Reassessment proceedings stands valid if Foreign Co. couldn’t explain revenue earned from its PE in India

Facts of the case:

  • The Assessee was a foreign company incorporated in Italy and had filed its return of income from on onshore services of supplying spare parts and equipments to various customers in India.
  • Notice was issued u/s 148 of the Income Tax Act, 1961 (“the Act”) on the ground that income from business activities attributable to permanent establishment (“PE”) of Assessee in India had escaped assessment as per Section 147 of the Act
  • Assessee asked for reasons for opening assessment which were provided by Assessing officer (“AO”) however request for objections against such reasons was not entertained by AO
  • During re-assessment, search was conducted u/s 133A of the Act at Indian Liaison Office of the Assessee wherein sufficient evidences were obtained stating that significant revenue was earned from offshore activities in India through such liaison office.

Hon’ble Tribunal held that:

  • AO should have prima facie ground for initiating reassessment and Assessee itself stated before AO that originally it didn’t consider entire sale proceeds from supply to customers in India
  • Based on documents gathered through survey, it can be concluded that business activities had been conducted in India through expats working for the Assessee and support staff provided by other entities part of GE group
  • Assessee had filed its return declaring income from onshore activities however offshore sales had not been offered for tax
  • Assessee contended that reasons for existence of PE had not been provided by AO however documents gathered during survey had sufficient reasons to entail that the Assessee had conducted business through PE in India
  • Held, the Assessee having PE in India and income from Sales to Indian customers escaping assessment makes it a valid case for assessment u/s 147 of the Act (in favour of revenue).

Source:  [2019] 101 taxmann.com 402 (Delhi – Trib.)