SanDisk India not a Taxable DAPE of Western Digital: ITAT Rejects Survey Based Profit Attribution of ₹194.44 Cr under India-US DTAA [Read Order]

The assessee, Western Digital Technologies Inc., is a US-based company. SanDisk India Device Design Centre Pvt. Ltd. (now known as Western Digital India) became part of the assessee’s group by the acquisition of its parent company, SanDisk USA LLC, in May 2016.

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A survey under section 133A was conducted at the premises of SanDisk India for the Assessment Year (AY) 2017-18.

The Assessing Officer (AO) observed that SanDisk India was playing a principal role in concluding contracts for and on behalf of the assessee and, therefore, constituted its Dependent Agency Permanent Establishment (DAPE) in India based on statements recorded and materials collected during the survey. The AO attributed profits of ₹194,44,62,000 as taxable in India under section 9(1)(i) of the Income Tax Act,1961, read with Article 7 of the DTAA.

The Dispute Resolution Panel (DRP) upheld the AO’s findings, holding that SanDisk India habitually exercised authority in respect of securing orders and carried out core business functions of the assessee in India. The DRP also confirmed the attribution of ₹194,44,62,000 to the alleged Permanent Establishment (PE).

Before the Tribunal, the assessee submitted that SanDisk India was rendering services on a principal to principal basis for which it had been remunerated at arm’s length, that SanDisk India had no authority to conclude contracts or secure orders for the assessee, and that the entire addition was based only on survey statements without supporting evidence.

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The Bench comprising Soundararajan K(Judicial Member) and Waseem Ahmed (Accountant Member) observed that the material relied upon by the AO and DRP did not demonstrate that SanDisk India was habitually concluding contracts or securing orders for the assessee but, It was noted that SanDisk India was carrying on software development and design support services, and its transactions were already examined and accepted under transfer pricing provisions.

The Tribunal held that survey statements alone cannot establish the existence of a DAPE or justify profit attribution, and there must be substantive evidence of core activities carried out in India on behalf of the foreign entity. Since no such evidence was found, the Tribunal rejected the attribution of ₹194,44,62,000 and ruled that Western Digital had no taxable DAPE in India.

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Accordingly, the ITAT held that SanDisk India does not constitute a DAPE of Western Digital in India under Article 5 of the DTAA, and deleted the entire profit attribution sustained by the DRP.

The assessee was represented by Ajay Rotti, while Sridhar E represented the revenue.

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