TaxTMI 
TaxTMI 
TaxTMI 
2019 (2) TMI 346
X X X X Extracts X X X X
X X X X Extracts X X X X
....ithout appreciating that there was no material on the basis of which any belief could be formed that income has escaped assessment. (3) That on the facts and circumstances of the case and in law, the AO and DRP erred in not appreciating that material and documents pertaining to another assessment year cannot be the basis for initiating proceedings under Section 147/148 of the Act. Offshore Supplies (4) That the AO and the Dispute Resolution Panel ("DRP") erred on facts and in law in holding that payment received by the Appellant from supply of equipment and spare parts on an offshore basis were taxable in India under both Section 9(1)(i) of the Income-tax Act, 1961 ('the Act') and Article 5 read with Article 7 of the India-Italy DTAA ("Tax Treaty"). (5) That the AO and the DRP erred in holding that the Appellant has a business connection as well as permanent establishment ("PE") in India by mechanically placing reliance on earlier assessment years AYs, wherein it has been held that the presence of GE International Inc'. ("GEII") expatriates and/or employees of GE India Industrial Pvt. Ltd. ("GEIIPL") created a PE of the Appellant under the Act. (6) That the AO and the DR....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h price, there could be no further attribution of income from any offshore sales/supplies made by the Appellant. (9) Without prejudice the AO and the DRP erred in estimating Rs. 624,36,33,476/- as the quantum of supplies made to the customers in India, without appreciating that actual quantum of supplies was Rs. 253,06,47,349/-. details in respect of which were furnished to the DRP. (10) Without prejudice the AO and the DRP erred in making attribution of income of Rs. 21,85,27,171/- to the alleged PE in India in respect of offshore sale of spare parts, inter alia, on the following grounds: (a) Following the ratio of the Rolls Royce PLC v. DDIT decision reported in (2011) 339 ITR 147 (Delhi), which confirmed the decision of the Tribunal reported in 113 TTJ 446, without appreciating that the said ruling is clearly distinguishable from the Appellant's case on both facts and in law; (b) Arbitrarily estimating taxable profits in the hands of the Appellant in India in respect of offshore sales of equipment/spare parts to Indian Customers; (c) Arbitrarily allocating 35 per cent of aforesaid profits towards marketing activities; and (d) Allocating the entire imputed marketing p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lated services in oil and gas industry, and during the year under consideration, assessee supplied spare parts/equipments to various customers in India, in addition to returned income. For year under consideration assessee filed its return of income on 29-09-09, declaring total income of Rs. 65,17,82,323/-, being revenue from onshore services as royalty and FTS, under provisions of section 44 DA of the Act. 2.1 Subsequently, notice under section 148 of the Act was issued on 30/03/15, by Ld.AO, after taking necessary approval as required under section 151 of the Act, for following reasons: "1. A survey operation was carried out at the office premise of General Electric International Operation Company Inc., India Liaison office (GEIOC) located at AIFACS, 1 Rafi Marg, New Delhi -110001 on 02.03.2007. During the course of survey, copies of various documents were, obtained and statements of various persons were also recorded. Inquiries were made as to sales made by various GE Overseas entities (including the assessee), employees working from the liaison office of General Electric International Operation Company Inc., Liaison Office ('GEIOC'), roles and responsibilities of various emp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elhi. It revealed that the activities of the non-resident GE group entities being conducted from the fixed place of business referred above were not of the preparatory or auxiliary character but constituted the PE as provided in paragraph 2 of Article 5 of respective tax treaties. iv. The various documents found during the course of survey in the form of agreements /purchases order/copies of contracts also proved the active involvement of the employees of Indian company and expats in the conclusion of contracts of behalf of such non-resident GE Group entities. Therefore, GE India Industrial Pvt. also constituted the agent, other than an agent of independent status of the non- resident GE Group entities. This resulted into the creation of the dependent agent PE as per the provision 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. 1. During the assessment proceedings for AY 2011-12, income of the assessee was again assessed on the same lines as the assessee was continuing with the same type of business. The finding that there was no activities change in business activities gets support with the subm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t jurisdiction of Income Tax Department, Objection on reasons for issuance of notice under section 148 and the prayer. The assessee has contended that the notices were issued without jurisdiction and the pre-requisites of section 147 remain unsatisfied as the assessing officer has not established a reason to believe that income has escaped assessment. It also contends that it did not have a PE or business connection in India nor did it have any India source income and that the reassessment proceedings be dropped. 2.1 By this order. I propose to dispose the objections raised by the assessee in terms of the principles laid down by the Hon'ble Supreme Court in case of GKN Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19. 3. The objections filed by the assessee against the reasons recorded have been gone through properly. The contentions of the assessee can be divided into three parts: first, lack of jurisdiction of the Income Tax Department, India over the case, second, pre-requisites of section 147 (reason to believe) not satisfied, wherein various case laws have been referred, which have been duly considered in this order while disposing of this particular contention and third,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... must be assessed with adequate due diligence. Formation of the required opinion and belief by the Assessing Officer is a mandatory condition precedent and must be fulfilled for the section 147 action to proceed. The reason to believe under section 147 must be held in good faith and should have a rational connection and relevant bearing on the formation of the belief. It should not be extraneous or irrelevant. 3.2.1 While there can be no dispute with the general propositions, this office is unable to accept that there was failure to comply with requirements of Section 147. The relevant portion of Section 147 of the Act reads as follows: "If the AO has 'reason to believe' that any income chargeable to tax has escaped assessment for any A. Y., he may, subject to the provisions of Section 148 to 153, assess or re-assess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this Section or re-compute the loss of the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned." In the above section, the main term is 'reason to be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 2(a), where no return of income is furnished by an assessee although his total income in respect of which he is assessable under the Act for the P. Y. exceeds the maximum amount, which is not chargeable to income tax, then it will be a case of escapement of income chargeable to tax. In this present case it is not in dispute that the assessee did not file his return of income. The question is whether the assessee's total income for P. Y. was more than the amount, which is not chargeable to income tax. We may also clarify here that at the time of reopening an assessment, the Assessing Officer is not expected to reach a final conclusion regarding the quantum of income that escapes assessment or a final conclusion would suffice. The information that was in possession of the Assessing Officer was the minutes of the meeting between HAL and the assessee. This meeting was held on 6.10.2000 at Bangalore. The minutes of the meeting discussed about various supplies to be effected by the assessee to HAL. This information was sufficient for the Assessing Officer to come to the conclusion that income chargeable to tax in India of the assessee had escaped the assessment. The fact that the cont....
X X X X Extracts X X X X
X X X X Extracts X X X X
....during the course of survey in the form of agreements/ purchases order/ copies of contracts the assessments were completed in the case for AY 2001-02 to AY 2008-09, wherein it was held that the Assessee was having business connection as well as Permanent Establishment ('PE') in India and the PE was engaged in activities which cannot be termed as auxiliary and preparatory. Further, it was held that 35% of the total business profits pertain to marketing activities carried out in India (the business profits were calculated @ 10% on the sales prices to the customers in India). Accordingly, 3.5% of the total sales in India was taxed as business profits in India. The reasons for completing these assessments were as under: (i) It is seen that GE Group is engaged in various sales activities in India, for which the business heads are generally expats, who are appointed to head Indian operations with the support staff provided by GE India Industrial Pvt. Ltd. and also by various third parties. These expats are on the payroll of GE international Inc. (hereinafter: GEII), but working for various business of GE Group. (ii) As per the application made to RBI and permission obtained, the liai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee (established as PE as referred above), for providing local marketing support for which it had adequately remunerated GEIIPL. 4. It is further gathered that during the course of assessment proceedings for AY 2012-13, the assessee has submitted that there has been no change in their business activities since the earlier years. As mentioned above, reasons recorded for reopening the case are self- explanatory and requires no further comments. At the cost of repetition, it is stated that the assessee was physically present in some form or other and there is no need to establish the business connection. The activities relating to the sale of products/ equipments were being carried out by the assessee through the expats with the support of employees of Indian company. The comments on the decision of Hon' ble Apex Court in the case of Ishikawajima-Harima Heavy Industries Ltd. are not required to be made in detail, which will be dealt in the assessment order, at this stage it would be suffice to state that part of the comprehensive activities leading to the income to the assessee are being carried out in India and the income accruing/arising on account of such activities is ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... details/ information as called for vide notices issued during the assessment proceedings under the I.T. Act, 1961." 2.4 During re-assessment proceedings, Ld.AO observed that, assessee belongs to GE Group overseas entities, wherein, survey under section 133A of the Act, was conducted at office premises on 02/03/07. It was observed that during course of survey, various documents/evidences in form of Draft MOUs, correspondence, pertaining to assessee was gathered and statements of various persons working with GE Industries India Pvt. Ltd (GEIIPL) and expatriates working at GE International Operation Company Inc. (GEIOC) were recorded. Further, enquiries were made regarding sales made by assessee General Electric International Operation Company Inc., (hereinafter known as GE IOC) and role/responsibilities of various employees etc. 2.5 From materials collected during survey proceedings and post survey enquiries, Ld.AO observed that GE Group, including assessee was engaged in various activities in India for which, business was headed by expats, who were appointed to head Indian operations, with support staff provided by GE India Industrial Pvt. Ltd. (hereinafter referred to as GEIIPL)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l vide order dated 27.01.2017 passed for assessment years 2001-0 to 2008-09 in case of GE Energy Parts Inc. v. Addl. DIT. It was also observed by Ld.AO that expats along with their teams were at their disposal at fixed Place business in India in the form of office premises held by GEIOC, through which they operated and carried out business of all GE Overseas entities, including assessee with support of GEIIPL. 2.11 Ld.AO during reassessment proceedings for year under consideration, observed that, certain agreements in respect of receipts by assessee revealed that, there was no change in business activity of assessee in preceding assessment years vis-a-vis year under consideration, and that, nothing was furnished to rebut this contention. Ld.AO thus concluded that, GEIOC was the fixed place PE for assessee in India, which was not just engaged in activities of auxiliary and preparatory nature but functioned more than what a Liaison Office was supposed to do. Ld.AO also was of opinion that through GEIIPL assessee had business connection with Indian counterparts and thus GEIIPL was held to be Agency PE for assessee, through which assessee carried out offshore supply of spare parts, ag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in law in not considering that every year is a separate year under the Income tax proceedings and therefore, principle of res judicata would not be applicable. 1.4 The Ld AO failed to appreciate the submissions made/ contentions raised by the Assessee and further erred in making several allegations, observations, assertions and inferences in the assessment order, which were both factually incorrect as well as legally untenable. 1.5 The Ld AO has erred on the facts and circumstances of the case in relying upon the findings or results of the survey conducted on 2 March 2007 under the assumption that such findings or results also continue to pertain to the Assessee in the relevant assessment year. 1.6 The Ld. AO erred on the facts and in the circumstances of the case and in law in passing draft assessment order u/s 144C read with section 143(3) and section 147 of the Act without following procedures prescribed under the Act for completing subject assessment proceedings and without fulfilling all the preconditions prescribed under the Act. 2. Notice under section 148 and order under section 144C(1) r.w.s. 143(3) and 147 of the Act is bad in law 2.1 The Ld. AO erred on the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red on the facts and in the circumstances of the case and in law that the teams in India were performing all the functions required for marketing and sale of spare parts/equipment's sold in India and these activities were the core activity of marketing, selling of the products. 4.4 The Ld. AO erred on the facts and in the circumstances of the case and in law to rely upon his predecessor assessment orders based on the survey conducted on 2 March 2007, which is not applicable for year under consideration. No fixed place/ Office/ Construction PE under Article 5(1) and 5(2) of the Tax Treaty 4.5 The Ld. AO erred on the facts and in the circumstances of the case and in law in concluding that the expatriates along with their teams have at their disposal a fixed place of business in India in the form of AIFACS 8uilding or premises of GEIIPL. 4.6 The Ld. AO also erred in holding that the employees of Assessee were visiting India regularly and had at their disposal the office of GEIIPL which was used by them. No Agency PE under Article 5(4) and Article 5(5) of the Tax Treaty 4.7 The Ld. AO erred in concluding that GEIIPL was not an agent of independent status as it had neither....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... amount of offshore sales in complete disregard to the fact that onshore expenses has no linkage whatsoever to the offshore sales made by the Assessee in fact onshore expenses start only after offshore sales. 5.5 Without prejudice to the above, The Ld. AO further erred on facts and in the circumstances of the case and in law in considering only two years figures (onshore expenses of two years as denominators and offshore sales of two years as numerators to arrive at the off-shore sales amount) instead of considering figures of all the years for which details were submitted. 6. Attribution of income No operations in India 6.1 Without prejudice to the contention of the Assessee that it has no PE in India, the Ld. AO erred on the facts and in the circumstances of the case and in law in not appreciating that no further income is attributable to the Assessee on account of activities carried out by GEIIPL for which it has been adequately remunerated as per the arm's length policy. Estimation of profits on arbitrary basis 6.2 Without prejudice to the above, the Ld. AO erred on the facts and in the circumstances of the case and in law in arbitrarily estimating the taxable pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for providing local marketing support with respect to offshore sale's in India. 7. Taxation of Income from Onshore Services 7.1 The Ld. AO grossly erred in proposing to tax onshore service of INR 52,14,25,828 under Section 44DA of the Act: i. by assuming that such services were rendered through the alleged PE in India, without appreciating that the Assessee does not constitute a PE in India as defined under Section 44DA of the Act read with Section 92F(iiia) of the Act; ii. by assuming that such services are effectively connected to the alleged PE; iii. by not appreciating that some 6f these services are ancillary and subsidiary as well as inextricably and essentially linked to sale of equipment and parts. 7.2 Without prejudice to the above, the Ld. AO erred in arbitrarily estimating a profitability of 8C percent in respect of above service revenues. 7.3 The Ld. AO has grossly erred on facts and circumstances of the instant case and in law in not appreciating that the onshore service may at best be taxed as per the provisions of the section 9(1)(vii) of the Act read with section 115 A of the Act and/or the Article 13 of the tax treaty. 8. The Ld. AO has erred both i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Hon'ble Gujarat High Court in case of Seth Bros. vs. DCIT reported in 251 ITR 270; * Decisions of Hon'ble Delhi High Court in case of Jindal Photo Films Ltd vs. DCIT reported in (1998) 234 ITR 170 and Satnam Overseas Ltd vs. ACIT reported in (2010) 228 CTR 121. 7.2 On the contrary, Ld.CIT DR submitted that notification No. 263 dated 14/09/01 issued by CBDT empowers the Director of Income Tax (International Taxation), New Delhi, to exercise jurisdiction over persons, being non-residents, including foreign companies, having permanent establishment, business connection having a source of income accruing or arising or deemed to accrue or arise in National Capital Region. Ld.CIT DR submitted that admittedly 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 in the returns filed for year under consideration. He thus submitted that Ld.A.O. has sufficient reasons to believe that income has escaped assessment and the reassessment proceedings initiated under section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....CIT DR submitted that, Ld.A.O had prima facie ground, for "forming belief" that there is escapement of income, which is a condition precedent for initiating reassessment proceedings for year under consideration. He thus submitted that requisite Explanation 2(b) to Sec.147 stands satisfied. 8. We have perused submissions advanced by both sides in light of records placed before us. 9. The legal position on this issue is that Assessing Officer should have a prima facie ground for forming belief that there is some escapement of income which is a condition preceded and for initiating reassessment. Also that, decisions relied upon by Ld.Counsel, it is evident that, there must be some material to indicate that income chargeable to tax has escaped assessment for a particular year, which are trite law, and cannot be interfered with. 9.1 In our considered opinion, these decisions are not applicable to facts and circumstances of assessee before us. Admittedly, assessee itself has submitted before Ld.AO that returns originally filed did not include sale proceeds received on supply of spare parts/equipments to various customers in India. Further from consolidated order passed by this Tribuna....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d opinion at the stage of issuance of notice to initiate reassessment proceedings, sufficiency of correctness of material is not a thing to be considered. We draw our support from the decision of Hon'ble Supreme Court in case of Asstt. CIT v. Rajesh Jhaveri Stockbroker (P) Ltd., [2007] 291 ITR 500 wherein, Hon'ble Court has held that: "16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers.......................................... At that stage, the final outcome of the proceeding is n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee's business connection as well as permanent establishment in India. 13. Ld.Counsel submitted that GE India was merely acting as a communication channel and was involved in preparatory/auxillary activities, and Ld.AO has erred in holding that assessee had PE in India for year under consideration, where expats of assessee and employees of GEIIPL worked together towards projects undertaken by assessee for Indian customers, as well as undertook sales of spare parts/machinery to such Indian customers and 3rd parties. 14. Ld. CIT DR on the contrary, placing reliance upon order passed by this Tribunal in case of GE Energy Parts Inc. (supra), submitted that, negotiations on behalf of assessee was carried out by one Mr P. Riccardo, who was later appointed as leader of Oil and Natural Gas India of GE energy with start-up date as on 1st of August 2006 and, the term of assignment was for a period of 5 years. He thus submitted that Mr P. Riccardo was handling affairs of assessee's business in India having office with GEIOC, with help of one Mr Vivek Venkatachalam from GEIIPL. He further pointed out from order passed by this Tribunal in case of GE Energy Parts Inc. (supra), that agree....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies (together with other such sites, project or activities, if any) continue for a period of more than six months, or where such project or supervisory activity, being incidental to the sale of machinery or equipment, continues for a period not exceeding six months and the charges payable for the project or supervisory activity exceed 10 per cent of the sale price of the machinery and equipment : Provided that for the purpose of this paragraph, an enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through that permanent establishment if it provides services or facilities in connection with or supplies plant and machinery on hire used or to be used in, the prospecting for, or extraction or production of mineral oils in the State. 3. Notwithstanding the preceding provisions of this Article, the term "Permanent establishment" shall be deemed not to include : (a) the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise ; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display ; (c)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se itself or on behalf of that enterprise and other enterprise controlling controlled by, or subject to the same common control, as that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph. 6. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other. 16.1 Co-joint reading of Clauses 1, 2 and 3 of Article 5, it is apparent that, Permanent Establishment means, a fixed place of business, through which business of an enterprise is wholly or partly carried out, and which is not maintained for activities of preparatory or auxiliary in nature. Term fixed place, has been generally envisaged as a place, which is at the disposal of the enterprise, with a degree of permanence. It also means a place which is occupied by the enterprise, and is constantly used. Thus if a place is used by a foreign enterprise for carrying on its business in India wit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... therefore, stands satisfied." 17.2 We also refer to and rely upon following observations, regarding alleged LO of GEIOC, which was not acting just as a communication channel between head office and customers in India: "28.1. The third condition for constituting a fixed place PE, to the extent it is relevant for our purpose, is that the activities carried on from such fixed place should not be of preparatory or auxiliary character. If the activities done from such fixed place fall within the purview of 'preparatory or auxiliary', the fixed place sheds its character of a permanent establishment. The term 'preparatory activity' is understood in common parlance as some job concerned with the preparation of the main task to be undertaken. It is pursued before the taking up of the actual activity. Black's Law Dictionary 7th Edition at page 130 defines the term 'auxiliary' to mean as 'aiding or supporting, subsidiary.' An activity becomes auxiliary if it is in support or aid of the core income generating activity. The Hon'ble jurisdictional High Court in U.A.E. Exchange Centre Ltd. v. Union of India and Ors. (2009) 313 ITR 94 (Del) considered a case in which the activity to be done th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....office' to mean a place of business to act as a channel of communication between the principal place of business or HO and entities in India, but which does not undertake any commercial/ trading/ industrial activity and maintains itself out of inward remittances received from abroad through normal banking channel. From the definition of Liaison office seen in juxtaposition to the above referred judgments, it becomes clear that acting as a communication channel is an activity of auxiliary character and hence does not constitute a PE in India. 28.4 Now, let us examine if the activities carried out in India by the GE overseas entities through GE India are of preparatory or auxiliary character. Main focus of the ld. AR was to establish that the activities done by GE India were of preparatory or auxiliary character. As per the application made to RBI and permission obtained, the LO of GEIOC was to act as a communication channel between the head office and the customers in India. Thus, there remains no doubt that the activities to the extent of communication channel, as sanctioned by the RBI, being of preparatory or auxiliary character, would not constitute any PE in India. However, it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ager assessment despite a specific request by the AO till the completion of assessment. 17.4 From the above, it is amply clear that Mr.Ricardo was negotiating and finalising terms and conditions of agreements/MOU with Indian counterparts for assessee, and but was also not allowing GE Overseas entity to alter or change any such terms and conditions without consent of GEIIPL. 17.5 Further there has been employees of GEIIPL who were actively involved in determining marketing strategies to help distinguish GE products from its competitors. Also refer to following specific observation in consolidated order passed by this Tribunal in case of GE Energy Parts Inc. (supra): "28.19 It is further pertinent to note at this stage that the permission to set up LO at AIFACS building was given by the RBI to GEIOC and not to the assessee including all GE overseas entities covered in this batch of appeals. Thus, none of the instant assesses had any LO in India. Be that as it may, even the LO of GEIOC has been treated as its fixed place PE and the exclusion claimed on the ground of preparatory or auxiliary activities, has been denied up to the tribunal level. Not only that, even penalty u/s 271(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned, revenue has alleged that GEIIPL constituted dependent agent for assessee. From foregoing paras, it is clear that employees of GEIIPL were actively involved in decision-making process and supported as a team, for sales carried out by assessee to Indian customers in India. It is also been recorded herein above 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. 18. We, therefore do not agree with argument advanced by Ld. Counsel that, authorities below erred in mechanically placing reliance on ea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....C v. DIT (International Taxation) [2011] 339 ITR 147 (Delhi). He also submitted that Assessing Officer allocated entire marketing profits to alleged PE in India when core marketing activities were carried out by assessee outside India. 23. On the contrary, Ld. CIT DR submitted that, Ld.AO was right in calculating total profits from sales made by assessee in India at 10% and attribution of profits from marketing activities at 35% of 10%. He submitted that regarding attribution of offshore supplies, assessee was called upon to produce all details regarding sales made to the parties in India. Admittedly the same was not done and therefore estimation of income based upon sales determined for immediately two preceding years were considered by Ld.AO, by invoking rule 10 (iii). He submitted that assessee filed relevant details at the end of DRP proceedings which were not considered by DRP. 24. We have perused submissions advanced by both sides in light of records placed before us. 25. The primary argument advanced by Ld.Counsel was in respect of attribution made by Ld.AO of income from offshore supply as well as marketing activities in hands of PE in India as assessee has remunerated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h have not been considered. Hon'ble Allahabad High Court in case of LG Electronics Inc. v. Asstt. DIT (International Taxation) [2014] 368 ITR 401/226 rejected similar contention raised before us, after duly noting judgment in the case of Morgan Stanley (supra). The position which, therefore, follows is that only if ALP has been determined taking into account all risks and functions of the enterprise, nothing more can be attributed to the PE. If however, the functions or risks etc. actually undertaken are more than those shown, then exception to the rule laid down in Morgan Stanley (supra) gets attracted. Ld.Counsel submitted that reference was made in respect of Indian enterprise was made to TPO. Ld.TPO passed draft order on 28/01/2013 determining ALP without considering all functions and risks actually undertaken by assessee. Ld.Counsel placed on record draft order passed by Ld.TPO, and on perusal of the same, it is evident that, extra functions performed by GEIIPL and/or risk assumed by it has not been considered, warranting further attribution of income. 26.2 We have also perused decision of Hon'ble Supreme Court in case of E Funds (supra). Facts in this case was that E F....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ergy Parts., (supra), there can be no hard and fast rule of attribution of profit to marketing activities carried out in India at a particular level and that attribution of profits to PE in India is fact based, depending upon role played by PE in overall generation of income. Such activities carried out by the PE in India resulting in generation of income, may vary from case to case, and attribution of income has to be in line with the extent of activities of PE in India. 26.5 Considering all relevant facts and adopting a holistic approach, 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. Accordingly we partly allow Ground No.12-19 27. Ground No.20 has been raised by assessee in respect of interest levied u/s234 B of the Act. It is observed that this Tribunal in consolidated order passed in ....