2012 (11) TMI 762 - HC - Income Tax

Power u/s 263 - erroneous decision - Applicability of sec 44BB - held that - Assessing Authority did not at all make any endeavour to ascertain whether Rs.96 and odd crores were received by the assessee for and in respect of services rendered by the assessee or the same was received only by way of sale price of goods/materials sold by the assessee may be outside India. - There is no finding that the revenue received in respect of that service contract in connection whereof Rs.96 and odd crores were received by the assessee could be segregated from the service part or not. There was therefore failure on the part of the Assessing Officer to ascertain whether Rs.96 and odd crores revenue would or can come under Section 44BB of the Act - both the limbs of Section 263 of the Act stands satisfied namely there was error in the order of Assessing Authority and that the error caused prejudice to the revenue Decided against the assessee.

Summary

Issues:
1. Taxable income determination under Section 44BB of the Income Tax Act for an assessee with a permanent establishment in India.
2. Validity of the exercise of power under Section 263 of the Act for reassessment.

Issue 1: Taxable income determination under Section 44BB:
The case involved an assessee with a permanent establishment in India providing services to Indian customers. The assessee filed its return of income for the assessment year 2006-2007, disclosing a taxable income of Rs. 6,18,35,432. The Assessing Officer, after considering the revenue received by the assessee, held that a portion of the revenue, including reimbursement revenue and revenue from the sale of goods/materials outside India, was taxable. The dispute arose regarding the inclusion of revenue from the sale of goods/materials outside India in the taxable income of the assessee. The Tribunal held that payments received for both services and goods/materials under a contract with O.N.G.C. were subject to taxation under Section 44BB. The appellant contended that the exercise of power under Section 263 was impermissible, as there was no error in the Assessing Officer's order and no prejudice to the revenue.

Issue 2: Validity of the exercise of power under Section 263:
The High Court analyzed the assessment order and found that the Assessing Authority failed to determine whether the revenue received by the assessee for the sale of goods/materials outside India was related to the services rendered. There was no segregation of revenue from the service contract to ascertain its applicability under Section 44BB. The Court concluded that the Assessing Officer's failure to make such determinations constituted an error causing prejudice to the revenue. As both conditions for invoking Section 263 were satisfied, the Court dismissed the appeal without admission.

In summary, the judgment addressed the determination of taxable income under Section 44BB for an assessee with a permanent establishment in India, focusing on the inclusion of revenue from the sale of goods/materials outside India. The Court also examined the validity of the exercise of power under Section 263, concluding that the Assessing Officer's failure to ascertain the nature of the revenue received constituted an error prejudicing the revenue, leading to the dismissal of the appeal.