2022 (8) TMI 1441 - AT - Income Tax

Revision u/s 263 - income taxable in India - no enquiry v/s inadequate enquiry - whether income received by the assessee from its services in India are neither taxable under Article-12 of the India Netherlands DTAA as they are not in the nature of Royalty or FTS? - As per CIT no adequate enquiry has not been conducted by the AO in assessment proceedings - HELD THAT - The case of the assessee is that the services rendered by the assessee are mainly in the nature of support services. Since, the services rendered does not make available any technical services, the services are not taxable in line with Article-12 of the India-Netherlands DTAA. AO applied his mind on the same and formed an opinion that fee received by assessee is not taxable in India as Fee for Technical Services . AO has taken a possible view based on the facts and supported by legal jurisprudence. Thus, it is evident that the AO had made enquiries and after examining the documents on record passed the assessment order. Since, the assessment was completed u/s. 143(3) of the Act the presumption is that the Assessing Officer has examined all documents on records before passing the order, even though elaborate discussion is not made in the order. In the instant case, as has been pointed earlier the AO made enquiry. The assessee in response to the questionnaire issued by Assessing Officer furnished details. AO after examining the documents furnished by assessee passed the order. Hence, the instant case is not that of lack of enquiry by the AO. Therefore, the ratio of the decisions relied upon by the Revenue would not apply in the facts of the present case. In the light of the facts discussed above, we hold that the CIT has erred in exercising jurisdiction u/s. 263 of the Act. Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Adequacy of enquiries and verification by the Assessing Officer.
3. Application of Explanation-2 to Section 263.
4. Substitution of views by the Commissioner of Income Tax (CIT).
5. Requirement of detailed discussion in the assessment order.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The primary issue in this case was whether the CIT was correct in assuming jurisdiction under Section 263 of the Income Tax Act, 1961. The appellant contended that the CIT wrongly assumed jurisdiction as the preliminary conditions set out in Section 263 were not satisfied. The CIT set aside the assessment order despite the Assessing Officer (AO) having taken one of the possible views after making necessary enquiries and verification.

2. Adequacy of enquiries and verification by the Assessing Officer:
The appellant argued that the AO conducted detailed enquiries before passing the assessment order. The AO issued notices under Sections 143(2) and 142(1) of the Act, to which the appellant responded with detailed submissions and documentary evidence. The AO considered these submissions and passed the assessment order without making any additions, indicating that the AO applied his mind and took a conscious decision. The Tribunal observed that the AO had indeed made enquiries, and the appellant had responded to these queries with detailed submissions and supporting documents.

3. Application of Explanation-2 to Section 263:
The CIT invoked Explanation-2 to Section 263, contending that the AO's order was erroneous and prejudicial to the interest of Revenue as the AO failed to make proper enquiries or verification. However, the appellant argued that the CIT did not invoke Explanation-2 in the show cause notice, and thus, could not rely on it while passing the order under Section 263. The Tribunal noted that the AO made enquiries and the appellant responded to them. The Tribunal cited the case of CIT vs. Nirav Modi, where it was held that if queries were raised and answered during the assessment proceedings, the absence of a detailed discussion in the assessment order does not imply non-application of mind by the AO.

4. Substitution of views by the Commissioner of Income Tax (CIT):
The appellant argued that the CIT could not substitute his view for that of the AO if the AO had taken one of the possible views after due enquiry. The Tribunal supported this argument, citing several decisions, including CIT vs. Max India Ltd., where it was held that if the AO has taken one of the possible views, the CIT cannot substitute his view under Section 263.

5. Requirement of detailed discussion in the assessment order:
The appellant contended that merely because the AO did not deal with the issue in detail in the assessment order, it does not make the order erroneous. The Tribunal agreed, citing the case of CIT vs. Gabriel India Ltd., where it was held that if the AO has made enquiries and the assessee has responded, the assessment order cannot be held to be erroneous simply because it lacks detailed discussion.

Conclusion:
The Tribunal concluded that the CIT erred in exercising jurisdiction under Section 263 of the Act. The AO had made proper enquiries, and the appellant had responded with detailed submissions and documentary evidence. The AO's decision was a possible view, and the CIT could not substitute his view under Section 263. The twin conditions of the order being erroneous and prejudicial to the interest of Revenue were not satisfied. Therefore, the Tribunal quashed the impugned order and allowed the appeal by the assessee. The appeal was pronounced in the open court on August 5, 2022.