Reopening Assessments based only on Survey Material without Tangible Evidence of PE in India is not Valid: Delhi HC [Read Order]

In a recent ruling, the Delhi High Court held that the reopening of assessments based only on survey material, without any tangible evidence establishing the existence of a permanent establishment of the company in India, is not valid.

GE Steam Power Systems and other foreign group entities, all part of the GE Group, challenged reassessment notices issued under Section 148 of the Income Tax Act for assessment years 2013-14 to 2017-18. These companies are incorporated outside India and have filed returns in India offering certain income such as fees for technical services.

Based on a survey conducted in June 2019 at the premises of GE Power India Ltd. and GE T&D India Ltd., the Assessing Officer formed a view that the petitioners had a permanent establishment in India in the form of a dependent agent PE and a fixed place PE, and that their business income attributable to such PE had escaped assessment.

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The petitioners’ counsel argued that they were not tax residents of India and had already disclosed income wherever required. They argued that there was no fresh or tangible material to establish a permanent establishment in India for the relevant years, and that the survey statements of employees of Indian affiliates could not form the sole basis for reopening.

The Revenue’s counsel argued that the survey revealed sufficient material to show the presence of a permanent establishment in India, both dependent agent PE and fixed place PE, through Indian group companies. They argued that supplies made to Indian entities without tax deduction at source and statements of employees justified reopening, as income had escaped assessment.

The Division Bench of Justices Vibhu Bakhru and Tejas Karia observed that the Assessing Officer’s reasons for reopening were based solely on survey material from Indian group companies and did not provide any tangible evidence that the petitioners themselves had a permanent establishment in India for the relevant years.

The court explained that the issue of PE had already been considered in connected matters of the same group and reopening on such grounds had been held to be unsustainable. It pointed out that the reassessment proceedings were based merely on a change of opinion and lacked any new material.

The court held that the reassessment notices issued under Section 148 of the Income Tax Act were unsustainable in law. The petitions were allowed and the impugned notices were set aside.

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