2025 (10) TMI 1221 - AT - Income Tax

No fixed-place or dependent-agent PE found; income not attributable or deemed to arise in India for year

ITAT DELHI - AT held that the departmental authorities failed to examine or reason on the assessee's evidence and merely followed prior appellate/H Court ... PE in India or not - Income deemed to accrue or arise in India - HELD THAT:- Co-ordinate Bench of the Tribunal in Assessee’s own case for Assessment Year 2018-19 and 2019-20 [2023 (10) TMI 967 - ITAT DELHI] held that departmental authorities have turned a blind eye to all the submissions and facts brought on record by the assessee. Merely following the decision taken by the appellate authorities and Hon’ble High Court in past assessment years, the departmental authorities have concluded the existence of PE without looking into or examining the facts and evidences brought on record, which are very much relevant for deciding the existence of PE in the impugned assessment years. It is observed, while deciding identical issue in case of NuovoPignone International SRL [2023 (6) TMI 1321 - ITAT DELHI] as held when the evidences brought on record by the assessee are before the departmental authorities, it is the duty of the departmental authorities to examine them on merits and thereafter, either to accept them or to reject them with proper reasoning by bringing on record contrary material/evidence. Departmental authorities have failed to undertake such exercise. Therefore, in our view, it has to be concluded that the departmental authorities have not found anything amiss or adverse in the facts and material brought on record by the assessee - Assessee did not have any PE, either fixed place PE or dependent agent PE, in India in the year under consideration. Assessee did not have any PE in India in Assessment Year under consideration so as to attribute profit to such PE. ISSUES PRESENTED AND CONSIDERED 1. Whether the assessee had a Permanent Establishment (PE) in India in the relevant assessment year such that profits could be attributed to that PE. 2. Whether the determination of existence of PE can be sustained by merely following past assessment years' decisions without examining year-specific facts and evidences brought on record. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Existence of Permanent Establishment (PE) in the assessment year Legal framework: The existence of PE is to be determined year-by-year based on the definition of PE in the relevant tax treaty and applicable domestic law; the onus to establish existence of PE lies on the Revenue. Precedent treatment: Prior Tribunal and High Court determinations upholding PE in earlier years are recognised as relevant history but are not conclusive for subsequent years. Decisions in earlier authorities emphasise that factual changes in later years can negate an earlier finding of PE. Authorities cited emphasise (i) the need for year-specific enquiry and (ii) the Revenue's burden to prove PE. Interpretation and reasoning: The Tribunal examined material facts specific to the impugned year - notably vacation of the previously alleged fixed place of business, absence of expatriate visits, and filings indicating closure of the liaison office - and found these facts were placed before the assessing authorities. The departmental authorities did not controvert or rebut these facts with contrary material or reasoned findings; instead they mechanically followed earlier conclusions. Applying the rule that existence of PE must rest on contemporaneous facts and that the Revenue must establish PE, the Tribunal concluded that the factual predicates underpinning earlier findings of PE were absent in the year under consideration. Ratio vs. Obiter: Ratio - A finding that PE existence must be determined afresh each year on the basis of facts brought on record, and that uncontroverted evidence demonstrating absence of a fixed place and agent activity negates PE; the Revenue bears the onus to establish PE. Obiter - Observations criticizing 'cut and paste' treatment by assessing authorities and references to specific prior cases as persuasive but fact-dependent guidance. Conclusion: The Tribunal concluded that there was no PE (neither fixed place PE nor dependent agent PE) in India for the assessment year under consideration and therefore no profits could be attributed to a PE for that year. Issue 2 - Lawfulness of adopting past findings without independent application of mind to year-specific facts Legal framework: Administrative and judicial decision-making requires independent application of mind; reopening or reaffirming assessments must be supported by examination/verification of materials and reasoned findings on the facts of the year in question. Precedent treatment: Authorities establish that information from third parties may trigger an investigation but cannot substitute for the assessing officer's independent decision; mechanical reliance on past orders without fact-specific adjudication is impermissible. Interpretation and reasoning: The Tribunal found that departmental authorities had not undertaken the required enquiry or produced contrary evidence to rebut assessee's submissions (vacation of premises, lack of activities/visits, formal filings). The Tribunal applied the principle that where an assessee places cogent, uncontroverted evidence before the authorities, those authorities must examine and either accept the evidence or reject it by recording contrary findings supported by material; failure to do so amounts to impermissible non-application of mind. The Tribunal held that remitting the matter back to permit a second opportunity to the assessing officer would be inappropriate when the authorities have not produced any adverse material; instead the Tribunal resolved the issue on the available record. Ratio vs. Obiter: Ratio - Administrative decisions cannot be sustained by mere parroting of past orders; independent assessment of facts and reasoned rejection of evidence are required. Obiter - Generalized critique of reopening practice and hypothetical applications where third-party information may justify reopening. Conclusion: The Tribunal held that departmental authorities improperly relied on prior findings without independent application of mind and, given the uncontroverted factual material, the proper outcome is to find absence of PE rather than remit for further enquiry. Cross-references and Interplay of Issues The conclusion on Issue 1 is directly informed by Issue 2: because the Revenue failed to rebut year-specific facts and merely followed prior decisions, the Tribunal applied the legal framework requiring year-by-year determination and the Revenue's onus to conclude that no PE existed. The treatment of precedents was contextual - earlier findings were followed only insofar as their factual bases persisted, but were distinguished where facts had changed. Final Disposition and Consequential Observations On the facts before it, and by following the reasoning that (i) PE is a fact-driven, year-by-year inquiry, (ii) the Revenue bears the burden of proof, and (iii) assessing authorities must record independent, reasoned findings when disputing assessee evidence, the Tribunal allowed the ground contesting attribution of profits to a PE and found the PE did not exist in the assessment year; other grounds were rendered academic and not adjudicated.