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TMI Blog2025 (1) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... nt prior thereto which was followed by the respondents. In light of the above, although the notices under Section 148 had been issued initially, the reasons to believe which constituted the foundation for formation of opinion that income had escaped assessment was provided to the writ petitioner subsequently. The petitioner is stated to have filed its objections to the assumption of jurisdiction which have ultimately come to be dismissed by the Assessing Officer [AO], leading to the filing of the instant writ petitions. 3. According to the disclosures made in the petition, the petitioner was formally known as Alstom Grid OY and was part of the Alstom Group till 02 November 2015. On or about the said date the Grid business of Alstom was taken over by GE. It is in the aforesaid backdrop that the petitioners aver that at least up to November 2015 it was not even a constituent of the GE Group. This fact assumes significance in light of the following. 4. As is manifest from a reading of the reasons which appear to have weighed upon the respondents and were communicated to the writ petitioner, a survey under Section 133A (2A) is stated to have been conducted on 06-07 June 2019 on GE T& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the contract and execute the contract. Do you provide any assistance to these companies in some of these steps?".Sh Zanzaria answered as follows: "As part of the sales Junction, we provide support in some of the steps above. The sales team provide support like participation in meeting with clients when representatives of overseas companies are visiting, closing loop for open communication between customers and overseas units." 4.3 Thus, the person in charge of securing orders in GETDIL has accepted in his statement that the sales team of GETDIL in India supports the foreign companies in securing orders. The personnel of GETDIL also participate in meetings and negotiations and serve as communication channel between the foreign companies and Indian customers. 4.4 During the survey, a copy of the email records of Sh Zanzaria for the last one year was taken. The primary and principal role of the teams in India in securing of contract /orders in India for foreign companies in the Power and T&D (also called "Grid" business within the group) Sectors is established from the internal communication within the Group as recorded in the emails addressed to Sh Zanzaria. It is noticed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... countries and regions. These targets are for the whole Group (i.e. GE Group) in Grid segments and the teams based in each country, though on the payroll of the locally registered companies (in case of India, GETDIL), work towards meeting of those global sales* targets and not just for their own local company. Their appraisal is also done based on their success and contribution towards meeting those targets. This proves that teams in India do contribute to sales of foreign companies in India. 5. Hon'ble High Court of Delhi in its recent judgement in GE Energy Parts v. CIT (ITA 621/2017) dated 21.12.2018 has held existence of a dependent agent PE in similar circumstances where the personnel in India, even when they do not themselves sign the contract and are not the deciding authority for entering into contracts, play a role that is not auxiliary in the entering of the contract. Importantly, the Court cites India's position on the OECD commentary which is as follows: "a person has attended or participated in negotiations in a State between an enterprise and a client, can, in certain circumstances, be sufficient, by itself, to conclude that the person has exercised in that S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which South Asia is one. This region covers India, Bangladesh, Sri Lanka, Nepal and Bhutan. The South Asia has a regional head, designated as regional President, CEO and MD. This post is held by Sh. Sunil Wadhwa at present Sh. Sunil Wadhwa reports to the Chief commercial officer of the Grid Solutions Tier-2 vertical, who is Mr. Emanuel Bertoloni. The Chief Commercial Officer reports to Mr. Reinaldo Garcia." 6.1 These statement, similar in the case of CFOs of both the Indian companies, acid to the already clear conclusion that in reality, the Indian AEs serve as mere Indian branches of the foreign companies of the GE Group (erstwhile Alstom group) Power and Grid bus1nesses. The employees of the Indian AEs function not just for the Indian companies (that employ them), but also for foreign companies of the Group that make sales and render services in India. This fact leads to the conclusion that the Indian AE GETDIL, (which share the same main office premises with GEPIL, i.e., the headquarters of both of which are located in Axis House, Sector 128, Jaypee Wish Town, Noida) serve as not only Dependent Agent PE, but also Fixed Place PE of the foreign companies of the Group includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, however, was one which was independently undertaken in 2019. The issue which thus consequently arises is whether the findings and conclusions which came to be rendered and drawn for the aforesaid block of AYs' would have constituted sufficient ground to reopen assessments pertaining to AYs 2013-14 to 2017-18. 8. Mr. Vohra learned senior counsel appearing in support of these writ petitions had submitted that the petitioner is in fact based in Finland and the only contracts which cover the period forming the subject matter of the impugned reassessment proceedings were concerned with off-shore supplies. It was in the aforesaid backdrop that Mr. Vohra submitted that the respondents were clearly unjustified in seeking to base their decision to reopen on surveys conducted in 2007 and 2019. It was further pointed out that the survey of 2007 was not even concerned with the verticals of GE engaged in the T&D sector and was restricted to the business undertaken by constituents of GE forming part of its aviation vertical. In any case, Mr. Vohra would contend that the surveys as well as the material gathered in 2007 and 2019 cannot possibly be extrapolated to other years. 9. Mr. Vohra als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proceedings pending in your case for Assessment Year 2013-14, you are requested to furnish following information: - 1. Please give detailed background of the company and its activities and sources of revenue with particular reference to business model and activities carried out in India during the year under consideration. Give a detailed note regarding nature of your business activities and furnish details in respect of the works undertaken/executed in India during the year. 2. Please file copy of last assessment orders including copies of Assessment Orders framed in your case on or after 01.04. 2011. 3. Please intimate as to whether you had a Permanent Establishment or Business Connection in India during the year. If so, please furnish names and complete addresses of such concerns. Also furnish details of Branch Offices/Project offices/Liaison office/Godowns and Warehouses and construction or other business sites in India. 4. Please furnish names and complete addresses of all associated enterprises and also supply copy of Form 3CEB regarding international transactions entered into with these during the year under consideration. 5. Furnish details regarding the share h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ojects and method/manner of accounting being done w.r.t the same. 17. Please submit the names and addresses of sub contractors of the assessee, in connection with the India projects with their PAN nos. and details of their subcontracted activity along with copy of contracts. 18. Furnish a brief summary of the expenses incurred during the year along with relevant documentary evidence. 19. Copy of the tax residency certificate for the relevant Assessment year if Treaty benefits are being claimed. 20. Please confirm whether you have maintained books of accounts for your Indian operation as required u/s 4AA of the Act. If yes, please confirm whether they have been audited as required u/s 44AB of the Act. Please furnish hard u/sA4AA and u/s 44AB of the Act. 21. Furnish computation of income u/s 115JB as applicable. 22. Please furnish the hard copy of complete return of income for the year under consideration alongwith complete audited balance sheet, P & L account including all the schedules, Form 3CD & Form 3CEB. 23. Please give details of TDS in respect of payments made to any sub-contractor and w.r.t. any expenses paid outside India or claimed by the H.O regarding servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of all Off-shore equipments and materials from outside India, including mandatory spares, Type testing to be conducted outside India and training to be imparted abroad. xxxx xxxx xxxx 3. Please furnish copies of all contracts and agreements operative during the year in respect of your activities in India. Copy of agreement/Contracts entered into with Indian customers/clients or any other party in India from whom any payment is received during the year or has accrued or arisen during the year may also be provided. (Question No. 7) The copy of contract entered with PGCIL during the relevant assessment year is enclosed as Annexure 2 for your goodself reference. 4. Details of invoices raised to the Indian customers and details of Income or any type of payment received from India or which has accrued or arisen in India. (Question No. 8) The copy of the invoice raised to PGCIL for receipt of l0% advance payment during the subject assessment year is already enclosed as Annexure JB for your reference. Further, it has already been submitted in Point 2 above that no incomes have been accrued or arisen to assessee during the relevant assessment year. 5. Please submit the names a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly, has shown nil income. This fact was verified from the PGCL. After considering replies and documents and facts and circumstances of the case, assessee's income as shown in the return of income is accepted. 4. Assessment is, accordingly, made on Nil income. Credit for prepaid taxes is given after due verification. Detail of computation of tax and interest charged as provisions of law is given in the enclosed ITNS-150 which is part of this order. Issue necessary forms." 13. It was in the aforesaid backdrop that Mr. Vohra submitted that the respondents have clearly acted arbitrarily in drawing proceedings for reassessment despite the complete and candid disclosure which had been duly made by the petitioners in the course of the assessment. Mr. Vohra submitted that the facts as placed before the AO were duly examined and lead to the acceptance of the return of income. Learned senior counsel thus contended that there existed no justification for the powers conferred by Section 148 of the Act being invoked especially in light of no incriminating or germane material pertaining to the AYs' having been discovered or found. 14. Mr. Bhatia, learned counsel representing the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pite repeated queries Mr. Bhatia who represented the 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. According to Mr. Bhatia, in light of the judgment of this Court in GE Energy, the AO was justified in proceeding on the "assumption" that facts had remained unchanged and that the business model had remained unaltered. Learned counsel in this respect also sought to draw sustenance from the decision of the Supreme Court in Raymond Woollen Mills Ltd. v ITO 1997 SCC OnLine SC and to the following passages as appearing therein:- "1. The challenge in this case is to the reopening of the assessment of Raymond Woollen Mills Ltd. We have been shown the recorded reasons for reopenin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application, more so, when regular assessment had been completed in respect of the immediate preceding year and the appellant found to be taxable under the Income-tax Act at 10 per cent. of the contractual receipts. The assessing authority found that the appellant had permanent establishment in India in the concerned assessment years. The appeal of the appellant is possibly pending disposal." "38. As held by the High Court, it is well settled that the principle that res judicata is not applicable to Income-tax proceedings because assessment for each year is final only for that year and does not cover later years." "39. Whether the appellant had permanent establishment or not, during the assessment year in question, is a disputed factual issue, which has to be determined on the basis of the scope, extent, nature and duration of activities in India. Whether project activity in India continued for a period of more than nine months, for taxability in India in terms of the Agreement for Avoidance of Double Taxation, is a question of fact, that has to be determined separately for each assessment year. *(2010) 327 ITR 456 (SC)." 19. In order to appreciate what the Supreme Court held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., a certificate was, accordingly, issued at 4 per cent. For the other assessment years as well, assessment has been completed and appeal is pending before the appellate authorities. The petitioner, obviously, disputes the finding of the respondent as erroneous and misplaced, on the ground that for the assessment year 2015-16, the first appellate authority following the decision of this court in the petitioner's own case, has held that the petitioner has no permanent establishment in India. Be that as it may, for the assessment years 2016-17 and 2017-18, this question has been determined against the petitioner. It is well-settled proposition that in tax jurisprudence, the principle of res judicata is not applicable to income tax proceedings. "In matters of recurring annual tax a decision on appeal with regard to one year's assessment is said not to deal with eadem questio as that which arises in respect of an assessment for another year and consequently not to set up an estoppel". [Ref : New Jehangir Vakil Mills Co. Ltd v. CIT (1963) 49 ITR (SC) 137]. "It is well settled that in matters of taxation there is no question of res judicata because each year's assessment is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, this court in its decision dated May 9, 2017 did not have the occasion to consider the R-series contract dated February 7, 2018. The court only considered the contract dated September 30, 2016 as noted in para-1 of the said decision. There is thus, a distinguishing feature - the R-series contract has not been considered by this court in its order dated May 9, 2017. Moreover, in the instant case, the reasons record that the two contracts are indivisible, and the petitioner cannot divide the contractual receipts in two categories, viz., inside India and outside India services. The installation permanent establishment will come into existence, if "project or activity continues for a period of more than 9 months" under Indo-UAE Double Taxation Avoidance Agreement. This question of fact will have to be determined separately for each assessment year, and we are informed that for the assessment year 2016-17 and the assessment year 2017-18, the determination is presently against the petitioner. We cannot accept the petitioner's contention that the assessment proceedings for the assessment years 2007-08, 2008-09 and 2009-10 have already determined this question in favour of the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have omitted to consider the material facts. The decision of the Tribunal was on a question of fact and no question of law arose which could be directed to be referred under Section 66 (2) of the Income Tax Act." 22. 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 and the relevant part whereof is reproduced hereunder:- "8. It is also important to note that the way in which business is carried on evolves over the years so that the facts and arrangements applicable at one point in time may no longer be relevant after a change in the way that the business activities are carried on in a given State. Clearly, whether or not a permanent establishment exists in a State during a given period must be determined on the basis of the circumstances applicable during that period and not those applicable during a past or future period, such as a period preceding the adoption of new arrangements that modified the way in which business is carried on." 23. It is in the aforesaid backdrop that the observations of the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion recorded in the "reason to believe" drawn by the AO. 25. The reliance placed by Mr. Bhatia on Raymond Wollen Mills is equally misplaced since the phrase "assumptions of facts" is clearly being misconstrued and read out of context. Learned counsel sought to contend that the said decision is an authority for the proposition that an AO could reopen basis an "assumption" of facts that may have obtained in a particular AY remaining unchanged. The said contention ignores the basic facts on which that decision was founded, namely, of the AO there having found that the assessee was charging to its profit and loss account fiscal duties "during the year" resulting in undervaluation of inventories and understatement of profits. The observation with respect to an assumption being reached is liable to be appreciated in the aforesaid light. The reassessment action is thus liable to be set aside on this short score alone. 26. We accordingly allow the instant writ petitions and quash the following impugned notices issued under Section 148: WP(C) Assessment Year Date of SCN 1196 of 2022 2013-14 17 March 2021 1630 of 2022 2015-16 31 March 2021 1631 of 2022 2017-18 30 March 2021 16 ..... 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