The case number ITA 695/DEL/2019 involves the appellant, GE Wind Energy Gmbh, Gurgaon, and the respondent, DCIT, Circle-1(3)(1), International Taxation, New Delhi. This case pertains to the assessment year 2006-07 and was filed on January 31, 2019. The order type is a Final Tribunal Order, with the date of the order and the date it was pronounced being February 25, 2019.
The appeal was brought before the Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘C’, New Delhi, with a panel comprising Shri Kuldip Singh, Judicial Member, and Shri Anadee Nath Misshra, Accountant Member. This tribunal session also covered multiple cases involving GE entities, which raised common questions of facts and law, and were therefore addressed in a composite order to avoid repetition of discussion.
GE Wind Energy Gmbh sought to set aside the impugned order dated November 22, 2018, passed by the CIT (Appeals)-42, New Delhi. The primary grounds of appeal included:
The primary issue in this case revolved around the existence of a Permanent Establishment (PE) in India, attributed to the activities carried out by GE Wind Energy Gmbh. The AO levied a penalty on the grounds of not disclosing full material facts regarding the PE and consequently concealing particulars of income.
The assessment orders framed by the AO were upheld by both the CIT(A) and the Tribunal, confirming the existence of various forms of PE—fixed place PE, Office PE, construction PE, and agency PE. The income chargeable to tax as attributable to the PE was computed at 3.5% of the sales made.
These findings were challenged before the Hon’ble Delhi High Court, which framed questions of law including whether ITAT erred in its findings about the existence of a fixed place PE in India, whether it erred in concluding that the appellant’s agent PE was in India, and whether ITAT was justified in attributing a high percentage of profits to marketing activities related to the alleged PE.
The tribunal noted that since the question of the existence of a fixed place PE in India is debatable, the penalty levied by the AO was not sustainable. The Tribunal referenced the decision of the Hon’ble Delhi High Court in CIT-II vs. Liquid Investment and Trading Co., where a similar debatable issue led to the setting aside of the penalty under Section 271(1)(c) of the Act.
Consequently, the Tribunal ordered the deletion of the penalties levied by the AO and confirmed by the CIT(A) for AYs 2001-02, 2006-07, 2007-08, and 2008-09.
This case highlights the complexities involved in international taxation and the challenges of attributing profits to Permanent Establishments. The tribunal’s decision underscores the importance of clear guidelines and the necessity of addressing debatable issues within the judicial framework, ensuring that penalties are not levied arbitrarily.
The detailed examination of the grounds of appeal and the Tribunal’s comprehensive analysis serve as a crucial reference for similar cases in the future, emphasizing the need for precision and thoroughness in both assessment and appellate proceedings.
GE Wind Energy Gmbh vs DCIT (International Taxation): Analysis of AY 2006-07 Penalty Proceedings
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