Section 263 revision fails where treaty-based tax credit and interest capitalisation were properly examined and a plausible view was taken.

Revision under section 263 was held unsustainable where the Assessing Officer had made enquiries and adopted a plausible view. On deemed tax credit for dividend income from Oman under article 25(4) read with section 90, the treaty provision was treated as a tax-sparing measure, so credit was allowable even though no tax was actually paid in Oman; the revisional authority could not substitute another interpretation. On capitalisation of interest under section 36(1)(iii), the record showed examination of borrowings, fixed assets, capital work-in-progress and accounting treatment, and the assessee had sufficient interest-free funds and internal accruals. As both issues had been properly examined, the revisional order was unsustainable.

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Issues: (i) Whether revision under section 263 could be sustained on the ground that the Assessing Officer had wrongly allowed credit for deemed tax on dividend income received from Oman under article 25(4) of the India-Oman Double Taxation Avoidance Agreement read with section 90 of the Income-tax Act, 1961. (ii) Whether revision under section 263 could be sustained on the ground that the Assessing Officer had failed to properly examine capitalisation of interest under section 36(1)(iii) of the Income-tax Act, 1961.

Issue (i): Whether revision under section 263 could be sustained on the ground that the Assessing Officer had wrongly allowed credit for deemed tax on dividend income received from Oman under article 25(4) of the India-Oman Double Taxation Avoidance Agreement read with section 90 of the Income-tax Act, 1961.

Analysis: The assessment records showed detailed enquiries by the Assessing Officer on the dividend-credit claim, including questionnaires, replies, and examination of the treaty provisions. The Tribunal noted that the issue had been examined in earlier years on the same facts and that the claim was allowed consistently. On merits, article 25(4) was treated as a tax-sparing provision, and the exemption granted in Oman under its tax law was held to be a tax incentive designed to promote economic development, so deemed tax credit was available even though no tax was actually paid in Oman. The view taken by the Assessing Officer was thus a plausible view after application of mind, and the revisional authority could not substitute a different view merely because it preferred another interpretation.

Conclusion: Revision under section 263 on this issue was not valid, and the credit for deemed dividend tax was held allowable in favour of the assessee.

Issue (ii): Whether revision under section 263 could be sustained on the ground that the Assessing Officer had failed to properly examine capitalisation of interest under section 36(1)(iii) of the Income-tax Act, 1961.

Analysis: The record showed that the Assessing Officer had called for and examined the balance sheet, fixed-asset details, capital work-in-progress, borrowings, and accounting policies relating to borrowing costs. The Tribunal found that the assessee had sufficient interest-free funds and internal accruals to cover the capital expenditure and investments, and that interest had in fact been capitalised in the books. In these circumstances, the allegation of lack of enquiry or non-application of mind was not made out, and the revisional authority could not invoke section 263 merely on a different appraisal of the same material.

Conclusion: Revision under section 263 on this issue was also not valid, and no interference with the assessment was warranted in favour of the assessee.

Final Conclusion: The revisional order was held to be without jurisdiction and unsustainable in law, and the assessee's appeal succeeded.

Ratio Decidendi: Revisional jurisdiction under section 263 cannot be exercised where the Assessing Officer has made enquiries, applied his mind, and adopted a plausible view, including on treaty-based tax credit and interest capitalisation, unless the order is shown to be both erroneous and prejudicial to the Revenue.

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