2025 (1) TMI 911 - HC - Income Tax

Reopening of assessment - Income deemed to accrue or arise in India - Existence of a Permanent Establishment (PE) in India - whether the findings as recorded in the course of the 2007 or 2019 survey could have been blindly applied and adopted, extrapolated and read as being an accurate recordal of facts as they obtained in the AYs in question? - HELD THAT - The position of a PE being a facts-specific issue and thus liable to be examined against the backdrop of what obtained in a particular tax period is one which is underscored even by the OECD Commentary on Article 5. It had been the consistent stand of the present writ petitioners that no PE had existed in the years in question. It is in the aforesaid light that we would have to evaluate and examine whether the findings as recorded in the course of the 2007 or 2019 survey could have been blindly applied and adopted, extrapolated and read as being an accurate recordal of facts as they obtained in the AYs in question. As conceded before us by the respondents that the reasons as recorded in support of the formation of opinion that income had escaped assessment had not alluded to any facts specific to AYs 2013-14 to 2017-18. Despite repeated queries respondents failed to draw our attention to any facet or fact pertaining to the AYs in question and which could have been read as demonstrative of an application of mind to the facts that prevailed or obtained in the years in question and thus justified a reassessment action being validly initiated. In fact, as we go through those reasons, it becomes more than apparent that the AO has merely proceeded to adopt and reiterate what was found in the course of the survey undertaken in 2007 and 2019 read alongside the judgment of this Court rendered in GE Energy 2019 (1) TMI 542 - DELHI HIGH COURT Indisputably, there is no principle akin to that of res judicata which can be recognized to be applicable to taxing disputes. Though this principle is well settled, we deem it appropriate to refer to the following enunciation of the well-settled legal position in National Petroleum Construction Co. 2022 (8) TMI 41 - SUPREME COURT The interplay between the principle of consistency and the facts of each year of assessment was lucidly explained by our Court in Galileo Nederland BV 2014 (8) TMI 902 - DELHI HIGH COURT It is in the aforesaid backdrop that the observations of the Supreme Court in CIT v Gupta Abhushan (P) Ltd 2008 (10) TMI 31 - DELHI HIGH COURT also assume significance and where it was unambiguously held that a survey report pertaining to a particular tax period cannot ipso facto be read or countenanced as being relevant and binding for independent assessment years as is evidenced from paragraph 6 of the report. The reassessment action is thus liable to be set aside. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the reassessment action initiated under Section 148 of the Income Tax Act, 1961, for Assessment Years 2013-14 to 2017-18 was justified.
• Whether the existence of a Permanent Establishment (PE) in India for the petitioner was established based on the surveys conducted in 2007 and 2019.
• Whether the findings from past assessments and surveys could be extrapolated to justify reassessment for the years in question.
• Whether the reassessment was valid in light of the disclosures made by the petitioner during the original assessment proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of Reassessment under Section 148

• Relevant Legal Framework and Precedents: Section 148 of the Income Tax Act allows for reassessment if income has escaped assessment. The proviso to Section 147 requires a failure to disclose fully and truly all material facts for reassessment after four years.
• Court's Interpretation and Reasoning: The court emphasized that reassessment requires specific evidence or material indicating income escapement for the years in question.
• Key Evidence and Findings: The court found that the reasons for reassessment were based on surveys from 2007 and 2019, without specific evidence for the years 2013-14 to 2017-18.
• Application of Law to Facts: The court held that the absence of specific evidence for the years in question invalidated the reassessment notices.
• Treatment of Competing Arguments: The petitioner argued against the extrapolation of past survey findings, while the respondents relied on the past judgment in GE Energy Parts Inc. The court sided with the petitioner.
• Conclusions: The reassessment notices were quashed due to lack of specific evidence for the years in question.

Issue 2: Existence of Permanent Establishment (PE)

• Relevant Legal Framework and Precedents: The concept of PE is defined in Article 5 of India's Double Taxation Avoidance Agreements (DTAAs) and involves a fixed place of business or dependent agent.
• Court's Interpretation and Reasoning: The court noted that PE determination is fact-specific and must be based on activities during the specific assessment years.
• Key Evidence and Findings: The court found no specific evidence or analysis for the years 2013-14 to 2017-18 to establish a PE.
• Application of Law to Facts: The court held that the past surveys and judgments could not be automatically applied to the years in question without specific evidence.
• Treatment of Competing Arguments: The petitioner consistently claimed no PE existed, while the respondents argued for a consistent business model. The court found in favor of the petitioner.
• Conclusions: The court concluded that no PE was established for the years in question.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The reassessment action is thus liable to be set aside on this short score alone."
• Core Principles Established: The necessity of specific evidence for each assessment year when considering reassessment and the principle that past findings cannot be blindly applied to future assessments without current evidence.
• Final Determinations on Each Issue: The court quashed the reassessment notices for the years 2013-14 to 2017-18, concluding that there was no sufficient basis for reopening the assessments.