IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : SMC-II : NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO.4066/DEL/2015 ASSESSMENT YEAR : 2009-10 DCIT, CIRCLE-3(1)(2), INTERNATIONAL TAXATION, NEW DELHI. VS. SAGEM DEFENCE SECURITE SA, C/O BMR & ASSOCIATES LLP, 22 ND FLOOR, BUILDING NO.5, TOWER A, DLF CYBER CITY, DLF PHASE-III, GURGAON. PAN: AAAJS2651K (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : MRS. RAKHI VIMAL, JCIT DATE OF HEARING : 13.08.2015 DATE OF PRONOUNCEMENT : 04.11.2015 ORDER THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE CIT(A)-43, NEW DELHI, DATED 28.4.2015 FOR ASSESSMEN T YEAR 2009-10, ON THE FOLLOWING GROUNDS:- ITA NO.4066/DEL/2015 2 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING PENALTY OF RS. 7,82,52 4/- U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT) IMPOSED BY THE A SSESSING OFFICER. L(A) WHETHER THE LD. CIT(A) HAS ERRED IN DELETING T HE PENALTY U/S 271(1)(C) AS THE ADDITION HAS BEEN MADE ON A ESTIMA TED BASIS, NOT APPRECIATING THE FACT THAT THERE IS NO GENERAL PROP OSITION THAT PENALTY U/S 271(1)(C) CANNOT BE IMPOSED WHERE AN ADDITION O R DISALLOWANCE IS MADE ON ESTIMATED BASIS. RELIANCE IS PLACED ON DECI SION OF IN THE CASE OF CIT VS ECS LTD (2010-TIOL-287-HC-DEL-IT) L(B) WHETHER THE LD CIT(A) HAS ERRED IN DELETING TH E PENALTY ON THE GROUND THAT IN AN EARLIER YEAR, PENALTY U/S 271(1) WAS DROPPED BY THE AO, NOT APPRECIATING THE FACT THAT IN THE SAID ASSE SSMENT YEAR WAS THE FIRST YEAR WHEN THE ISSUE OF LO ('LIAISON OFFICE') CONSTITUTING PE WAS EXAMINED AND THEREFORE, THE ASSESSEE HAD THE BENEFI T OF A BONA FIDE VIEW REGARDING NON-EXISTENCE OF THE PE. L(C) THE LD CIT(A) HAS ERRED IN NOT APPRECIATING TH E FACT THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT AS THE ASSESSEE HAS FAILED TO ESTABLISH THE BONA FIDES OF EXPLANATION OFFERED BY IT. 2. THE APPELLANT PRAYS FOR LEAVE TO ADD, AMEND, MO DIFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OR BEFORE THE HEARING OF THE APPEAL. 2. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. AT PARAS 4.2 TO 4.7, THE LD.CIT(A) HAS H ELD AS FOLLOWS:- 4.2 IT IS PERTINENT TO NOTE THAT IT IS THE ASSESS MENT ORDER DATED 23.02.2012 WHICH FORMS THE BASIS OF THIS PENALTY OR DER. IN THE ASSESSMENT ORDER DATED 23.02.2012, FOR AY 2009-10, THE AO NOTES THAT THE INCOME FOR THIS ASSESSMENT YEAR IS BEING A RRIVED AT ON THE BASIS SIMILAR TO THAT OF AY 2007-08. THE AO NOTES I N PARAS 9 AND 10 OF HIS ORDER DATED 23.02.2012 AS FOLLOWS:- ITA NO.4066/DEL/2015 3 'UNDER THESE CIRCUMSTANCES, I AM LEFT WITH NO OPTIO N BUT TO ASSESS THE INCOME OF THE ASSESSEE ON THE BASIS OF THE ASSESSME NT DONE FOR THEASSESSMENT YEAR 2007-08. IN THE FINAL ASSESSMENT ORDER PASSED FOR SAID ASSESSMENT YEAR PURSUANT TO THE RP DIRECTIONS, IT WAS CONCLUDED THAT MR. BEMARD LACOSTE, THE REPRESENTATIVE OF LO I N INDIA WAS ENGAGED IN NEGOTIATION OF THE SALE OF PRODUCTS OF T HE ASSESSEE IN INDIA AND THAT THE LO OF THE ASSESSEE COMPANY WAS DOING M UCH MORE ACTIVITIES THAN FOR WHICH IT WAS AUTHORIZED AS PER RBI REGULATIONS. IN FACT, WITHOUT THE HELP OF LO IT IS UNTHINKABLE TO D O ANY TRADE AND BUSINESS BY THE ASSESSEE COMPANY IN INDIA IN THE FA CTS AND CIRCUMSTANCES OF THE CASE. IT CAN BE SEEN THAT THE LO IN INDIA WAS UNDERTAKING MORE OR LESS SAME OR SIMILAR ACTIVITIES DURING AY 2009-10 AS IT WAS UNDERTAKING IN AY 2007-08. IN LIGHT OF TH E DISCUSSION MADE IN PRECEDING PARAGRAPH, IT IS EVIDENT THAT THE ASSE SSEE IS HAVING A PERMANENT ESTABLISHMENT IN THE FORM OF ITS LO IN IN DIA. IT IS ESTABLISHED THAT THE PLACE OF BUSINESS IN INDIA CON TRIBUTE TO THE PRODUCTIVITY OF THE ENTERPRISE AND THE SERVICES IT PERFORMS ARE VERY MUCH CONNECTED WITH THE ACTUAL REALIZATION OF PROFI TS. 4.3 THE AO FOR THIS PENALTY ORDER INTENDS TO BASE H IMSELF UPON THE FINAL ASSESSMENT ORDER FOR AY 2007-08 (PAST PURSUAN T TO ORDER OF DRP DTD. 29.09.2010). THE DATE OF FINAL ASSESSMENT ORDE R FOR AY 07-08 IS 15.10.2010. IN THE FINAL ASSESSMENT ORDER FOR AY 07 -08 BASED ON DRP'S DIRECTIONS DATED 29.09.2010, IT WAS HELD THAT THE ASSESSEE HAD A PE IN INDIA. THE AO, AS PER DIRECTIONS OF DRP, CALC ULATED THE NET PROFIT MARGIN ON THE BASIS OF GLOBAL PROFIT MARGIN OF THE ASSESSEE. THE NET PROFIT MARGIN WAS ARRIVED AT BY APPLYING THIS P ROFIT PERCENTAGE ON TOTAL TURNOVER FROM TRADING IN INDIA. THEREAFTER 50 PER CENT OF PROFITS THEREUPON WERE ATTRIBUTED TO INDIAN OPERATIONS. 4.4 THE ASSESSMENT ORDER FOR AY 07-08 DATED 15.10.2 010 CONSEQUENT TO DIRECTIONS OF DRP, WAS CHALLENGED BY THE ASSESSE E IN ITAT. THE HONOURABLE ITAT VIDE ORDER DATED 29.07.2011, IN ITA NO. 5914/D/2010 RESTORED THE MATTER TO THE FILE OF THE AO FOR DE NOVO ASSESSMENT, AS PER DIRECTIONS THEREIN. PURSUANT TO THESE DIRECTIONS AN ASSESSMENT ORDER WAS PASSED BY THE AO ON 08.05.2013 , WHEREIN ADDITIONS WERE MADE ON A BASIS SIMILAR TO THE BASI S ADOPTED BY THE AO, AB INITIO, IN HIS ASSESSMENT ORDER DATED 15.10 .2010. IT IS TO BE NOTED THAT THE ORDER FOR AY 2007-08, BASED UPON DIR ECTIONS OF HONOURABLE ITAT WAS PASSED ON 08.05.2013. THE ASSES SMENT ORDER ITA NO.4066/DEL/2015 4 FOR THIS SUBJECT YEAR, AY 2009-10 WAS PASSED ON 23. 02.2012. AS INFORMED BY THE ASSESSEE, PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) WERE INITIATED BY THE AO VIDE HIS ORDER DATED 08.05 .2013, FOR AY 2007-08. THE ASSESSEE FURTHER INFORMS THAT PENALTY PROCEEDINGS UNDER SECTION 271 ( 1)( C) FOR AY 2007-08 WERE DROPPED BY THE AO. 4.5 IN THE SUBJECT YEAR, I.E. AY 2009-10, THOUGH TH E AO NOTES THAT ADDITIONS HAVE BEEN MADE ON A BASIS SIMILAR TO THAT OF AY 2007-08, I FIND THAT THE AO HAS GONE ON A DIFFERENT TRAJECTORY . IN. THIS ASSESSMENT YEAR, ADDITIONS HAVE BEEN MADE ON AN ESTIMATED BASI S, DETERMINING INCOME AT 10 PER CENT OF THE COSTS OF THE LO. 4.6 AN EXAMINATION OF THE ABOVE FACTS REVEALS THAT IN AN EARLIER YEAR, ON THE SAME FACTS, PENALTY WAS INITIATED BY THE AO, ONLY TO BE DROPPED LATER. IN THE SUBJECT YEAR, ADDITION HAS BEEN MADE ON AN ESTIMATED BASIS OF 10 PER CENT OF COSTS. THE AO HOWEVER, HAS FAILED TO PROVIDE THE BASIS OF HOLDING THE INCOME OF LO / PE AT 10 PER CE NT OF THE COSTS OF LO/PE. THIS ESTIMATION THEREFORE IS WITHOUT BASIS. MERE FACT THAT THE ASSESSEE DID NOT GO IN APPEAL AGAINST THE ASSESSMEN T ORDER DOES NOT ESTABLISH THAT THE ASSESSEE HAS FURNISHED INACCURAT E PARTICULARS OF HIS INCOME, OR CONCEALED HIS INCOME. . 4.7 IN VIEW OF THE FACTS AS OBTAINED, AFTER HEARING THE ASSESSEE'S COUNSEL AT LENGTH IT IS HELD THAT PENALTY UNDER SEC TION 271 (L)(C) OF THE IT ACT IS NOT LEVIABLE IN THE ASSESSEE'S CASE. SINC E BOTH THE GROUNDS TAKEN BY THE ASSESSEE ARE CONNECTED, SEPARATE ADJUD ICATION IS NOT BEING MADE. THE ASSESSEE SUCCEEDS. 3. I FIND NO INFIRMITY IN THE ABOVE FINDINGS OF THE FIRST APPELLATE AUTHORITY. THEREFORE, I UPHOLD THE SAME. ITA NO.4066/DEL/2015 5 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 04.11.201 5. SD/- [J.SUDHAKAR REDDY] ACCOUNTANT MEMBER DATED, 04 TH NOVEMBER, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.