GE NUOVO PIGNONE SPA,GURGAON vs. DCIT (INTERNATIONAL TAXATION), CIRCLE-1(3)(1), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: ‘C’, NEW DELHI

BEFORE SHRI NK SAINI, VICE PRESIDENT AND SMT. BEENA A PILLAI, JUDICIAL MEMBER

ITA No. 6892/Del/2017 AY: 2009-10 GE Nuovo Pignone SPA vs. DCIT, International Taxation C/o 6th Floor, Building No.7 A Circle 1(3)(1) Standard Chartered Building New Delhi DLF Cyber City, Phase III Gurgaon 122 002 Haryana

PAN: AABCG3212A

(Appellant) (Respondent)

Assessee by : Sh. Sachit Jolly, Adv. Sh. Sidharth Joshi, Adv. Department by : Sh. G.K.Dhall, CIT, D.R.

Date of Hearing : 28/11/2018 Date of Pronouncement: 01.01.2019 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER

Present appeal has been filed by assessee against the final assessment order dated 23/10/17, under section 147 read with 144C (13) read with 143(3) of the Income Tax Act, 1961 (the Act) passed by Ld.DCIT Circle- 1 (3) (1) International Taxation, New Delhi, on following grounds of appeal: GROUNDS OF APPEAL 1) That the Assessing officer (“AO”) erred on facts and in law in computing the income of the Appellant for the relevant assessment year at Rs.73,99,53,029/- as against Rs.65,17,82,323/- income returned by the Appellant.

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2) That on the facts and circumstances of the case and in law, the Dispute Resolution Panel (“DRP”) erred in upholding the action of the AO in initiating proceedings under Section 147/148 of the Act, without 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 DRP further erred in mechanically placing reliance on the findings of the result of survey conducted on March 2, 2007 without appreciating that the said material did not pertain to the present assessment year. 7) That the AO and the DRP, in facts and circumstances of the case and in law, further erred in assessing the income of Appellant under the Tax Treaty, by holding that the Appellant had a PE in India viz., (a) fixed place of PE under Article 5(1) and 5(2) of the Tax Treaty; (b) dependent agent PE under Article 5(4) and 5(5) of the Tax Treaty; and (c) Construction PE. 8) That the AO and DRP erred in holding that the Appellant had a fixed place PE in India without appreciating that the activities carried out in India were preparatory and auxiliary in nature and thus outside the scope of Article 5(1) of the Tax Treaty. 9) That the AO and the DRP erred in holding that GE1IPL constituted dependent agent PE of the Appellant under the provisions of explanation 2 to Section 9(1 )(i) of the Act and Article 5(4) of the Tax Treaty without appreciating that GEIIPL was neither economically dependent upon the Appellant, nor an agent of the Appellant and in any case did not possess any authority to conclude, contracts on behalf of the Appellant and therefore could not be held to be held to constitute a business connection of the Appellant under Explanation 2 to Section 9 2

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of the Act, or a dependent agent PE of the Appellant in India in terms of Article 5(4) of the Tax Treaty. That the AO and the DRP erred in not appreciating that GEIIPL 6) was only providing market support in the capacity of an independent service provider to the Appellant and GEII expatriate employees were neither working under the control or supervision, nor reporting to the Appellant, and as such could not be construed as constituting a PE of the Appellant in India. That the AO and the DRP further erred in not appreciating that no 7) part of the income from offshore supply of spare parts and equipment were attributable to the alleged business connection/PE of the Appellant in India, on the grossly incorrect assumption that core activities of the Appellant's offshore sales/supplies were carried out in India. Without prejudice, the AO and DRP erred on facts and in law, in 8) failing to appreciate that as the alleged PE of the Appellant had already been fairly compensated at arms' length price, there could be no further attribution of income from any offshore sales/supplies made by the Appellant. Without prejudice the AO and the DRP erred in estimating 9) 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. Without prejudice the AO and the DRP erred in making attribution 10) 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 profits to India, when the core marketing activities were carried outside of India; 15. Without prejudice, the AO and the DRP erred in incorrectly applying the ‘Force of Attraction Rule’ to bring to tax the profits of the Appellant from its offshore supplies/sales, without appreciating that the ‘Force of Attraction Rule’ was not applicable in the present case 3

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and that in any case it does not encompass offshore supplies. 16. Without prejudice, the AO and the DRP erred in on the facts and circumstances of the case and in law in not allowing deduction of expenses in computing income assessable in the hands of alleged PE of the Appellant in India. Re: Receipt in respect of Onshore services 17. That the AO and DRP has erred in facts and in law, in holding that income from rendition of services in India, amounting to Rs.52,14.25,858/- (Rs.65,17,82,323/- minus 20% adhoc expenses) as being subject to tax under Section 44DA of the Act, without appreciating that such provision of the Act has no applicability to the facts and circumstances obtaining in the Appellants case. 18. That the AO and DRP grossly erred in taxing the Onshore Services Revenue of Rs.52,14,25,858/- Section 44DA of the Act on the erroneous basis that the Appellant had a PE in India and further by incorrectly holding that such income was effectively connected with the alleged PE of the Appellant in India. 19. Without prejudice, the AO and the DRP erred in arbitrary estimating a profitability of 80% in respect of the above-mentioned service revenues of Rs.65,17,82,323/- to the alleged PE without appreciating that in the assessments completed for earlier year as well in the present year in respect of sale of spare parts,a deemed profitability of 10% has been accepted by the tax department. 20. That the AO and DRP erred in levying interest under Section 234B of the Act. 21. The grounds of appeal made herein above are without prejudice to each other. The Appellant craves leave to alter, amend and/or withdraw all or any of the grounds of appeal herein or add any further grounds as may be considered necessary and to submit such statements, documents and papers as may be considered necessary wither before or during the time of hearing.”

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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 employees etc. 2. On the basis of various documents found during the course of survey in the form of agreements /purchases order/copies of contracts the assessments were completed in this 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, further the income declared as FTS was taxed u/s 44DA as the same was held as effectively connected to the PE. 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 lndian‘ 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 liaison office was to act as a communication channel between the head office and the customers in India. However, as a result of survey, it was found that the company, instead of undertaking the permitted activities, was employing various persons and providing the services of such persons to the GE Group entities (including the asses see) worldwide. The activities indicated that the

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GEIOC was carrying out business in India through a PE and the income attributable to such PE was taxable in India. But the company had not filed return of income for any year. iii.The expatriate employees of GE Group were responsible for looking and looked after the business of GE Group as a whole, irrespective of any GE group company making sales in India. The bifurcation of sales by various entities was decided by the GE management, as was evident from the documents seized during the course of survey. These expats and their teams had at their disposal a fixed place of business in the form of office premises at AIFACS, 1, Rafi Marg, New Delhi. 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 submission of the assessee, during the course of the DHP Proceedings, that it had sought assistance from M/s GE India Industrial Pvt. Ltd ('GEUPL'),i.e., an associated entity of the Assessee (established as PE as referred above), for providing local marketing support for which it had adequately remunerated GEIIPL. 2. 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.

In view of above, it is evident that the assessee had a business connection as well as PE in India for A.Y. 2009-10 also. The assessee filed return of income without disclosing full particulars of income attributable to PE of assessee in India. Accordingly, I have reasons to believe that during the A.Y. 2009-10, the assessee had earned income from the business activities which was, attributable to the established PE of the assessee in India and the same has escaped assessment within the meaning of section 147 of I.T.Act and,

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therefore, a notice u/s 148 is being issued after taking approval of ACIT(IT), Range 1(3), New Delhi.”

2.2. In response to aforestated notice, return of income was filed by assessee on 06/05/15, declaring income, already disclosed in original return. Assessee, thereafter requested for reasons recorded for reopening of assessment, which were provided to assessee. Assessee raised objections on reasons recorded for reopening of assessment, vide submissions dated 19/02/16, which are placed at page 53-75 of paper book. 2.3. These were disposed in following manner by Ld.AO, vide order dated 22/02/16, wherein objections raised by assessee were rejected. “In this case, a notice under section 148 of the income-tax Act,1961 dated 30.03.2015 was issued to the assessee requiring to file its return of income for the relevant assessment year. In response to the said notice, assessee filed return on 06 May 2015. Further, assessee vide letter dated 07 May 2015 requested for a copy of the reasons recorded prior to initiating of actions u/s 148 of the Act. The reasons were provided on 19 November 2015. 2. The assessee filed its objections against the ongoing proceedings vide letter dated 19.02.2016. The letter is divided in three parts and objections are categorized within these three heads. Theses heads are: Income Tax proceedings without 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 7

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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. vsITO (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, contention over the tax liability of the assessee in India. The objections of the assessee are discussed in subsequent paragraphs. 3.1. Reliance is placed on Notification No. 263 dated September 14, 2001 issued by the Central Board of Direct Taxes, which empowers the Director of Income Tax (International Taxation), New Delhi to exercise jurisdiction over persons being non-residents including foreign companies having a permanent establishment, business connection or having a source of income accruing or arising or deemed to accrue or arise in the National Capital Region. This contention of the assessee requires no comment as there is no question of lack of jurisdiction. The CBDT vide Notification S.O. No. 1680(E) dated 28.09 .2007 has issued another notification relating to the International Tax Directorates. The detailed reasons

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recorded by the assessing officer conclude into the result that the assessee does have permanent establishment in various forms and also business connection in India. Moreover, question of existence of permanent establishment or business connection of the assessee in India is a matter of fact and on the basis of information collected during the survey and obtained from the assessee afterwards; reasons in detail have been mentioned in the reasons for issuing notice u/s 148 of the Act and at the risk of repetition it is briefly stated that the assessee has made sales in India, it was present in India in some physical form and accordingly, it had business connection in India, it has source of income accruing or arising in India. It also had permanent establishment and the profits attributable to such permanent establishment are taxable in India. Accordingly, Assessing Officer had reason to believe for initiating the proceedings u/s 147 of the Act. Therefore, the contention of the assessee regarding lack of jurisdiction to assess the assessee is baseless and accordingly, rejected. 3.2. Adverting to section 147, it has been submitted by 'the assessee that the pre-requisite of the section i.e. 'reason to believe' is not satisfied and a number of cases have been referred to arrive at the conclusion that: The reason to believe standard in section 147 contemplates orming a belief based on reliable, objective information. The belief cannot be arbitrary or irrational. Actions under section 147 cannot rely on mere surmises and suspicion but 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

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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 believe' and the same has been interpreted by numerous judicial authorities. 3.2.2. The principle behind all the judgments (related to this phrase and referred by the assessee in its objection] is that the AO should not use general and irrational material! to come at the conclusion that income has escaped assessment and that is all that was taken into consideration by the AO while recording reasons for re-opening the case in hand. In the present case, reasons recorded for re-opening are sufficient in itself to prove that there are material facts & reasonable grounds on which one can have 'reason to believe' for reopening the case, as income chargeable to tax has escaped assessment.

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3.2.3. In the case of 'Bawa Abhai Singh Vs. DCIT [2001] 117 Taxman 12' Hon’ble Delhi High Court has elaborated on this issue. Relevant portion of this order reads as below: "The only condition for action is that AO should have reason to believe that income has escaped assessment, which belief can be reached in any manner and is not qualified by a pre-condition of faith and true disclosure of material fact by an assessee as contemplated in the pre-amended Section 147(a] and the AO can under the amended provision legitimately reopen the assessment in respect of an income was has escaped assessment. Viewed in that angle power to reopen assessment is much wider under the amended provision and can be exercised even after assessee has disclosed fully and truly all the material facts. There must be relevant material before the AO on the basis of which he may form a belief. It may be said that information must be something more that a rumour or gossip or hunch. There must be some material which can be regarded as information, on the basis of which the AO can have reason to believe that action u/s 147 is called for information means the communication or reception of knowledge or intelligence. It includes knowledge obtained from investigation, study or insurrection. Reasons which may weigh with the AO may be the result of his own investigation and may come from any source that he considers reliable. Formation of his belief is not judicial decision but is an administrative decision." Further, in 'Rolls Royce Pic. vs. ADIT (Intl. Tax) Cir-2(1), 148 Taxman 66. The 1TAT Delhi Bench has, inter-alia, observed: "We have considered the rival submissions. Under Section 147 read with Explanation 2(a), where no return of income is furnished

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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 contracts were executed in India could reasonably lead to a conclusion that income has accrued to the assessee in India and was therefore chargeable to tax in India. Though there are certain vague observations in the reasons recorded, that by itself will not lead to the conclusion that the belief entertained by the Assessing Officer was non-existent or was vague or had no nexus with the information in his possession. It cannot therefore be said that the initiation of reassessment proceedings was invalid." It is, therefore, trite that the objection of the assessee with regard to notice for reassessment should be restricted to adherence by the

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A.O. to the basic requirements as provided in law for issuance of such notice. The assessment order can be framed only after necessary enquiries are made and further information gathered during the assessment proceedings. The principle that emerges from the above judgment is that if the AO has some information based upon which he has reason to believe that the income has escaped assessment for any assessment year under the provisions of the Act, he/she can reopen the case u/s 147 of the Act. In the case under reference, it is apparent from the record that the AO has acted fairly & judiciously and had enough reasons to believe for reopening the case. 3.3. The contention of the assessee regarding tax liability of the assessee in India needs no comment as of now because the reasons recorded provide enough ground for reopening the assessment. The various reasons for reopening the assessments are mentioned in the reasons and the quantum of income taxable in India will be determined during the course of assessment proceedings. The reasons recorded while reopening the case reads as below: 1. A survey operation was carried out at the office premises 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

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International Operation Inc., Liaison Office ('GEIOC'), roles and responsibilities of various employees etc. 2. On the basis of various documents found 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 liaison office was to act as communication channel between the head office and customers in India. However, as a result of survey, it was found that the company, instead of undertaking the permitted activities, was employing various persons and providing the services of such persons to the GE Group Entities (including the Assessee) worldwide. The activities indicated that the GEIOC was

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carrying out business in India through a PE and the income attributable to such PE was taxable in India. But the company had not fled return of income for any year. (iii) The expatriate employees of GE Group were responsible for looking and looked after the business of GE Group as a whole, irrespective of any GE group company making sales in India. The bifurcation of sales by various entities was decided by the GE management, as was evident from the documents seized during the course of the survey. These expats and their teams had at their disposal a fixed place of business in the form of office premises at AIFACS, 1, Rafi Marg, New Delhi. It revealed that the activities of 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 the 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 conclusions of contracts of behalf of such non- resident GE Group entities. Therefore, GE India Industrial Pvt also constituted the agent, other than agent of independent status of the non-resident GE Group entities. This resulted into the creation of dependent agent PE as per the provision of tax treaties and business connection as per the provisions of Explanation 2 to section 9(1 )(i) of the Income Tax Act, 1961. 3. During the Assessment proceedings for A Y 2011-12, the income of the assessee was again assessed on the same lines as the assessee was continuing with the same type of business. The

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finding that there was no activities change in business activities gets support with the submission of the assessee, during the course of DRP proceedings, that it had sought assistance from M/s GE India Industrial Pvt Ltd ('GE1IPL'], i.e. an associated entity of the Assessee (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 taxable in India as per the decision of Hon'ble Apex Court in the case of Ahmedbhai Umarbhai & Co. [1950] 18 ITR 472 (SC).

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The contention of the assessee that it is not taxable even under the provisions of tax treaty is contrary to the facts of the case and position of law. Its claim that the liaison office merely acted as a communication interface/ channel and activities undertaken were in the nature of preparatory or auxiliary character, therefore, no PE is exist in this account is unacceptable and will be dealt in detail in the assessment order, however, at present it is stated that: (a) The liaison office belonged to GEIOC and any relief on this account, if any, will be available to GEIOC only. In this regard, reference is invited to Para 28 of the commentary on OECD Model, 2008 update, wherein it is stated that "a permanent establishment, however, exists if the fixed place of business exercising any of the functions listed in paragraph 4 were to exercise them not only on behalf of the enterprise to which it belongs but also on behalf of other enterprises. If, for instance, an advertising agency maintained by an enterprise were also to engage in advertising for other enterprises, it would be regarded as a permanent establishment of the enterprise by which it is maintained". (b) It is not the case of the assessee that expatriates were on the payroll of GEIOC and the services related to sales in India were provided by GEIOC, therefore, it is not the activities of GEIOC which may create PE for the assessee but the activities of the expatriates having a fixed place of business at their disposal will create PE. (c ) Activities of employees of GEIIPL also create PE of the nature dependent agent PE of the assessee in India.

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Accordingly, the objections of the assessee relating to PE-are also rejected 4. The necessary prerequisite for issuance of notice u/s 148 is the formation of belief that income chargeable to tax within the meaning of Section 147 of the Act has escaped assessment on the basis of information and material available with the A.O. The reassessment proceedings initiated after issuance of the notice would necessarily require enquiries to ascertain the correct tax liability of the assessee. 5. Accordingly, the objection of the assessee stands disposed off. The assessee is directed to co-operate in the assessment proceedings and submit the 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.

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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). 2.6. Based upon survey materials and post survey enquiries gathered by Department, to ascertain facts for year under consideration, Ld.AO called upon various details and issued notice dated 15/02/16 under section 142(1), along with questionnaire to assessee. 2.7. In response to questionnaire, assessee vide letter dated 10/03/16 and 22/03/16 submitted that; Assessee is a Company incorporated in Italy and is a tax resident of Italy. It was further submitted that assessee is entitled to avail beneficial provisions of DTAA between India & Italy. Further assessee submitted that it has earned income from various Indian customers being :  receipts in respect of on-shore services;  receipts from off-shore supply of equipment parts. Assessee submitted that out of above, receipts from on-shore services had been duly offered to tax as Fee for technical services @ 20% in original return. Assessee placed reliance on Sec.9(1)(i) of the Act and submitted that, any income earned directly or indirectly through or from any Business connection would only deem to be accrue or arise in India and would be taxable in India. Assessee thus submitted that as it did not have business connection in India, off-shore supplies were not taxable.

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

2.8. Assessee, further submitted that, even if it is presumed that assessee has PE in India, no further profits can be attributed in hands of GEIIPL, for local marketing support provided by it as the same has been held to be remunerated at arm’s length price to GEIIPL. Assessee in support of its argument placed reliance upon service agreement dated 16/01/01 Transfer Pricing Order and decision of Hon’ble Supreme Court in the case of Morgan Stanley reported in 292 ITR 416. It was thus submitted that no further attribution of income was necessary in this case. 2.9. Assessee further contended without prejudice to the above that, in any case, attribution was being made to alleged PE in India, deduction of fees paid by assessee to GEIIPL for marketing services availed by assessee should be allowed in computing taxable income. 2.10. Ld.AO after considering detailed submissions filed by assessee, was of opinion that, assessee is one of the entities of GE Overseas, and was having business connection in India, with Fixed Place PE, and Agency PE. He further recorded that, similar findings were determined by this Tribunal vide order dated 27.01.2017 passed for assessment years 2001-0 to 2008-09 in case of GE Energy Parts Inc. vs.DDIT. 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

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

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, against which revenue was not declared in return of income originally filed by assessee and it deserves to be attributed to GEIIPL. 2.12. Thereafter, for purposes of attribution, Ld.A.O called for

various details regarding sales of offshore supply for year under

consideration. Assessee did not file relevant information, by

submitting that, due to change in accounting software, figures of

offshore supply for year under consideration were not available,

and therefore, assessee proposed offshore supply amounting to

be Rs.2,36,86,40,268/-, for year under consideration on the

basis of average sales for preceding 8 years, i.e. from 2001-02 to

2008-09. Ld.AO rejected working provided by assessee, and

attributed income to GEIIPL being Agency PE, for offshore

supplies for year under consideration as under:

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

Total expenses of all the project Rs. 1,82,17,590/- offices (Ahmedabad, Haldia & Delhi) of the assessee for A.Y. 2007-08 and 2008-09. Total offshore sale for A.Y. 2007-08 Rs. 14,68,14,73,794/- and 2008-09 Total expense for A.Y. 2009-10 of all Rs. 77,47,448/- the project offices (Ahmd, Haldia & Del) Hence the total offshore supply for Rs. 6,24,36,33,476/- A.Y. 2009-10 = Rs.14,68,14,73,794 * 77,47,448/1,82,17,590

2.13. From above working, Ld.AO attributed 3.5% of average revenue from offshore supply computed at Rs.21,85,27,171/-, by passing draft assessment order dated 26/12/16. 3. Aggrieved by draft assessment order, assessee filed following objections before DRP. 1.1. The Learned Assessing Officer ('AO') has erred on the facts and circumstances of the case and in law in proposing to assess the income of the Assessee at INR 73,99,53,029 as against income of INR 65,17,82,323 as per the return of income filed by the Assessee for the subject year. 1.2. The Ld. AO erred in mechanically following the earlier years order and failed to appreciate that there was no material to suggest that any marketing or sales activities of the Assessee were carried on in India, through the alleged PE, during the relevant previous year. The Ld. AO has further erred in mechanically following the earlier years order for taxation of onshore services.

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

1.3. The Ld. AO has erred in law and on the facts in following the assessment order of AY 2008-09 and AY 2013-14 based on conjectures and surmises. The Ld. AO erred in law and on the facts in applying the rule of consistency and erred 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 facts and in the circumstances of the case and in law in assuming jurisdiction over the Assessee and in

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

issuing notice under section 148 of the Act and passing order under section 144C(1) r.w.s. 143(3) and 147 of the Act. 2.2. The Ld. AO erred on the facts and in the circumstances of the case and in law in initiating proceedings under section 148 of the Act against the Assessee when there was no relevant material on record for the subject assessment years with Ld. AO so as to give rise to any valid 'reason to believe' that the income of the Assessee has escaped assessment. 3 Assessee is not taxable in India under the Act 3.1. The Ld. AO erred on the facts and in the circumstances of the case and in law in holding that the Assessee is liable to be assessed to tax in India. 3.2. The Ld. AO erred on the facts and in the circumstances of the case and in law in assessing total income of the Assessee under the provisions of the Act without appreciating that: (a) Income of the assessee had not accrued/arisen in India u/s 5(2) of the Act, and (b) Income of the Assessee could not be deemed to have accrued or arisen in India under section 9 of the Act read with Explanation thereto. 3.3. The Ld AO erred on the facts and in the circumstances of the case and in law in concluding the assessment proceedings for the impugned year based on earlier assessment orders. The Ld. AO erred on the facts and in the circumstances of the case and in law in concluding that presence of employees of GE India Industrial Private Limited ('GEIIPL') along with expatriate employees of General Electric International Inc ( GEII) expatriates and/ or employees of GE India Industrial Private Limited ('GEIIPL') creates

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

a business connection of the Assessee under section 9(1)(i) of the Act. 4 Assessee is not taxable in India under the Tax Treaty 4.1. The Ld. AO erred on the facts and in the circumstances of the case and in law in assessing the total income of the Assessee under the provisions of the tax treaty, without appreciating that the income of the Assessee was not taxable in India under the provisions of the Tax Treaty. 4.2. The Ld. AO erred on the facts and in the circumstances of the case and in law in assessing the income of the Assessee under the Tax Treaty on the alleged ground, that the assesse had a fixed place, office, construction and agency PE in India. 4.3. The Ld AO erred 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.

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

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 provided such services to any other customer nor rendered such services in its ordinary course of business. The Ld. AO erred in not appreciating that GEIIPL is an Indian entity eligible to income-tax in India, and the services, if any, being provided by employees of GEIIPL to the Assessee fell within the ambit of transfer pricing in relation to GEIIPL. In these circumstances, the Assessee could not be held liable for any part of income which was attributable to services provided by GEIIPL or its employees. 4.8. The Ld. AO erred on the facts and in the circumstances of the case and in law in concluding that employees of GEIIPL along with GEII expatriate employees habitually secure orders and conclude contracts on behalf of GE Overseas entities including the Assessee (GE non-resident entities outside India). 4.9. The Ld. AO erred in not appreciating that - GEIIPL was providing limited marketing support in the • capacity of an independent service provider to the Assessee; and GEII expatriate employees were neither working under the • control or supervision nor reporting to the Assessee. Activities are preparatory or auxiliary in character 4.10. Without prejudice to the above, the Ld. AO erred on the facts and in the circumstances of the case and in law in concluding that

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

activities carried out by the alleged PE is not preparatory or auxiliary in character. 5. Estimation of revenue from Offshore Supply on an arbitrary basis 5.1. The Ld. AO erred on the facts and in the circumstance of the case and in law in arbitrarily considering INR 6,24,36,33,476/- as revenue from offshore supply of goods based on arbitrary method instead of amount of INR 2,36,86,40,268/- submitted by the Assessee on the basis of the average of the previous eight years i.e. AY 2001-02 to AY 2008-09 5.2. The Ld. AO failed to provide reasonable basis for rejecting the submissions and contention raised by the Assessee and arriving at the estimation of revenue from offshore supply of the subject year on adhoc basis. 5.3. The Ld AO has not given any opportunity of being heard to the Assessee while determining the offshore supply at INR 6,24,36,33,476/- by linking the offshore sales to the expenses incurred by the Project Office ('POs') in India. 5.4. The Ld. AO erred on facts and in the circumstances of the case and in law in taking project expenses as the basis for arriving at the 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

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

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 profits in the hands of the Assessee in India. 6.3. The Ld. AO erred on the facts and in the circumstances of the case and in law in not giving an opportunity to the Assessee of being heard on the arbitrary estimation of the taxable profits in the hands of the Assessee in India. Allocation of profits towards marketing activities on arbitrary basis 6.4. The Ld. AO grossly erred on the facts and in the circumstances of the case and in law in applying the ratio of Rolls Royce's decision (reported in 113 TTJ 446). 6.5. Without prejudice to the above, the Ld. AO grossly erred on the facts and in the circumstances of the case and in law in arbitrarily allocating 35 percent of alleged profits of the Assessee from sales outside India towards marketing activities assuming that the entire marketing activity were carried out in India.

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

6.6. The Ld. AO erred on the facts and in the circumstances of the case and in law in arbitrary allocation of 35 percent of alleged aforesaid profits towards marketing activities undertaken in India without considering the functions undertaken by GEIIPL-in India and the same being remunerated on the basis of arm's length policy. Allocation of entire marketing profits to alleged Indian PE 6.7. The Ld. AO erred on the facts and in the circumstances of the case and in law in adopting a notional and irrational basis, based merely on conjectures and surmises, in attributing the entire marketing profits to India when the core marketing activities were carried by the Assessee outside India as clearly evident from the functional summary and sales process submitted by the Assessee during the course of assessment proceedings. 6.8. Without prejudice to the above, the Ld. AO erred on the facts and in the circumstances of the case and in law in not appreciating that as the alleged PE of the Assessee had been remunerated at arms' length price for all the services rendered by it, no further income could be attributed to the alleged PE and assessed to tax in India in the hands of the Assessee. 6.9. Without prejudice to the above, the Ld. AO erred on the facts and in circumstances of the case and in law in not applying transfer pricing principles. 6.10. Without prejudice to the above and notwithstanding, the Ld. AO erred in attributing income to the alleged India PE, without giving any deduction for arm's length remuneration payable to GEIIPLfor providing local marketing support with respect to offshore sale's in India.

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

that expression “reason to believe” has been subject matter of judicial interpretation on numerous occasions, by placing reliance upon :  Decisions of Hon’ble Supreme Court in case of Calcutta Discount Company Ltd vs ITO reported in 41 ITR 191, Sheo Nath Sngh (1971) 82 ITR 147 ITR, ITO vs. Lakshmani Mweal Das 103 ITR 437, Ganga Saran and Sons (P) Ltd. vs. ITO 130 ITR 1 ;  Decision 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

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

escaped assessment and the reassessment proceedings initiated under section 147 of the Act are valid. 7.3. Placing reliance upon decisions cited by Ld.Counsel, Ld. CIT DR submitted that principle behind all these judgments is that, Assessing Officer cannot use general and irrational material to come to a conclusion that income has escaped assessment. However Ld. CIT DR submitted that, in facts of present case, reopening has been initiated, based upon sufficient proof arising from materials gathered during survey proceedings and post- survey enquiries, wherein present assessee, was found to be indulged into sale activities in India, for which business heads were expats, who were appointed to head Indian operations of assessee, with support of staff provided by GEIIPL. Ld.CIT DR further submitted that, this contention raised by Ld.A.O during assessment proceedings has not been refuted by assessee, even during arguments before this Tribunal. Ld.CIT DR, placed reliance upon consolidated order dated 27/01/17, passed by this Tribunal, in case of GE Energy Parts Inc., for Assessment Year 2001-02 in ITA No. 671/Del/2011. Referring to materials that was gathered during survey proceedings and post-search enquiries, more particularly reproduced in Annexure A at page 9, Annexure- B at page 12 Annexure E at page 18 Annexure F at page 21-22 Annexure G at page 23 of the said order, Ld. CIT DR submitted that assessee before us was involved in finalising Memorandum of Understanding between assessee and Bharat Heavy Electricals for technology transfers, and document working for various figures given in alleged Memorandum of Understanding, as well as correspondences by assessee for providing information about

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

developing KG-D-6 Block Project, to RIL, purchase orders for exhaust ducts placed by Hak International Contractor’s Asia, for supply of 14 units of exhaust stack of 30 M height, for a value of USD 5,426,568, which was addressed to assessee, which evidences role of Indian office being GEIIPL. He submitted that Agreement between RIL and assessee dated 27.09.2008 placed at pages 141-180 has been finalised by a process of deliberations and meetings conducted between expats stationed in India, having office place in premises held by GEIOC along with employees of GEIIPL. Documents/evidences referred to hereinabove gathered during survey is sufficient to come to such conclusion. 7.4. Based upon above incriminating material/documents obtained by revenue during survey and post-survey enquiries, Ld.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

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

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 Tribunal in case of a group entity of GE Overseas being GE Energy Parts Inc. (supra), it is observed that the documents/evidences/materials gathered by survey team during survey proceedings and post- survey enquiries also included documents pertaining to assessee and various sales proposals that had been exchanged between assessee and the Indian office being GEIIPL since year 2001 onwards. Further, there is no denial on behalf of assessee that expats stationed in India having office at premises of GEIOC were not working for assessee in India. It is observed from reply filed by assessee, vide letter dated 10/03/16 that, details of Directors of assessee has been provided wherein, personnel called Claudio Santiago was communicating for assessee which is evident from Annexure F at page 30 of consolidated order passed by this Tribunal, in case of GE Energy Parts Inc. (Supra). Thus, it can be safely concluded that, there were expats working on making sales for assessee, even prior to years under consideration through GEIIPL, which has already held to be Fixed place PE for all GE Overseas entities, and having business connection through GEIIPL in terms of Article 5(4) & (5) of India-Italy DTAA, there is

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

no income that could be deemed to have accrued or arisen in India under Sec.9 of the Act. 9.2. Admittedly assessee was engaged in various sales activities in India through expats with support staff provided by GEIIPL during preceding years as well as year under consideration. From draft assessment order passed by Ld.AO, it is observed that assessee was called upon to file figures of offshore supply for year under consideration and it was submitted by assessee that, due to change in accounting software figures of offshore supply for year was not available. These documents/materials found during survey which has been related to assessee by Ld. CIT DR sufficiently establishes existence of sales team, formed by employees of GEIIPL and expat of assessee, which secured orders in India for non-resident assessee, thereby constituting a dependent agent PE. 9.3. Admittedly, onshore supply services received have been offered to tax by assessee in India, by assessee. However, offshore supplies made to Indian customers by assessee through GEIIPL, in India has not been declared in return of income and has amounted to escapement of income for year under consideration. 9.4. In our considered 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 ACIT vs Rajesh Jhaveri Stockbroker (P) Ltd., reported in [2007] 161 Taxman 316, wherein, Hon’ble Court has held that:

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

“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 not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC).” 9.5. Thus, on basis of above discussions and factual observations, we are of considered opinion that assessee had failed to disclose revenue received from sales made to Indian customers through GEIIPL, on basis of materials gathered during

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

survey for Ld.AO to form prima facie reason to believe by Ld.AO, of income having escaped assessment, for year under consideration, as per Explanation 2 (b) to Section 147 of the Act. 9.6. Ld. Counsel further contended that, Ld.AO failed to prove in reasons to believe, existence of PE of assessee in India, and hence, reassessment is bad in law. In our considered opinion, from documents gathered during survey proceedings, which has been elaborately discussed in order passed by this Tribunal in case of GE Energy Parts Inc. (supra), are sufficient to compel a person, reasonably instructed in law, to form a view about existence of PE of assessee, along with employees of GEIIPL for all GE Overseas entities in India. 9.7. We, thus are not inclined to accept contentions advanced by Ld.Counsel, that Ld.AO was not justified in initiating reassessment proceedings. Thus, fact that assessee had a PE in India and that there was an understatement of income to the extent of sale receipts received by assessee from Indian customers towards sale of spare parts/equipments, issuance of notice under section 148 brings case of assessee within fold of Explanation 2 (b) to Section 147 of the Act. In view of the above, we are fully satisfied that Ld.AO was justified in initiating reassessment proceedings. 10. Accordingly we dismiss grounds 2-3 of this appeal. 11. Ground No. 4 is general in nature and therefore do not require adjudication. 12. Ground No. 5-11 has been raised by assessee, challenging existence of assessee’s business connection as well as permanent establishment in India.

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

assessee in India. Ld.CIT, DR contended that GEIOC constituted ‘fixed place PE’, and GEIIPL ‘dependent agent PE’ for assessee in India. 15. We have perused, submissions advanced by both sides in light of records placed before us. 15.1. From various submissions advanced by assessee before authorities below, there is absolutely no doubt regarding assessee conducting business in India through GEIIPL which was wholly and directly involved in negotiating and finalising memorandum of understanding entered into by assessee with Indian counterparts. It is also observed that marketing and sales yielding activities took place in India, and profit from sales accruals arose in India, which is taxable in India. It is therefore difficult to buy arguments advanced by Ld.Counsel that sale consideration of spare parts/machines was not taxable in India. 16. In order to constitute a fixed place PE in India we will have to consider the DTAA between India and Italy: 1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of the enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially : (a) a place of management ; (b) a branch ; (c) an office ; (d) a factory ; (e) a workshop ; (f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources ; (g) a warehouse in relation to a person providing storage facilities for others ; (h) a premises 'used' as a sales outlet or for receiving or

ITA No. 6892/Del/2017 A.Y. 2009-10 GE Nuovo Pignone SPA, Gurgaon

soliciting orders ; (i) an installation or structure used for the exploration or exploitation of natural resources ; (j) a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or activities (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) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise ; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise ; (e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research, or for similar activities which have a preparatory or auxiliary character, for the enterprise.

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However, the provisions of sub-paragraphs (a) to (e) shall not be applicable where the enterprise maintains any other fixed place of business in the other Contracting State for any purposes other than the purposes specified in the said sub-paragraphs. 4. Notwithstanding the provisions of paragraphs 1 and 2 where a person - other than an agent of an independent status to whom paragraph 5 applies - is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first- mentioned State, if, (a) he has and habitually exercises in that State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise ; (b) he has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise ; (c) he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprise controlling, controlled by, or subject to the same common control, as that enterprise; or (d) in so acting, he manufactures or processes in that State for the enterprise goods or merchandise belonging to the enterprise. 5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise 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

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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 Clause 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 with some sort of regularity or permanence, it satisfies the 1st condition of a fixed place. 17. Coming to facts of present case, Mr.P.Ricardo, expat of assessee was permanently using alleged premises of GEIOC in India, where employees of GEIIPL worked together in finalising contracts/MOUs with various Indian counter parts and took strategic decisions. It has already been established in foregoing paragraphs that expatriates were having offices of GEIOC and performing activities, which were not just preparatory or auxiliary in nature with assistance of employees of GEIIPL. 17.1. Admittedly, employees of GE International USA were working in India stationed at GEIOC from where strategic business decisions like finalising of agreements with assessee and counterparts in India, negotiating sale price of products, which would be supplied by assessee to Indian customers, as well as 3rd parties, were carried out with help of/assistance from employees of GEIIPL. We draw our support from following

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observations by this Tribunal in consolidated order passed in case of GE Energy Parts Inc.(supra): “27.9. When we consider all the survey documents in harmony with the Self appraisals, Manager assessments and Job responsibilities given under the signature of the expats and employees of GEIIPL working for GE Overseas entities in India, it becomes absolutely clear that GE India was conducting business of GE Overseas in India and was directly and wholly involved in negotiating and finalizing the contracts. The Hon’ble Supreme Court in CIT vs. Ahmedbhai Umarbhai & Co. (1950) 18 ITR 472 (SC) held that: `the profits attributable to the manufacturing business are said to arise or accrue at the place where the manufacture is being done and the profits which arise by reason of the sale are said to arise at the place where the sales are made’. It is clear from the above that marketing and sales are income yielding activities in themselves and if the core activity of marketing and sale has taken place in India, then profit from sale, accrues or arises in India alone and the same to that extent should be charged to tax accordingly. The above discussion leaves no room to doubt that in the instant case though business of GE Overseas was partly carried out in India but the core of sales activity was done from the AIFACS building, being the fixed place of business. The second requisite also, 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:

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“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. vs. Union of India and Ors. (2009) 313 ITR 94 (Del) considered a case in which the activity to be done through the Liaison Office in India was of downloading the data; preparation of cheques for remitting the amount; and dispatching the same through courier by Liaison Office. The Hon’ble High Court designated it as auxiliary to the main activity of the petitioner. The Hon’ble jurisdictional High Court in a more recent decision in National Petroleum Construction Company vs. DIT (IT) (2016) 383 ITR 648 (Del), considering the earlier decisions in Morgan Stanley (supra) and UAE Exchange Centre (supra), has held that activity of preparatory or auxiliary character is remote from actual realization of profits and is simply in aid or support of the main activity. In that case, the activities of the liaison office in India were held not to contribute directly or indirectly to the earning of profits by the assessee and the same being of preparatory or auxiliary nature,

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did not constitute PE in terms of Article 5(3)(e) of the DTAA. The Hon’ble Supreme Court in Morgan Stanley (supra) held that back office functions performed in India are the activities of preparatory or auxiliary character, which do not constitute a fixed place PE under Article 5(1) of the DTAA. 28.2. It is discernible from an outline of the above judgments rendered by the Hon’ble Apex Court and the Hon’ble jurisdictional High Court that the test for determining a preparatory or auxiliary activity is not to see if the core activity can or cannot be performed without it. Rather, the test is that such activity merely supports the core activity and does not per se lead to earning of income. If the activity carried on from a fixed place in India is simply in aid or support of the core income generating activity and is remote from the actual realization of profits, the same assumes the character of a preparatory or auxiliary nature and falls within clause (e) of Article 5(3) to bring the case out of the ambit of a `permanent establishment’. One thing is clear from all the above decisions cited by the ld. AR that the activities performed by those assesses in India were either done by their liaison offices acting as communication channel strictly as approved by the RBI or were in aid and support of the main activity, not generating any income in themselves. 28.3. Section 2(e) of Foreign Exchange Management (Establishment in India of Branch of Office or Other place of business) Regulations, 2000 defines `Liaison 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

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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 has been noticed above that the actual activities carried on from the fixed place of AIFCAS building did not remain confined only to those of a communication channel as was allowed by the RBI to GEIOC at the time of setting up its LO in India. 17.3. It is also noted that assessee has not made sales in India to its customers off the shelf through GEIIPL, but was effectuated on basis of prior contracts which were finalised in India. The negotiations pertaining to supply of machines/ spare parts were discussed and agreements/MOU’s, were prepared in India with significance presence of expats through GEIIPL team. At this juncture, we refer to and rely upon following specific observations, regarding Ricardo Procacci in consolidated order

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passed by this Tribunal in case of GE Energy Parts Inc.(supra) who was appointed to head activities of assessee in India for a period of 5 years. v. Ricardo Procacci - Annexure 20 to the assessee’s letter pursuant to the Hon’ble High Court’s order explains his role and responsibilities. It has been written, inter alia, that,: `Riccardo's role was to find out how India would be relevant for Oil & Gas business and also to gather information on the customers in such industry. … His role was limited to understanding the needs of the customers in India and pass such information to the GE overseas entity in Italy. … At any point of time, he was not delegated any power to take decision on behalf of the GE overseas entity. He was acting as liaison between GE overseas entity and customers in India. His responsibility was to liaise the relationship with Indian customers….Most of commercial negotiations were done by the commercial operation team sitting in Italy… Riccardo never took any decision or negotiated on behalf of the GE overseas entity. … and he was merely acting as channel between the Commercial team and the Customers’. Here again, the assessee misled by stating wrong facts about the working of Ricardo in the post-assessment letter. His Assignment letter shows his position as `Oil & Gas, India Country Leader’ of GE Energy. We have noticed from the survey documents above that Ricardo was not only negotiating and finalizing the terms and conditions with customers in India but also not allowing GE Overseas to alter any such terms without the consent of GE India. The assessee did not furnish his Appraisal

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report and Manager 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(1)(c) on this score has been confirmed by the tribunal on GEIOC and no material has been placed on record to demonstrate that such penalty order has been reversed or modified by the Hon’ble High Court in any manner. In view of the foregoing discussion, it is manifest that the activities carried on by GE India from AIFCAS building were of substantial and core and not merely preparatory or auxiliary.

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carried out in India from GEIOC which were not merely preparatory or auxiliary in nature as has been submitted by assessee before authorities below. 17.7. Insofar as applicability of Articles 5 (4) and 5(5) of India Italy DTAA Treaty is concerned, 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.

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apparently clear that for sales to be effectuated in India during year under consideration, expats of GE International Inc., and employees of GE India Industrial Pvt. Ltd., jointly worked together and took strategic decisions for purposes of negotiation of agreements and sale prices of spare parts/machineries sold by assessee in India. Further, Ld.Counsel admitted that, no change has occurred after survey conducted in the year 2007. 18.1. Thus in our considered opinion that assessee has a business connection in India and therefore the requirements under Clause 4 of Article 5 stands satisfied. We are therefore of the considered opinion that assessee has a dependent agent PE in India through GEIIPL.

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relevant year was Rs.221,23,25,028/-. It was also submitted that said sale proceeds was received from 35 customers in India and correspondence sales has been filed along with application. 22. Alternatively, Ld.Counsel submitted that assessing officer erred in estimating offshore supply based upon average of sales made in assessment year 2007-08 and 2008-09. 22.1. Ld.Counsel also submitted that for purposes of estimation, authorities below erred in relying upon ratio of Hon’ble Delhi High Court in case of Rolls-Royce PLC vs. DDIT, reported in (2011) 339 ITR 147. 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

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supply as well as marketing activities in hands of PE in India as assessee has remunerated GEIIPL for international transactions undertaken with assessee at arm’s length price. While doing so, he placed reliance upon decision of Hon’ble Supreme Court in case of a DDIT vs E Funds [2017] 86 taxmann.com 240. 25.1. He also argued that authorities below erred in applying “force of attraction rule” to bring to tax, profits of assessee, from its offshore supplies/sales, without appreciating that said rule was not applicable in present case, as it does not encompass offshore supplies. 26. Considering arguments advanced by Ld.Counsel in respect of GEIIPL being compensated by assessee at arm’s length price, we are of considered opinion that, international transactions undertaken by assessee will have to be examined, vis-a-vis method applied by assessee for arriving at arm's length price. 26.1 Ld.Counsel in his submissions relied on decision of Hon’ble Supreme Court in case of Morgan Stanley reported in (2007) 292 ITR 416 has held that, once transfer pricing analysis is undertaken, there is no further need to attribute profits to a PE. We have perused the decision of Hon’ble Supreme Court relied upon by Ld.Counsel. Hon’ble Supreme Court countenanced Ruling of AAR in principle, insofar as AE, that constituted a PE, was remunerated at ALP taking into account all risk taking functions of the enterprise. Hon’ble Supreme Court thus found that in such cases nothing further would be left to be attributed to the PE. Hon’ble Supreme Court, however, held that;

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“the situation would be different if transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a situation, there would be a need to attribute profits to the PE for those functions/risks that have not been considered.” Thus, in our opinion, in each case the data placed by the tax payer has to be examined as to whether the transfer pricing analysis placed by the tax payer is exhaustive of attribution of profits and that would depend on the functional and factual analysis to be undertaken in each case.” From the categorical observations by Hon’ble Supreme Court in Morgan Stanley (supra), it is beyond any doubt that, if transfer pricing analysis does not adequately reflect functions performed and risks assumed by the enterprise, there would be a need to attribute profits to PE for those functions/risks which have not been considered. Hon’ble Allahabad High Court in case of LG Electronics Inc. vs, ACIT, International Taxation & Ors reported in (2014) 368 ITR 401, 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

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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 DDIT vs E Funds (supra). Facts in this case was that E Funds was held to be carrying out with activities of preparatory and auxiliary in nature and it has been held that Article 5 (3) of the DTAA was attracted. However in facts of present case of assessee before us, it has already been discussed in afore stated paragraphs that, activities carried out by assessee are covered under article 5 (1), (2) and (4) of India Italy DTAA and was not covered under Para (3). Thus, in our considered opinion, decision of Hon’ble Supreme Court in case of DDIT vs is factually E Funds (supra) distinguishable with that of assessee before us. 26.3. We have heard rival submissions and perused relevant material on record. It is noticed that exercise of attribution of income by Ld.AO is in two parts, viz., calculation of total profit from sales made by assesseein India during preceding two assessment years, which, has been worked out at 10% and second, attribution of such profit to marketing activities, which Ld.AO has taken at 35% of 10%. As regards estimation of profit on sales made in India on basis of preceding two years, we find that Ld.AO specifically required assessee to furnish details of sales party-wise which was not given for deducing correct amount of profit. In such circumstances, Ld.AO was left with no alternative, but, to

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estimate income on a rational basis. It is observed that Ld.AO invoked provisions of Rule 10(iii) to estimated profit at 10% of sales made in India. Rate of 10% was applied by drawing strength from sections 44BB and 44BBB, which, in turn, are special provisions for computing profits and gains in connection with business of exploration, etc. of mineral oils/operation of aircraft in the case of non-residents. In our considered opinion, approach of Ld.AO in estimating income at 10% of sales made in India, in given circumstances, is perfectly in order, and does not require any interference. 26.4. As regards share of marketing activities in total profit, Ld.AO applied 35% by taking assistance from decision of ITAT Delhi Bench in case of Rolls Royce vs.DDIT, reported in [2009] 34 SOT 508. The said order of the Tribunal stands affirmed by the Hon’ble Delhi High Court in Rolls Royce PLC vs. DIT(IT) reported in (2011) 339 ITR 147 (Del). Further, ITAT Delhi Bench in ZTE Corporation vs. Addl. DIT reported in (2016) 159 ITD 696, has also attributed 35% of profits attributable to marketing activities in India. In our opinion and respectfully following view taken by this Tribunal in consolidated order passed in GE Energy 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.

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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

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234B. This was opposed by the ld. DR who referred to an earlier judgment of the Hon’ble Delhi High Court in DIT (IT) vs. Alcatel Lucent USA Inc. (2014) 264 CTR 240 (Del) in which levy of interest was approved. The ld. DR submitted that the facts of the instant case are similar to Alcatel Lucent USA Inc. (supra). 60. We are not inclined to accept the contention advanced on behalf of the Revenue in this regard. The Hon’ble Delhi High Court in assessee’s own group cases involving identical facts has approved the cancellation of the levy of interest u/s 234B for the assessment years 2001-02 to 2006-07. Facts relating to the A.Ys. 2007-08 and 2008-09 instantly before us, are, admittedly, similar to such facts considered and decided by the Hon’ble Delhi High Court. When there is a judgment of the Hon’ble jurisdictional High Court directly in assessee’s own case and the facts and circumstances for the later years are similar, there can be no question of applying the ratio decidendi of another judgment laying down a different proposition. It is more so, when the earlier judgment was also considered by the Hon’ble High Court in a later decision in assessee’s own case. In view of the foregoing discussion and respectfully following the precedent in assessee’s own case for the immediately preceding assessment years, we are satisfied that the interest u/s 234B has been wrongly charged for the A.Ys. 2007-8 and 2008-09. The same is hereby cancelled.” 27.1. Respectfully following the same, we direct Ld.A.O to delete interest computed u/s 234 B of the Act. Accordingly, this ground stands allowed. Accordingly we allow Ground No.20.

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Order pronounced in the Open Court on 01st January, 2019.

Sd/- Sd/-

( N.K. SAINI) (BEENA A PILLAI) VICE PRESIDENT JUDICIAL MEMBER

Dt. 01st January, 2019 *GMV