2020 (2) TMI 1500 - AT - Income Tax

Assessment u/s 144C - what will be the rate on which income returned by the assessee is to be taxed? - While the assessee has claimed taxation @ 10% under article 11(2) of the India Cyprus DTAA the AO has declined the said treaty protection on the ground that the assessee was not beneficial owner of the said interest and accordingly brought the income is to tax@ 40% thereof - HELD THAT - There is no variation in the income returned by the assessee. There is therefore no question of a draft assessment order being issued in this case. It is also important to note that the Finance Bill proposes to make the issuance of draft assessment orders in the case of eligible assessees mandatory even when there is no variation in the income or loss returned by the assessee but then this amendment seeks to amend the law with effect from 1st April 2020. Explaining this amendment Memorandum Explaining Amendments in the Finance Bill 2020 states as Section 144C of the Act provides that in case of certain eligible assessees viz. foreign companies and any person in whose case transfer pricing adjustments have been made under sub-section (3) of section 92CA of the Act the Assessing Officer (AO) is required to forward a draft assessment order to the eligible assessee if he proposes to make any variation in the income or loss returned which is prejudicial to the interest of such assessee. Such eligible assessee with respect to such variation may file his objection to the DRP a collegium of three Principal Commissioners or Commissioners of Income-tax. DRP has nine months to pass directions which are binding on the AO. Once this amendment is being introduced with effect from 1st April 2020 it is beyond any doubt of controversy that so far as the period prior to 1st April 2020 is concerned the cases in which no variations in the returned income or loss were proposed the draft assessment orders were not required to be issued. We therefore uphold the plea of the assessee on this point. Time barred assessment - There is no dispute that if no draft assessment order was to be issued in this case the assessment would have been time barred on 31st December 2017 but the present assessment order is passed on 17th August 2018. Once we hold that no draft assessment order could have been issued in this case as the provisions of section 144C(1) could not have been invoked in this case the time limit of completion of assessment was available only upto 31st December 2017. The mere issuance of draft assessment order when it was legally not required to be issued cannot end up enhancing the time limit for completing the assessment under section 143(3). We therefore uphold the plea of the assessee on this point as well. The impugned assessment order is indeed in our considered view time barred. Appeal of assessee allowed.

Summary

Issues Involved:
Challenge to correctness of DRP's order in assessment under section 144C(1) r.w.s. 143(3) for the assessment year 2014-15.

Detailed Analysis:

Issue 1: Draft Assessment Order with No Variations Proposed
The appellant challenged the correctness of the draft assessment order under section 143(3) read with section 144C(1) despite no proposed variations in the income or loss returned. The main question was whether the Assessing Officer was justified in passing the draft assessment order when no variations were proposed. The appellant claimed taxation at 10% under the India Cyprus DTAA, but the AO taxed it at 40% due to the appellant not being the beneficial owner. The Tribunal examined the provisions of section 144C(1) and noted that no variation in the income returned by the assessee meant there was no need for a draft assessment order. The Tribunal upheld the appellant's plea on this point, especially considering the proposed amendment effective from April 1, 2020.

Issue 2: Time Limit for Assessment
The Tribunal found that since no draft assessment order was required in this case, the assessment would have been time-barred by December 31, 2017. However, the assessment order was passed on August 17, 2018. The Tribunal held that the mere issuance of a draft assessment order, not legally required, could not extend the time limit for completing the assessment under section 143(3). Consequently, the Tribunal upheld the appellant's plea that the assessment order was time-barred. As a result, all other grievances related to the merits of the assessment order were deemed academic and infructuous.

In conclusion, the Tribunal allowed the appeal based on the issues discussed and pronounced the judgment on February 25, 2020.