IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "C" NEW DELHI
BEFORE SHRI H.S. SIDHU : JUDICIAL MEMBER
AND
SHRI L.P. SAHU, ACCOUNTANT MEMBER
Stay Application No. 707/Del/2018
( In ITA No. 6403/Del/2018)
Asstt. Yr: 2001-02
GE ENERGY PARTS INC., VS. DCIT (Int. Tax.)
GURGAON, CIRCLE 1(3)(1)
6TH FLOOR, BUILDING NO. 7A, NEW DELHI
DLF CYBER CITY, 4TH FLOOR, E-2 BLOCK
STANDARD CHARTERED BUILDING, PRATYSHKAR BHAWAN,
PHASE-III, GURGAON, CIVIC CENTRE,
HARYANA NEW DELHI 2
(PAN: AACCG2798N)
(Appellant) (Respondent)
Appellant by : Shri Sachit Jolly, Adv.
Respondent by : Smt. Ranu Mukharjee, Sr. DR
ORDER
PER H.S. SIDHU, J.M.:-
By way of this Stay Application u/R 35A of the Income-tax Appellate
Tribunal Rules, 1963 assessee seeks Stay of outstanding demand of
Rs. 24,93,590/- for the assessment year 2001-02.
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2. At the time of hearing, Ld. Counsel for the assessee submitted that the
Appellant is a company incorporated in and is a tax resident of United States of
America. The Appellant is engaged, inter alia, in the business of off-shore supply
of parts and related off-shore repair services required for maintenance of power
plants at its facility located outside India, the consideration for which was received
by the Appellant outside India. A survey was conducted on the Appellant under
133A of the Income Tax Act, 1961 (`Act') for the assessment year (`AY') under
consideration and consequently, a notice dated 27.03.2008 was issued. Pursuant to
the said notice, the Appellant filed its return of income under section 148 of Act
declaring `Nil' income since the income earned by the Appellant was not taxable in
India under the provisions of both, the Act as well as the US tax treaty. The return
of income was accompanied by a note explaining why the Appellant did not have a
PE in India. Thereafter, the assessment order under section 143(3) read with 147
of the Act was passed on 30.12.2008, wherein it was, inter-alia, held as under:
a. The Appellant is having business connection as well as fixed place, office
and Agency Permanent Establishment in India in the year under consideration.
b. The PE is engaged in activities which cannot be termed as auxiliary and
preparatory.
c. The appellant has earned global profit of 10% on the sales made to the
customers in India and 35% of these profits were attributable to the marketing
activities in India. Accordingly, additions to the tune of 3.5% of the sale were
made to the income of the Appellant.
2.1 In light of the above, the income of the Appellant was assessed at Rs.
69,93,234 as against the `Nil' income declared by the Appellant. The appellant,
aggrieved by the aforesaid assessment order filed an appeal before the
Commissioner of Income Tax (Appeals) ['CIT(A)']. The Ld. CIT(A) upheld the
additions made by the assessing officer (`AO') vide order dated 30.09.2010 by
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confirming the constitution of Fixed Place PE and Agency PE of the Appellant.
Aggrieved by the order of the CIT(A), the Appellant filed an appeal before this
Hon'ble Tribunal bearing Appeal No. 671 of 2011, which was disposed of vide
order dated 27.01.2017, wherein, the findings of the lower authorities qua
constitution of Fixed Place PE and Agency PE in India were upheld. However, the
attribution of income to PE was reduced from 3.5% to 2.6% of sales. Ld. Counsel
for the assessee further submitted that in the instant case, all additions made to the
income of the Appellant by the AO stem from the primary finding of the AO that
the Appellant has fixed place and agency Permanent Establishment in India. It was
further submitted that the Ld. CIT(A) and this Hon'ble Tribunal have also
concurred with these findings of the AO. The Appellant, aggrieved by the findings
of this Hon'ble Tribunal, thereafter, preferred an appeal before the Hon'ble Delhi
High Court bearing ITA No. 621 of 2017 which was admitted vide order dated
15.01.2018. The aforesaid appeal was finally heard by the Hon'ble High Court on
24.05.2018 and Judgment was reserved. It was further submitted that the AO
during the pendency of the above-mentioned appeal, levied penalty of Rs.
24,93,590/- at 100% of the alleged tax sought to be evaded and raised the
impugned penalty demand. On appeal against the said levy, the Ld. CIT(A) also
confirmed the penalty that was fastened on the Appellant. It is further submitted
that the Ld. CIT(A) erred in upholding the levy of penalty, without appreciating
that the Hon'ble High Court had admitted the appeal of the Appellant vide order
dated 15.01.2018 for the same AY on a substantial question of law qua existence
of a permanent establishment, therefore, the issue was prima facie debatable and
thus, penalty could not have been levied. The copy of the order dated 15.01.2018
passed by the Hon'ble Delhi High Court in ITA No. 621 of 2017 is at Annexure 6.
He further submitted that this view of the Appellant is also supported in a very
recent judgment dated 04.09.2018 delivered by the Hon'ble Bombay High Court in
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PCIT vs. Dhariwal Industries Ltd. in ITA Nos. 1129, 1133 & 1136 of 2016. For the
sake of convenience, the relevant para of the judgment is reproduced below:
"6. In all these appeals, we find that the appeals with reference
to the quantum proceedings have been admitted by this
Honourable Court on a substantial question of law. That has
also been recorded by the Tribunal in the impugned order and
the same is also not disputed before us. We find that the appeals
were admitted as this Court found that there were debatable and
arguable questions raised in the quantum proceedings. This
being the case, we find that the Tribunal, in the facts and
circumstances of the present case, was fully justified in
confirming the order of the CIT (A) in all the three assessment
years for deleting the penalty as far point Nos. 1 and 2
(reproduced above) are concerned. "
2.2 It was further submitted that the Main Appeal against the order of the Ld.
CIT(A) being ITA No. 6403/Del/2018 was filed on 05.10.2018 before the
Tribunal, which is not fixed for hearing as yet. In view of above, Assessee's
counsel prayed that the penalty demand of Rs. 24,93,590/- may kindly be stayed
till the main appeal is finally disposed of by this Tribunal and also AO may be
directed not to take any coercive action till the disposal of the main appeal.
Accordingly, Ld. Counsel of the assessee has requested the Bench to grant the stay
of outstanding demand in dispute for 180 days or the till the disposal of the main
appeal.
3. Ld. DR did not raise any serious objection to the request of the assessee's
counsel.
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4. We have heard both the parties and perused the records. We find that in the
instant case, all additions made to the income of the Appellant by the AO stem
from the primary finding of the AO that the Appellant has fixed place and agency
Permanent Establishment in India. We further find that Ld. CIT(A) and this
Tribunal have also concurred with these findings of the AO. The Appellant, being
aggrieved by the findings of this Tribunal, thereafter, preferred an appeal before
the Hon'ble Delhi High Court bearing ITA No. 621 of 2017 which was admitted
vide order dated 15.01.2018. The aforesaid appeal was finally heard by the
Hon'ble High Court on 24.05.2018 and Judgment was reserved. In the meantime,
the AO levied penalty of Rs. 24,93,590/- at 100% of the alleged tax sought to be
evaded and raised the impugned penalty demand. On appeal against the said levy,
the Ld. CIT(A) also confirmed the penalty and against which the Assessee filed an
appeal on 05.10.2018 before the Tribunal being ITA No. 6403/Del/2018 which is
yet to be fixed for hearing. We find that the Hon'ble Delhi High Court in the case
of CIT vs. Liquid Investment Limited vide dated 05.10.2010 passed in ITA
No.240/2009, has held that when substantial question of law is admitted by the
Hon'ble High Court, the issue becomes debatable and, therefore, no penalty u/s.
271(1)(c) is leviable. Here also substantial question of law has been admitted
before the Hon'ble Delhi High Court, as stated by the Ld. Counsel for the assessee,
therefore, we grant the stay on the outstanding demand in dispute for the period
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of 180 days or till the disposal of the Main Appeal No. 6403/Del/2018 (AY 2001-
02). Further, the hearing in the main Appeal being ITA No. 6403/Del/2018 for the
asstt. year 2001-02 is hereby fixed for 28.11.2018 and both the parties were
informed in the Open Court. Therefore, there is no need to send the notices to the
parties. A copy of this order be given to both the parties Dasti.
5. In the result, the Assessee's Stay Application stands disposed of, as
aforesaid.
Order pronounced on 23-10-2018.
Sd/- Sd/-
[L.P. SAHU] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date: 23/10/2018
SRBHATNAGAR
Copy forwarded to: -
1. Appellant 2. Respondent 3. DIT 4. CIT (A)
5. DR, ITAT
TRUE COPY By Order,
Assistant Registrar, ITAT,
Delhi Benches
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