2024 (9) TMI 200 - AT - Income Tax

Revision u/s 263 - Determination of income in the case of non-residents - According to CIT, the income computed by the AO is erroneous and prejudicial to the interest of the revenue since Section 44B is a substantial provision which clearly lays down the manner in which the income of the non-resident in establishing business has to be ascertained and income in the present case has been under assessed - HELD THAT - Whichever provision is beneficial to the assessee has to be applied. After establishing business connection, which has not been disputed by the assessee, the AO applied the beneficial provisions basis Article 7 of the India-UAE DTAA. Since the AO has taken a very plausible view supported by the relevant provisions of the Act and Rules, we failed to persuade ourselves to accept that the impugned assessment order is erroneous and prejudicial to the interest of the revenue. It is a settled position of law that powers u/s 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the AO has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Our view is fortified by the decision of Nirav Modi 2016 (6) TMI 1004 - BOMBAY HIGH COURT No error or infirmity in the assessment order which could make it erroneous to the interest of the revenue. Therefore, we set aside the order of the CIT(IT) and restore that of the AOframed u/s 143(3) r.w.s. 144C - Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction and invocation of Section 263 of the Income Tax Act, 1961 by the CIT.
2. Denial of benefit under Article 8 of the India-UAE Double Taxation Avoidance Agreement (DTAA).
3. Treatment of inland haulage charges as taxable under Section 44B of the Income Tax Act.
4. Computation of income under Rule 10 of the Income Tax Rules, 1962, versus Section 44B of the Income Tax Act, 1961.

Detailed Analysis:

1. Jurisdiction and Invocation of Section 263 of the Income Tax Act, 1961 by the CIT:
The primary grievance of the assessee was that the CIT erred in assuming jurisdiction under Section 263 of the Income Tax Act, 1961, and revising the assessment order dated 24/08/2021. The assessee argued that the assessment order was neither erroneous nor prejudicial to the interests of the revenue. The CIT invoked Section 263, asserting that the assessment order was erroneous and prejudicial because the AO computed income based on Rule 10 of the Income Tax Rules, 1962, instead of the mandated 7.5% under Section 44B of the Act. The Tribunal found that the AO had taken a plausible view supported by relevant provisions and therefore, the assessment order was neither erroneous nor prejudicial to the interest of the revenue.

2. Denial of Benefit under Article 8 of the India-UAE Double Taxation Avoidance Agreement (DTAA):
The assessee, a UAE tax resident, claimed exemption under Article 8 of the India-UAE DTAA for income derived from the operation of ships in international traffic. The AO denied this exemption for Rs. 2,95,36,19,876/- due to the assessee's failure to produce supporting documents for charter agreements/ownership documents or pooling agreements. The Tribunal noted that the AO had conducted sufficient inquiry and verification, and the CIT's revision under Section 263 was not justified as the AO had taken a plausible view supported by the DTAA and relevant legal provisions.

3. Treatment of Inland Haulage Charges as Taxable under Section 44B of the Income Tax Act:
The AO treated inland haulage charges as taxable under Section 44B of the Income Tax Act, 1961, arguing that these charges did not qualify as international transport. The CIT supported this view, stating that the AO's computation based on Rule 10 was erroneous and prejudicial to the revenue. However, the Tribunal found that the AO's view was plausible and supported by the provisions of the Act and Rules. Therefore, the assessment order was not erroneous or prejudicial to the revenue.

4. Computation of Income under Rule 10 of the Income Tax Rules, 1962, versus Section 44B of the Income Tax Act, 1961:
The CIT argued that the AO erred by computing income based on the net profit ratio of 3.53% under Rule 10 instead of the 7.5% mandated by Section 44B. The Tribunal emphasized that Section 90(2) of the Act allows for the application of provisions that are more beneficial to the assessee. The AO's computation under Rule 10 was deemed a plausible view, and thus, the assessment order was neither erroneous nor prejudicial to the revenue.

Conclusion:
The Tribunal concluded that the AO had taken a plausible view supported by relevant provisions of the Act and Rules. The assessment order dated 24/08/2021 was neither erroneous nor prejudicial to the interest of the revenue. Therefore, the Tribunal set aside the CIT's order under Section 263 and restored the AO's assessment order. The appeal of the assessee was allowed.