11.2017. The relevant part of the order dated 27.04.2018 is thus extracted hereafter:

"3. Each of us has, in our respective opinions, differed in the answers to the above two questions. The points of law of which we have differed and which would be required to be answered by Sanjiv Khanna, J. is whether questions (i) and (ii) above should be answered as decided by each of us in our respective opinions.

4. A further point of law on which we have differed, and which is required to be answered by Sanjiv Khanna, J. is whether question (ii) requires to be re-framed and answered as stated by Prathiba M. Singh, J. in para 64 of her opinion?.

Background

4. To render a view on the aspects adverted to in the order dated 27.04.2018, it would be necessary to capture, broadly, the backdrop in which the instant appeal was instituted in this Court.

4.1. The respondent/assessee in the AY in issue entered into transactions with certain group companies, reference to whom is made hereafter. Qua the transactions executed between the respondent/assessee and its group companies, remittances were made. However, the respondent/assessee made remittances without deducting tax at source [in short, "TAS"]. The Assessing Officer (AO) took umbrage and disallowed the deductions claimed by the respondent/assessee. The AO ordered the disallowance under Section 40(a)(i) of the Income Tax Act, 1961 [in short, "the Act"].

S. No.Name of the Group CompanyCountryDisallowance u/s 40(a)(i) - Rs.1Mitsubishi Corporation [MC (Japan)]Japan5,01,55,8442MC Metal Services Asia [MC Metal (Thailand)]Thailand24,09,32,2033Metal One Asia P. Ltd. [Metal One (Singapore)]Singapore10,06,99,1154Metal One Corporation [Metal One (Japan)]Japan57,91,87,7125Mc.Tubular Inc. [Tubular (USA)]USA11,60,9566Petro Diamond Corporation [Petro (Japan)]Japan16,34,0967Miteni [Miteni (Japan)]Japan51,84,250

5. Thus, in effect, on account of disallowances made by the AO under Section 40(a)(i) of the Act, Rs.97,89,54,176/- was added to the income of the respondent/assessee. Addition was also made on account of an adjustment of Arm's Length Price (ALP) by the Transfer Pricing Officer (TPO), an aspect which, concededly, does not form the subject matter of the instant appeal. The record shows that the Tribunal remitted the case to the AO for reconsideration regarding the ALP issue.

5.1. The aforementioned amount w

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