AO’s Order Wasn’t Erroneous if He Applied Beneficial Provision Basis of Article 7 of India-UAE DTAA | ITAT

Case Details: Avana Global FZCO vs. Commissioner of Income-tax (International Tax) - [2024] 165 taxmann.com 642 (Mumbai-Trib.)

Judiciary and Counsel Details

• • Narendra Kumar Billaiya, Accountant Member & Smt. Kavitha Rajagopal, Judicial Member
  • Dhanesh Bafna, Hardik Nirmal & Ms Hinal Shah, ARs. for the Appellant.
  • Smt. Shaileja Rai, CIT, DR for the Respondent.

Facts of the Case

The assessee, a company incorporated and tax resident of UAE, was engaged in the operation of ships in international traffic covered by Article 8 of India-UAE DTAA. During the year under consideration, the assessee received a certain amount in the form of freight income, terminal handling charges, inland haulage charges and detention charges in India, but the same was not offered to tax on the ground that the same was exempt under Article 8 of the India – UAE DTAA.

As assessee was not able to produce any chartered agreements/ownership documents or pooling agreements for part of amount of said income, exemption under article 8 was denied to assessee with respect to said amount.

Assessing Officer (AO) further found that assessee had permanent establishments in India, both fixed and in the form of an agent/front office and, thus, income from said operations were to be taxed in India as income of the assessee under section 44B.

The commissioner invoked section 263 on the grounds that income computed by AO was erroneous and prejudicial to the interest of revenue since AO had taken income as per provisions of Rule 10 on the basis of net profit ratio of 3.53 per cent of gross receipts instead of computing income at 7.5 per cent as per section 44B which is a substantial provision.

Aggrieved-assessee filed an appeal before the Mumbai Tribunal.

ITAT Held

The Tribunal held that the entire case revolves around the wrong application of the tax rate, and there was no error insofar as the facts were concerned. Section 44B has a direct bearing on the case. However, Rule 10 must be read comprehensively with section 90(2) provisions. Accordingly, it was crystal clear that whichever provision was beneficial to the assessee was to be applied.

After establishing a business connection, AO applied the beneficial provisions based on Article 7. Since AO took a very plausible view supported by the relevant provisions of the Act and Rules, it could not be accepted that the impugned assessment order was erroneous and prejudicial to the revenue’s interest.

Further, it is a settled position of law that powers under section 263 can be exercised by the Commissioner on the satisfaction of twin conditions, i.e., the assessment order should be erroneous and prejudicial to the interest of the Revenue. By ‘erroneous’, it is meant contrary to law. Thus, this power can only be exercised if 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 Assessing Officer 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.

Since both the AO and the Commissioner were on the same page, and insofar as the application of law was concerned, the AO took a very plausible view. Accordingly, it was held that the assessment order was neither erroneous nor prejudicial to the revenue interest.

List of Cases Reviewed

• • CIT v. Clix Finance India (P.) Ltd. [IT Appeal No. 1428 (Delhi) of 2018, dated 01-03-2024] (para 18) followed.

List of Cases Referred to

• • CIT v. Visakhapatnam Port Trust [1983] 15 Taxman 72/144 ITR 146 (Andhra Pradesh) (para 6.1)
  • CIT v. Nirav Modi [2016] 71 taxmann.com 272/241 Taxman 255/[2017] 390 ITR 292 (Bombay) (para 18).