NUOVO PIGNONE INTERNATIONAL SRL,GURGAON vs. DCIT, CIRCLE-2(2)(2), DELHI

From the material available, it was found that GEIOC was carrying out business in India through a PE. Whereas, the income attributable to such PE was taxable in India, but was not offered in the Income-tax return. He observed that based on the materials found in course of survey operation, assessments were completed for the assessment years 2002-03 to 2006-07 holding that the assessee has a fixed place PE at their disposal in the form of office at premises of AIFACS, 1, Rafi Marg, New Delhi, wherefrom the activities of the assessee and other group entities were being conducted. He further observed that the activities carried out from the fixed place of business are not of preparatory or auxiliary character. Thus, it was held that the assessee has a fixed place PE in India. Further, he observed that GE India Industrial Pvt. Ltd. (GEIIPL) constitutes an agent of the assessee other than an agent of independent status, hence, can be considered as dependent agent PE.

In response to the said show cause notice, the assessee furnished its reply stating that it does not have any PE in India, as the office premises of AIFACS at 1, Rafi Marg, New Delhi has been vacated and during the year no expatriate employee has visited India. The Assessing Officer, however, did not find merits in the submissions of the assessee and relying upon the past assessment history of the assessee and the decision of the Tribunal and Hon’ble jurisdictional High Court in assessment year 2002-03 to 2006-07 and assessment year 2008-09 upholding the existence of PE, proceeded to frame the draft assessment order by attributing 2.6% of the total value of offshore supplies as the income of the PE in India and accordingly made addition of Rs.6,10,96,315/- to the income of the assessee. Further, the amount received towards onshore services were held to be effectively connected to the PE in India and brought to tax under section 44DA of the Act as business profit. Accordingly, the draft assessment order was passed. Against the draft assessment order, the assessee raised objections before learned DRP. However, relying upon the orders of the Tribunal and Hon’ble High Court in assessment years 2002-03 to 2006- 07, learned DRP upheld the decision of the Assessing Officer.

Before us, learned counsel appearing for the assessee, accepting the factual position in earlier assessment years, though, submitted that the Tribunal and Hon’ble High Court have held that the assessee had a fixed place PE in India in the form of office premises taken in AIFACS building, however, he submitted, the factual position has substantially changed in the impugned assessment year, as the AIFACS building, which was held to constitute fixed place PE of the assessee in India, was vacated by GEIOC on 01.05.2012. Further, he submitted, while deciding the issue of existence of fixed place PE in the past assessment years, the authorities have taken note of the fact that the activities relating to solicitation of orders and conclusion of contract were carried by the expatriates and employees of GEIIPL from AIFACS building. Thus, based on this singular factor in past assessment years, it was held that the assessee had PE in India. However, the facts have completely changed in the impugned assessment year, as the office premises at AIFACS building has been vacated and also no expatriate has visited India during the year.

Thus, he submitted that instead of plainly following the past assessment history, the departmental authorities should have decided the issue of existence of PE in India by keeping themselves confined to specific facts of the impugned assessment year. He submitted, whether a non-resident entity has a PE in another country has to be determined on a year to year basis looking at the facts involved in the particular year.

Further, he submitted, the onus of proving the existence of PE is entirely on the Revenue. In this context, he relied upon the decision of Hon’ble Supreme Court in case of ADIT vs. E-Funds IT Solution Inc., (2017) 399 ITR 34(SC). Thus, he submitted, without looking into the facts of the impugned assessment year, the departmental authorities could not have concluded existence of PE merely relying upon the past assessment orders. He submitted, in course of proceedings before the Assessing Officer as well as learned DRP, the assessee has brought on record all supporting evidences to establish on record that the fixed place PE in the form of office premises at AIFACS office has been closed and vacated long back and no expatriates have visited India during the year. He submitted, without controverting the aforesaid factual position and claim of the assessee, the departmental authorities could not have concluded that the assessee has a PE in India by merely adopting a cut & paste job by following their earlier orders. In this context, he drew attention to the observations of Hon’ble Delhi High Court in case of Blackstone Capital Partners(Singapore) VI FDI Three Pte. Ltd. vs. ACIT- dated 30.01.2023 delivered in WP(C) 2562/2022. He submitted, since, the assessee has brought all evidences and materials on record in support of its claim that no fixed place PE existed in the year under consideration and since, the departmental authorities have failed to controvert the evidences brought on record or returned any finding with reference to such evidence regarding existence of PE, the Revenue should not be given a second inning to improve its order, when assessee’s specific averments on existence of PE remained un-rebutted both by the Assessing Officer and learned DRP. In support of such contention, learned counsel relied upon following decisions :

Strongly relying upon the observations of the Assessing Officer and learned DRP, learned Departmental Representative submitted, the issue relating to existence of fixed place PE has been concluded in favour of the Revenue. Hence, the addition made by the Assessing Officer should be upheld.

We have considered rival submissions and perused materials on record. We have also applied our mind to the judicial precedents cited before us. The short issue arising for consideration is whether the assessee had a PE, either fixed place PE or dependent agent PE, in India during the year under consideration. No doubt, the past assessment history of the assessee reveals that existence of PE in India was upheld by the Tribunal and Hon’ble jurisdictional High Court in assessment years 2002-03 to 2006-07 and 2008-09. Perusal of facts on record including the discussion made by the Assessing Officer and learned DRP would reveal that the reason why the existence of PE was upheld in earlier assessment years are as under :

However, as far as the facts relating to impugned assessment year are concerned, AIFACS building, which earlier constituted the fixed place PE of the assessee in India, was vacated on 01.05.2012. In fact, this was brought to the notice of both the Assessing Officer and learned DRP in course of proceedings before them. In fact, on 29th May, 2018, the assessee has furnished annual statement u/s. 285 of the Act in Form 49C for the financial year 2017-18, clearly indicating that since no activity was undertaken by the liaison office, the Management does not intend to continue the liaison office and is to file for closure of the liaison office. Thus, the fact that AIFACS building has been vacated, no expatriates visited India during the year and the liaison office has been closed were brought to the notice of the departmental authorities in course of proceedings to demonstrate that the reasons for which the departmental authorities as well as the Tribunal and Hon’ble jurisdictional High Court held existence of PE, no longer exists in the impugned assessment year.

This is clearly evident from the submissions made and documents filed before the departmental authorities. Despite such submissions and evidences produced by the assessee, the departmental authorities have remained oblivious to such facts and materials brought on record and proceeded to conclude existence of PE merely relying upon the past orders passed by them and higher appellate authorities. It is trite law, the existence or otherwise of PE has to be determined on year to year basis, as the existence of PE has to be decided based on the definition of PE in the relevant tax treaty. Merely because in one year, the assessee had a PE in India, that by itself cannot lead to the conclusion that the assessee must be having a PE in subsequent assessment year, without looking into the relevant facts. In this context, we refer to the decision in the case of M/s. Bentley Nevada Inc. (supra). Further, in case of E-Funds IT Solution Inc. (supra), Hon’ble Supreme Court has very clearly and categorically held that the onus is entirely on the Revenue to establish existence of PE.

Adverting to the facts of the present appeal, undisputedly, the assessee brought on record all material and evidences to establish that it does not have any PE in India. As it appears from the respective orders of the departmental authorities, without dealing with the submissions of the assessee and evidences brought on record through proper reasoning or by bringing any contrary material to controvert them, the departmental authorities have merely followed their earlier decision without making any effort to look into the specific facts of the impugned assessment year. As discussed earlier, the assessee has brought on record cogent evidence to demonstrate that there is substantial change in facts in impugned assessment year qua the existence of PE. The specific averment of the assessee regarding vacation of office premises at AIFACS building and no visit by expatriates in India during the year, have not been controverted by the departmental authorities by any specific factual finding. In case of Blackstone Capital Partners (Singapore) VI FDI Three Pte. Ltd. (supra), Hon’ble jurisdictional High Court, while dealing with the issue of reopening of assessment based on information received from third party, observed, though such information can form basis for an examination/investigation by the Assessing Officer, but the decision to reopen the assessment has to be of the Assessing Officer and not of the third party. The Assessing Officer cannot merely do a cut and paste job for reopening the assessment without independent application of mind or verification or investigation. The aforesaid ratio laid down by Hon’ble jurisdictional High court squarely applies to the facts of the present appeal, as the departmental authorities have merely followed the decision taken by them and higher appellate authorities in assessee’s cases in past assessment years without independent application of mind to the facts brought on record by the assessee or making proper verification/investigation of the evidences.

Thus, essentially, the evidences brought on record by the assessee remain uncontroverted. When the evidences brought on record by the assessee are before the departmental authorities, it is the duty of the departmental authorities to examine them on merits and thereafter, either to accept them or to reject them with proper reasoning by bringing on record contrary material/evidence. In the facts of the present appeal, the departmental authorities have failed to undertake such exercise. Therefore, in our view, it has to be concluded that the departmental authorities have not found anything amiss or adverse in the facts and material brought on record by the assessee. In such a scenario, we do not find any reason to again remit the matter back to the Assessing Officer to provide him a second inning to improve upon the deficiencies in the original assessment order. In view of the aforesaid, we are inclined to hold that keeping in view the facts and materials peculiar to the impugned assessment year, it has to be concluded that the assessee did not have any PE, either fixed place PE or dependent agent PE, in India in the year under consideration. We again reiterate, our aforesaid conclusion is purely based on the facts involved in the impugned assessment year.

In the result, appeal is allowed as indicated above.