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2023 (1) TMI 98 - AT - Income TaxRevision u/s 263 - As per CIT, income from offshore supplies was not brought to tax by the Assessing Officer in the assessment order passed u/s 143(3)/144(3) - As per CIT amount received from offshore supply is to be taxed under Section 44BB - HELD THAT - The assessee is a tax-resident of Singapore and is engaged in the business of supply of equipment, plant and machinery as well as services in connection with prospecting for, extraction or production of mineral oil. Revenue earned from onshore activities is concerned, undisputedly, the assessee has computed the tax liability by applying provisions of section 44BB of the Act. As regards the revenue earned from offshore activities, the assessee had claimed that, since, sale was completed in Singapore and payments were received in Singapore, no part of such income can be taxed in India. In course of assessment proceedings, the assessing officer issued notice dated 01.02.2019 under Section 142(1) of the Act with a detailed questionnaire seeking various informations in respect of revenue earned both from onshore activities as well as offshore supplies. A reading of the assessment order would reveal that the assessing officer has specifically enquired into assessee's claim regarding non-taxability of income earned from offshore supplies and after due deliberation on the issue regarding applicability of section 44BB of the Act to such income, the Assessing Officer has ultimately attributed 1% of the gross receipts as profit attributable to the PE in India. The assessing officer has adopted this approach by referring to Rule 10 of the Rules as it empowers the assessing officer to tax profit by adopting a certain percentage, in case, profit attributable to the PE is not ascertainable. AO has also referred to CBDT Instruction No. 767/1987. However, as could be seen, the biggest single factor which persuaded the Assessing Officer to adopt such approach is the consistent view taken by the Assessing Officers while bringing to tax the income from offshore supply in the past assessment years. In assessment year 2010-11, the assessee while offering the income from onshore activities under Section 44BB of the Act had claimed that the income earned from offshore supply of equipment is not taxable in India. However, while completing the assessment for that assessment year, the assessing officer held that 1% of the gross receipts from the offshore supply of equipment is attributable towards profit of the PE in India. The same approach was adopted by the assessing officer in subsequent assessment years 2011-12 to 2016-17, which is the immediately preceding assessment year. Thus, as could be seen from the aforesaid facts on record, the Department has all along adopted a consistent approach with regard to taxability of profit from offshore supply of equipment. In the impugned assessment year, the Assessing Officer has merely followed the consistent approach adopted in the past assessment years. Thus, in the aforesaid context, it can be very well said that the view adopted by the Assessing Officer is a possible view based on past assessment history of the assessee. That being the factual position emerging on record, it cannot be said that the assessment Order is erroneous. In the facts of the present appeal, neither the revisionary authority in his order nor learned Departmental Representative was able to demonstrate before us any change in the factual position between the impugned assessment year and the past assessment years. Therefore, in our considered view, the decision taken by the assessing officer in bringing to tax 1% of the gross receipts from offshore supply by attributing to the PE, being consistent with the approach adopted in the past assessment years, cannot be held to be erroneous and for that reason, proceedings under Section 263 of the Act cannot be initiated. Taxability of the alleged royalty income received from Halliburton Offshore Services from rental/leasing of rigs - Assessee has factually demonstrated before us that the amount of Rs. 9,73,19,312 was not received from Halliburton Offshore Services, but, was received from Oil India and ONGC Ltd. In fact, such amount forms part of revenue received from offshore supplies, which the assessing officer has brought to tax in India by adopting 1% as profit attributable to the PE. Thus, for this reason also, the exercise of power under Section 263 of the Act is unsustainable. We hold that the order passed under Section 263 of the Act deserves to be quashed. Accordingly, we do so. Consequently, the assessment order passed for the impugned assessment year is restored. Assessee appeal allowed.
Issues Involved:
1. Jurisdiction and validity of the order under Section 263 of the Income-Tax Act, 1961. 2. Exercise of revisionary powers under Section 263 regarding income from offshore supplies. 3. Verification of remittances received by the assessee. 4. Applicability of Section 44BB in the absence of a permanent establishment (PE) in India. 5. Attribution of income and the subjective satisfaction of the Assessing Officer (AO). 6. Jurisdiction under Section 263 concerning debatable issues. 7. Adequacy of inquiries made by the AO. 8. Consistency with previous assessment years. 9. Taxability of rental income from equipment. Detailed Analysis: 1. Jurisdiction and Validity of the Order under Section 263: The assessee contended that the order dated 24.03.2022 passed by the Commissioner of Income Tax (International Taxation)-3, Delhi under Section 263 was without jurisdiction, bad in law, and void ab initio. The Tribunal noted that the CIT failed to afford the assessee an opportunity for a personal hearing, which is mandated under Section 263 of the Act. 2. Exercise of Revisionary Powers under Section 263 Regarding Income from Offshore Supplies: The CIT exercised revisionary powers under Section 263 on the premise that income from offshore supplies was not brought to tax by the AO. The Tribunal found that the AO had indeed considered the issue and attributed 1% of the gross receipts from offshore supplies to the PE in India, consistent with the approach adopted in previous assessment years. The Tribunal emphasized that the CIT cannot impose his view merely because it differs from that of the AO. 3. Verification of Remittances Received by the Assessee: The CIT alleged that the AO failed to verify the remittances received by the assessee. However, the Tribunal observed that the AO had issued detailed questionnaires and made specific inquiries regarding the taxability of income earned from offshore supplies during the assessment proceedings. 4. Applicability of Section 44BB in the Absence of a Permanent Establishment (PE) in India: The CIT's order was based on the assumption that Section 44BB applies even without a PE in India. The Tribunal found this assumption incorrect, noting that the AO had determined the presence of a service/installation PE in India under Article 5(6)(a) of the India-Singapore DTAA, and had accordingly attributed 1% of the gross receipts from offshore supplies to the PE. 5. Attribution of Income and Subjective Satisfaction of the AO: The Tribunal agreed with the assessee that the attribution of income requires the subjective satisfaction of the AO, which cannot be substituted by an order under Section 263. The AO's decision to attribute 1% of the gross receipts from offshore supplies to the PE was based on past assessment history and consistent with the approach adopted in previous years. 6. Jurisdiction under Section 263 Concerning Debatable Issues: The Tribunal held that the CIT erred in exercising jurisdiction under Section 263 on issues that are debatable and where two views are possible. The AO's approach was a possible view based on past assessments, and thus, the assessment order could not be deemed erroneous. 7. Adequacy of Inquiries Made by the AO: The CIT claimed that the AO had not made extensive inquiries on the transactions and issues in question. The Tribunal found that the AO had indeed made detailed inquiries and had considered the assessee's submissions before arriving at his decision. 8. Consistency with Previous Assessment Years: The Tribunal noted that the treatment of income from offshore supplies and rental of equipment was consistent with the treatment accepted by the Revenue in previous assessment years. The AO had followed the same approach as in past assessments, attributing 1% of the gross receipts from offshore supplies to the PE. 9. Taxability of Rental Income from Equipment: The CIT held that the rental income from equipment should be taxed under Section 44DA as royalty, contrary to the AO's treatment under Section 44BB. The Tribunal found that the CIT had misconceived the facts, as the alleged rental income was not received from Halliburton Offshore Services but from ONGC and Oil India Ltd. The AO had already included this amount as part of the revenue from offshore supplies and taxed it accordingly. Conclusion: The Tribunal quashed the order passed under Section 263 of the Act, restoring the assessment order for the impugned assessment year. The appeal was allowed, and the Tribunal emphasized that the CIT's exercise of revisionary powers was unsustainable due to the consistent approach adopted by the AO in past assessment years and the lack of any change in factual circumstances.
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