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2019 (2) TMI 346 - AT - Income TaxReopening of assessment - Attribution of income - existence of PE in India, through GEIIPL, has already been established in respect of all GE Group Overseas entities, and that assessee for the year under consideration made sales in India through a PE in India which has admittedly not been offered to taxation by assessee - Held that - Assessee had failed to disclose revenue received from sales made to Indian customers through GEIIPL, on basis of materials gathered during survey for Ld.AO to form prima facie reason to believe by Ld.AO, of income having escaped assessment, for year under consideration, as per Explanation 2 (b) to Section 147 of the Act. 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. 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. 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 expatriates habitually secured orders in India, wholly for assessee, through GEIOC with continuous assistance of employees of GEIIPL in India. We, therefore do not agree with argument advanced by Ld. Counsel that, authorities below erred in mechanically placing reliance on earlier assessment year wherein, PE has been created with presence of GE International Inc., expatriates and/or employees of GE India Industrial Pvt. Ltd. By way of sufficient material, related to assessee gathered during survey, it is apparently clear that for sales to be effectuated in India during year under consideration, expats of GE International Inc., and employees of GE India Industrial Pvt. Ltd., jointly worked together and took strategic decisions for purposes of negotiation of agreements and sale prices of spare parts/machineries sold by assessee in India. Further, Ld.Counsel admitted that, no change has occurred after survey conducted in the year 2007. Thus in our considered opinion that assessee has a business connection in India and therefore the requirements under Clause 4 of Article 5 stands satisfied. We are therefore of the considered opinion that assessee has a dependent agent PE in India through GEIIPL. Attribution of estimated offshore supplies made by assessee to customers in India - Held that - 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. Interest levied u/s 234 B to be deleted
Issues Involved:
1. Computation of income by the Assessing Officer (AO). 2. Validity of proceedings under Section 147/148 of the Income-tax Act. 3. Use of materials from another assessment year for initiating proceedings. 4. Taxability of payment received from offshore supplies under Section 9(1)(i) and the India-Italy DTAA. 5. Existence of a business connection and permanent establishment (PE) in India. 6. Reliance on survey findings from a different year. 7. Attribution of income to PE in India. 8. Application of the 'Force of Attraction Rule'. 9. Deduction of expenses in computing assessable income. 10. Taxability of onshore services under Section 44DA. 11. Levy of interest under Section 234B. Detailed Analysis: 1. Computation of Income by AO: The AO computed the income of the appellant at ?73,99,53,029/- as against ?65,17,82,323/- returned by the appellant. The appellant argued that the AO erred in this computation, but the tribunal upheld the AO's computation. 2. Validity of Proceedings under Section 147/148: The appellant challenged the initiation of proceedings under Section 147/148, arguing that there was no material basis for the belief that income had escaped assessment. The tribunal noted that the AO had sufficient reasons to believe that income had escaped assessment based on materials gathered during survey proceedings and post-survey inquiries. The tribunal upheld the AO's initiation of reassessment proceedings. 3. Use of Materials from Another Assessment Year: The appellant contended that materials from another assessment year cannot be the basis for initiating proceedings for the current year. The tribunal held that the AO had prima facie grounds for forming a belief that income had escaped assessment for the year under consideration based on materials gathered during survey proceedings and post-survey inquiries. 4. Taxability of Offshore Supplies: The AO and DRP held that payments received from offshore supplies were taxable in India under Section 9(1)(i) and the India-Italy DTAA. The appellant argued that it did not have a business connection in India and that offshore supplies were not taxable. The tribunal upheld the AO's and DRP's findings that the appellant had a business connection and PE in India. 5. Existence of Business Connection and PE: The AO and DRP held that the appellant had a business connection and PE in India, relying on findings from earlier assessment years and the presence of expatriates and employees of GEIIPL. The tribunal upheld this finding, noting that the appellant conducted business in India through GEIIPL and expatriates, who were involved in negotiating and finalizing contracts. 6. Reliance on Survey Findings: The appellant argued that the AO and DRP erred in relying on survey findings from a different year. The tribunal found that the AO had sufficient material from the survey and post-survey inquiries to form a belief that income had escaped assessment for the year under consideration. 7. Attribution of Income to PE: The AO attributed income to the PE in India, estimating offshore supplies at ?6,24,36,33,476/- and attributing 3.5% of this amount to the PE. The appellant argued that the PE had been fairly compensated at arm's length price and that no further attribution was necessary. The tribunal held that the AO's estimation was reasonable but directed the AO to apply 2.6% instead of 3.5% for attributing profits to the PE. 8. Application of 'Force of Attraction Rule': The appellant argued that the AO and DRP erred in applying the 'Force of Attraction Rule'. The tribunal did not specifically address this issue in the detailed analysis but upheld the AO's and DRP's findings on the overall attribution of income. 9. Deduction of Expenses: The appellant argued that the AO and DRP erred in not allowing deduction of expenses in computing assessable income. The tribunal did not specifically address this issue in the detailed analysis but upheld the AO's and DRP's overall findings. 10. Taxability of Onshore Services: The AO and DRP taxed onshore service revenue under Section 44DA, assuming that such services were rendered through the PE in India. The appellant argued that Section 44DA was not applicable. The tribunal upheld the AO's and DRP's findings on the taxability of onshore services. 11. Levy of Interest under Section 234B: The appellant argued that the AO and DRP erred in levying interest under Section 234B. The tribunal, following precedents, directed the AO to delete the interest computed under Section 234B. Conclusion: The tribunal dismissed the appellant's grounds challenging the initiation of reassessment proceedings and the existence of a business connection and PE in India. It partially allowed the appellant's grounds on the attribution of income, directing the AO to apply a lower percentage for attributing profits to the PE. The tribunal also directed the AO to delete the interest levied under Section 234B.
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