Reassessment under Section 147/148 upheld; 26% profit attributed to local PE, 2.6% on total sales

HC upheld reassessment under Section 147/148, finding a prima facie belief of escapement of income because the appellant failed to disclose revenue from sales to Indian customers. The Court rejected challenges to jurisdiction and to reopening, noting prior determinations on Fixed Place PE and DAPE had attained finality and the appellant did not show materially changed facts. The Tribunal's attribution of profits to Indian operations was sustained: the Court held roughly one-quarter of marketing effort occurred in India and directed the AO to attribute 26% of total profit to the PE in India, ordering application of 2.6% on total sales for profit computation.

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Issues Involved:

1. Legitimacy of ITAT's decision to uphold the AO's jurisdiction under Sections 147/148 of the Income Tax Act, 1961, for AY 2009-10.
2. Existence of a Fixed Place Permanent Establishment (PE) in India under Article 5(1) of the DTAA.
3. Existence of a Dependent Agent Permanent Establishment (DAPE) in India under Article 5(4) of the DTAA.
4. Attribution of profits and reliance on a reversed judgment by the Supreme Court.

Detailed Analysis:

1. Legitimacy of ITAT's Decision on Jurisdiction under Sections 147/148:

The Tribunal upheld the AO's jurisdiction under Sections 147/148, emphasizing that the AO had a "prima facie ground for forming belief that there is some escapement of income." The Tribunal noted that the appellant failed to disclose revenue from sales made to Indian customers through GEIIPL, which constituted a failure to disclose fully and truly all material facts necessary for assessment. The Tribunal relied on the Supreme Court's decision in ACIT vs Rajesh Jhaveri Stockbroker (P) Ltd., which held that at the initiation stage of reassessment, only a "reason to believe" is necessary, not conclusive evidence of income escapement.

2. Existence of a Fixed Place Permanent Establishment (PE):

The Court reiterated its previous findings that GE India was involved in core activities such as sales and marketing, which were not merely preparatory or auxiliary. The Court emphasized that GE India's activities were integral to the business operations of the GE Group in India, thus constituting a Fixed Place PE. The decision was based on evidence of GE India's involvement in negotiations and finalization of contracts, which indicated a substantive business presence in India.

3. Existence of a Dependent Agent Permanent Establishment (DAPE):

The Tribunal and the Court affirmed the existence of a DAPE, noting that GEIIPL acted as an agent for multiple GE entities, securing orders and negotiating contracts in India. The Court referred to the OECD commentary and India's position on the authority to conclude contracts, emphasizing that the activities of GEIIPL went beyond mere auxiliary functions and were sufficient to establish a DAPE.

4. Attribution of Profits:

The Tribunal addressed the issue of profit attribution, noting that the AO attributed 3.5% of the sales as profits attributable to the PE in India. The Tribunal found the AO's approach, which was based on precedents like Rolls Royce Plc, to be justified. The Court upheld this attribution, noting that the Tribunal's decision was consistent with the facts and the law, and the appellant failed to demonstrate any fundamental change in circumstances that would warrant a different attribution.

Conclusion:

The Court dismissed the appeal and the connected writ petition, finding no merit in the appellant's challenges. The Tribunal's findings on the existence of a Fixed Place PE and DAPE, as well as the attribution of profits, were upheld. The Court emphasized the importance of consistency in tax assessments, especially when the appellant did not present any new facts or circumstances to distinguish the current assessment year from previous ones.

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