Wp/2919/2019 Of M/S. Eos Gmbh - India Branch v. The Deputy Commissioner Of Income Tax

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 22.10.2019 Reserved on 18.09.2019Delivered on 22.10.2019 CORAM THE HON'BLE Mr.JUSTICE K.RAVICHANDRABAABU W.P.No.2919 of 2019andW.M.P.No.3180 of 2019 M/s.EOS GmbH-India Branch,Rep. By its Authorized Signatory,Mr.Prakasam Anand (Country Manager),No.36, Sivananda Nagar, Kolathur,Chennai 600 099....Petitioner The Deputy Commissioner of Income Tax,International Taxation 1(1), Room No.407, 4[th] Floor,BSNL Building, Tower-I,Greams Road, Chennai 600 034. ...Respondent Prayer:Writ petition filed under Article 226 of the Constitutionof India for issuance of a writ of Certiorari to call for therecords comprised in the impugned draft assessment order passedby the respondent under Section 143(3) read with Section 144C(1)of the Income Tax, 1961 for Assessment Year 2016-17 in PAN: dated December 31, 2018 and quash the same. For petitioner : Mr.N.V.BalajiFor Respondents : Mrs.Hema Muralikrishnan Senior Standing Counsel O R D E R The challenge made in this writ petition is against thedraft assessment order passed under Section 143(3) read withSection 144C(1) of the Income Tax, 1961 for Assessment Year2016-17 dated 31.12.2018. 2. The case of the petitioner is as follows:a) The Petitioner Company operates as an Indian Branchoffice of EOS GmbH Electro Optical Systems, Germany ('EOSGermany' or 'Head Office'). The petitioner is a Permanent Establishment of EOS Germany in India as per the Act and India-Germany Double Tax Avoidance Agreement ('DTAA'). The petitioneris engaged in the business of rendering agency support servicesalong with technical support services to EOS Germany. b) The petitioner filed its return of income as aPermanent Establishment in India under Section 139 of the Actfor the assessment year 2016-17 on 30.11.2016. Theinternational transaction of the petitioner with its Head Officewas duly reported in the Accountant's Report in Form 3CEB filedin accordance with the provisions of Indian Transfer PricingRegulations contained in Sections 92, 92A to 92F of the Act. Inthe TP documentation, the petitioner conducted a detailedanalysis of the Functions, Assets and Risks ('FAR') of thepetitioner and its Head Office and Transactional Net MarginMethod ('TNMM') for testing the arm's length results of thepetitioner's international transaction. Based on the said TPanalysis, the profit earned by the petitioner was found to be atarm's length as per the applicable TP regulations having regardto the FAR undertaken by the petitioner in its operations andthe margins earned by the comparable companies found on thebasis of the detailed benchmarking analysis. The incomedeclared by the petitioner in its return of income was more thanthe profit arrived at based on the arm's length margindetermined above. The return of income filed by the petitioneras a Permanent Establishment in India was selected for scrutinyassessment. The respondent issued notice under Section 143(2)of the Act on 18.09.2017. The respondent did not make areference to the Transfer Pricing Officer (TPO) for verificationof the FAR analysis and determination of arm's length nature ofthe petitioner's international transaction. After expiry of oneyear after selecting the case for scrutiny assessment, aninspection was conducted by the respondent at the premises ofthe petitioner on 31.10.2018, wherein sworn statement wasobtained from the petitioner's employee. c) The respondent issued a show cause notice (SCN) on13.12.2018. The respondent further assuming jurisdiction of theTPO, analyzed the FAR and proposed to attribute 100 percent ofthe global profits earned from the sales in India by EOS Germanyto the petitioner. c) The respondent issued a show cause notice (SCN) on13.12.2018. The respondent further assuming jurisdiction of theTPO, analyzed the FAR and proposed to attribute 100 percent ofthe global profits earned from the sales in India by EOS Germanyto the petitioner. d) In the reply to the show cause notice dated 17.12.2018,the petitioner submitted that based on the detailed FAR andbenchmarking analysis undertaken in its TP documentation, theprofits earned by the petitioner is established to be at arm'slength. Accordingly, no further profit attribution can be madeto the petitioner's operations. The respondent disregarded thesubmissions made by the petitioner and passed the impugned draft assessment order dated 31.12.2018, by attributing 100 percent ofEOS Germany's profits from India operations to the petitioner,as against the income declared by the petitioner in its returnof income, which is established to be at arm's length. e) Explanation 3 to Section 9(1)(i) of the Act providesthat only so much of income as is attributable to operationscarried out in India shall be deemed to accrue or arise inIndia. Further, Article 7(2) of the India-Germany DTAA providesthat attribution to a Permanent Establishment shall be to theextent the Permanent Establishment would be expected to earn ifit were a enterprise engaged in the same or similar activitiesunder the same or similar conditions and dealing whollyindependently. Once a transaction has been established to be atarm's length in accordance with the TP provisions under the Act,it extinguishes any further attribution of profits to suchPermanent Establishment. Thus, the law of the land is settledthat any attribution of profit to a Permanent Establishment hasto satisfy the arm's length test. f) The respondent has exceeded her jurisdiction and hasundertaken a TP scrutiny, resulting in 100 percent attributionof the global profits earned from the sales in India by EOSGermany to the petitioner. Conducting a FAR analysis anddetermination of the arm's length nature of an internationaltransaction is the domain of a TPO, as provided by Section 92Cof the Act, Rule 10B(2) and 10C(2) of the Income Tax Rules, 1962('the Rules'). Though the respondent has power to determinearm's length as per the provisions of the Act, the same has beenrestricted by Instruction 3 of 2016 dated 10.03.2016 issued bythe CBDT, for better administration of the Act. The respondentis bound to follow the directions provided in the instruction,in view of the settled position of law that the circulars issuedby the CBDT under Section 119 of the Act is binding on the AOs.The respondent has exceeded her jurisdiction in analyzing theFAR of the petitioner and determining the arm's lengthattribution at 100 percent of the global profits earned from thesales in India by EOS Germany on the basis of such FAR analysis,which can be undertaken only by the TPO. Even if the action ofthe respondent is construed valid, the impugned order is bad inlaw for the following reasons: i) The respondent did not provide any reason for rejectingthe TP analysis conducted by the petitioner, as required underSection 92C (3) of the Act; ii) The respondent failed to conduct analysis ofindependent parties to determine the arm's length attribution asrequired under law and the DTAA and attributed to thepetitioner, 100 percent of the global profits earned from the sales in India by EOS Germany though critical functions such asR&D, manufacture, sales strategy, pricing, negotiation, etc.,were performed by EOS Germany and not the Indian Branch and i) The respondent did not provide any reason for rejectingthe TP analysis conducted by the petitioner, as required underSection 92C (3) of the Act; ii) The respondent failed to conduct analysis ofindependent parties to determine the arm's length attribution asrequired under law and the DTAA and attributed to thepetitioner, 100 percent of the global profits earned from the sales in India by EOS Germany though critical functions such asR&D, manufacture, sales strategy, pricing, negotiation, etc.,were performed by EOS Germany and not the Indian Branch and iii) The respondent issued the show cause notice dated13.12.2018, almost at the end of the time limit prescribed forpassing of the draft assessment order for the subject AssessmentYear 2016-17, with factually incorrect conclusions andstatements regarding the functions and activities performed bythe petitioner. The entire exercise of issuance of show causenotice is perfunctory, superficial and has been reduced to amere formality, with predetermined end result of adjustments tobe achieved. 3. The respondent filed a counter affidavit, wherein it isstated as follows: a) The petitioner filed its return of income for theAssessment Year 2016-17 on 30.11.2016 declaring an income ofRs.53,00,847/-. The petitioner is involved in the business ofdesigning, manufacturing and selling machines and materials thatare used for rapid prototyping. The case was selected forscrutiny through Computer Assistant Scrutiny Selection (CASS)and notices under Sections 143(2) and 142(1) of the Income TaxAct, 1961 were issued to the petitioner on 18.09.2017 and18.06.2018, respectively. b) On further verification, it was found that thepetitioner is involved in identifying the potential customers,the marketing of its business by explaining the product profile,product feature, its utility and application in India. Based onbranch office operation performed by the sales support personnelorders are solicited from customers and preliminary evaluationof the customers and distributors are done to finalise the salesprocess. c) Since all the activities like purchase, sale,operations, services everything was carried out by the Indiabranch office of EOS Gmbh, a show cause notice dated 13.12.2018was issued to the petitioner stating that why the profit of thebranch office of the petitioner Company should not be taxed atthe rate of 40 percent for the relevant Assessment Year 2016-17.In response, the petitioner filed its reply on 20.12.2018. d) The contention of the petitioner was not accepted bythe respondent for the reason that the activities of EOS IndiaBranch Office prove that it is more than a mere agency supportoffice and that it was a fully functional branch office inIndia. It was ascertained by the respondent that the employeesin the EOS India Branch Office are involved in the activity of identifying potential customers and explaining the productfeatures and its utility and application and therefore held thatthe petitioner's claim of mere liaison between EOS Germany andthird party distributors is not correct. Since sales andmarketing personnel in EOS India are directly involved in theidentification of customers, solicit orders for EOS products inIndia, offering technical services like checking of pyrometer,process chamber, optic chamber, re-coater alignment, knucklejoint platform pin, laser power at process chamber, wiper sheet,etc., the respondent concluded that the functions performed andthe risk assumed by India office significantly proves that it ismore than that of a mere agency support branch office. In viewof the above, the respondent recomputed the income of thepetitioner including the income attributable to the profitsearned from the sales in India of the foreign entity and taxedaccordingly under Section 9(1)(ia) of the Act. e) Further, the petitioner is a Permanent Establishment inIndia and had only admitted the commission income and otherincome earned and had not admitted the income from the businessactivities carried out by it for the foreign entity as PermanentEstablishment as per Article 7 of DTAA between India andGermany. Therefore, the entire profit from Indian operation wasbrought to tax in India and a draft assessment order underSection 143(3) read with Section 144C(1) of the Income Tax Act,1961 was completed determining the total income of thepetitioner at Rs.5,22,90,844/- and taxed accordingly. f) The respondent has jurisdiction over the case, theorder under Section 143(3) read with Section 144C(1) of the Actwas passed as per the provisions of the Act and after complyingwith CBDT Instructions and Principle of Equity and NaturalJustice. g) As regards the averments in paragraph 5, it issubmitted that the respondent had not made any adjustment to theincome admitted by the petitioner. The petitioner, beingPermanent Establishment in India of foreign entity i.e. EOSGmbH, Germany, had only admitted the Commission amount receivedfrom the parent Company, service charges, etc., in the return ofincome filed. However, the business activities carried on bythe petitioner as Permanent Establishment was not admitted fortaxation. It was ascertained by the respondent that sales andmarketing personnel of the petitioner is directly involved inthe identification of customers, solicit orders for EOS productsin India, offering technical services like checking ofpyrometer, process chamber, optic chamber, re-coater alignment,knuckle joint platform pin, laser power at process chamber, wiper sheet, etc., In view of the above, the respondentapplying the provisions of Rule 10 of Income Tax Rules, 1962read with Section 9(1)(ia) of the Act, recomputed the income ofthe petitioner including the income attributable to the profitsearned from the sales in India of the foreign entity for thereasons that the functions performed and the risk assumed byIndia Branch Office i.e. the petitioner significantly provesthat it is more than that of branch office. The respondent hadadded only the income to the extent it was attributable to theprofits earned from the sales in India. The respondent had notcarried out any Transfer Pricing Analysis to recompute theincome of the petitioner but had only determined the incomebased on the details furnished by the petitioner in 3CEB reportwithout making any adjustments. h) The respondent cannot exercise power suo-moto to make areference to Transfer Pricing Officer (TPO), unless the casefalls under any of the circumstances mentioned in Central Boardof Direct Taxes (CBDT) Instruction No.3/2016 dated 10.03.2016. i) The petitioner is trying to divert the issue bydragging Transfer Pricing (TP) issue before the Court, which isnot at all of relevance here. The respondent has neitherassumed the jurisdiction of the TPO nor analyzed the FAR of thepetitioner. The functions performed and the risk assumed byIndia Branch Office i.e. the petitioner significantly provesthat it is more than that of branch office. The respondent hadadded only the income to the extent it was attributable to theprofits to the profits earned from the sales in India. It isabsolutely wrong to contend that there is no alternativeefficacious remedy available to the petitioner, when thepetitioner has the option to either approach the DisputeResolution Panel against the impugned order or wait till thefinal order is passed and file appeal before the Commissioner ofIncome Tax (Appeals) against the same. Hence, on this scoreitself, this writ petition deserves to be dismissed. 4. A rejoinder affidavit is filed by the petitioner,wherein it is stated as follows: 4. A rejoinder affidavit is filed by the petitioner,wherein it is stated as follows: The primary contention of the petitioner in this writpetition is that the respondent has undertaken Transfer Pricing(TP) analysis, which is contrary to the binding instructionissued by the Central Board of Direct Taxes(CBDT) and the rulingof the Hon'ble Supreme Court in the case of DIT vs MorganStanely & Co. (292 ITR 416). The respondent has erroneouslymentioned in para 3(i) that the petitioner is involved in thebusiness of designing, manufacturing and selling machines andmaterials. It is an undisputed fact that these activities are carried out by the petitioner's Head Office at Germany. Even inthe impugned order, the respondent's allegation is that thepetitioner is undertaking activities related to sales andmarketing in India. The respondent erroneously states that thepetitioner has imported materials from its Head Office and soldthe same to Indian customers. However, the petitioner merelyacts as a liaison office between the Head Office and itscustomers in India. The petitioner does not import any goodsfrom its Head Office. This fact is evident from thepetitioner's financial statements. Further, the respondent doesnot allege the same in the impugned order. The attribution to aPermanent Establishment shall be to the extent the PermanentEstablishment would be expected to earn if it were an enterpriseengaged in the same similar activities under the same or similarconditions and dealing wholly independently. Thus, for thepurpose of attribution, a Permanent Establishment is consideredas a separate entity and expected to earn profits as if it wasan independent enterprise, i.e., an arm's length profit. 5. Mr.N.V.Balaji, learned counsel for the petitioner madehis oral submissions. He has also filed written arguments. Thesum and substance of the contentions raised on behalf of thepetitioner are as follows: The petitioner is a branch office of EOS GmbH ('EOSGermany') engaged in agency services and after-sale services toits Head Office. The petitioner is an admitted PermanentEstablishment by virtue of Article 5(2)(b) of the Double TaxAvoidance Agreement ('DTAA') entered between India and Germany.For services rendered (agency and after sales), the petitioneris remunerated with a commission at the rate of 1 percent of thesales made by EOS Germany in India. The said remuneration hasbeen justified to be at arm's length (hereinafter referred to asALP), based on a Transfer Pricing (TP) analysis undertaken inthe TP documentation by adopting Transactional Net Margin Method(TNMM) whereby the petitioner's net profit was computed by 13percent as compared to the range of profits earned by thecomparable companies from 7.25 percent to 11.38 percent. Thesame was also certified by an independent Chartered Accountantin Form No.3CEB. This ALP remuneration translates to anattribution of 6.5 percent of the global profits to thepetitioner. The petitioner has offered such ALP remuneration totax in its return of income. During the course of assessmentproceedings, the respondent obtained a sworn affidavit from afinance team member, who had limited knowledge on the field workundertaken by the petitioner. The petitioner provided itsreply, retracting the statements provided by the petitioner'semployee above, however, solely placing reliance on the abovestatement, the respondent concluded that the petitioner is a Permanent Establishment in India, which is an admitted fact. Inthe impugned order, the respondent further concludes that thepetitioner's functions, Assets and Risks (FAR) is more than whathas been admitted and therefore, the attribution of 6.5 percentwas enhanced to 100 percent of the profits of EOS Germany'sIndia business. In the present writ petition, the petitionerhas challenged the above action of the respondent in enhancingthe profits attributable to the petitioner, which is contrary tothe provisions of law and binding instruction issued by theCentral Board of Direct Taxes(CBDT). The petitioner alsoclarifies that it is only challenging the jurisdiction of therespondent to attribute profits to a Permanent Establishmentwithout a TP analysis and is not challenging the quantificationof the attribution. The petitioner does not have an effectivealternate remedy against the impugned order.In order toattract TP provisions under Chapter-X of the Act, there has tobe an international transaction between associated enterpriseshaving regard to the arm's length price. A detailedcomparability analysis has been undertaken by the petitioner inits TP documentation and it was concluded that the transactionbetween the petitioner and its Head Office was at ALP. The TPdocumentation was furnished to the respondent during the courseof assessment proceedings. Article 7 OECD Model Tax Conventiondeals with the taxing rights of contracting states with regardto a PE. The Model recommends a separate entity approach, i.e.,the PE would be treated as a separate enterprise, independentfrom the rest of the enterprise of which it is a part i.e., theHead Office. Further, paragraphs 15 and 16 of the Commentary toArticle 7 provides that the approach for determining profitsattributable to a PE requires the determination of the profitsunder the fiction that the PE is a separate enterprise which isindependent from the rest of the enterprise of which it is apart, i.e. The Head Office. The second part of that fictioncorresponds to the ALP which is also applicable under theprovisions of Article 9 for the purpose of adjusting the profitsof associated enterprises. Paragraphs 20 to 22 of theCommentary to Article 7 further elaborates that the attributionof profits to a PE involves two steps. Under the first step, afunctional and factual analysis is to be undertaken. Under thesecond step, any transaction of the PE with its associatedenterprises are priced in accordance with the guidance of theOECD Transfer Pricing Guidelines and these Guidelines areapplied by analogy to dealings between the permanentestablishment and the other parts of the enterprise of which itis a part. The wordings of Article 7 of the Model Tax Conventionis pari-materia to Article 7 of India-Germany DTAA.Thepresent case would fall under the second category discussed bythe Hon’ble Supreme Court in the case of Morgan Stanley & Co. [2007] 292 416 ITR (SC), wherein the respondent is alleging thatthe FAR analysis demonstrated by the petitioner does not reflectthe functions actually performed. In such a situation, theHon’ble Apex Court requires an examination of the TP analysisand the more particular the FAR analysis conducted by thetaxpayer. From the above submissions, it can be concluded thatattribution of profits to a PE can be determined only through aTP analysis. Though Section 92C of the Act provides power to therespondent to determine ALP, the same is curtailed by theinstruction of the CBDT in para 3.7. The above circular of CBDTis binding on the respondent and any deviation from the samewould render the assessment void. In this regard, he relied onthe decision of the Supreme Court reported in 1999 237 ITR 889(SC), UCO Bank vs Commissioner of Income Tax. The contentionsraised in this writ petition deals with jurisdictional aspect ofwhether the respondent has powers to determine FAR and ALP,without following the binding instructions of CBDT and decisionof the Hon’ble Apex Court (supra). In this case, the alternateremedy in DRP is not an effective one as DRP does not have thepower to quash-refer Section 144C(8). DRP does not have powerto annul an assessment. Therefore, the remedy available underthe Act is not an effective remedy. Further, availability ofremedy is no bar when a jurisdictional aspect is challenged.The respondent has not referred to Rule 10 of the Rules in theimpugned order while attributing 100 percent of the globalprofits to the petitioner. The respondent cannot improve uponthe impugned order in the counter affidavit. Reliance is placedon the Hon’ble Apex Court in the case of Mohinder Singh Gill V.Chief Election Commissioner (1978) 1 SCC 405. The respondenthas not established why the attribution was not ascertainable inthe petitioner’s case. The petitioner relies on the ruling ofthe Delhi Bench of the Income Tax Appellate Tribunal in the caseof Hyundai Rotem Company vs ADIT (53 SOT 142), wherein it washeld that an Assessing Officer cannot invoke Rule 10 withoutpointing out any error in taxpayer’s TP documentation. 6. Mrs.Hema Muralikrishnan, learned counsel for therespondent made her oral submissions. She has also filedwritten arguments. The sum and substance of the contentionsraised on behalf of the respondent are as follows:On an analysis of the state of affairs at the time ofinspection and various records perused at the time ofinspection, it was found that the petitioner is involved inidentifying the potential customers, the marketing of itsbusiness by explaining the product profile, product feature, itsutility and application in India. Based on branch officeoperation performed by the sales support personnel orders are 6. Mrs.Hema Muralikrishnan, learned counsel for therespondent made her oral submissions. She has also filedwritten arguments. The sum and substance of the contentionsraised on behalf of the respondent are as follows:On an analysis of the state of affairs at the time ofinspection and various records perused at the time ofinspection, it was found that the petitioner is involved inidentifying the potential customers, the marketing of itsbusiness by explaining the product profile, product feature, itsutility and application in India. Based on branch officeoperation performed by the sales support personnel orders are solicited from customers and preliminary evaluation of thecustomers and distributors are done to finalise the salesprocess. Since all the activities like purchase, sale,operations, services everything was carried out by the Indiabranch office of EOS Gmbh, a show cause notice dated 13.12.2018was issued to the petitioner stating that why the profit of thebranch office of the petitioner company should not be computedby taking into consideration the revenue earned through sales inIndia and taxed at the rate of 40 percent for the relevantAssessment Year 2016-17. The petitioner filed its objectionsexplaining the various operations carried out by its IndiaOffice and German Office and how the remuneration received by it@ 1% of the sales revenue and the invoice raised by it on itsGerman Office of cost +15% is at Arms Length Price. After dulyconsidering the objections of the petitioner, the respondentpassed draft assessment order dated 31.12.2018 under Section 143read with 144C of the Act. Admittedly the impugned order isonly a draft assessment order and the petitioner can either fileits objections before the Dispute Resolution Panel (DRP) againstthe draft assessment order itself or wait till the finalassessment order (which has to be passed within one month fromthe draft assessment order) and file appeal before theCommissioner of Income Tax (Appeals) against the finalassessment order. It is therefore clear that the petitioner hasan effective and efficacious statutory appellate remedy againstthe impugned order. It is the petitioner’s arguments that theDRP does not have the power to annul the assessment andtherefore the petitioner is remediless. Such an argument isbaseless. In any event, the petitioner has also the remedy offiling appeal before the CIT(A) against the final assessmentorder and therefore when two avenues of remedy are available tothe petitioner, it is for the petitioner to choose theappropriate one and a writ petition cannot be maintained justbecause it is the petitioner’s contentions that the powers ofDRP are limited. It is submitted that the Supreme Court and thisCourt in the following decisions have held that writ petitionought not to be entertained under Article 226 of theConstitution if an effective remedy is available to theaggrieved person and that this rule applies with greater rigourinvolving recovery of taxes, cess, fees, other types of publicmoney. United Bank of India Vs Satyawati Tandon 2010(8) SCC 110;State Bank of Travancore Vs. Mathew K.C (2018) 3 SCC 85 (SC);The role and function of the Transfer Pricing Officer is limitedto verifying the Transfer Pricing documents maintained by thepetitioner and analyzing whether the price mentioned by it is at United Bank of India Vs Satyawati Tandon 2010(8) SCC 110;State Bank of Travancore Vs. Mathew K.C (2018) 3 SCC 85 (SC);The role and function of the Transfer Pricing Officer is limitedto verifying the Transfer Pricing documents maintained by thepetitioner and analyzing whether the price mentioned by it is at Arms Length Price after comparing the same with other comparablecompanies. The issue as to which other companies are comparablecompanies is based on the Transfer pricing documents maintainedby the petitioner wherein the petitioner maintains data aboutthe work done by it on parameters like Research & Development,Manufacturing, Distribution, Internal Administration as found inpage 20 of the typed set. These parameters do not reveal thereal facts as found out by the respondent herein at the time ofsurvey regarding the extent of work done by the India Office.Therefore, in this case there is no question of reference to aTransfer Pricing Officer in as much as the conclusion arrived onan analysis of the facts found at the time of inspection and therecords perused at that time reveals that the petitioner’scontention that it is only an agency PE and that the customersare the customers of the German Head Office and therefore entiresales is to be treated as sales revenue of the German HeadOffice is a farce and an attempt to evade taxes in India. Thereference to a Transfer Pricing Officer pre-supposes the factthat the assesse has not hidden the true facts and that theassessee’s submissions with regard to the extent of work done byit and the extent of work done by the Associated Enterprise iscorrect. In the present case, the results of the survey show thesame to be false. The assessing Officer has not made anyFunction, Asset and Risk study (FAR Study) as alleged by thepetitioner and therefore Instructions No.3/2016 dated 10.03.2016issued by CBDT is not applicable to the present case. Therespondent has not carried out any Transfer Pricing study buthas merely applied Section 9 of the Income Tax Act, 1961,Article 7(2) of the India Germany DTAA and Rule 10 of the IncomeTax Rules. The Respondent had added only the income to theextent it was attributable to the profits earned from the salesin India. Therefore the case law relied on by the petitioneri.e. the Ruling of Hon’ble Supreme Court in the case of DIT vsMorgan Stanley & Co. (292 ITR 416) is not applicable to thefacts of the present case. It had never been the plea of thepetitioner before the respondent that what was being attemptedto be done by the respondent was within the ambit of powers ofTransfer Pricing Officer and that the respondent did not havethe power to do so. Such a plea was obviously not raised by thepetitioner at any earlier point of time because the petitionerwas well aware of the fact that the respondent was notundertaking any transfer pricing study and was merelydischarging her functions and role as an assessing authorityunder Section 143 read with Section 144C of the Act. 7. Heard the learned counsel for the petitioner and thelearned Senior Standing Counsel for the respondent. I have also perused the order impugned in this writ petition, which is adraft assessment order passed under Section 143(3) read withSection 144C(1) of the Income Tax Act, 1961. 7. Heard the learned counsel for the petitioner and thelearned Senior Standing Counsel for the respondent. I have also perused the order impugned in this writ petition, which is adraft assessment order passed under Section 143(3) read withSection 144C(1) of the Income Tax Act, 1961. 8. Since various facts and circumstances narrated and therespective submissions made by both parties are extractedextensively supra, I am not reiterating the same once againhereunder except to an extent referring to certain facts andcontentions, which are enough for deciding this writ petition.It is claimed by the petitioner that it is a branch office ofits Germany Company viz., EOS Gmbh. It is further claimed thatthe petitioner is engaged in agency services and after salesservices to its Head Office. The petitioner further claims thatit is a Permanent Establishment and the said fact is notdisputed by the Revenue. In respect of the relevant AssessmentYear 2016-17, the petitioner's case was selected for scrutinyand it is stated by the Revenue that at the time of inspection,it was found that corresponding income to the sale value made tothe relevant Assessment Year 2016-17 was unreasonable and onfurther analysis of state of affairs at the time of inspectionand on perusal of various records, it was found that thepetitioner was involved in identifying the potential customersand marketing of business by explaining the product profile,product feature, its utility and application in India. It isfurther claimed by the Revenue that based on the branch officeoperation performed by the sales support personnel, orders aresolicited from customers and preliminary evaluation of thecustomers and distributors are done to finalise the salesprocess and since all the activities like purchase, saleoperations, services were carried out by the petitioner inIndia, a show cause notice was issued to the petitioner on13.12.2018 to show cause as to why the profit of the branchoffice of the petitioner Company should not be computed bytaking into consideration of the revenue earned through sales inIndia and taxed at the rate of 40% for the relevant AssessmentYear 2016-17. In other words, it is the case of the Revenuethat all the activities carried out by the petitioner is withinIndia and thus, the profits derived out of such activitiesshould be computed as the revenue earned through sales in Indiaand brought to tax. The petitioner filed detailed reply andobjected to the proposal. However, the Assessing Officer passedthe impugned draft assessment order on 31.12.2018, afterconsidering the reply submitted by the petitioner dated20.12.2018. 9. The contention of the petitioner before this Court isthat for the services rendered by the petitioner, they areremunerated with commission at the rate of 1% of the sales made 9. The contention of the petitioner before this Court isthat for the services rendered by the petitioner, they areremunerated with commission at the rate of 1% of the sales made by EOS Germany in India and that the said remuneration has beenjustified to be at arm's length based on a Transfer Pricinganalysis undertaken in the transfer pricing documentationwhereby the petitioner's net profit was computed by 13% ascompared to the range of profits earned by the comparableCompanies from 7.25 percent to 11.38 percent. It is furtherclaimed by the petitioner that this Arm's Length Pricingremuneration translates to an attribution of 6.5 percent of theglobal profits to the petitioner. Therefore, it is contendedthat the action of the respondent in enhancing the profitsattributable to the petitioner is erroneous, since transactionbetween the Head Office and Permanent Establishment in India issubject to transfer pricing provisions and therefore, thetransaction between a foreign enterprise and its PermanentEstablishment are also subject to the transfer pricingregulations. Therefore, it is contended by the petitioner thatthe Assessing Officer is not justified in deciding the issue byhimself which requires the role of the Transfer Pricing Officer.It is the further contention that determination of FAR analysisand ALP is within the domain of the Transfer Pricing Officer andnot that of the Assessing Officer. Therefore, it is contendedthat the very draft assessment order passed by the respondentcannot be sustained and on the other hand, the Assessing Officeris to be directed to refer the matter to the Transfer PricingOfficer and thereafter to make the draft assessment order. 10.The assessee in this case, with reference to itsactivities, claims that it does not conclude contracts on behalfof EOS Germany and its activities are limited to perform agencysupport activities and acting as a liaison channel between EOSGermany and third party distributors in India and the thirdparties are responsible for identifying customers and securingorders with Indian customers based on which EOS Germany sellsproducts to customers. By stating so, the assessee contendsthat the profit earned by the petitioner is to be determined byadopting arms length pricing method. Therefore, it is statedthat such ALP determination is within the domain of TransferPricing Officer and not that of the Assessing Officer. 11. On the other hand, the Assessing Officer, afterconsidering the objections of the petitioner, has in clear andcategorical terms found in the draft assessment order that theabove contention of the assessee is not acceptable for thereason that the activities of the petitioner prove that they aremore than the branch office in India and that the employees ofthe petitioner in EOS India Branch Office involve in theactivity of identifying potential customers and explaining theproduct features and its utility and application. Therefore, 11. On the other hand, the Assessing Officer, afterconsidering the objections of the petitioner, has in clear andcategorical terms found in the draft assessment order that theabove contention of the assessee is not acceptable for thereason that the activities of the petitioner prove that they aremore than the branch office in India and that the employees ofthe petitioner in EOS India Branch Office involve in theactivity of identifying potential customers and explaining theproduct features and its utility and application. Therefore, the Assessing Officer rejected the claim of the assessee as mereliaison between EOS Germany and third party distributors. TheAssessing Officer has also found that the sales and marketingpersonnel in the petitioner Company are directly involved inidentification of customers, verification of know your customerdocuments, preliminary evaluation of distributors, solicitorders for EOS products in India. Therefore, the AssessingOfficer has observed that the petitioner is not performing alimited role as contended by them. The Assessing Officer hasalso referred to certain purchase orders, installation report,customer relationship marketing report, service engineers reportand found that the above documents clearly prove that thepetitioner Company is performing all activities relating tomarketing, sales, documentation, installation, post-saleservices, coordinating with third party distributors, etc., andtherefore, they are not a mere branch office. The AssessingOfficer has further pointed out that the employees working inthe petitioner Company involve all activities relating to salesmade in India and also post-sale services in India. TheAssessing Officer has also taken note of the communicationreceived from Hindustan Aeronautical Limited (HAL) informingthat the petitioner Company has confirmed its PermanentEstablishment in India in order to obtain the business sales inIndia and thus found that the claim of the mere liaisoning isnot acceptable. 12. From the above rival contentions of the parties, it isevident that so many factual disputes, which go to the root ofthe matter, viz., the nature of activities carried on by thepetitioner, exist between the parties. Unless and until thosefactual disputes are settled by appreciation of factual aspectsof the matter by a fact finding authority, the question as towhether the income at the hands of the petitioner is to betreated as income earned in India and liable for tax, as claimedby the Revenue, or as the income to be determined by adoptingALP method, as claimed by the petitioner, cannot be consideredby this Court and decided at this stage, since the orderimpugned is only a draft assessment order and the petitioner isonly called upon to make objection against the same, if they arenot agreeable. Therefore, the disputes raised by the petitionerherein are to be considered by the competent forum providedunder the statute itself and resolved accordingly. It is notany empty formality but an effective mechanism. Therefore, tosettle such dispute, necessarily the petitioner has to go beforethe Dispute Resolution Panel as provided under Section 144C ofthe Income Tax Act, 1961. 13. It is pertinent to note that Section 144C of theIncome Tax Act, 1961 deals with reference to the DisputeResolution Panel. In the said provision, the Assessing Officer,shall in the first instance, forward a draft of the proposedorder of assessment to the assessee, if the Assessing Officerproposes to make any variation in the income or loss returned,which is prejudicial to such assessee. Under Sub Clause (2) ofSection 144C, the Assessee, on receipt of such draft order,shall file his acceptance of the variations to the AssessingOfficer or file his objections, if any, to such variations withthe Dispute Resolution Panel and the Assessing Officer. If theassessee intimates his acceptance of the variations to theAssessing Officer or if no objections are received within theperiod of 30 days, the Assessing Officer shall complete theassessment on the basis of the draft order, as contemplatedunder Section 144C(3). On the other hand, if the assessee hasfiled his objections, the Dispute Resolution Panel shall issuesuch directions as it thinks fit for the guidance of theAssessing Officer to enable him to complete the assessment ascontemplated under Section 144C(5). It is to be noted that theDispute Resolution Panel shall issue such directions only afterconsidering the following namely, a) draft order; b) objections filed by the assessee; c) evidence furnished by the assessee; d) report, if any, of the Assessing Officer, ValuationOfficer or Transfer Pricing Officer or any other authority; e) records relating to the draft order; f) evidence collected by, or caused to be collected by it; and g) result of any enquiry made by, or caused to be made byit. 14. It is further seen that before issuing any directions,the Dispute Resolution Panel may make such further enquiry, asit think fits or cause any further enquiry to be made by anyIncome Tax Authority and report the result of the same to it.Section 144C(8) contemplates that the Dispute Resolution Panelmay confirm, reduce or enhance the variations in the draft orderso. Therefore, it is evident that the petitioner is notremediless as against the draft assessment order and on theother hand, they are entitled to resort to the remedy availableunder Section 144C(2)(b) by filing their objections. 15. No doubt, the learned counsel for the petitionercontended that the petitioner cannot go before the DisputeResolution Panel, since the petitioner is questioning the very jurisdiction of the Assessing Officer in exercising the role ofTransfer Pricing Officer. It is also contended by the learnedcounsel that since the Dispute Resolution Panel is not havingpower to set aside the draft assessment order and hence there isno meaning in going before the Dispute Resolution Panel. 16. I am unable to accept the above contention of thelearned counsel for the petitioner for the following reasons: 15. No doubt, the learned counsel for the petitionercontended that the petitioner cannot go before the DisputeResolution Panel, since the petitioner is questioning the very jurisdiction of the Assessing Officer in exercising the role ofTransfer Pricing Officer. It is also contended by the learnedcounsel that since the Dispute Resolution Panel is not havingpower to set aside the draft assessment order and hence there isno meaning in going before the Dispute Resolution Panel. 16. I am unable to accept the above contention of thelearned counsel for the petitioner for the following reasons: a) Firstly, it is to be noted that therespondent/Assessing Officer has not accepted anywhere that hehas determined the income by treating or accepting the same asthe one to be derived after determination by the TransferPricing Officer. In other words, it is the specific claim ofthe Assessing Officer that the entire activities of thepetitioner squarely fall within his power and jurisdiction fordetermination of the taxable income by himself without referringto the Transfer Pricing Officer. Therefore, this factualdispute has to be settled first for which purpose only theDispute Resolution Panel is constituted. At this juncture, itis to be stated that a jurisdictional issue raised must be ofsuch nature which should be apparent on the face of theaction/order of the