2012 (1) TMI 76 - HC - Income Tax

Revisionary powers of Commissioner u/s 263 - DTAAs with Canada and Thailand - Tribunal set aside the revisional orders of the Commissioner remanding matter to the A.O. to rework the credit in respect of Canadian and Thailand Tax claimed under Double Taxation Avoidance Agreement - Held that - It is the duty of the assessing authority to support every conclusion and finding by it with reasons and if the assessing authority had failed in that, more so in extending a tax relief to the assessee, the order definitely constitutes an order not merely erroneous but also prejudicial to the interest of the revenue and therefore while the commissioner was justified in exercising the jurisdiction u/s 263, the tribunal was definitely not justified in interfering with this order of the commissioner in its appellate jurisdiction - Decided against the assessee. Reduction in tax relief on recomputation by A.O. - subject matter of appeal before Tribunal Held that - Tribunal had not examined the appeals of the assessee on its merits, but had simply allowed the appeals based on the premise that the revisional orders of the commissioner had been set aside by it and the revisional orders having now been restored by us in terms of the judgment in the above two appeals, the matter again has to necessarily go back to the tribunal - Decided in favor of Revenue.

Issues Involved:
1. Jurisdiction of the Commissioner under Section 263 of the Income Tax Act.
2. Entitlement and computation of tax relief under Double Taxation Avoidance Agreements (DTAA) with Canada and Thailand.
3. Applicability of the Supreme Court judgment in HindWire Industrial Ltd. in the context of Section 263.

Detailed Analysis:

1. Jurisdiction of the Commissioner under Section 263 of the Income Tax Act:
The primary issue was whether the Tribunal was correct in holding that the Commissioner, while exercising jurisdiction under Section 263, could direct the Assessing Officer to rework the credit claimed under the DTAA without specifying the error in the original order.

The court examined Section 263, which allows the Commissioner to revise any order passed by the Assessing Officer if it is erroneous and prejudicial to the interests of the revenue. The Commissioner had found that the Assessing Officer allowed deductions without proper verification under Articles 23(2) of the DTAA with Canada and Article 23(3) of the DTAA with Thailand. The Tribunal had set aside the Commissioner's order, believing it was merely a case of differing opinions between the Assessing Officer and the Commissioner.

However, the court emphasized that the Commissioner is empowered to revise orders that are erroneous and prejudicial to the revenue. The court referenced the Supreme Court's interpretation in Commissioner of Income Tax v. Electro House, which clarified that the Commissioner does not need to issue a notice before assuming jurisdiction under Section 263, and that the Commissioner can act if the order of the Assessing Officer results in a loss of revenue.

The court concluded that the Tribunal erred in setting aside the Commissioner's order, as the Commissioner was within his rights to direct a re-examination of the deductions allowed under the DTAA.

2. Entitlement and Computation of Tax Relief under DTAA with Canada and Thailand:
The court examined whether the Assessing Officer had properly computed the tax relief claimed by the assessee under the DTAAs with Canada and Thailand. The Commissioner had found that the Assessing Officer allowed deductions without explicitly detailing the basis for such deductions, which could result in an erroneous and prejudicial order.

The court noted that the Assessing Officer's order lacked explicit reasoning for the deductions allowed, which is necessary to ensure that the relief is computed correctly under the relevant DTAA articles. The court stated that the absence of such explicit reasoning could indeed make the order erroneous and prejudicial to the revenue.

The court rejected the assessee's argument that the Assessing Officer's satisfaction alone was sufficient, emphasizing that the reasons for the deductions should be clearly indicated in the order to avoid any ambiguity and ensure proper compliance with the DTAA provisions.

3. Applicability of the Supreme Court Judgment in HindWire Industrial Ltd.:
Although the revenue initially raised the issue of the applicability of the Supreme Court judgment in HindWire Industrial Ltd. when invoking jurisdiction under Section 263, the court did not delve into this matter as it was deemed unnecessary for the resolution of the appeals.

Conclusion:
The court allowed the appeals, setting aside the Tribunal's order and reinstating the Commissioner's order directing the Assessing Officer to re-examine and explicitly state the basis for the deductions claimed under the DTAAs with Canada and Thailand. The court emphasized the importance of detailed reasoning in the Assessing Officer's orders to ensure compliance with statutory provisions and prevent revenue loss. The matter was remanded to the Tribunal to proceed in accordance with the court's findings.

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