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2019 (1) TMI 1199 - AT - Income TaxVariation in the income or loss returned by the assessee - No draft order passed u/s 144C(1) - whether there any variation in the income or loss returned by the assessee and the AO not having passed draft assessment order had violated the provisions of section 144C(1) - Held that - The assessee suo motu and in good faith claims to have offered additional income to tax at the beginning of assessment proceedings itself. The assessee claims that the said offer was made even before the questionnaire was raised. In such scenario, when the Assessing Officer passes the order after including sum of ₹ 62,12,060/- to the receipts offered in the return of income, then income totals to ₹ 12,38,01,862/-. AO has assessed the aforesaid income in the hands of assessee under section 143(3) of the Act. Variation in the income is not on account of any addition made by the Assessing Officer but is on account of voluntary offer of additional income by the assessee and it cannot be said that the Assessing Officer has made variation in the income returned, which is prejudicial to the interest of such assessee. The variation in the income is qualified by the words which is prejudicial to the interest of such assessee. Addition, if any is made to the returned income is on account of suo motu offer by the assessee of the receipts received by the assessee during the year under consideration from an Indian entity and by an inadvertent error, the same were not offered in the return of income. So, it does fail the test of prejudicial to interest of assessee. Hence, there is no merit in the order of CIT(A) in quashing the assessment order. The same is thus, reversed. The grounds of appeal raised by the Revenue are thus, allowed. Rate to be applied at the relevant time under section 115A(BB) - amount of income tax calculated on the income by way of fees for technical services, if any, included in the total income were to be taxed @ 10% OR 25% - Held that - The year under appeal is assessment year 2013-14. On the other hand, the Assessing Officer refers to an amendment to the Act which is w.e.f. assessment year 2014-15, under which tax is to be charged @ 25%. AO was of the view that since the return of income was filed on 25.03.2015, then rates which are prescribed w.e.f. 01.04.2015, the same are applicable. First of all, we hold that there is no merit in the order of AO in not applying the rate of 10% to the income returned by the assessee under specific provisions of section 115A(BB) for the relevant year. It may be pointed out herein itself that the Finance Act, 2015 w.e.f. 01.04.2016 had re-substituted the rate of tax @ 10% as against 25%. No merit in the order of AO in applying rate of tax @ 25%. Without prejudice to the same, the learned Authorized Representative for the assessee has pointed out that the rate as per DTAA is 15% to such receipts and in view of provisions of section 90(2) of the Act, beneficial provisions are to be applied; so at best the rate which could be applied was 15%. Accordingly, we allow the plea of assessee and direct the Assessing Officer to apply the rate of tax at 10% plus surcharge and cess as prescribed under section 115A of the Act. The grounds of objections raised by assessee are thus, allowed.
Issues Involved:
1. Deletion of addition due to non-passing of draft assessment order under section 144C(1). 2. Application of incorrect tax rate under section 115A of the Income Tax Act, 1961. 3. Application of tax rate under India-Canada Double Taxation Avoidance Agreement (DTAA). Issue-wise Detailed Analysis: 1. Deletion of Addition Due to Non-passing of Draft Assessment Order under Section 144C(1): The Revenue's appeal contested the CIT(A)'s decision to delete the addition on the grounds that no draft order was passed under section 144C(1). The CIT(A) quashed the assessment order, noting that the assessee, a foreign company, was an "eligible assessee" under section 144C(15)(b)(ii). The CIT(A) held that the Assessing Officer (AO) should have issued a draft assessment order before the final assessment, as required by section 144C(1). This procedural lapse denied the assessee the opportunity to defend against the addition before the Dispute Resolution Panel (DRP), relying on the Hon’ble Bombay High Court's decision in International Air Transport Association Vs. DCIT. The Tribunal noted that the assessee had voluntarily offered additional income during the assessment proceedings, and the AO's assessment did not constitute a variation prejudicial to the assessee’s interest. Therefore, the Tribunal reversed the CIT(A)'s order, holding that the AO’s failure to issue a draft assessment order did not invalidate the final assessment order. 2. Application of Incorrect Tax Rate under Section 115A of the Income Tax Act, 1961: The assessee's cross-objection contended that the AO erred in applying a 25% tax rate (plus surcharge and cess) under section 115A, instead of the correct 10% rate applicable for AY 2013-14. The AO applied the 25% rate based on an amendment effective from 01.04.2014, arguing that the return filed on 25.03.2015 fell under the new rate. The Tribunal held that the applicable rate for AY 2013-14 was 10%, as per the provisions of section 115A(BB) for the relevant year. The Tribunal found no merit in the AO’s application of the 25% rate, noting that the Finance Act, 2015, had re-substituted the 10% rate effective from 01.04.2016. 3. Application of Tax Rate under India-Canada Double Taxation Avoidance Agreement (DTAA): The assessee alternatively argued that the AO should have applied the 15% tax rate prescribed under the India-Canada DTAA. The Tribunal acknowledged that under section 90(2) of the Act, the beneficial provisions of the DTAA should be applied. However, since the Tribunal upheld the application of the 10% rate under section 115A, it did not need to apply the DTAA rate. The Tribunal directed the AO to apply the 10% tax rate (plus surcharge and cess) as prescribed under section 115A for the relevant assessment year. Conclusion: The Tribunal allowed both the Revenue's appeal and the assessee's cross-objections. The Tribunal reversed the CIT(A)'s order quashing the assessment and directed the AO to apply the correct 10% tax rate under section 115A for AY 2013-14. The Tribunal emphasized adherence to procedural requirements and the correct application of tax rates as per the prevailing laws and treaties.
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