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M/s. GE Engine Services Malaysia SDN BHD, 6th Floor, Building No.7A, Standard Chartered Building, vs. DCIT (International Taxation), Circle 1(3)(1), New Delhi.
February, 27th 2019
      IN THE INCOME TAX APPELLATE TRIBUNAL
            DELHI BENCH `C', NEW DELHI.

   BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER
                       and
 SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER

                      Stay No.155/Del/2019
                   (in ITA No.694/Del./2019)
                (ASSESSMENT YEAR : 2002-03)
                             AND
                     ITA No.694/Del./2019
                (ASSESSMENT YEAR : 2002-03)

M/s. GE Engine Services Malaysia SDN BHD,   vs.    DCIT
6th Floor, Building No.7A,                         (International Taxation),
Standard Chartered Building,                       Circle 1(3)(1),
DLF Cyber City,                                    New Delhi.
Phase ­ III,
Gurugram ­ 122 002.
      (PAN : AADCG1773E)

                      Stay No.156/Del/2019
                   (in ITA No.753/Del./2019)
                (ASSESSMENT YEAR : 2008-09)
                             AND
                     ITA No.753/Del./2019
                (ASSESSMENT YEAR : 2008-09)

M/s. GE Engine Services LLC,                vs.    DCIT
6th Floor, Building No.7A,                         (International Taxation),
Standard Chartered Building,                       Circle 1(3)(1),
DLF Cyber City,                                    New Delhi.
Phase ­ III,
Gurugram ­ 122 002.
      (PAN : AADCG1809R)

(APPELLANT)                                 (RESPONDENT)

      ASSESSEE BY : Shri Sachit Jolly, Advocate
                    Shri Aarush Bhatia, Advocate
      REVENUE BY : Shri J.K. Mishra, CIT DR

                    Date of Hearing : 26.02.2019
                    Date of Order : 27.02.2019
                                   2                     ITA No.694/Del./2019
                                                         ITA No.753/Del./2019




                             ORDER

PER KULDIP SINGH, JUDICIAL MEMBER :

      Since common questions of facts and law have been raised

in the aforesaid appeals, the same are being disposed of by way of

composite order to avoid repetition of discussion.

2.    The appellant, M/s. GE Engine Services Malaysia SDN

BHD (hereinafter referred to as `the assessee') by filing the present

appeal, sought to set aside the impugned order dated 22.11.2018

passed by Ld. CIT (Appeals)-42, New Delhi qua the Assessment

Year 2002-03 on the grounds inter alia that :-

      "1.    That on the facts and circumstances of the case and in
      law, the Commissioner of Income-tax (Appeals) ["CIT(A)"]
      erred in confirming the action of the Assessing Officer ("AO")
      in levying penalty of Rs.17,32,920/- under Section 271(1)(c) of
      the Income Tax Act, 1961 ("the Act")

      2.     That on the facts and circumstances of the case and in
      law, the Ld. AO erred in passing the penalty order under Section
      271(1)(c) of the Act which are wholly without jurisdiction and
      clearly barred by limitation inasmuch as the same have been
      passed beyond the period of limitation prescribed under Section
      275(1)(a) of the Act.

      3.     That on the facts and circumstances of the case and in
      law, the CIT(A) erred in upholding the initiation of penalty by
      way of issue of penalty notice under Section 274 of the Act
      without specifying whether the penalty is initiated for
      concealment of income or for furnishing of inaccurate
      particulars of income.

      4.     That on the facts and circumstances of the case and In
      law, the CIT(A) erred in alleging that the Appellant had
                                     3                      ITA No.694/Del./2019
                                                            ITA No.753/Del./2019







      concealed particulars of income, without appreciating that the
      Appellant made complete disclosure in the notes accompanying
      the return of income.

      5.     That on the facts and circumstances of the case and in
      law, the CIT(A) erred in upholding the levy of penalty, without
      appreciating that on identical facts, penalty had been deleted by
      the predecessor of the CIT(A) in the case of GE Caledonian Ltd.
      and GE Aviation Service Operation LLP for the A Y 2011-12.

      6.     That on the facts and circumstances of the case and in
      law, the CIT(A) erred in upholding the levy of penalty, without
      appreciating that the Hon'ble High Court having admitted the
      appeal of the Appellant for the same AY on a substantial
      question of law qua existence of a permanent establishment, the
      issue was prima facie debatable, on which no penalty could have
      been levied.

      7.     That on the facts and circumstances of the case and in
      law, the CIT(A) erred in upholding the levy of penalty, without
      appreciating that penalty under Section 271 (1)( c) of the Act had
      been deleted in the case of Rolls Royce, which formed the
      bedrock and sole basis of the addition made by the AO, on which
      penalty has now been levied.

      8.      That on the facts and circumstances of the case and in
      law, the CIT(A) erred in confirming the levy of penalty under
      Section 271 (1)( c) of the Act on the basis of profits attributed to
      the alleged PE of the Appellant, which was based on estimation,
      and, therefore, do not tantamount to concealment of income or
      furnishing of inaccurate particulars of income."

3.    The appellant, M/s. GE Engine Services LLC (hereinafter

referred to as `the assessee') by filing the present appeal, sought to

set aside the impugned order dated 22.11.2018 passed by Ld. CIT

(Appeals)-42, New Delhi qua the Assessment Year 2008-09 on the

grounds inter alia that :-
                              4                     ITA No.694/Del./2019
                                                    ITA No.753/Del./2019


"1.    That on the facts and circumstances of the case and in
law, the Commissioner of Income-tax (Appeals) ["CIT(A)"]
erred in confirming the action of the Assessing Officer ("AO")
in levying penalty of Rs.26,35,620/- under Section 271(1)(c) of
the Income Tax Act, 1961 ("the Act")

2.     That on the facts and circumstances of the case and in
law, the Ld. AO erred in passing the penalty order under Section
271(1)(c) of the Act which are wholly without jurisdiction and
clearly barred by limitation inasmuch as the same have been
passed beyond the period of limitation prescribed under Section
275(1)(a) of the Act.

3.     That on the facts and circumstances of the case and in
law, the CIT(A) erred in upholding the initiation of penalty by
way of issue of penalty notice under Section 274 of the Act
without specifying whether the penalty is initiated for
concealment of income or for furnishing of inaccurate
particulars of income.

4.      That on the facts and circumstances of the case and In
law, the CIT(A) erred in alleging that the Appellant had
concealed particulars of income, without appreciating that the
Appellant made complete disclosure in the notes accompanying
the return of income.

5.     That on the facts and circumstances of the case and in
law, the CIT(A) erred in upholding the levy of penalty, without
appreciating that on identical facts, penalty had been deleted by
the predecessor of the CIT(A) in the case of GE Caledonian Ltd.
and GE Aviation Service Operation LLP for the A Y 2011-12.

6.     That on the facts and circumstances of the case and in
law, the CIT(A) erred in upholding the levy of penalty, without
appreciating that the Hon'ble High Court having admitted the
appeal of the Appellant for the same AY on a substantial
question of law qua existence of a permanent establishment, the
issue was prima facie debatable, on which no penalty could have
been levied.

7.     That on the facts and circumstances of the case and in
law, the CIT(A) erred in upholding the levy of penalty, without
appreciating that penalty under Section 271 (1)( c) of the Act had
been deleted in the case of Rolls Royce, which formed the
                                      5                      ITA No.694/Del./2019
                                                             ITA No.753/Del./2019


       bedrock and sole basis of the addition made by the AO, on which
       penalty has now been levied.

       8.      That on the facts and circumstances of the case and in
       law, the CIT(A) erred in confirming the levy of penalty under
       Section 271 (1)( c) of the Act on the basis of profits attributed to
       the alleged PE of the Appellant, which was based on estimation,
       and, therefore, do not tantamount to concealment of income or
       furnishing of inaccurate particulars of income."



5.     Briefly stated the facts necessary for adjudication of the

controversy at hand are : On the basis of completed assessment

under section 143 (3) read with section 144C (5) of the Income-tax

Act, 1961 (for short `the Act') at an income of Rs.48,59,954/- &

Rs.86,11,525/- for AYs 2002-03 & 2008-09 respectively, penalty

proceedings were initiated by the AO u/s 271(1)(c) of the Act, by

way of issuance of notice u/s 274 read with section 271(1)(c) of the

Act.    Declining the contentions raised by the assessee, AO

proceeded to conclude that the assessee has not disclosed full

material facts regarding the issue of Permanent Establishment (PE)

in India attributable to the activities carried out from this PE and

has thereby concealed the particulars of its income. Consequently,

AO levied the penalty of Rs.17,32,921/- & Rs.26,35,620/- in AYs

2002-03 & 2008-09 respectively @ 100%.

6.     Assessee carried the matter before the ld. CIT (A) by way of

appeals who has confirmed the penalty levied by AO by dismissing
                                 6                   ITA No.694/Del./2019
                                                     ITA No.753/Del./2019







the appeals. Feeling aggrieved, the assessee has come up before

the Tribunal by way of filing the present appeals.

7.    We have heard the ld. Authorized Representatives of the

parties to the appeal, gone through the documents relied upon and

orders passed by the revenue authorities below in the light of the

facts and circumstances of the case.

8.    Undisputedly, assessment orders framed by the AO have

been upheld by the ld. CIT (A) as well as by the Tribunal, who

have held that GE Overseas entities have PEs in various forms and

these are fixed place PE, Office PE, construction PE and agency

PE and in case of oil and gas business, involves in installation and

commissioning would also constitute construction PE and since the

assessee has earned global profit of 10% on the sales made to the

customer in India, the income chargeable to tax as attributable to

the PE was computed at 3.5% of the sales made. It is also not in

dispute that the findings returned by the Tribunal have been

challenged before the Hon'ble Delhi High Court in a batch of

petitions bearing No.ITA 660/2017 & Ors. and vide order dated

15.01.2018, questions of law have been framed which are extracted

for ready perusal as under :-

      "(1) Did ITAT fell into error in its findings with
      respect to existence of a fixed place Permanent
      Establishment (PE) of the assessee in India;
                                 7                   ITA No.694/Del./2019
                                                     ITA No.753/Del./2019




      (2) Did ITAT fell into error in concluding that
      assessee/appellant's separately independent agent PE,
      was located in India; and,

      (3) Whether on the facts and the circumstances of
      the case and the law, the ITAT was justified in
      attributing as high as 35% of the profits to the alleged
      marketing activities and thereafter, attributing 75% of
      such 35% profits to the alleged PE of the Appellant in
      India?"


9.    From the order passed by Hon'ble High Court (supra), it has

become clear that the question as to whether the assessee is having

fixed place PE in India is "debatable one" and in these

circumstances, penalty levied by the AO is not sustainable in the

eyes of law. Identical issue has been decided in favour of the

assessee by the coordinate Bench of the Tribunal in assessee's own

case for AYs 2001-02, 2006-07, 2007-08 & 2008-09 vide ITA Nos.

6403/Del./2018, 695/Del./2019, 696/Del./2019 & 697/Del./2019

order dated 25.02.2019 .

10.   In view of what has been discussed above, since substantial

question of law has been framed by Hon'ble High Court on the

issue if the assessee is having fixed place PE in India, which is the

basis of levying/confirming the penalty u/s 271(1)(c) of the Act,

the issue becomes debatable, hence penalty u/s 271(1)(c) is not

leviable. Reliance in this regard is placed on the decision rendered
                                     8                   ITA No.694/Del./2019
                                                         ITA No.753/Del./2019


by Hon'ble Delhi High Court in ITA 240/2009 in CIT-II vs.

Liquid Investment and Trading Co. order dated 05.10.2010

whereby identical issue is decided as under :-

      "Both the CIT(A) as well as the ITAT have set aside the penalty
      imposed by the Assessing Officer under Section 271(1)(c) of the
      Income Tax Act, 1961 on the ground that the issue of deduction
      under Section 14A of the Act was a debatable issue. We may also
      note that against the quantum assessment hereunder deduction
      under Section 14A of the Act was prescribed to the assessee,
      the assessee has preferred an appeal in this Court under Section
      260A of the Act which has also been admitted and substantial
      question of law framed. This itself shows that the issue is
      debatable. For these reasons, we are of the opinion that no
      question of law arises in the present case.
      This appeal is accordingly dismissed."

11.   Consequently, penalty levied by the AO and confirmed by

ld. CIT (A) of Rs.17,32,921/- & Rs.26,35,620/- in AYs 2002-03 &

2008-09 respectively is ordered to be deleted and both the appeals

filed by the assessee are allowed.

12.   Keeping in view the fact that since appeals bearing ITA Nos.

694/Del/2019 & 753/Del/2019 have been decided, aforesaid stay

petitions filed therein stand dismissed having been become

infructuous.

Order pronounced in open court on this 27th day of February, 2019.


        Sd/-                                       sd/-
 (ANADEE NATH MISSHRA)                         (KULDIP SINGH)
  ACCOUNTANT MEMBER                          JUDICIAL MEMBER

Dated the 27th day of February, 2019
TS
                               9   ITA No.694/Del./2019
                                   ITA No.753/Del./2019




Copy forwarded to:
     1.Appellant
     2.Respondent
     3.CIT
     4.CIT(A)-42, New Delhi.
     5.CIT(ITAT), New Delhi.
                                     AR, ITAT
                                   NEW DELHI.

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