IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `C', NEW DELHI.
BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER
and
SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER
Stay No.155/Del/2019
(in ITA No.694/Del./2019)
(ASSESSMENT YEAR : 2002-03)
AND
ITA No.694/Del./2019
(ASSESSMENT YEAR : 2002-03)
M/s. GE Engine Services Malaysia SDN BHD, vs. DCIT
6th Floor, Building No.7A, (International Taxation),
Standard Chartered Building, Circle 1(3)(1),
DLF Cyber City, New Delhi.
Phase III,
Gurugram 122 002.
(PAN : AADCG1773E)
Stay No.156/Del/2019
(in ITA No.753/Del./2019)
(ASSESSMENT YEAR : 2008-09)
AND
ITA No.753/Del./2019
(ASSESSMENT YEAR : 2008-09)
M/s. GE Engine Services LLC, vs. DCIT
6th Floor, Building No.7A, (International Taxation),
Standard Chartered Building, Circle 1(3)(1),
DLF Cyber City, New Delhi.
Phase III,
Gurugram 122 002.
(PAN : AADCG1809R)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Sachit Jolly, Advocate
Shri Aarush Bhatia, Advocate
REVENUE BY : Shri J.K. Mishra, CIT DR
Date of Hearing : 26.02.2019
Date of Order : 27.02.2019
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ITA No.753/Del./2019
ORDER
PER KULDIP SINGH, JUDICIAL MEMBER :
Since common questions of facts and law have been raised
in the aforesaid appeals, the same are being disposed of by way of
composite order to avoid repetition of discussion.
2. The appellant, M/s. GE Engine Services Malaysia SDN
BHD (hereinafter referred to as `the assessee') by filing the present
appeal, sought to set aside the impugned order dated 22.11.2018
passed by Ld. CIT (Appeals)-42, New Delhi qua the Assessment
Year 2002-03 on the grounds inter alia that :-
"1. That on the facts and circumstances of the case and in
law, the Commissioner of Income-tax (Appeals) ["CIT(A)"]
erred in confirming the action of the Assessing Officer ("AO")
in levying penalty of Rs.17,32,920/- under Section 271(1)(c) of
the Income Tax Act, 1961 ("the Act")
2. That on the facts and circumstances of the case and in
law, the Ld. AO erred in passing the penalty order under Section
271(1)(c) of the Act which are wholly without jurisdiction and
clearly barred by limitation inasmuch as the same have been
passed beyond the period of limitation prescribed under Section
275(1)(a) of the Act.
3. That on the facts and circumstances of the case and in
law, the CIT(A) erred in upholding the initiation of penalty by
way of issue of penalty notice under Section 274 of the Act
without specifying whether the penalty is initiated for
concealment of income or for furnishing of inaccurate
particulars of income.
4. That on the facts and circumstances of the case and In
law, the CIT(A) erred in alleging that the Appellant had
3 ITA No.694/Del./2019
ITA No.753/Del./2019
concealed particulars of income, without appreciating that the
Appellant made complete disclosure in the notes accompanying
the return of income.
5. That on the facts and circumstances of the case and in
law, the CIT(A) erred in upholding the levy of penalty, without
appreciating that on identical facts, penalty had been deleted by
the predecessor of the CIT(A) in the case of GE Caledonian Ltd.
and GE Aviation Service Operation LLP for the A Y 2011-12.
6. That on the facts and circumstances of the case and in
law, the CIT(A) erred in upholding the levy of penalty, without
appreciating that the Hon'ble High Court having admitted the
appeal of the Appellant for the same AY on a substantial
question of law qua existence of a permanent establishment, the
issue was prima facie debatable, on which no penalty could have
been levied.
7. That on the facts and circumstances of the case and in
law, the CIT(A) erred in upholding the levy of penalty, without
appreciating that penalty under Section 271 (1)( c) of the Act had
been deleted in the case of Rolls Royce, which formed the
bedrock and sole basis of the addition made by the AO, on which
penalty has now been levied.
8. That on the facts and circumstances of the case and in
law, the CIT(A) erred in confirming the levy of penalty under
Section 271 (1)( c) of the Act on the basis of profits attributed to
the alleged PE of the Appellant, which was based on estimation,
and, therefore, do not tantamount to concealment of income or
furnishing of inaccurate particulars of income."
3. The appellant, M/s. GE Engine Services LLC (hereinafter
referred to as `the assessee') by filing the present appeal, sought to
set aside the impugned order dated 22.11.2018 passed by Ld. CIT
(Appeals)-42, New Delhi qua the Assessment Year 2008-09 on the
grounds inter alia that :-
4 ITA No.694/Del./2019
ITA No.753/Del./2019
"1. That on the facts and circumstances of the case and in
law, the Commissioner of Income-tax (Appeals) ["CIT(A)"]
erred in confirming the action of the Assessing Officer ("AO")
in levying penalty of Rs.26,35,620/- under Section 271(1)(c) of
the Income Tax Act, 1961 ("the Act")
2. That on the facts and circumstances of the case and in
law, the Ld. AO erred in passing the penalty order under Section
271(1)(c) of the Act which are wholly without jurisdiction and
clearly barred by limitation inasmuch as the same have been
passed beyond the period of limitation prescribed under Section
275(1)(a) of the Act.
3. That on the facts and circumstances of the case and in
law, the CIT(A) erred in upholding the initiation of penalty by
way of issue of penalty notice under Section 274 of the Act
without specifying whether the penalty is initiated for
concealment of income or for furnishing of inaccurate
particulars of income.
4. That on the facts and circumstances of the case and In
law, the CIT(A) erred in alleging that the Appellant had
concealed particulars of income, without appreciating that the
Appellant made complete disclosure in the notes accompanying
the return of income.
5. That on the facts and circumstances of the case and in
law, the CIT(A) erred in upholding the levy of penalty, without
appreciating that on identical facts, penalty had been deleted by
the predecessor of the CIT(A) in the case of GE Caledonian Ltd.
and GE Aviation Service Operation LLP for the A Y 2011-12.
6. That on the facts and circumstances of the case and in
law, the CIT(A) erred in upholding the levy of penalty, without
appreciating that the Hon'ble High Court having admitted the
appeal of the Appellant for the same AY on a substantial
question of law qua existence of a permanent establishment, the
issue was prima facie debatable, on which no penalty could have
been levied.
7. That on the facts and circumstances of the case and in
law, the CIT(A) erred in upholding the levy of penalty, without
appreciating that penalty under Section 271 (1)( c) of the Act had
been deleted in the case of Rolls Royce, which formed the
5 ITA No.694/Del./2019
ITA No.753/Del./2019
bedrock and sole basis of the addition made by the AO, on which
penalty has now been levied.
8. That on the facts and circumstances of the case and in
law, the CIT(A) erred in confirming the levy of penalty under
Section 271 (1)( c) of the Act on the basis of profits attributed to
the alleged PE of the Appellant, which was based on estimation,
and, therefore, do not tantamount to concealment of income or
furnishing of inaccurate particulars of income."
5. Briefly stated the facts necessary for adjudication of the
controversy at hand are : On the basis of completed assessment
under section 143 (3) read with section 144C (5) of the Income-tax
Act, 1961 (for short `the Act') at an income of Rs.48,59,954/- &
Rs.86,11,525/- for AYs 2002-03 & 2008-09 respectively, penalty
proceedings were initiated by the AO u/s 271(1)(c) of the Act, by
way of issuance of notice u/s 274 read with section 271(1)(c) of the
Act. Declining the contentions raised by the assessee, AO
proceeded to conclude that the assessee has not disclosed full
material facts regarding the issue of Permanent Establishment (PE)
in India attributable to the activities carried out from this PE and
has thereby concealed the particulars of its income. Consequently,
AO levied the penalty of Rs.17,32,921/- & Rs.26,35,620/- in AYs
2002-03 & 2008-09 respectively @ 100%.
6. Assessee carried the matter before the ld. CIT (A) by way of
appeals who has confirmed the penalty levied by AO by dismissing
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ITA No.753/Del./2019
the appeals. Feeling aggrieved, the assessee has come up before
the Tribunal by way of filing the present appeals.
7. We have heard the ld. Authorized Representatives of the
parties to the appeal, gone through the documents relied upon and
orders passed by the revenue authorities below in the light of the
facts and circumstances of the case.
8. Undisputedly, assessment orders framed by the AO have
been upheld by the ld. CIT (A) as well as by the Tribunal, who
have held that GE Overseas entities have PEs in various forms and
these are fixed place PE, Office PE, construction PE and agency
PE and in case of oil and gas business, involves in installation and
commissioning would also constitute construction PE and since the
assessee has earned global profit of 10% on the sales made to the
customer in India, the income chargeable to tax as attributable to
the PE was computed at 3.5% of the sales made. It is also not in
dispute that the findings returned by the Tribunal have been
challenged before the Hon'ble Delhi High Court in a batch of
petitions bearing No.ITA 660/2017 & Ors. and vide order dated
15.01.2018, questions of law have been framed which are extracted
for ready perusal as under :-
"(1) Did ITAT fell into error in its findings with
respect to existence of a fixed place Permanent
Establishment (PE) of the assessee in India;
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ITA No.753/Del./2019
(2) Did ITAT fell into error in concluding that
assessee/appellant's separately independent agent PE,
was located in India; and,
(3) Whether on the facts and the circumstances of
the case and the law, the ITAT was justified in
attributing as high as 35% of the profits to the alleged
marketing activities and thereafter, attributing 75% of
such 35% profits to the alleged PE of the Appellant in
India?"
9. From the order passed by Hon'ble High Court (supra), it has
become clear that the question as to whether the assessee is having
fixed place PE in India is "debatable one" and in these
circumstances, penalty levied by the AO is not sustainable in the
eyes of law. Identical issue has been decided in favour of the
assessee by the coordinate Bench of the Tribunal in assessee's own
case for AYs 2001-02, 2006-07, 2007-08 & 2008-09 vide ITA Nos.
6403/Del./2018, 695/Del./2019, 696/Del./2019 & 697/Del./2019
order dated 25.02.2019 .
10. In view of what has been discussed above, since substantial
question of law has been framed by Hon'ble High Court on the
issue if the assessee is having fixed place PE in India, which is the
basis of levying/confirming the penalty u/s 271(1)(c) of the Act,
the issue becomes debatable, hence penalty u/s 271(1)(c) is not
leviable. Reliance in this regard is placed on the decision rendered
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ITA No.753/Del./2019
by Hon'ble Delhi High Court in ITA 240/2009 in CIT-II vs.
Liquid Investment and Trading Co. order dated 05.10.2010
whereby identical issue is decided as under :-
"Both the CIT(A) as well as the ITAT have set aside the penalty
imposed by the Assessing Officer under Section 271(1)(c) of the
Income Tax Act, 1961 on the ground that the issue of deduction
under Section 14A of the Act was a debatable issue. We may also
note that against the quantum assessment hereunder deduction
under Section 14A of the Act was prescribed to the assessee,
the assessee has preferred an appeal in this Court under Section
260A of the Act which has also been admitted and substantial
question of law framed. This itself shows that the issue is
debatable. For these reasons, we are of the opinion that no
question of law arises in the present case.
This appeal is accordingly dismissed."
11. Consequently, penalty levied by the AO and confirmed by
ld. CIT (A) of Rs.17,32,921/- & Rs.26,35,620/- in AYs 2002-03 &
2008-09 respectively is ordered to be deleted and both the appeals
filed by the assessee are allowed.
12. Keeping in view the fact that since appeals bearing ITA Nos.
694/Del/2019 & 753/Del/2019 have been decided, aforesaid stay
petitions filed therein stand dismissed having been become
infructuous.
Order pronounced in open court on this 27th day of February, 2019.
Sd/- sd/-
(ANADEE NATH MISSHRA) (KULDIP SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 27th day of February, 2019
TS
9 ITA No.694/Del./2019
ITA No.753/Del./2019
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-42, New Delhi.
5.CIT(ITAT), New Delhi.
AR, ITAT
NEW DELHI.
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