2012 (6) TMI 547 - AT - Income Tax

Validity of revisionary power exercised by DIT u/s 263 - composite contract of providing material and services - order revised on ground that composite contract cannot be segregated to tax a part of it u/s 44BB and part of it as FTS u/s 9(1)(i) - assessee contended change of opinion - Held that - This was a case of composite work contract which cannot be considered in parts for the purpose of taxation. Assessee has opted for working out the taxable income as per the provisions of section 44BB. Very objection of introducing the fiction of income u/s 44BB is to avoid all complications in determining the liability of an assessee coming under that provision. If an exercise is to be conducted in each assessee s case to ascertain the liability of taxation, then the very purpose of the section will be defeated. hence, there was no two views possible on this issue and the Assessing Officer has committed a mistake which has rendered the order erroneous and prejudicial to the interest of revenue. Further, DIT has rightly held that provisions of sections 197 and 195 are interim and provisional proceedings in nature. These are only for the purpose of making withholding taxes. The real taxability of the receipts or any sum on which the tax has been deducted can be determined only in regular assessment proceedings. DIT has not substituted his own view to the Assessing Officer s view. The Assessing Officer has not applied his mind in view of the provision of law. DIT was justified in exercising revisionary powers - Decided against the assessee.

Summary

Issues:
1. Jurisdiction of the Director of Income Tax under section 263 of the Income Tax Act.
2. Permissibility of change of opinion under section 263.
3. Consideration of relevant issues in scrutiny assessment.
4. Profit calculation on offshore supplies.
5. Taxation of revenue from specific services.
6. Existence of two possible views for invoking section 263.
7. Satisfaction of conditions for invoking section 263.

Detailed Analysis:

Jurisdiction of Director of Income Tax (Issue 1):
The appeal challenged the Director's order as beyond jurisdiction, bad in law, and void ab initio. The Director's decision to cancel the assessment and order a fresh assessment was contested. The appellant argued that the Director exceeded jurisdiction under section 263 of the Act.

Permissibility of Change of Opinion (Issue 2):
The appellant disputed the Director's attempt to substitute the reasoning of the Assessing Officer with his own opinion. The appellant contended that a change of opinion is impermissible under section 263 of the Act.

Consideration of Relevant Issues (Issue 3):
The appellant argued that the Assessing Officer had conducted a detailed examination during the scrutiny assessment. It was contended that all relevant issues were considered during the assessment, and the Director erred in assuming otherwise.

Profit Calculation on Offshore Supplies (Issue 4):
Dispute arose regarding the calculation of profits on offshore supplies at a rate of 10% instead of 2% as determined by the Assessing Officer. The appellant challenged the Director's decision to modify the assessment order on this ground.

Taxation of Revenue from Specific Services (Issue 5):
The Director's decision to tax revenue from specific services under a different section of the Act was contested. The appellant argued that the revenue should have been taxed under section 44BB instead of section 9(1)(vii) as directed by the Director.

Existence of Two Possible Views (Issue 6):
The appellant contended that the Director lacked jurisdiction under section 263 as there were two possible views on the issues in question. It was argued that the Director should not have set aside the Assessing Officer's view.

Satisfaction of Conditions for Invoking Section 263 (Issue 7):
The appellant maintained that the conditions for invoking section 263 were not met as the order was not erroneous and did not prejudice the revenue. It was argued that no prejudice was caused to the revenue in the highlighted issues.

The Tribunal dismissed the appeal after a detailed hearing. It was established that the appellant was engaged in a composite contract with ONGC for providing services and materials, which were integral and could not be segregated for taxation. Section 44BB of the Act was applied to ascertain fictional income at 10% without deductions. The Tribunal found no scope for recalculating the payable amount under the contract, as the section aimed to simplify taxation for such cases. The Tribunal agreed with the Director's decision, emphasizing that the Assessing Officer's error warranted a fresh assessment. The Tribunal upheld the Director's order, concluding that no fault was found in canceling the previous assessment and directing a reassessment after providing the appellant with an opportunity.