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2020 (11) TMI 209 - AT - Income TaxRe-opening of assessment u/s 147 - whether the non-resident entities had Permanent Establishment (“PE”) in India and if the PE existed what would be the income attributable to such alleged PE - case of the assessee is that where the transactions between the assessee and LGIEL has been found to be at arm’s length by the TPO then there cannot be further profit attribution to a person even if it has PE in India - As per AO there was real and intimate business connection as per section 9(1)(i) of the Act as there was continuity of business between Indian business and its AEs - non-resident companies were doing business in India through the employees of the parent company, who were heading various divisions in the Indian Companies and also through employees visiting India regularly - HELD THAT:- Consequent fall out is the case of the assessee, which in turn were re-opened u/s 147 of the Act consequent to survey u/s 133A of the Act on LGEIL. The basis for initiation of re-assessment proceedings falls as in the hands of LGEIL by the order dated 04.09.2018, the CIT(A) has given a finding that none of the AEs apart from L.G.Korea had PE in India for Assessment Years 2005-06 to 2010-11. Copy of the said order is placed at pages 39 to 105 of the Convenience Paperbook. In these circumstances and applying the ratio laid down by the Hon’ble Supreme Court in L.G.Group of companies . [2018 (1) TMI 1611 - SUPREME COURT] AND Honda Motors Co.Ltd. [2019 (7) TMI 1146 - SC ORDER] wherein it has been held that since, the DRP has given the finding that the AEs of LGEIL i.e. assessee before us do not have PE in India; the basis for initiating the re-assessment proceedings fail and the same are held to be infructuous. Profit attribution - Transaction between the assessee and LGEIL has been found at arm’s length by the TPO and hence, no merit in any profit attribution to a person even if there was PE in India. The Hon’ble Supreme Court in Honda Motors Co. Ltd. [2019 (7) TMI 1146 - SC ORDER] had held that once the international transactions were held to be at arm’s length price, even if there was PE in India, no profit could be attributed to it. It has been laid down by the Hon’ble Supreme Court (supra) that where once the arm’s length principle has been satisfied then there could be no further profit attributable to a person, even if it had PE in India. Therefore, it was further held that where notice was issued to the assessee for re-assessment based only on allegation that it had PE in India, said notice could not be sustained, once arm’s length procedure has been followed. Accordingly we hold that in any case, transaction has been found to arm’s length then the entire question of PE becomes academic and there is no merit in the re-assessment proceedings initiated u/s 147 of the Act. As far as the objections of the Ld.DR for the Revenue is concerned, existence of PE of the assessee in India under Article 5(1)(i) of the DTAA i.e. fixed place of business or place of management is available to the assessee in India, then also the consequent reassessment proceedings initiated against the assessee u/s 147 of the Act do not survive. Thus, the preliminary issue raised by the assessee is allowed. The issue raised in Assessment Years 2005-06 and 2006- 07 in the case of PT. LP. Display Indonesia is similar and following the same parity of reasoning, the said issue is allowed.
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