Delhi High Court
Grid Solutions Oy (Ltd) vs Assistant Commissioner Of Income Tax ... on 17 January, 2025
Author: Yashwant Varma
Bench: Yashwant Varma
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 10 January, 2025
Judgment pronounced on 17 January, 2025
+ W.P.(C) 1196/2022
GRID SOLUTIONS OY (LTD) .....Petitioner
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Aditya Vohra & Mr.
Shashvat Dhamija, Advs.
versus
ASSISTANT COMMISSIONER OF INCOME TAX
INTERNATIONAL TAXATION & ANR. ..Respondents
Through: Mr. Ruchir Bhatia, SSC with Mr.
Anant Mann, JSC.
+ W.P.(C) 1630/2022
GRID SOLUTIONS OY (LTD) .....Petitioner
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Aditya Vohra & Mr.
Shashvat Dhamija, Advs.
versus
ASSISTANT COMMISSIONER OF INCOME
TAX INTERNATIONAL TAXATION CIRCLE
1(3)(1) & ANR. .....Respondents
Through: Mr. Ruchir Bhatia, SSC with Mr.
Anant Mann, JSC.
+ W.P.(C) 1631/2022
GRID SOLUTIONS OY (LTD) .....Petitioner
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Aditya Vohra & Mr.
Shashvat Dhamija, Advs.
versus
Signature Not Verified
Digitally Signed W.P.(C) 1196/2022 & Connected Matters Page 1 of 25
By:KAMLESH KUMAR
Signing Date:17.01.2025
14:34:47
ASSISTANT COMMISSIONER OF INCOME
TAX INTERNATIONAL TAXATION CIRCLE
1(3)(1) & ANR. .....Respondents
Through: Mr. Ruchir Bhatia, SSC with Mr.
Anant Mann, JSC.
+ W.P.(C) 1639/2022
GRID SOLUTIONS OY (LTD) .....Petitioner
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Aditya Vohra & Mr.
Shashvat Dhamija, Advs.
versus
ASSISTANT COMMISSIONER OF INCOME
TAX INTERNATIONAL TAXATION CIRCLE
1(3)(1) & ANR. .....Respondents
Through: Mr. Ruchir Bhatia, SSC with Mr.
Anant Mann, JSC.
+ W.P.(C) 1644/2022
GRID SOLUTIONS OY (LTD) .....Petitioner
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Aditya Vohra & Mr.
Shashvat Dhamija, Advs.
versus
ASSISTANT COMMISSIONER OF INCOME
TAX INTERNATIONAL TAXATION CIRCLE
1(3)(1) & ANR. .....Respondents
Through: Mr. Ruchir Bhatia, SSC with Mr.
Anant Mann, JSC.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE HARISH VAIDYANATHAN
SHANKAR
JUDGMENT
YASHWANT VARMA, J.
1. This batch of writ petitions impugn the reassessment action
initiated by the respondents under Section 148 of the Income Tax Act,
19611 and cover Assessment Years2 2013-14, 2014-15, 2015-16, 2016-
17 and 2017-18.
2. Undisputedly, insofar as AYs 2013-14, 2014-15 and 2015-16 are
concerned the petitioner had been assessed in terms contemplated by
Section 143(3) of the Act. Since the reassessment was commenced
prior to the introduction of the new scheme of assessment by virtue of
Finance Act, 2021, it was the procedure as prevalent prior thereto
which was followed by the respondents. In light of the above, although
the notices under Section 148 had been issued initially, the reasons to
believe which constituted the foundation for formation of opinion that
income had escaped assessment was provided to the writ petitioner
subsequently. The petitioner is stated to have filed its objections to the
assumption of jurisdiction which have ultimately come to be dismissed
by the Assessing Officer3, leading to the filing of the instant writ
petitions.
3. According to the disclosures made in the petition, the petitioner
was formally known as Alstom Grid OY and was part of the Alstom
Group till 02 November 2015. On or about the said date the Grid
business of Alstom was taken over by GE. It is in the aforesaid
backdrop that the petitioners aver that at least up to November 2015 it
was not even a constituent of the GE Group. This fact assumes
significance in light of the following.
Act
AYs
AO
4. As is manifest from a reading of the reasons which appear to
have weighed upon the respondents and were communicated to the writ
petitioner, a survey under Section 133A(2A) is stated to have been
conducted on 06-07 June 2019 on GE T&D India Limited and which
had taken over the Transmission and Distribution4 grid business of
the erstwhile Alstom Group. In the course of that survey, the
respondents asserted that the nature of activities undertaken by
members of the GE Group engaged in T&D business would establish
they constituted a Fixed Place and Dependent Agent PE. The aforesaid
inference was drawn pursuant to various statements which appear to
have been recorded in the course of that survey. This becomes apparent
from a reading of paragraphs 4.1, 4.2, 4.3, and 4.4 of the reasons
provided to the writ petitioners which are extracted hereinbelow:
"4.1 The statement of Mr. Sandeep Zanzaria, Executive
(Commercial) in GETDIL was recorded during the survey. As
described by Sh Zanzaria in reply to his role is as follows:
"I am working as Executive-commercial in GE T&D India Ltd. My
role and responsibilities include the sales functions and order
intake for the company for south Asia. It includes integration with
customers, factories, internal functions like finance and legal and
to act as one face to the customer. I have a team of about 60 people
spread across the country for being in closer to the client. My
sphere of activity starts from pre-sales to award of contract.
Subsequently after the order is received, it is transferred to the
executions group for fulfillment. The pre-sales requires
understanding customer needs and proposing GE solutions.
Subsequently, participating in tendering process, discussions and
negotiations of conditions and prices are also part of the
responsibility."
4.2 Thus, Sh Zanzaria is in-charge in India for securing
contracts/orders and has a large team of people working under him
across India for the work of identifying customers, bid related
work, negotiations and signing of contracts in the T&D business.
To understand the role of the personnel/teams in India in securing
orders or conclusion of contracts for foreign companies, the
following question was asked "It is learnt that there are several
T&D
companies of the GE Group in the T&D sector based outside India,
which were earlier a part of the T&D business of the Alstom
Group, that supply equipment or goods or machinery to Indian
entities/companies. These companies express interest in tenders
floated by the Indian entities, 90 through the pre-bid and bid stage,
negotiate the terms of the contract, enter into the contract and
execute the contract. Do you provide any assistance to these
companies in some of these steps?".Sh Zanzaria answered as
follows: "As part of the sales Junction, we provide support in some
of the steps above. The sales team provide support like
participation in meeting with clients when representatives of
overseas companies are visiting, closing loop for open
communication between customers and overseas units."
4.3 Thus, the person in charge of securing orders in GETDIL has
accepted in his statement that the sales team of GETDIL in India
supports the foreign companies in securing orders. The personnel
of GETDIL also participate in meetings and negotiations and serve
as communication channel between the foreign companies and
Indian customers.
4.4 During the survey, a copy of the email records of Sh Zanzaria
for the last one year was taken. The primary and principal role of
the teams in India in securing of contract /orders in India for
foreign companies in the Power and T&D (also called "Grid"
business within the group) Sectors is established from the internal
communication within the Group as recorded in the emails
addressed to Sh Zanzaria. It is noticed that the foreign companies
rely predominantly on the teams in India (which are constituted by
employees of GETDI L) for all steps in securing of an order and
entering into sales/services contacts with Indian customers. From
identification of potential customers in India, conveying of
requirements of the Indian customers, giving inputs on suitability
of the potential deal, drafting or vetting of the bid to participation
in negoliat1ons/discussions with the customers, the personnel in
India (working under GETDIL) have substantial participation. The
email records amply establish this. As a representative example,
certain relevant emails extracted from the inbox of Shri Zanzaria in
a randomly selected period of one week during the past year are
reproduced below. These selected emails show the interaction
between the functionaries of foreign companies of the group and
the employees of Indian AE GETDIL regarding all aspects related
to making of sales to Indian customers, in particular, identification
of customers in India, inputs for decision making regarding
whether to bid, bid preparation, negotiations and finalization of
contract. These communications bring out the active and important
role of persons located in India in securing and conclusion of
contracts by foreign companies. For the sake of clearer appreciation
of the nature and purpose of the communications, the identity and
role of the employees/personnel of the foreign companies of the
Group have been ascertained by visiting their profiles on Linkedln,
where these individuals have themselves publicly posted their
designations, employers and functions/responsibilities."
5. Basis the aforesaid material, as well as the oral statements which
came to be recorded, the respondents proceeded to record the following
conclusions:
"4.7 The fact that performance of senior functionaries of the Indian
AEs is monitored, controlled, managed and rated/appraised by
senior functionaries of foreign companies of the group is telling. It
proves that the Indian AEs work, at least in a significant part, for
the business of the foreign companies. Further, the performance
targets are set by the foreign companies of the group against which
the actual performance of the functionaries of the Indian AEs is
rated. As is established from the emails of the senior functionaries,
there are monthly and quarterly sales targets for different countries
and regions. These targets are for the whole Group (i.e. GE Group)
in Grid segments and the teams based in each country, though on
the payroll of the locally registered companies (in case of India,
GETDIL), work towards meeting of those global sales· targets and
not just for their own local company. Their appraisal is also done
based on their success and contribution towards meeting those
targets. This proves that teams in India do contribute to sales of
foreign companies in India.
5. Hon'ble High Court of Delhi in its recent judgement in GE
Energy Parts v. CIT (ITA 621/2017) dated 21.12.2018 has held
existence of a dependent agent PE in similar circumstances where
the personnel in India, even when they do not themselves sign the
contract and are not the deciding authority for entering into
contracts, play a role that is not auxiliary in the entering of the
contract. Importantly, the Court cites India's position on the OECD
commentary which is as follows: "a person has attended or
participated in negotiations in a State between an enterprise and a
client, can, in certain circumstances, be sufficient, by itself, to
conclude that the person has exercised in that State an authority to
conclude contracts in the name of the enterprise; and that a person
who is authorized to negotiate the essential elements of contract,
and not necessarily all the elements, can be said to exercise the
authority to conclude contracts.". The Court also relied on a
decision of Italian Supreme Court in Ministry of Finance (Tax
Office) v. Philip Morris (GmBH), Corte Suprema di Cassazione
No.7682/02 of May 25 2002, which is as follows: "the participation
of representatives or employees of a resident company in a phase of
the conclusion of a contract between a foreign company and
another resident entity may fall within the concept of authority to
conclude contracts in the name of the foreign company, even in the
absence of a formal power of representation." The Hon'ble court
thus held in GE Energy Parts Inc and other cases of the GE Group
(it was a consolidated order for several companies of the GE
Group) that the activities in India relating to entering into of
contracts constitute agency PE. DAPE ha been held by Hon'ble
Delhi High Court (Jurisdictional High Court) in similar
circumstances in several other cases, notably Rolls Royce Pie v
DIT 2011 {339) /TR 147 and ZTE Corporation vs. Addi. DIT
(2016} 159 ITD 696.
Fixed Place PE:
6. To further establish this conclusion of PE, let us see the business
structure of the global Power and T&D (Grid) business of the GE
Group, as detailed by Sh Negi, CFO and Director of GETDIL in his
statement. His answer is reproduced below: "There are four streams
worldwide in the businesses of the GE Group. These are GE
Aviation, GE Power, GE Healthcare and GE Renewables. Each of
these verticals is run by a global President & CEO, called CE
officers. These "CE officers" are responsible for the business of
their respective vertical. Each of these verticals has sub verticals
which are known as Tier-2 verticals. For example, the T&D
Business falls under the CE Renewables vertical and more
specifically under the Grid Solutions Tier-2 vertical. The Tier-2
verticals have a regional split of business to cover the entire globe.
Each Tier-2 vertical has a global head, who is designated as
President and CEO of that Tier-2 vertical. For example, Grid
Solutions Tier-2 vertical has its President and CEO as Mr. Reinaldo
Garcia, who is based out of Paris. Grid Solutions Tier-2 vertical is
divided into various regions, of which South Asia is one. This
region covers India, Bangladesh, Sri Lanka, Nepal and Bhutan. The
South Asia has a regional head, designated as regional President,
CEO and MD. This post is held by Sh. Sunil Wadhwa at present
Sh. Sunil Wadhwa reports to the Chief commercial officer of the
Grid Solutions Tier-2 vertical, who is Mr. Emanuel Bertoloni. The
Chief Commercial Officer reports to Mr. Reinaldo Garcia."
6.1 These statement, similar in the case of CFOs of both the Indian
companies, acid to the already clear conclusion that in reality, the
Indian AEs serve as mere Indian branches of the foreign companies
of the GE Group (erstwhile Alstom group) Power and Grid
bus1nesses. The employees of the Indian AEs function not just for
the Indian companies (that employ them), but also for foreign
companies of the Group that make sales and render services in
India. This fact leads to the conclusion that the Indian AE
GETDIL, (which share the same main office premises with GEPIL,
i.e., the headquarters of both of which are located in Axis House,
Sector 128, Jaypee Wish Town, Noida) serve as not only
Dependent Agent PE, but also Fixed Place PE of the foreign
companies of the Group including Grid Solutions SAS.
6.2 Also, extracts of visitor logs in the main premises (sector 128,
Noida) GETDIL were taken during the survey. As the premises of
the headquarters of both companies are located in the same
building, it was learnt that a single visitors log is maintained for
both companies. It was observed that there was a regular movement
of foreign personnel of GE Group at the premises of GETDIL.
From the submission made in response to summons, it was noted
that there were 27 visits of employees of foreign companies of the
GE Group in those premises of GETDIL (Sector 128, Noida)
during the period January-March 2018 alone. Available
information so far indicates that the premises of GETDIL are used
as a fixed place at the disposal of foreign companies of the group,
from where the visiting employees carry out the work of these
foreign entities. Thus, the requirement for Fixed Place PE as laid
down in the definition in Article 5(1) and 5(2) ('branch' or 'office')
of India's DTAAs is met."
6. As a consequence of the above, the AO came to hold that the
performance of senior functionaries of associated enterprises in India
was monitored, controlled and managed by foreign companies of the
GE Group, with Indian AEs playing a significant part in connection
with the business of the foreign companies and being indelibly
connected in the global business of the GE Group. The opinion with
respect to escapement of income also appears to be founded on the
decision rendered by this Court in GE Energy Parts Inc. vs. CIT
(International Taxation), Delhi -15. The aforesaid judgment of the
High Court was concerned with the challenge to reassessment initiated
against various constituents of the GE Group pertaining to AY 2001-02.
The reassessment action was upheld by the Income Tax Appellate
Tribunal6 in terms of its judgment dated 27 January 2017 which was
thereafter followed in subsequent AYs'. It is common ground that the
reassessment action that formed the subject matter of that litigation
emanated from a search and survey conducted in 2007 and on the basis
of which assessments for AYs 2001-02 to 2008-09 came to be
2018 SCC OnLine Del 13256.
Tribunal
reopened. The judgment of this Court in GE Energy thus spans the
period noted above.
7. The subsequent survey which formed the basis for the
reassessment initiated and impugned in these writ petitions, however,
was one which was independently undertaken in 2019. The issue which
thus consequently arises is whether the findings and conclusions which
came to be rendered and drawn for the aforesaid block of AYs' would
have constituted sufficient ground to reopen assessments pertaining to
AYs 2013-14 to 2017-18.
8. Mr. Vohra learned senior counsel appearing in support of these
writ petitions had submitted that the petitioner is in fact based in
Finland and the only contracts which cover the period forming the
subject matter of the impugned reassessment proceedings were
concerned with off-shore supplies. It was in the aforesaid backdrop that
Mr. Vohra submitted that the respondents were clearly unjustified in
seeking to base their decision to reopen on surveys conducted in 2007
and 2019. It was further pointed out that the survey of 2007 was not
even concerned with the verticals of GE engaged in the T&D sector and
was restricted to the business undertaken by constituents of GE forming
part of its aviation vertical. In any case, Mr. Vohra would contend that
the surveys as well as the material gathered in 2007 and 2019 cannot
possibly be extrapolated to other years.
9. Mr. Vohra also drew our attention to the fact that the assessment
for AY 2013-14 to 2015-16 was completed in accordance with Section
143(3) of the Act. It was thus submitted that the decision to reopen and
the validity thereof would clearly be liable to be tested on the anvil of
the Proviso to Section 147 as it stood at the relevant time and which
would have enabled the respondents to reopen an assessment only if it
were found that the petitioner had failed to make a full and true
disclosure. Mr. Vohra drew our attention to the First Proviso to Section
147 as it then existed and which read thus:
"Provided that where an assessment under sub-section (3) of Section
143 or this section has been made for the relevant assessment year,
no action shall be taken under this section after the expiry of four
years from the end of the relevant assessment year, unless any
income chargeable to tax has escaped assessment for such
assessment year by reason of the failure on the part of the assessee to
make a return under Section 139 or in response to a notice issued
under sub-section (1) of Section 142 or Section 148 or to disclose
fully and truly all material facts necessary for his assessment, for
that assessment years:
Provided further that nothing contained in the first proviso shall
apply in a case where any income in relation to any asset (including
financial interest in any entity) located outside India, chargeable to
tax, has escaped assessment for any assessment year:
Provided also that the Assessing Officer may assess or reassess such
income, other than the income involving matters which are the
subject matters of any appeal, reference or revision, which is
chargeable to tax and has escaped assessment."
10. Our attention was then drawn to the queries that were addressed
in the course of assessment and which formed part of a communication
dated 07 July 2015 the contents whereof are reproduced hereinbelow:
"OFFICE OF THE
DEPUTY COMMISSIONER OF INCOME TAX
CIRCLE 1(1)(1), INTERNATIONAL TAXATION
ROOM NO. 409, BLOCK E-2, CIVIC CENTRE, MINTO
ROAD, NEW DELHI
F. No. DCIT-1(1)(1)/Int. Tax./Delhi/2015-16/ Date: 07.07.2015
To
The Principal Officer
M/S ALSTOM GRID OY (LIMITED)
P.O. BOX 4 , KMPELIKATU 3,
TAMPERE, FOREIGN
PAN:MKCA9196Q
Sub:-: Assessment proceedings in your case for Assessment
Year 2013-14 - Regarding-
Sir/Madam,
In connection with the assessment proceedings pending in your
case for Assessment Year 2013-14, you are requested to furnish
following information: -
1. Please give detailed background of the company and its activities
and sources of revenue with particular reference to business model
and activities carried out in India during the year under
consideration. Give a detailed note regarding nature of your
business activities and furnish details in respect of the works
undertaken/executed in India during the year.
2. Please file copy of last assessment orders including copies of
Assessment Orders framed in your case on or after 01.04. 2011.
3. Please intimate as to whether you had a Permanent
Establishment or Business Connection in India during the year. If
so, please furnish names and complete addresses of such concerns.
Also furnish details of Branch Offices/Project offices/Liaison
office/Godowns and Warehouses and construction or other
business sites in India.
4. Please furnish names and complete addresses of all associated
enterprises and also supply copy of Form 3CEB regarding
international transactions entered into with these during the year
under consideration.
5. Furnish details regarding the share holding of your company
alongwith the name and address of its Directors. Furnish complete
set of the return along with its enclosures for the assessment year
2013-14(for the period 01.04.2012 to 31.03.2013). Please file copy
of any Tax Return for the period 01.04.2012 to 31.03.2013 filed
abroad.
6. Please give details along with bifurcation of all the streams of
revenue accruing/ arising/ receipt either directly or indirectly
through/ from India.
7. Please furnish copies of all contracts and agreements operative
during the year in respect of your activities in India. Copy of
agreement/Contracts entered into with Indian customers/clients or
any other party in India from whom any payment is received during
the year or has accrued or arisen during the year may also be
provided.
8. Details of invoices raised to the Indian customers and details of
Income or any type of payment received from India or which has
accrued or arisen in India.
9. Copy of all orders u/s 197 obtained from the assessing officers
relevant to the assessment year in question, if any.
10. Copy of all orders u/s 195(2)/195(3) which have been obtained
by payers in relation to payments made to you relevant to the
assessment year in question, if any.
11. Please explain whether you have received any payment from
any nonresident in connection with any business, of such non-
resident in India.
12. Explain the method of accounting employed in your case.
Please furnish copies of final accounts in respect of revenues from
India.
13. Please explain whether any technical services were provided to
the Indian customer/ client during the year? If yes, Please submit
the names of employees and other persons who visited India in this
regard stating their period of stay, purpose and for which project
there services were provided and whether in these projects the
assessee has supplied any products. This information must be
provided invoice- wise.
14. Furnish the details of all expatriates whose remuneration is
charged to the expenses in India and who visited India during the
year and also explain who paid for their expenses in India.
15. Furnish the details of salary paid during the year along with
name and addresses of the persons to whom the salary was paid
exceeding Rs.5 Lakhs and functions/job done by each of them
during the said period.
16. Please give a note on completion of various projects and
method/manner of accounting being done w.r.t the same.
17. Please submit the names and addresses of sub contractors of the
assessee, in connection with the India projects with their PAN nos.
and details of their subcontracted activity along with copy of
contracts.
18. Furnish a brief summary of the expenses incurred during the
year along with relevant documentary evidence.
19. Copy of the tax residency certificate for the relevant
Assessment year if Treaty benefits are being claimed.
20. Please confirm whether you have maintained books of accounts
for your Indian operation as required u/s 4AA of the Act. If yes,
please confirm whether they have been audited as required u/s
44AB of the Act. Please furnish hard u/sA4AA and u/s 44AB of
the Act.
21. Furnish computation of income u/s 115JB as applicable.
22. Please furnish the hard copy of complete return of income for
the year under consideration alongwith complete audited balance
sheet, P & L account including all the schedules, Form 3CD &
Form 3CEB.
23. Please give details of TDS in respect of payments made to any
sub-contractor and w.r.t. any expenses paid outside India or
claimed by the H.O regarding services rendered for
projects/business in India.
24. Please furnish copies of bank statements in respect of all the
bank accounts maintained by you with any bank or banking
institution in India during the period 01.04.2012 to 31.03.2013.
25. Please give details of all the investments made by you or
disposed of by you during the year under consideration including
those made in purchase or sale of moveable or immoveable assets.
The above information may please be furnished before the
undersigned in my office at Room No. 409, 4th Floor, Block E-2,
MCD Civic Centre, Minto Road, New Delhi on 28.07.2015 at
12.45 PM. A Notice u/s 142(1) of the Income Tax Act, 1961 is
enclosed for compliance.
Encl:- As above."
11. Mr. Vohra laid special emphasis on queries 3, 4, 6, 7, 8 and 13
thereof and which were duly responded to by the writ petitioners. We
deem it apposite to extract the following parts from the reply which was
furnished by the writ petitioner in the course of assessment:-
"1. Please give detailed background of the company and its
activities and sources of revenue with particular reference to
business mode] and activities carried out in India during the
year under consideration. Give a detailed note regarding
nature of your business activities and furnish details in respect
of the works undertaken/executed in India during the year.
(Question No. 1)
The assessee is company incorporated and registered under the
laws of Finland and is a non-resident under the Act. The assessee
provides global solutions for energy savings and improved power
quality. The assessee's core competencies include manufacturing of
products for efficient power transmission, reactive power
compensation and harmonic filtering, as well as related project
engineering. The assessee is also engaged in trading activities in
Finland reselling the equipment produced by other units of Alstom
Grid Sector. The assessee is following cash basis of accounting for
recording its income, if any earned in India. During the relevant
assessment year, the assesse has been awarded a contract by Power
Grid Corporation of India Limited ('PGCIL') dated 04 September
2012 to supply equipments from outside India. The scope of work
includes design, engineering, manufacture, testing at
manufacturer's works, dispatch, shipment, marine transportation
and insurance and CIF Indi an Port of Entry supply of all Off-shore
equipments and materials from outside India, including mandatory
spares, Type testing to be conducted outside India and training to
be imparted abroad.
xxxx xxxx xxxx
3. Please furnish copies of all contracts and agreements
operative during the year in respect of your activities in India.
Copy of agreement/Contracts entered into with Indian
customers/clients or any other party in India from whom any
payment is received during the year or has accrued or arisen
during the year may also be provided. (Question No. 7)
The copy of contract entered with PGCIL during the relevant
assessment year is enclosed as Annexure 2 for your goodself
reference.
4. Details of invoices raised to the Indian customers and details
of Income or any type of payment received from India or which
has accrued or arisen in India. (Question No. 8)
The copy of the invoice raised to PGCIL for receipt of l0% advance
payment during the subject assessment year is already enclosed as
Annexure JB for your reference. Further, it has already been
submitted in Point 2 above that no incomes have been accrued or
arisen to assessee during the relevant assessment year.
5. Please submit the names and addresses of sub-contractors of
the assessee, in connection with the India projects with their
PAN nos. and details of their subcontracted activity along with
copy of contracts. (Question No. 17)
It is humbly submitted that the assessee has not engaged any sub-
contractor in India during the relevant assessment year."
12. On the basis of those disclosures the AO proceeded to pass an
order in the following terms:
"ASSESSMENT ORDER
M/s Alstom Grid OY (Limited) (hereinafter referred to as
"assessee") e-filed return of income for the Assessment Year
("AY") 2013-14 declaring Nil income on 30.09.2013. The case was
selected for scrutiny under CASS and notice u/s 143(2) of the
Income Tax Act, 1961 ("the Act") was issued to the assessee on
04.09.2014. Further, a notice u/s 142(1) of the Act alongwith
detailed questionnaire was issued to the assessee on 07.07.2015. In
response to various notices and letters, Sh. Manish Bansal and Ms.
Shailja Anand, CAs/ ARs, attended the assessment proceedings and
filed necessary information and details. Written submissions and
documents filed by the assessee were examined. The case was
discussed with the authorised representatives of the assessee.
2. The assessee is company incorporated and registered under the
laws of Finland and is a non-resident under the Act. The assessee
provides global solutions for energy savings and improved power
quality. The assessee's core competencies include manufacturing of
products for efficient power transmission, reactive power
compensation and harmonic filtering, as well as related project
engineering. The assessee is also engaged in trading activities in
Finland reselling the equipment produced by other units of Alstom
Grid Sector. During the assessment year under consideration, the
assessee has been awarded a contract by Power Grid Corporation of
India Limited ('PGCIL') dated 04.09.2012 to supply equipments
from outside India. The scope of work includes design,
Engineering, manufacture, testing at manufacture's works, dispatch,
shipment, marine transportation and insurance and CIF India port
of Entry supply of all off-shore equipments and materials from
outside India, including mandatory spares, type testing to be
conducted outside India and training to be imparted abroad.
Assessee claimed to have received payment of only 10% advance
during the year from the PGCL and, accordingly, has shown nil
income. This fact was verified from the PGCL. After considering
replies and documents and facts and circumstances of the case,
assessee's income as shown in the return of income is accepted.
4. Assessment is, accordingly, made on Nil income. Credit for
prepaid taxes is given after due verification. Detail of computation
of tax and interest charged as provisions of law is given in the
enclosed ITNS-150 which is part of this order. Issue necessary
forms."
13. It was in the aforesaid backdrop that Mr. Vohra submitted that
the respondents have clearly acted arbitrarily in drawing proceedings
for reassessment despite the complete and candid disclosure which had
been duly made by the petitioners in the course of the assessment. Mr.
Vohra submitted that the facts as placed before the AO were duly
examined and lead to the acceptance of the return of income. Learned
senior counsel thus contended that there existed no justification for the
powers conferred by Section 148 of the Act being invoked especially in
light of no incriminating or germane material pertaining to the AYs'
having been discovered or found.
14. Mr. Bhatia, learned counsel representing the respondents on the
other hand argued that the decision of this Court in GE
Energy and other connected matters had unequivocally found a
consistent business model having been followed by the various
Associated Enterprises of the GE Group and had ultimately upheld the
finding of a PE being existent. It was his submission that the facts that
were discovered during the course of the survey undertaken in 2007
were found to be common to those that came to light post the 2019
survey. In view of the aforesaid, it was contended that the reopening is
not liable to be interdicted at this stage.
15. Mr. Bhatia also sought to draw support from our decision in GE
Nuovo Pignone Spa v CIT7 contending that a similar challenge to
reopening by a constituent of the GE Group had come to be upheld with
the Court refusing to interfere with the reassessment action.
16. Having conferred our consideration on the rival submissions as
addressed, we at the outset note that GE Nuovo Pignone Spa was a case
where we had on facts found that the assessee had clearly failed to
assert that its modus of business had changed over the years so as to
place its case on a distinct or distinguishable pedestal. This becomes
evident from a reading of paragraph 19 of the report which is extracted
hereinbelow:-
"19. We, however, note that in the course of the reassessment
proceedings, the appellant at no point in time appears to have
asserted or taken a position that the facts as they obtained in 2009-
2010, were distinct or distinguishable from those which had fallen
for detailed examination of the respondents in the litigation which
2024 SCC Online Del 7902
had ensued and had ultimately culminated in the passing of a
judgment by this Court on 21 December 2018."
17. Contrary to the above, it had been the consistent stand of the
present writ petitioners that no PE had existed in the years in question.
It is in the aforesaid light that we would have to evaluate and examine
whether the findings as recorded in the course of the 2007 or 2019
survey could have been blindly applied and adopted, extrapolated and
read as being an accurate recordal of facts as they obtained in the AYs
in question. It was conceded before us by the respondents that the
reasons as recorded in support of the formation of opinion that income
had escaped assessment had not alluded to any facts specific to AYs'
2013-14 to 2017-18. Despite repeated queries Mr. Bhatia who
represented the respondents failed to draw our attention to any facet or
fact pertaining to the AYs' in question and which could have been read
as demonstrative of an application of mind to the facts that prevailed or
obtained in the years in question and thus justified a reassessment
action being validly initiated. In fact, as we go through those reasons, it
becomes more than apparent that the AO has merely proceeded to adopt
and reiterate what was found in the course of the survey undertaken in
2007 and 2019 read alongside the judgment of this Court rendered in
GE Energy. According to Mr. Bhatia, in light of the judgment of this
Court in GE Energy, the AO was justified in proceeding on the
"assumption" that facts had remained unchanged and that the business
model had remained unaltered. Learned counsel in this respect also
sought to draw sustenance from the decision of the Supreme Court in
Raymond Woollen Mills Ltd. v ITO8 and to the following passages
as appearing therein:-
1997 SCC OnLine SC
"1.The challenge in this case is to the reopening of the assessment
of Raymond Woollen Mills Ltd. We have been shown the recorded
reasons for reopening under Section 147-A (sic Section 147). The
case of the Revenue was that the assessee was charging to its profit
and loss account fiscal duties paid during the year as well as labour
charges, power, fuel, wages, chemicals, etc. However, while
valuing its closing stock, the elements of fiscal duty and the other
direct manufacturing costs were not included. This resulted in the
undervaluation of inventories and an understatement of profits.
This information was obtained by the Revenue in a subsequent
year's assessment proceeding.
2. Mr Vellapally, learned Senior Counsel appearing on behalf of
the appellant, has argued that the Department has made a grievous
error in coming to this conclusion.
3. In this case, we do not have to give a final decision as to whether
there is a suppression of material facts by the assessee or not. We
have only to see whether there was prima facie some material on
the basis of which the Department could reopen the case. The
sufficiency or correctness of the material is not a thing to be
considered at this stage. We are of the view that the Court cannot
strike down the reopening of the case in the facts of this case. It
will be open to the assessee to prove that the assumptions of facts
made in the notice were erroneous. The assessee may also prove
that no new facts came to the knowledge of the Income Tax Officer
after completion of the assessment proceeding. We are not
expressing any opinion on the merits of the case. The questions of
fact and law are left open to be investigated and decided by the
assessing authority. The appellant will be entitled to take all the
points before the assessing authority. The appeals are dismissed.
There will be no order as to costs."
18. Indisputably, there is no principle akin to that of res judicata
which can be recognized to be applicable to taxing disputes. Though
this principle is well settled, we deem it appropriate to refer to the
following enunciation of the well-settled legal position in National
Petroleum Construction Co. v Dy. CIT9 where the Supreme Court
had held as follows:-
"37. The High Court rightly held that the question of whether the
appellant had permanent establishment, could not possibly be
(2022) 446 ITR 382
undertaken in an enquiry for issuance of certificate under section
197 of the Income-tax Act, having regard to the time-frame
permissible in law for deciding an application, more so, when
regular assessment had been completed in respect of the immediate
preceding year and the appellant found to be taxable under the
Income-tax Act at 10 per cent. of the contractual receipts. The
assessing authority found that the appellant had permanent
establishment in India in the concerned assessment years. The
appeal of the appellant is possibly pending disposal."
"38. As held by the High Court, it is well settled that the principle
that res judicata is not applicable to Income-tax proceedings
because assessment for each year is final only for that year and
does not cover later years."
"39. Whether the appellant had permanent establishment or not,
during the assessment year in question, is a disputed factual issue,
which has to be determined on the basis of the scope, extent, nature
and duration of activities in India. Whether project activity in India
continued for a period of more than nine months, for taxability in
India in terms of the Agreement for Avoidance of Double
Taxation, is a question of fact, that has to be determined separately
for each assessment year. * (2010) 327 ITR 456 (SC)."
19. In order to appreciate what the Supreme Court held in National
Petroleum, it would be apposite to notice the more elaborate discussion
which appears in the judgment of this Court in National Petroleum
Con. Co. v. Deputy CIT10, the relevant parts whereof are extracted
hereunder:-
"24. The respondents have granted the impugned certificate for
deduction at 4 per cent. of the gross receipts. The assessment for
the above noted contracts would be undertaken in the future, viz.,
the assessment years 2019- 20 and 2017-18 respectively. As of
now, we are not concerned with a regular assessment proceeding
but, with determination of rate of tax deduction. On perusal of
reasons, it becomes manifest that during the course of enquiry
under section 197 of the Act, the petitioner was asked to furnish the
details regarding the scope and nature of the aforenoted contracts.
The Revenue contends that for the R-series contracts, the petitioner
has made contradictory statement regarding commissioning period
and period of as-built documentation etc. The petitioner, in its
submission dated June 22, 2019, contends that commissioning
work is not undertaken by them for the R-series contracts, and the
2019 SCC OnLine Del 12357
same is to be performed by the Oil and Natural Gas Corporation.
Without going into the question as to whether the petitioner's stand
is contradictory, we may note that the Assessing Officer while
exercising its power under section 197, during the course of the
enquiry, cannot undertake an exhaustive exercise to determine this
issue conclusively. We find force in the submissions of Mr.
Raghvendra Kumar Singh that the question as to whether the
petitioner has constituted a permanent establishment, cannot
possibly be undertaken in the enquiry having regard to the time
frame permissible under law for deciding the application under
section 197 of the Act. The reasons shown to us also take note of
the fact that in the immediate preceding years, i.e., the assessment
year 2016-17 and the assessment year 2017-18, for which regular
assessment has been completed, the petitioner has been held to
have a permanent establishment (PE) in India, and its total income
from the contracts with the Oil and Natural Gas Corporation have
been held to be taxable under the Income-tax Act. Section 44BB of
the Act is applied, and 10 per cent. of the contractual receipts were
considered as business profits. The rate of tax being 40 per cent., a
certificate was, accordingly, issued at 4 per cent. For the other
assessment years as well, assessment has been completed and
appeal is pending before the appellate authorities. The petitioner,
obviously, disputes the finding of the respondent as erroneous and
misplaced, on the ground that for the assessment year 2015-16, the
first appellate authority following the decision of this court in the
petitioner's own case, has held that the petitioner has no permanent
establishment in India. Be that as it may, for the assessment years
2016-17 and 2017-18, this question has been determined against
the petitioner. It is well-settled proposition that in tax
jurisprudence, the principle of res judicata is not applicable to
income tax proceedings. "In matters of recurring annual tax a
decision on appeal with regard to one year's assessment is said not
to deal with eadem questio as that which arises in respect of an
assessment for another year and consequently not to set up an
estoppel". [Ref : New Jehangir Vakil Mills Co. Ltd v. CIT (1963)
49 ITR (SC) 137]. "It is well settled that in matters of taxation there
is no question of res judicata because each year's assessment is
final only for that year and does not govern later years, because it
determines only the tax for a particular period". [Ref : Installment
Supply P. Ltd. v. Union of India [1962] AIR 1962 SC 53
(Constitution Bench)].
25. The petitioner has argued that the need for consistency and
certainty requires that there must exist strong and compelling
reasons for a departure from a settled position, which must be spelt
out and they are conspicuously absent in the present case. Mr.
Balbir Singh has strongly argued that the stand taken by the
respondents in the previous year should have been followed and in
this regard, he relies upon the decision of the Supreme Court in the
case of Radhasoami Satsang v. CIT [1992] 193 ITR321 (SC).
Besides, Mr. Singh, as quoted earlier has also led considerable
emphasis on the decision of this court dated May 9, 2017, wherein
this court directed the respondents to issue certificate under section
197 of the Act, accepting the alternative plea of the petitioner that
the Oil and Natural Gas Corporation would deduct tax at 4 per cent.
plus surcharge plus education cess on the revenues in respect of
only the inside India activities of the petitioner.
26. We are, however, not impressed with the aforesaid contention
and do not find the judgment of the Supreme Court in Radhasoami
Satsang (supra) to be applicable in the present case. In the said
case, the issue arose whether the assessee is a charitable trust, and
this position had not been contested by the Income-tax Department
from the assessment year 1937- 38 to the assessment year 1963-64.
In these circumstances, the court held as under (headnote of 193
ITR 321 ):
"Where a fundamental aspect permeating through the
different assessment years has been found as a fact one way
or the other and parties have allowed that position to be
sustained by not challenging the order, it would not be at all
appropriate to allow the position to be changed in a
subsequent year."
27. In the present case, there cannot be any dispute that existence of
permanent establishment is required to be determined by law for
each year separately on the basis of the scope, extent, nature and
duration of activities in each year. In this regard, the contracts in
question, i.e., R-series contracts dated February 7, 2018 and
LEWPP series contracts dated September 30, 2016 would have to
be taken into consideration. Concededly, this court in its decision
dated May 9, 2017 did not have the occasion to consider the R-
series contract dated February 7, 2018. The court only considered
the contract dated September 30, 2016 as noted in para-1 of the
said decision. There is thus, a distinguishing feature - the R-series
contract has not been considered by this court in its order dated
May 9, 2017. Moreover, in the instant case, the reasons record that
the two contracts are indivisible, and the petitioner cannot divide
the contractual receipts in two categories, viz., inside India and
outside India services. The installation permanent establishment
will come into existence, if "project or activity continues for a
period of more than 9 months" under Indo-UAE Double Taxation
Avoidance Agreement. This question of fact will have to be
determined separately for each assessment year, and we are
informed that for the assessment year 2016-17 and the assessment
year 2017-18, the determination is presently against the petitioner.
We cannot accept the petitioner's contention that the assessment
proceedings for the assessment years 2007-08, 2008-09 and 2009-
10 have already determined this question in favour of the petitioner
and there is no change in any circumstances. This question would
require to be determined and finding of the fact would have to be
arrived at, by a careful consideration of terms of contract,
determination whereof cannot be undertaken in the proceedings
under section 197 of the Act."
20. The interplay between the principle of consistency and the facts
of each year of assessment was lucidly explained by our Court in
Galileo Nederland BV Vs. Assistant Director of Income Tax
(International Taxation)11 as under:-
"19. We are aware that each assessment year is separate and
distinct and principle of res judicata does not apply to proceedings
for subsequent or other years. However, the decision on an issue or
question though not binding should be followed and not ignored
unless there are good and sufficient reasons to take a different
view. Thus, it was/is possible for the Assessing Officer to depart
from the finding or a decision in one year as it is final and
conclusive only in relation to a particular year for which it is made
but as observed in Radhasoami Satsang v. CIT (1992) 193 ITR 321
(SC), when a fundamental aspect pervading through different
assessment years has been found as a fact in one way or the other,
it would inappropriate to allow the position to be changed in a
subsequent year particularly when the said finding has been
accepted. The said principle is also based upon the rules of
certainty and consistency that a decision taken after due application
of mind should be followed consistently as this lead to certainty,
unless there are valid and good reasons for deviating and not
accepting the earlier decision."
21. The Court also takes note of the succinct enunciation of this legal
principle in Dwarkadas Kesardeo Morarka v Commissioner of
Income Tax, Central12 where the Supreme Court had held as under:-
"7. The conclusion of the Tribunal was amply supported by
evidence. It cannot be said that because in the previous years the
shares were held to be stock-in-trade, they must be similarly treated
for Assessment Year 1949-50. In the matter of assessment of
income tax, each year's assessment is complete and the decision
2014 SCC OnLine Del 4282
1961 SCC OnLine CS 221
arrived at in a previous year on materials before the taxing
authorities cannot be regarded as binding in the assessment for the
subsequent years. The Tribunal is not shown to have omitted to
consider the material facts. The decision of the Tribunal was on a
question of fact and no question of law arose which could be
directed to be referred under Section 66(2) of the Income Tax Act."
22. The position of a PE being a facts-specific issue and thus liable
to be examined against the backdrop of what obtained in a particular
tax period is one which is underscored even by the OECD Commentary
on Article 5 and the relevant part whereof is reproduced hereunder:-
"8. It is also important to note that the way in which business is
carried on evolves over the years so that the facts and arrangements
applicable at one point in time may no longer be relevant after a
change in the way that the business activities are carried on in a
given State. Clearly, whether or not a permanent establishment
exists in a State during a given period must be determined on the
basis of the circumstances applicable during that period and not
those applicable during a past or future period, such as a period
preceding the adoption of new arrangements that modified the way
in which business is carried on."
23. It is in the aforesaid backdrop that the observations of the
Supreme Court in CIT v Gupta Abhushan (P) Ltd13 also assume
significance and where it was unambiguously held that a survey report
pertaining to a particular tax period cannot ipso facto be read or
countenanced as being relevant and binding for independent assessment
years as is evidenced from paragraph 6 of the report which is extracted
hereinbelow:
"6. The second part of the reasons recorded by the Assessing
Officer indicate that during the survey, it was noticed that
extensive renovation work in the business premises of the assessee
had been undertaken and that the renovation in respect of the
ground floor had been completed and that the renovation in respect
of the first floor was going on. It is further noted that the assessee
had not booked any expenses on account of renovation of the said
business premises. On the basis of these facts, the Assessing
Officer noted that he was satisfied that investments made in the
2008 SCC OnLine Del 1468
renovation work had escaped assessment. Here too, we note that
the survey was conducted on March 7, 2002, which falls in the year
subsequent to the three years in question in these appeals. The fact
that the renovation expenses had not been booked in that year, i.e.,
financial year ending on March 31, 2002, does not by itself indicate
that the renovation work had been carried on in the earlier three
years and, if so, the expenses in respect of the same had not been
booked. The conclusion of the Assessing Officer, based on what
was noticed in the course of the survey, cannot be extrapolated to
other years. The purported belief of the Assessing Officer, on this
aspect of the matter, was not a belief at all but was merely a
suspicion.
Such suspicion cannot take the place of a belief and that too a
belief which is based on reasons."
24. While and as our Court explained in Galileo it may be
permissible for an AO to take cognizance of a "fundamental aspect
pervading through different assessment years has been found as a fact
in one way or the other....", the said precept could have been
legitimately invoked provided the AO were satisfied or had come to
record its prima facie opinion that the facts which prevailed and
obtained in AY 2013-14 upto AY 2017-18 were identical to those
which had been found in the course of the two surveys which had been
undertaken in 2007 and 2019. However, no such finding has either been
returned nor conclusion recorded in the "reason to believe" drawn by
the AO.
25. The reliance placed by Mr. Bhatia on Raymond Wollen Mills is
equally misplaced since the phrase "assumptions of facts" is clearly
being misconstrued and read out of context. Learned counsel sought to
contend that the said decision is an authority for the proposition that an
AO could reopen basis an "assumption" of facts that may have obtained
in a particular AY remaining unchanged. The said contention ignores
the basic facts on which that decision was founded, namely, of the AO
there having found that the assessee was charging to its profit and loss
account fiscal duties "during the year" resulting in undervaluation of
inventories and understatement of profits. The observation with respect
to an assumption being reached is liable to be appreciated in the
aforesaid light. The reassessment action is thus liable to be set aside on
this short score alone.
26. We accordingly allow the instant writ petitions and quash the
following impugned notices issued under Section 148:
WP(C) Assessment Year Date of SCN
1196 of 2022 2013-14 17 March 2021
1630 of 2022 2015-16 31 March 2021
1631 of 2022 2017-18 30 March 2021
1639 of 2022 2016-17 30 March 2021
1644 of 2022 2014-15 31 March 2021
YASHWANT VARMA, J.
HARISH VAIDYANATHAN SHANKAR, J.
JANUARY 17, 2025/kk
