TMI Blog2019 (2) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.Counsel, that Ld.AO was not justified in initiating reassessment proceedings. Thus, fact that assessee had a PE in India and that there was an understatement of income to the extent of sale receipts received by assessee from Indian customers towards sale of spare parts/equipments, issuance of notice under section 148 brings case of assessee within fold of Explanation 2 (b) to Section 147 of the Act. We are fully satisfied that Ld.AO was justified in initiating reassessment proceedings. Existence of assessee’s business connection as well as permanent establishment in India - Held that:- Strategic decisions in terms of finalising of contract/MOU’S were also carried out by assessee with support of highly specialised employees of GEIIPL in field of marketing and sales. Ld.Counsel has not disputed before us that, assessee did not have a business connection in India, as per Section 9, Explanation 2 of the Act. Further in foregoing paragraphs, we have already discussed that, expatriates habitually exercised in India to conclude contracts, on behalf of assessee, and that activities were not limited to purchase of goods or merchandise for assessee. It has also been established that ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal: GROUNDS OF APPEAL (1) That the Assessing officer ( AO ) erred on facts and in law in computing the income of the Appellant for the relevant assessment year at ₹ 73,99,53,029/- as against ₹ 65,17,82,323/- income returned by the Appellant. (2) That on the facts and circumstances of the case and in law, the Dispute Resolution Panel ( DRP ) erred in upholding the action of the AO in initiating proceedings under Section 147/148 of the Act, without appreciating that there was no material on the basis of which any belief could be formed that income has escaped assessment. (3) That on the facts and circumstances of the case and in law, the AO and DRP erred in not appreciating that material and documents pertaining to another assessment year cannot be the basis for initiating proceedings under Section 147/148 of the Act. Offshore Supplies (4) That the AO and the Dispute Resolution Panel ( DRP ) erred on facts and in law in holding that payment received by the Appellant from supply of equipment and spare parts on an offshore basis were taxable in India under both Section 9(1)(i) of the Income-tax Act, 1961 ( the Act ) and Article 5 read wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP further erred in not appreciating that no part of the income from offshore supply of spare parts and equipment were attributable to the alleged business connection/PE of the Appellant in India, on the grossly incorrect assumption that core activities of the Appellant s offshore sales/supplies were carried out in India. (8) Without prejudice, the AO and DRP erred on facts and in law, in failing to appreciate that as the alleged PE of the Appellant had already been fairly compensated at arms length price, there could be no further attribution of income from any offshore sales/supplies made by the Appellant. (9) Without prejudice the AO and the DRP erred in estimating ₹ 624,36,33,476/- as the quantum of supplies made to the customers in India, without appreciating that actual quantum of supplies was ₹ 253,06,47,349/-. details in respect of which were furnished to the DRP. (10) Without prejudice the AO and the DRP erred in making attribution of income of ₹ 21,85,27,171/- to the alleged PE in India in respect of offshore sale of spare parts, inter alia, on the following grounds: (a) Following the ratio of the Rolls Royce PLC v. DDIT decision rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n levying interest under Section 234B of the Act. 21. The grounds of appeal made herein above are without prejudice to each other. The Appellant craves leave to alter, amend and/or withdraw all or any of the grounds of appeal herein or add any further grounds as may be considered necessary and to submit such statements, documents and papers as may be considered necessary wither before or during the time of hearing. 2. Brief facts of the case are as under: Assessee is a non-resident and is incorporated in Italy. It is a leading suppliers of compressor/pumps and related services in oil and gas industry, and during the year under consideration, assessee supplied spare parts/equipments to various customers in India, in addition to returned income. For year under consideration assessee filed its return of income on 29-09-09, declaring total income of ₹ 65,17,82,323/-, being revenue from onshore services as royalty and FTS, under provisions of section 44 DA of the Act. 2.1 Subsequently, notice under section 148 of the Act was issued on 30/03/15, by Ld.AO, after taking necessary approval as required under section 151 of the Act, for following reasons: 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough a PE and the income attributable to such PE was taxable in India. But the company had not filed return of income for any year. iii. The expatriate employees of GE Group were responsible for looking and looked after the business of GE Group as a whole, irrespective of any GE group company making sales in India. The bifurcation of sales by various entities was decided by the GE management, as was evident from the documents seized during the course of survey. These expats and their teams had at their disposal a fixed place of business in the form of office premises at AIFACS, 1, Rafi Marg, New Delhi. It revealed that the activities of the non-resident GE group entities being conducted from the fixed place of business referred above were not of the preparatory or auxiliary character but constituted the PE as provided in paragraph 2 of Article 5 of respective tax treaties. iv. The various documents found during the course of survey in the form of agreements /purchases order/copies of contracts also proved the active involvement of the employees of Indian company and expats in the conclusion of contracts of behalf of such non-resident GE Group entities. Therefore, GE India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t,1961 dated 30.03.2015 was issued to the assessee requiring to file its return of income for the relevant assessment year. In response to the said notice, assessee filed return on 06 May 2015. Further, assessee vide letter dated 07 May 2015 requested for a copy of the reasons recorded prior to initiating of actions u/s. 148 of the Act. The reasons were provided on 19 November 2015. 2. The assessee filed its objections against the ongoing proceedings vide letter dated 19.02.2016. The letter is divided in three parts and objections are categorized within these three heads. Theses heads are: Income Tax proceedings without jurisdiction of Income Tax Department, Objection on reasons for issuance of notice under section 148 and the prayer. The assessee has contended that the notices were issued without jurisdiction and the pre-requisites of section 147 remain unsatisfied as the assessing officer has not established a reason to believe that income has escaped assessment. It also contends that it did not have a PE or business connection in India nor did it have any India source income and that the reassessment proceedings be dropped. 2.1 By this order. I propose to dispose the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating the proceedings u/s 147 of the Act. Therefore, the contention of the assessee regarding lack of jurisdiction to assess the assessee is baseless and accordingly, rejected. 3.2 Adverting to section 147, it has been submitted by the assessee that the pre-requisite of the section i.e. reason to believe is not satisfied and a number of cases have been referred to arrive at the conclusion that: The reason to believe standard in section 147 contemplates orming a belief based on reliable, objective information. The belief cannot be arbitrary or irrational. Actions under section 147 cannot rely on mere surmises and suspicion but must be assessed with adequate due diligence. Formation of the required opinion and belief by the Assessing Officer is a mandatory condition precedent and must be fulfilled for the section 147 action to proceed. The reason to believe under section 147 must be held in good faith and should have a rational connection and relevant bearing on the formation of the belief. It should not be extraneous or irrelevant. 3.2.1 While there can be no dispute with the general propositions, this office is unable to accept that there was failure to comply wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of which the AO can have reason to believe that action u/s. 147 is called for information means the communication or reception of knowledge or intelligence. It includes knowledge obtained from investigation, study or insurrection. Reasons which may weigh with the AO may be the result of his own investigation and may come from any source that he considers reliable. Formation of his belief is not judicial decision but is an administrative decision. Further, in Rolls Royce Pic. vs. ADIT (Intl. Tax) Cir-2(1), 148 Taxman 66. The 1TAT Delhi Bench has, inter-alia, observed:: We have considered the rival submissions. Under Section 147 read with Explanation 2(a), where no return of income is furnished by an assessee although his total income in respect of which he is assessable under the Act for the P. Y. exceeds the maximum amount, which is not chargeable to income tax, then it will be a case of escapement of income chargeable to tax. In this present case it is not in dispute that the assessee did not file his return of income. The question is whether the assessee s total income for P. Y. was more than the amount, which is not chargeable to income tax. We may also clarify h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the case reads as below: 1. A survey operation was carried out at the office premises of general electric International Operation Company Inc., India Liaison Office (GEIOC) located at AIFACS, 1 Rafi Marg, New Delhi 110001 on 02.03.2007. During the course of survey, copies of various documents were obtained and statements of various persons were also recorded. Inquiries were made as to sales made by various GE Overseas Entities (including the Assessee), employees working from the liaison office of General Electric International Operation Inc., Liaison Office ( GEIOC ), roles and responsibilities of various employees etc. 2. On the basis of various documents found during the course of survey in the form of agreements/ purchases order/ copies of contracts the assessments were completed in the case for AY 2001-02 to AY 2008-09, wherein it was held that the Assessee was having business connection as well as Permanent Establishment ( PE ) in India and the PE was engaged in activities which cannot be termed as auxiliary and preparatory. Further, it was held that 35% of the total business profits pertain to marketing activities carried out in India (the business profits were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the non-resident GE Group entities. This resulted into the creation of dependent agent PE as per the provision of tax treaties and business connection as per the provisions of Explanation 2 to section 9(1 )(i) of the Income Tax Act, 1961. 3. During the Assessment proceedings for A Y 2011-12, the income of the assessee was again assessed on the same lines as the assessee was continuing with the same type of business. The finding that there was no activities change in business activities gets support with the submission of the assessee, during the course of DRP proceedings, that it had sought assistance from M/s GE India Industrial Pvt Ltd ( GE1IPL ], i.e. an associated entity of the Assessee (established as PE as referred above), for providing local marketing support for which it had adequately remunerated GEIIPL. 4. It is further gathered that during the course of assessment proceedings for AY 2012-13, the assessee has submitted that there has been no change in their business activities since the earlier years. As mentioned above, reasons recorded for reopening the case are self- explanatory and requires no further comments. At the cost of repetition, it is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PL also create PE of the nature dependent agent PE of the assessee in India. Accordingly, the objections of the assessee relating to PE-are also rejected 4. The necessary prerequisite for issuance of notice u/s 148 is the formation of belief that income chargeable to tax within the meaning of Section 147 of the Act has escaped assessment on the basis of information and material available with the A.O. The reassessment proceedings initiated after issuance of the notice would necessarily require enquiries to ascertain the correct tax liability of the assessee. 5. Accordingly, the objection of the assessee stands disposed off. The assessee is directed to co-operate in the assessment proceedings and submit the details/ information as called for vide notices issued during the assessment proceedings under the I.T. Act, 1961. 2.4 During re-assessment proceedings, Ld.AO observed that, assessee belongs to GE Group overseas entities, wherein, survey under section 133A of the Act, was conducted at office premises on 02/03/07. It was observed that during course of survey, various documents/evidences in form of Draft MOUs, correspondence, pertaining to assessee was gathered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court in the case of DIT (International Taxation) v. Morgan Stanley [2007] 292 ITR 416/. It was thus submitted that no further attribution of income was necessary in this case. 2.9 Assessee further contended without prejudice to the above that, in any case, attribution was being made to alleged PE in India, deduction of fees paid by assessee to GEIIPL for marketing services availed by assessee should be allowed in computing taxable income. 2.10 Ld. AO after considering detailed submissions filed by assessee, was of opinion that, assessee is one of the entities of GE Overseas, and was having business connection in India, with Fixed Place PE, and Agency PE. He further recorded that, similar findings were determined by this Tribunal vide order dated 27.01.2017 passed for assessment years 2001-0 to 2008-09 in case of GE Energy Parts Inc. v. Addl. DIT. It was also observed by Ld.AO that expats along with their teams were at their disposal at fixed Place business in India in the form of office premises held by GEIOC, through which they operated and carried out business of all GE Overseas entities, including assessee with support of GEIIPL. 2.11 Ld.AO during reassessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing objections before DRP. 1.1 The Learned Assessing Officer ( AO ) has erred on the facts and circumstances of the case and in law in proposing to assess the income of the Assessee at INR 73,99,53,029 as against income of INR 65,17,82,323 as per the return of income filed by the Assessee for the subject year. 1.2 The Ld. AO erred in mechanically following the earlier years order and failed to appreciate that there was no material to suggest that any marketing or sales activities of the Assessee were carried on in India, through the alleged PE, during the relevant previous year. The Ld. AO has further erred in mechanically following the earlier years order for taxation of onshore services. 1.3 The Ld. AO has erred in law and on the facts in following the assessment order of AY 2008-09 and AY 2013-14 based on conjectures and surmises. The Ld. AO erred in law and on the facts in applying the rule of consistency and erred in law in not considering that every year is a separate year under the Income tax proceedings and therefore, principle of res judicata would not be applicable. 1.4 The Ld AO failed to appreciate the submissions made/ contentions raised by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances of the case and in law in concluding that presence of employees of GE India Industrial Private Limited ( GEIIPL ) along with expatriate employees of General Electric International Inc (GEII) expatriates and/ or employees of GE India Industrial Private Limited ( GEIIPL ) creates a business connection of the Assessee under section 9(1)(i) of the Act. 4 Assessee is not taxable in India under the Tax Treaty 4.1 The Ld. AO erred on the facts and in the circumstances of the case and in law in assessing the total income of the Assessee under the provisions of the tax treaty, without appreciating that the income of the Assessee was not taxable in India under the provisions of the Tax Treaty. 4.2 The Ld. AO erred on the facts and in the circumstances of the case and in law in assessing the income of the Assessee under the Tax Treaty on the alleged ground, that the assesse had a fixed place, office, construction and agency PE in India. 4.3 The Ld AO erred on the facts and in the circumstances of the case and in law that the teams in India were performing all the functions required for marketing and sale of spare parts/equipment s sold in India and these a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in character. 5. Estimation of revenue from Offshore Supply on an arbitrary basis 5.1 The Ld. AO erred on the facts and in the circumstance of the case and in law in arbitrarily considering INR 6,24,36,33,476/-as revenue from offshore supply of goods based on arbitrary method instead of amount of INR 2,36,86,40,268/- submitted by the Assessee on the basis of the average of the previous eight years i.e. AY 2001-02 to AY 2008-09 5.2 The Ld. AO failed to provide reasonable basis for rejecting the submissions and contention raised by the Assessee and arriving at the estimation of revenue from offshore supply of the subject year on adhoc basis. 5.3 The Ld AO has not given any opportunity of being heard to the Assessee while determining the offshore supply at INR 6,24,36,33,476/- by linking the offshore sales to the expenses incurred by the Project Office ( POs ) in India. 5.4 The Ld. AO erred on facts and in the circumstances of the case and in law in taking project expenses as the basis for arriving at the amount of offshore sales in complete disregard to the fact that onshore expenses has no linkage whatsoever to the offshore sales made by the Assessee in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w in adopting a notional and irrational basis, based merely on conjectures and surmises, in attributing the entire marketing profits to India when the core marketing activities were carried by the Assessee outside India as clearly evident from the functional summary and sales process submitted by the Assessee during the course of assessment proceedings. 6.8 Without prejudice to the above, the Ld. AO erred on the facts and in the circumstances of the case and in law in not appreciating that as the alleged PE of the Assessee had been remunerated at arms length price for all the services rendered by it, no further income could be attributed to the alleged PE and assessed to tax in India in the hands of the Assessee. 6.9 Without prejudice to the above, the Ld. AO erred on the facts and in circumstances of the case and in law in not applying transfer pricing principles. 6.10 Without prejudice to the above and notwithstanding, the Ld. AO erred in attributing income to the alleged India PE, without giving any deduction for arm s length remuneration payable to GEIIPL for providing local marketing support with respect to offshore sale s in India. 7. Taxation of Income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliance upon decision of Hon ble Delhi High Court and Hon ble Bombay High Court in case of CIT v. Gupta Abhushan (P.) Ltd. [2009] 178 Taxman 473/312 ITR 166 (Delhi) and SGS India Pvt. Ltd., v. Asstt. CIT [2007] 292 ITR 93 (Bom.) respectively. It was thus argued that, any material, evidencing any income having escaped assessment for any other years, cannot be the basis for reopening of assessment for year under consideration. 7.1 Ld.Counsel contended that, expression has reason to believe in section 147 of the Act, contemplates that, before reopening of assessment, Ld.A.O should be satisfied, on basis of information or material, that, income chargeable to tax for year under consideration, has escaped assessment. He also submitted that expression reason to believe has been subject matter of judicial interpretation on numerous occasions, by placing reliance upon : Decisions of Hon ble Supreme Court in case of Calcutta Discount Company Ltd vs ITO reported in 41 ITR 191, Sheo Nath Sngh (1971) 82 ITR 147 ITR, ITO vs. Lakshmani Mweal Das 103 ITR 437, Ganga Saran and Sons (P) Ltd. vs. ITO 130 ITR 1 ; Decision of Hon ble Gujarat High Court in case of Seth Bros. vs. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said order, Ld. CIT DR submitted that assessee before us was involved in finalising Memorandum of Understanding between assessee and Bharat Heavy Electricals for technology transfers, and document working for various figures given in alleged Memorandum of Understanding, as well as correspondences by assessee for providing information about developing KG-D-6 Block Project, to RIL, purchase orders for exhaust ducts placed by Hak International Contractor s Asia, for supply of 14 units of exhaust stack of 30 M height, for a value of USD 5,426,568, which was addressed to assessee, which evidences role of Indian office being GEIIPL. He submitted that Agreement between RIL and assessee dated 27.09.2008 placed at pages 141-180 has been finalised by a process of deliberations and meetings conducted between expats stationed in India, having office place in premises held by GEIOC along with employees of GEIIPL. Documents/evidences referred to here in above gathered during survey is sufficient to come to such conclusion. 7.4 Based upon above incriminating material/documents obtained by revenue during survey and post-survey enquiries, Ld.CIT DR submitted that, Ld.A.O had prima facie g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have accrued or arisen in India under Sec.9 of the Act. 9.2 Admittedly assessee was engaged in various sales activities in India through expats with support staff provided by GEIIPL during preceding years as well as year under consideration. From draft assessment order passed by Ld.AO, it is observed that assessee was called upon to file figures of offshore supply for year under consideration and it was submitted by assessee that, due to change in accounting software figures of offshore supply for year was not available. These documents/materials found during survey which has been related to assessee by Ld. CIT DR sufficiently establishes existence of sales team, formed by employees of GEIIPL and expat of assessee, which secured orders in India for non-resident assessee, thereby constituting a dependent agent PE. 9.3 Admittedly, onshore supply services received have been offered to tax by assessee in India, by assessee. However, offshore supplies made to Indian customers by assessee through GEIIPL, in India has not been declared in return of income and has amounted to escapement of income for year under consideration. 9.4 In our considered opinion at the stage of issuance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, from documents gathered during survey proceedings, which has been elaborately discussed in order passed by this Tribunal in case of GE Energy Parts Inc. (supra), are sufficient to compel a person, reasonably instructed in law, to form a view about existence of PE of assessee, along with employees of GEIIPL for all GE Overseas entities in India. 9.7 We, thus are not inclined to accept contentions advanced by Ld.Counsel, that Ld.AO was not justified in initiating reassessment proceedings. Thus, fact that assessee had a PE in India and that there was an understatement of income to the extent of sale receipts received by assessee from Indian customers towards sale of spare parts/equipments, issuance of notice under section 148 brings case of assessee within fold of Explanation 2 (b) to Section 147 of the Act. In view of the above, we are fully satisfied that Ld.AO was justified in initiating reassessment proceedings. 10. Accordingly we dismiss grounds 2-3 of this appeal. 11. Ground No. 4 is general in nature and therefore do not require adjudication. 12. Ground No. 5-11 has been raised by assessee, challenging existence of assessee s business connection as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose in India, which is taxable in India. It is therefore difficult to buy arguments advanced by Ld.Counsel that sale consideration of spare parts/machines was not taxable in India. 16. In order to constitute a fixed place PE in India we will have to consider the DTAA between India and Italy: 1. For the purposes of this Convention, the term permanent establishment means a fixed place of business through which the business of the enterprise is wholly or partly carried on. 2. The term permanent establishment includes especially : (a) a place of management ; (b) a branch ; (c) an office ; (d) a factory ; (e) a workshop ; (f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources ; (g) a warehouse in relation to a person providing storage facilities for others ; (h) a premises used as a sales outlet or for receiving or soliciting orders ; (i) an installation or structure used for the exploration or exploitation of natural resources ; (j) a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcises in that State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise ; (b) he has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise ; (c) he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprise controlling, controlled by, or subject to the same common control, as that enterprise; or (d) in so acting, he manufactures or processes in that State for the enterprise goods or merchandise belonging to the enterprise. 5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harmony with the Self appraisals, Manager assessments and Job responsibilities given under the signature of the expats and employees of GEIIPL working for GE Overseas entities in India, it becomes absolutely clear that GE India was conducting business of GE Overseas in India and was directly and wholly involved in negotiating and finalizing the contracts. The Hon ble Supreme Court in CIT v. Ahmedbhai Umarbhai Co. (1950) 18 ITR 472 (SC) held that: `the profits attributable to the manufacturing business are said to arise or accrue at the place where the manufacture is being done and the profits which arise by reason of the sale are said to arise at the place where the sales are made . It is clear from the above that marketing and sales are income yielding activities in themselves and if the core activity of marketing and sale has taken place in India, then profit from sale, accrues or arises in India alone and the same to that extent should be charged to tax accordingly. The above discussion leaves no room to doubt that in the instant case though business of GE Overseas was partly carried out in India but the core of sales activity was done from the AIFACS building, being the fixe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of the DTAA. 28.2 It is discernible from an outline of the above judgments rendered by the Hon ble Apex Court and the Hon ble jurisdictional High Court that the test for determining a preparatory or auxiliary activity is not to see if the core activity can or cannot be performed without it. Rather, the test is that such activity merely supports the core activity and does not per se lead to earning of income. If the activity carried on from a fixed place in India is simply in aid or support of the core income generating activity and is remote from the actual realization of profits, the same assumes the character of a preparatory or auxiliary nature and falls within clause (e) of Article 5(3) to bring the case out of the ambit of a `permanent establishment . One thing is clear from all the above decisions cited by the ld. AR that the activities performed by those assesses in India were either done by their liaison offices acting as communication channel strictly as approved by the RBI or were in aid and support of the main activity, not generating any income in themselves. 28.3 Section 2(e) of Foreign Exchange Management (Establishment in India of Branch of Office or Ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant for Oil Gas business and also to gather information on the customers in such industry. His role was limited to understanding the needs of the customers in India and pass such information to the GE overseas entity in Italy. At any point of time, he was not delegated any power to take decision on behalf of the GE overseas entity. He was acting as liaison between GE overseas entity and customers in India. His responsibility was to liaise the relationship with Indian customers .Most of commercial negotiations were done by the commercial operation team sitting in Italy Riccardo never took any decision or negotiated on behalf of the GE overseas entity. and he was merely acting as channel between the Commercial team and the Customers . Here again, the assessee misled by stating wrong facts about the working of Ricardo in the post-assessment letter. His Assignment letter shows his position as Oil Gas, India Country Leader of GE Energy. We have noticed from the survey documents above that Ricardo was not only negotiating and finalizing the terms and conditions with customers in India but also not allowing GE Overseas to alter any such terms without the consent of GE I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrying on commercial activities of identifying the buyers, negotiating with the buyers, agreeing to the price, procuring purchase orders and forwarding the same to the head office. The Department came to hold that LO was PE under Article 5 of the DTAA and the business profits earned in India through such LO was taxable in India. Contention of the assessee that the buyers were placing orders directly with the head office and making payments directly to the head office and it was the head office which was directly sending the goods to the buyers, was held to be not sufficient for holding that the activity done by the LO was only liaison work. The Hon ble High Court upheld the view of the Revenue that PE was constituted in such circumstances and business profits earned in India through this liaison office were taxable in India. 17.6 Thus respectfully following the above, we hold that GEIOC constitute fixed place PE for assessee before us, in terms of Articles 5 (1), (2) stands fully satisfied, as business was mainly carried out in India from GEIOC which were not merely preparatory or auxiliary in nature as has been submitted by assessee before authorities below. 17.7 Insofar a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to customers in India. 21. Ld.Counsel submitted that authorities below failed to appreciate that PE of assessee has been fairly compensated at arm s length price and there could be no further attribution of income from any offshore sales/supplies made by assessee. He submitted that details regarding offshore supply were not available due to change in accounting software of assessee. It was thus stated before authorities below that, offshore supplies can be taken as an average of previous 8 years which comes to ₹ 236,86,40,268/-. Ld.Counsel submitted that, subsequent to conclusion of hearing before DRP on 16/08/17, assessee furnished application for additional evidence under Rule 4 (3) (B) of DRP Rules, 2009, claiming that offshore supply during relevant year was ₹ 221,23,25,028/-. It was also submitted that said sale proceeds was received from 35 customers in India and correspondence sales has been filed along with application. 22. Alternatively, Ld.Counsel submitted that assessing officer erred in estimating offshore supply based upon average of sales made in assessment years 2007-08 and 2008-09. 22.1 Ld.Counsel also submitted that for purposes of estimation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have perused the decision of Hon ble Supreme Court relied upon by Ld.Counsel. Hon ble Supreme Court countenanced Ruling of AAR in principle, insofar as AE, that constituted a PE, was remunerated at ALP taking into account all risk taking functions of the enterprise. Hon ble Supreme Court thus found that in such cases nothing further would be left to be attributed to the PE. Hon ble Supreme Court, however, held that; the situation would be different if transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a situation, there would be a need to attribute profits to the PE for those functions/risks that have not been considered. Thus, in our opinion, in each case the data placed by the tax payer has to be examined as to whether the transfer pricing analysis placed by the tax payer is exhaustive of attribution of profits and that would depend on the functional and factual analysis to be undertaken in each case. From the categorical observations by Hon ble Supreme Court in Morgan Stanley (supra), it is beyond any doubt that, if transfer pricing analysis does not adequately reflect functions pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Ld.AO specifically required assessee to furnish details of sales party-wise which was not given for deducing correct amount of profit. In such circumstances, Ld.AO was left with no alternative, but, to estimate income on a rational basis. It is observed that Ld.AO invoked provisions of Rule 10(iii) to estimated profit at 10% of sales made in India. Rate of 10% was applied by drawing strength from sections 44BB and 44BBB, which, in turn, are special provisions for computing profits and gains in connection with business of exploration, etc. of mineral oils/operation of aircraft in the case of non-residents. In our considered opinion, approach of Ld.AO in estimating income at 10% of sales made in India, in given circumstances, is perfectly in order, and does not require any interference. 26.4 As regards share of marketing activities in total profit, Ld.AO applied 35% by taking assistance from decision of ITAT Delhi Bench in case of Rolls Royce. The said order of the Tribunal stands affirmed by the Hon ble Delhi High Court in Rolls Royce PLC (supra). Further, ITAT Delhi Bench in ZTE Corpn. v. Addl. DIT [2016] 159 ITD 696, has also attributed 35% of profits attributable to marketin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lucent USA Inc. (2014) 264 CTR 240 (Del) in which levy of interest was approved. The ld. DR submitted that the facts of the instant case are similar to Alcatel Lucent USA Inc. (supra). 60. We are not inclined to accept the contention advanced on behalf of the Revenue in this regard. The Hon ble Delhi High Court in assessee s own group cases involving identical facts has approved the cancellation of the levy of interest u/s. 234B for the assessment years 2001-02 to 2006-07. Facts relating to the A.Ys. 2007-08 and 2008-09 instantly before us, are, admittedly, similar to such facts considered and decided by the Hon ble Delhi High Court. When there is a judgment of the Hon ble jurisdictional High Court directly in assessee s own case and the facts and circumstances for the later years are similar, there can be no question of applying the ratio decidendi of another judgment laying down a different proposition. It is more so, when the earlier judgment was also considered by the Hon ble High Court in a later decision in assessee s own case. In view of the foregoing discussion and respectfully following the precedent in assessee s own case for the immediately preceding assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
