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2022 (12) TMI 921 - AT - Income TaxValidity of assessment order passed u/s 153(1) - as argued that the assessment order passed by the Assessing Officer is beyond limitation and thus, invalid and void ab initio - scope of section 144C(1) and provisions of section 153(1) of the Income Tax Act, 1961 - HELD THAT - The Mumbai Bench of this Tribunal IPF India Property Cyprus 2020 (2) TMI 1500 - ITAT MUMBAI has considered an identical issue in light of provisions of section 144C(1) and amended provisions u/s.144C(1) w.e.f. 01.04.2020 and held that when there is no variation in income or loss returned by the assessee, which is prejudicial to the interest of the assessee, then question of issuing draft assessment order does not arise and consequently, the Assessing Officer does not get extended period for completion of assessment u/s.143(3) of the Income Tax Act, 1961. The provisions of section 153(1) prescribed time limit for completion of assessment for the assessee. As per the said provisions, limitation to pass assessment order under subsection (3) of section 143 of the Act, for the concerned assessment year 2014-15 was 21 months which ends on 31.12.2016. In this case, assessment order has been passed u/s.143(3) r.w.s 144C(3)(b) on 28.02.2017. If the assessment order passed by the Assessing Officer is considered as assessment order passed u/s.143(3), then the Assessing Officer ought to have passed order on or before 31.12.2016. If you consider the Assessing Officer is right in passing draft assessment order u/s.144C(1), then the Assessing Officer gets extended time and time limit for passing order is 31.12.2017. In this case, since, the Assessing Officer cannot invoke jurisdiction u/s.144C(1) and pass draft assessment order, question of extended 12 months period cannot be given to the Assessing Officer. Therefore, we are of the considered view that final assessment order passed by the Assessing Officer u/s.144C(3) r.w.s 143(3) of the Act, dated 28.02.2017 is barred by limitation, because time limit available for completion of assessment u/s.143(3) is 31.12.2016. Thus we are of the considered view that assessment order passed by the Assessing Officer u/s.143(3) r.w.s 144C(3)(b) of the Income Tax Act, 1961 dated 28.02.2017 is clearly barred by limitation and thus, assessment order passed by the Assessing Officer is void ab initio. Hence, we quash the assessment order passed by the Assessing Officer. Levying 30% tax on interest income by ignoring Article 11 of India-Cyprus DTAA on the ground that the assessee is beneficial owners which is covered under Article 11 of India- Cyprus tax treaty - The assessee has filed various details, including tax residency certificate issued by Republic of Cyprus, Ministry of Finance, to prove residential status and also notification No.86/2013 issued in terms of sec.94A of the Act and also subsequent withdrawal of said notification vide Circular No.15/2017 dated 21.04.2017 and argued that the assessee is covered under Article-11 of India-Cyprus tax treaty and liable to pay tax @ 10% - fact remains that although, the assessee has challenged issue on merits, but the issue has not been adjudicated at this point, because assessment order passed by the Assessing Officer has been quashed as void ab initio. Hence, we are not inclined to adjudicate the issue raised by the assessee on merits.
Issues Involved:
1. Beneficial ownership of interest income and denial of benefits under the India-Cyprus Double Taxation Avoidance Agreement (DTAA). 2. Treatment of XE Advisors India Private Limited as the beneficiary of interest income. 3. Passing of the order without giving an opportunity of being heard to the appellant. 4. Initiation of penalty proceedings under Section 271(l)(c) of the Income Tax Act. 5. Validity and limitation of the final assessment order passed under Section 143(3) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Beneficial Ownership of Interest Income and Denial of Benefits under India-Cyprus DTAA: The assessee, a non-resident company incorporated in Cyprus, claimed benefits under the India-Cyprus DTAA, offering interest income to tax at 10%. The Assessing Officer (AO) denied treaty benefits and taxed interest income at 30%, concluding that the assessee was not the beneficial owner of the interest income. The assessee contested this decision, arguing that they were entitled to the benefits under the DTAA. 2. Treatment of XE Advisors India Private Limited as the Beneficiary of Interest Income: The AO treated XE Advisors India Private Limited as the beneficiary of the interest income attributable to one of the shareholders, Vitelina Holdings Co. Limited. The assessee contested this treatment, arguing that it was incorrect and that they were the rightful beneficiary of the interest income. 3. Passing of Order Without Opportunity of Being Heard: The assessee argued that the order was passed without giving them an opportunity to be heard, which was a violation of principles of natural justice. The Tribunal acknowledged this issue but focused more on the validity and limitation of the assessment order. 4. Initiation of Penalty Proceedings under Section 271(l)(c): The assessee contested the initiation of penalty proceedings under Section 271(l)(c) of the Income Tax Act. However, the Tribunal did not delve deeply into this issue as the primary focus was on the validity of the assessment order. 5. Validity and Limitation of Final Assessment Order: The assessee filed additional grounds challenging the final assessment order passed under Section 143(3), arguing it was time-barred. The Tribunal admitted these additional grounds, noting that they were purely questions of law. The Tribunal found that the AO had wrongly invoked Section 144C, as there was no variation in the income returned by the assessee, only a change in the tax rate. The Tribunal ruled that the assessment order passed was beyond the limitation period prescribed under Section 153(1) and thus invalid and void ab initio. Conclusion: The Tribunal quashed the assessment order passed by the AO under Section 143(3) r.w.s 144C(3)(b), dated 28.02.2017, as it was barred by limitation. The Tribunal did not adjudicate the merits of the case regarding the tax rate on interest income under the India-Cyprus DTAA, keeping the issue open for future consideration. The appeal filed by the assessee was allowed.
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