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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 ..... e Hon'ble Supreme Court in the case of Ganga Saran Sons [ 1981 (4) TMI 5 - SUPREME COURT] has remarked The words has reason to believe are stronger than the words is satisfied. . The belief entertained by the Income Tax Officer must not be arbitrary or irrational. It must be reasonable or, in other words, it must be based on reasons which are relevant and material. We are of the view that the belief of the Assessing Officer is a condition precedent for assuming jurisdiction and without such belief, the Assessing Officer would not have jurisdiction to initiate proceedings u/s 147 of the Act. We are of the view 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. 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. 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 premis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The reasons recorded for reopening of the assessment read as under: Annexure-A Reasons for issue of notice u/s 148 of the Income Tax Act, 1961 :- BENTLY NEVADA LLC (PAN - AADCBB118J) (AY 2008-09 to AY 2011-12) 1. Bently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the aforesaid reasons show that the Assessing Officer has been heavily influenced by the assessment orders passed for Assessment Years 2006-07, 2002-03 to 2005-06. Taking a leaf out of these assessment orders, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 irrespective of the any GE group company making sales in India. The bifurcation of sales by various entities is decided by the GE management, as is evidenced by the Reliance order referred above. Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 business connection as well as the PE in India as per the provisions of Article 5 of the tax treaty between both the countries and the income attributable to the PE/ business connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment. 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 in India for looking after the business operations of GE overseas entities in India for a specific period ranging from 2-5 years. The AO has noted in para 7 of the reasons tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be used for initiating fresh enquiry against the assessee does not even pertain to the Assessment Year under consideration. In our considered opinion, whether ..... X X X X Extracts X X X X X X X X Extracts X X X X
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