General Electric Company Vs ADIT (ITAT Mumbai)
ITAT Mumbai held that reopening of assessment prior to disposing of the objections filed by the assessee is unsustainable and bad-in-law.
Facts- General Electric Company is a company incorporated in the United States of America (USA). The assessee filed its return of income for the assessment year under consideration on 29 October 2001 declaring the total income of Rs.3,07,33,0901- as Royalty/Fee for technical services and income from other sources.
The assessment proceedings was completed u/s. 143(3) of the Act wherein the returned income was accepted without making any additions / disallowances. A survey was conducted at General Electric International Operations Company Inc’s (GEIOC) premises located at New Delhi.
Thereafter, notice dated 31 March 2008 u/s. 143 of the Act was issued to the assessee to file return of income by the office of the Assistant Director of Income-tax, International Taxation, Range (1) Mumbai (AO) In response to the same, the assessee vide letter dated 29 May 2008 requested the learned AO to treat the return already filed under section 139 of the Act as turn filed in compliance to the said notice.
The assessee also made detailed submissions objecting to the reopening. We find that notice under section 148 of the Act was issued on the assessee on 31.3.2008. Accordingly, action of reopening was objected.
Conclusion- It can be safely concluded that the objections filed by the assessee for reopening the assessment were never disposed of by the learned Assessing Officer in the instant case.
Hon’ble Jurisdictional High Court in the case of Fomento Resorts and Hotels Limited vs. ACIT had held that proceedings for reopening of assessment prior to disposing of the Asessee’s objections by passing a speaking order, was an exercise in excess of jurisdiction.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These cross appeals filed by the assessee and revenue are directed against the order dt.28.10.2010 of the learned Commissioner of Income Tax (Appeals)-10, Mumbai relating to Assessment Year 2001-02 .
2. The assessee has filed revised grounds of appeal which is taken on record. We deem it fit to address the preliminary ground raised by the assessee vide Revised Ground Nos.1 to 5 challenging the validity of reassessment under section147 of Income Tax Act, 1961 (in short ‘the Act’) framed in the hands of the assessee.
3. For the sake of convenience, the revised grounds 1 to 5 raised by the assessee in this regard are reproduced herein below :
1. On the facts and circumstances of the case CIT(A) erred in upholding the initiation of re-assessment proceedings under Section 148 of the Income-tax Act, 1961 (the “Act”).
2. On the facts and circumstances of the case CIT(A) erred in holding that the AO had reason to believe that income chargeable to tax had escaped assessment and was justified in re-opening of such assessment.
3. On the facts and circumstances of the case CIT(A) erred in not appreciating that the material on the basis of which re-assessment proceedings were initiated did not pertain to the Assessee and/or the assessment year in question.
4. On the facts and circumstances of the case CIT(A) erred in not appreciating that the re-assessment proceedings had been initiated on a change of opinion since the original assessment had been completed under Section 143(3) of the Act and no new material in respect of the Assessee in question had come to the knowledge of the AO warranting initiation of proceeding under Section 148 of the Act.
5. On the facts and circumstances of the case and in law, the CIT{A) has erred in assuming existence of business connection/PE for the relevant assessment year based on the material which pertains to subsequent years and pertains to GE Overseas entities in general without any specific mention of the Assessee.
4. General Electric Company is a company incorporated in the United States of America (USA). The assessee filed its return of income for the assessment year under consideration on 29 October 2001 declaring the total income of Rs.3,07,33,0901- as Royalty/Fee for technical services and income from other sources. During the year under consideration, the assessee made equipment! parts supplies on an off-shore basis to Indian customers in the Energy and Aviation Sector. The sales were made outside India and payments were also received outside India. As such, no income accrued or arose in India in respect of such off-shore supply of equipment parts which was liable to tax under section 5 of the Income Tax Act, 1961 (Act) or deemed to accrue or arise under section 9 of the Act. Further, the assessee being a resident of the USA, was eligible for the benefits of the Double Taxation Avoidance Agreement entered into between India and USA (Tax Treat). It did not have any presence in India so as to constitute a Permanent Establishment within the meaning of Article 5 of the Tax Treat and consequently, was not liable to tax in India in respect of the offshore supplies under the Tax Treaty. The assessment proceedings was completed vide order dated 29 January 2004 under section 143(3) of the Act wherein the returned income was accepted without making any additions / disallowances. A survey was conducted at General Electric International Operations Company Inc’s (GEIOC) premises located at AIFACS, 1, Rafi Marg, New Delhi-110001. Thereafter, notice dated 31 March 2008 under section 143 of the Act was issued to the assessee to file return of income by the office of the Assistant Director of Income-tax, International Taxation, Range (1) Mumbai (AO) In response to the same, the assessee vide letter dated 29 May 2008 requested the learned AO to treat the return already filed under section 139 of the Act as turn filed in compliance to the said notice. The assessee also made detailed submissions objecting to the reopening. We find that notice under section 148 of the Act was issued on the assessee on 31.3.2008. The assessee filed a reply on 29.5.2008 in response to the notice under section 148 of the Act by stating that the return already filed may be treated as a return filed in response to notice under section 148 of the Act. In the said letter, the assessee had duly sought for reasons recorded by the learned Assessing Officer for reopening the assessment. This letter is enclosed in pages 6 and 7 of Paper Book Vol.1 filed before us. On 20.11.2008, notice under section 142(1) of the Act was issued by the learned Assessing Officer calling for various details. In response to the notice, the assessee filed a reply vide letter dt.26.11.2008 seeking a short adjournment. In the said letter also the assessee once again reminded the learned Assessing Officer to furnish a copy of the reasons recorded for reopening the assessment. This letter is enclosed in page 43 of Paper Book Vol.I filed before us. Thereafter, the copy of reasons recorded were communicated to the assessee by the learned Assessing Officer on 17.12.2008. The reasons recorded are enclosed in pages 49 to 52 of the Paper Book Vol.1 filed before us. For the sake of convenience, the entire reasons recorded are reproduced herein below :-
“ REASONS RECORDED FOR ISSUE OF NOTICE U/S 148 OF THE INCOME TAX ACT, 1961 IN THE CASE OF GE COMPANY FOR AY 2001-02.
The return of income for AY 2001-02 was fed on 29-10-2001 declaring total income at Rs 3,0733,000 The case was selected for scrutiny and the assessment was finalized u/s. 143(3) on a total income of Rs 3,07,35,000 on 20.01.2004.
2. A Survey u/s 133A of the Income Tax Act, 1961 (Ace) was carried out at the office premises of General Electric International Operation Company Inc India liaison office (GEIOC) located at AIFACS, Rafi Marg, New Delhi 110001 on 02.00 2007 The liaison offices (LO) of GEIOC USA was slanted in India from July 01, 1987. The office was set up to undertake the liaison activities. From the information available it is seen that GEIOC has employed various persons and is sending these employees on assignments to GE entries located worldwide. From this premises, other entities incorporated in India as well as non-resident entities of the GE group are also operating.
3. During the course of survey, statement of Shri Rupak Shah, who is employed with GE Capital Services, India as Tax Manager but having extended responsibilities of tax matters relating to all companies of GE Group in India was recorded. Statement of Shri Chandan Jain, working with GEIOC who provides interface between GE USA and GE Business in India was also recorded.
4. The GE group is a diversified technology media and financial services company with products and services ranging from aircraft engines, power generation, water processing and security technology to medical imaging, business and consumer financing, media content and advanced materials. GE serves customers in more than 100 countries and employees more than 300,000 people worldwide.
5. GE has been in India since 1902. All of GE’s global businesses have a presence in India and the company has become a significant participant in a wide range of key services, technology and manufacturing industries. Employment across India exceeds 12000. Over dollar 1 billion of exports from India support GE’s global business operations around the world. It has sourced products, services and intellectual talent from India for its global businesses. It pioneered the concept of software sourcing from India and is one of the largest customers for the IT service industry of India.
6. With a diverse portfolio products and services ranging from aircraft engines, power generation, water processing and security technology to medical imaging, business and consumer financing, electrical and power protection and advanced materials, GE has presence in India. Various operating companies of the group in India are in the field of finance, industries, power systems and infrastructure.
7. On the basis of various facts, information collected during the survey and afterwards, it is clear that various GE group entities are carrying out the business in India. The group has made sales in the energy, transportation, aviation, oil & gas sectors during all these years. The information submitted reveals that the GE group entities have made sales of equipment parts in energy business, transportation business and aviation business. Some of the companies have also rendered services to the customers in India.
8. During the course of survey, it was found that various employees of GE overseas group companies are working in India. Some of these employees are on the payroll of GE International Inc. USA(assessed in this charge). These are
