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TMI Blog2022 (5) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... ings u/s 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. 4. The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book. Judicial decisions relied upon duly considered. 4. Briefly stated, the facts of the case are that the appellant is a foreign company, incorporated in USA, and is engaged in the business of supplying of goods and software to its various customers in India. The assessee is a wholly owned subsidiary of General Electric Company. 5. Since the underlying facts in issues are identical, we have considered the facts of Assessment Year 2008-09 in ITA No. 6300/DEL/2017. 6. On the basis of information in his possession, the Assessing Officer reached to the conclusion that the assessee's income has escaped assessment and in order to tax such income, he initiated proceedings u/s 147 of the Act and after recording reasons in writing, issued a notice u/s 148 of the Act which is under challenge before us. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities as compared to the earlier years. Accordingly, there are reasons to believe that there is income escaping '(c) where an assessment has been made, but- (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.' (emphasis supplied) 5. As discussed above, I have reason to believe that the assessee always had a business connection arid permanent establishment in India even during the period from assessment years 2008-09 to 2011- 12 for which the assessee's taxable income has escaped assessment within the meaning of clause (a) of Explanation 2 to section 147 of the Act. Further in the light of facts stated above it appears that the assessee's taxable income more than Rs. 1 lakh has escaped assessment for the assessment years 2008-09 to 2011-12. In view of the above, if approved, notice under section 148 of the Act may be issued in this case for the assessment years 2008-09 to 2011-12." 8. A careful perusal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appraisal etc., part of this information was submitted by the assessee vide letter dated 16.03.2007/09.04.2007 XXXX XXXX From the information available during the surveyor afterwards, it is clear that various employees of GE India Industrial Pvt. Ltd. are working with the expatriates so as to constitute Indian teams looking after the GE overseas entities businesses. The detail of such employees is also available in Annexure-C, discussed earlier. The assessee was asked to submit the copy of self appraisal of the 7 employees of the GE group, who are on the payroll of GE International Inc. The same is replied vide para 3.4 of the letter dated 16.03.2007 and self appraisal of Kenneth Peirson was submitted as Annexure-16 of the letter. XXXX 7. The business of various GE group non-resident companies in India is being conducted by the expatriate employees of GE Group (who are employed by GE group company and deputed to India as India Head of the specific business like oil & gas, energy, aviation, transportation etc.), with the support and help of employees drawn from GE Indian entities. Such expatriates are responsible and look after the business of GE group as a whole irrespe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious documents in the form of agreements/purchase orders/copies of contracts also proves the active involvement of the employees of Indian company and expats in the conclusion of contracts on behalf of such non-resident GE group entities, therefore, GE India Industrial Pvt. Ltd. also constitutes the agent other than an agent of independent status of the non- resident GE group entities. This results into the creation of the dependent agent PE as per; the provisions of the tax treaties and business connection as per the provisions of Explanation 2 to Section 9(l)(i) of the Income Tax Act, 1961. The activities of the third parties working for the GE group as mentioned above also may constitute agency PE/ business connection of the GE group entities. It is possible that in respect of various projects relating to rendering of services/supervisory services, such GE group entities will be considered to have the PE as per the other paragraphs of the Article relating to the PE of the respective tax treaties. XXXX 9. The non-resident GE group company, namely GE Energy Part Inc., USA has made a sale of USD 21,83,146/- during F.Y. 2000- 01 in India. As mentioned above, the assessee has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra), some renovation was carried out in the earlier years and on the presumption that such renovation must have been done in the later years as well, the AO initiated reassessment. The Hon'ble High Court approved the view taken by the Tribunal that the escapement of income by means of renovation carried out in later years was not borne out from the material on record. Similarly, in the case of SGS India Pvt. Ltd. (supra), the assessee incurred research and development expenses in the year one, which were disallowed because of the transfer pricing adjustment and the AO's inference of escapement of similar income for the earlier year, was held to be not sustainable. In our considered opinion, the position as stated on behalf of the assessee is trite, which cannot be interfered with. 8.7. However, on the facts and circumstances of the instant case, we find that these judgments have no application. It is pertinent to note that in the post-survey enquiries, but, prior to the issue of notice, the assessee group, vide its letter dated 16.3.2007, provided name of seven expats of GEII who were working for GE overseas in India. Such persons, as per their Assignment letters, were deputed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the fulfillment of this condition is not a mere formality but it is mandatory and failure to fulfill that condition would vitiate the entire proceedings. 18. There must be direct nexus or live link coming to the notice of the Assessing Officer and formation of his belief that there has been escapement of income of the company from assessment in a particular year. Therefore, for every Assessment Year, there should be some tangible material evidence to form such a belief which we find absent in the reasons recorded mentioned elsewhere for the years under appeal. 19. We find that there is no rationale connection between the information in the possession with the Assessing Officer and formation of belief that there has been escapement of income for Assessment Years 2008-09 to 2011-12. 20. On a perusal of the assessment order/DRP order, we find that strong reliance has been placed on various documents found during the course of survey which was carried out at the premises of General Electric International Operations India Liaison Office on 02.03.2007 whereas the assessment orders under challenge pertain to Assessment Years 2008-09 to 2011-12. Therefore, evidence being sought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have had a chance to show that it was not deriving any income from any foreign asset or financial interest in any foreign entity, or that the asset did not belong to it or any other ground which may be available. The assessee could not be deprived of this chance while replying to the notice. The notice and reasons given thereafter did not conform to the principles of natural justice and the assessee did not get a proper and adequate opportunity to reply to the allegations which are now being relied upon by the Revenue. The notice issued to the assessee and the supporting reasons did not invoke provisions of the second proviso to section 147 of the Act and therefore at this stage the Department could not be permitted to take benefit of the second proviso." 24. This means that the reasons for reopening the assessment cannot be improved in the body of the assessment order. 25. Therefore, the notice issued u/s 148 is liable to be quashed and so also, the orders consequent to such notice. Since we have quashed the assessment order, we do not find it necessary to dwell into the merits of the case. 26. In the result, all the four appeals of the assessee in ITA Nos. 6300 to 6303/DEL/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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