2024 (10) TMI 428 - HC - Income Tax

Validity of reopening of assessment u/s 147 - prima facie ground for forming belief that there is some escapement of income - Appellant failed to disclose revenue from sales made to Indian customers - HELD THAT - We consequently find no justification to interfere with the view taken by the Tribunal insofar as invocation of Section 148 is concerned. Regard must be had to the indubitable fact that a challenge to commencement of reassessment is liable to be tested on the threshold of a jurisdictional error and the assumption of authority itself being liable to be faulted on a failure to meet the preconditions which stand statutorily erected. Tested on those basic precepts we find no merit in the challenge which stands raised on that score. Existence of a fixed place PE of the assessee/ Appellant in India - Fixed Place PE DAPE Fee for Technical Services and attribution of profit - Did ITAT fall into error in concluding that the assessee separately had an independent agent PE located in India? - ITAT justified in attributing as high as 35% of the profits to the alleged marketing activities and thereafter attributing 75% of such 35% profits to the alleged PE of the Appellant in India - HELD THAT - Fixed Place PE and DAPE are concerned the Court had in the previous round of litigation by way of a detailed determination ultimately come to hold against the appellant. That decision has undoubtedly attained finality. While it is true that the principles of res judicata may not and strictly speaking be applicable to tax litigation we cannot completely ignore the precepts of consistency which are of equal significance be it from the point of the Revenue or for that matter the assessee. This assumes added importance where the assessee abjectly fails to advert to any set of facts or allude to any circumstance which may distinguish the position that may obtain in a particular assessment year warranting separate or independent evaluation. Although the appeal and the writ petition were heard over a course of time the appellants had woefully failed to draw our attention to any fact or feature which would have warranted the respondents undertaking an independent enquiry in relation to Fixed Place PE or DAPE. In any case the decision of this Court in the earlier round coupled with a failure on the part of the appellant to establish that the factual scenario had come to be fundamentally altered the respondents were clearly entitled to proceed on the basis of the unchanged facts and commence reassessment. While principally speaking and on a foundational plane the power to reassess can be invoked only on the basis of material that may be pertinent to a particular AY that principle would pale into insignificance where the assessee fails to assert a change or a fundamental alteration of the facts which are asserted to have remained unaltered. We find no merit in the challenge which stands raised to the initiation of reassessment action. Attribution of profit - As decided by ITAT we hold that GE India conducted core activities and the extent of activities by assessee in making sales in India is roughly one fourth of total marketing effort. We thus estimate 26% of total profit in India as attributable to operations carried out by PE in India. Therefore as against Ld. AO applying 3.5% to sales made by assessee in India we direct Ld.AO to apply 2.6% on total sales for working out profits attributable to PE in India The conclusions as arrived at by the Tribunal are clearly unexceptionable bearing in mind the findings that this Court had rendered in its earlier judgment and which has attained finality. We consequently find no merit in the challenge that stands raised in this respect.

Issues Involved:

1. Legitimacy of ITAT's decision to uphold the AO's jurisdiction under Sections 147/148 of the Income Tax Act, 1961, for AY 2009-10.
2. Existence of a Fixed Place Permanent Establishment (PE) in India under Article 5(1) of the DTAA.
3. Existence of a Dependent Agent Permanent Establishment (DAPE) in India under Article 5(4) of the DTAA.
4. Attribution of profits and reliance on a reversed judgment by the Supreme Court.

Detailed Analysis:

1. Legitimacy of ITAT's Decision on Jurisdiction under Sections 147/148:

The Tribunal upheld the AO's jurisdiction under Sections 147/148, emphasizing that the AO had a "prima facie ground for forming belief that there is some escapement of income." The Tribunal noted that the appellant failed to disclose revenue from sales made to Indian customers through GEIIPL, which constituted a failure to disclose fully and truly all material facts necessary for assessment. The Tribunal relied on the Supreme Court's decision in ACIT vs Rajesh Jhaveri Stockbroker (P) Ltd., which held that at the initiation stage of reassessment, only a "reason to believe" is necessary, not conclusive evidence of income escapement.

2. Existence of a Fixed Place Permanent Establishment (PE):

The Court reiterated its previous findings that GE India was involved in core activities such as sales and marketing, which were not merely preparatory or auxiliary. The Court emphasized that GE India's activities were integral to the business operations of the GE Group in India, thus constituting a Fixed Place PE. The decision was based on evidence of GE India's involvement in negotiations and finalization of contracts, which indicated a substantive business presence in India.

3. Existence of a Dependent Agent Permanent Establishment (DAPE):

The Tribunal and the Court affirmed the existence of a DAPE, noting that GEIIPL acted as an agent for multiple GE entities, securing orders and negotiating contracts in India. The Court referred to the OECD commentary and India's position on the authority to conclude contracts, emphasizing that the activities of GEIIPL went beyond mere auxiliary functions and were sufficient to establish a DAPE.

4. Attribution of Profits:

The Tribunal addressed the issue of profit attribution, noting that the AO attributed 3.5% of the sales as profits attributable to the PE in India. The Tribunal found the AO's approach, which was based on precedents like Rolls Royce Plc, to be justified. The Court upheld this attribution, noting that the Tribunal's decision was consistent with the facts and the law, and the appellant failed to demonstrate any fundamental change in circumstances that would warrant a different attribution.

Conclusion:

The Court dismissed the appeal and the connected writ petition, finding no merit in the appellant's challenges. The Tribunal's findings on the existence of a Fixed Place PE and DAPE, as well as the attribution of profits, were upheld. The Court emphasized the importance of consistency in tax assessments, especially when the appellant did not present any new facts or circumstances to distinguish the current assessment year from previous ones.

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