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TMI Blog2023 (1) TMI 1370X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.12.2016 rather than on 07.12.2017. Accordingly, the assessee's contention that the assessment order passed by the AO dated 07.12.2017 was void and is liable to be quashed was upheld by the Ld. CIT(A). Aggrieved by the impugned action of Ld. CIT(A) the revenue has filed this appeal before this Tribunal and has preferred the grounds of appeal which reads as under: - (i) "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was correct in quashing the assessment order passed by the AO u/s 143(3) r.w.s. 144C(3) on technical ground raised by way of additional ground when the order passed by the AO enhancing the tax liability of the assessee by four times was clearly prejudicial to the interest of the assessee. (ii) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was correct in quashing the assessment order passed by the AO without appreciating the fact that- * application of tax rate of 40% on the interest income earned by the assessee from India as per the I. T. Act in place of tax rate of 10% on this interest income offered by the assessee, tantamount to an order/variation which is prejudicial to the interest of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , holds a valid tax resident certificate issued by the Cypriot Tax Authority. Accordingly, it is a tax resident of Cyprus under Article 4(1) of the Double Taxation Avoidance Agreement (DTAA) between India and Cyprus (hereinafter "India Cyprus Treaty). The assessee company had invested in an Indian Company M/s. Friends Development Corporation (Imperia) Pvt. Ltd. (the Indian Company) by subscribing to Compulsorily Convertible Debentures (CCD). And the assessee has earned interest income of Rs. 13,87,69,300/- during the year under consideration. According to the assessee, even though the interest income accrued has not been paid by the Indian investee company and though tax has been deducted at source, the assessee has offered the same to tax on an accrual basis in its return of income which was filed on 27.11.2014 disclosing income of Rs. 13,87,69,300/-. According to the assessee, as per the provisions of Section 90(2) of the Act, the assessee have the option to be governed by the provisions of the India Cyprus Treaty or the provisions of the Act, whichever are more beneficial to the assessee. Accordingly, the assessee opted to be governed by the provisions of the Cyprus Treaty. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the judicial precedents on the issue viz ITAT decision in M/s. IPF India Property Cyprus (No.1) Ltd. Vs. DCIT, ITA. No. 6077/Mum/2018, dated 25.02.2020. And therefore he allowed the appeal preferred by the assessee on the legal issue. Aggrieved by the aforesaid action of the Ld. CIT(A), the revenue is before us. 5. The Ld. CIT-DR assailing the action of the Ld. CIT(A) has submitted that the Ld. CIT(A) erred in finding that there was no variation in the income returned by the assessee when the fact was that the AO's action enhanced the tax liability of the assessee by four (4) times, which was clearly prejudicial to the interest of the assessee. According to him, the AO's action of applying the tax rate of 40% interest income earned by the assessee from India as per the Act in place of tax rate of 10% on the interest income offered by the assessee tantamount to variation as contemplated u/s 144(1) of the Act and since tax liability has increased, it is definitely prejudicial to the interest of the assessee. And in the instant case according to the Ld. DR, the issuance of draft assessment order could be cured u/s 292(b) of the Act since draft assessment order was issued on 26.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded with framing of draft order u/s 144(1) of the Act because the condition for adopting such a course of action was not satisfied. And therefore AO ought to have framed the assessment order u/s 143(3) r.ws. 153(1) of the Act by framing assessment within the twenty one (21) months from the end of the assessment year i.e. on or before 31st December, 2016 (twenty one (21) month from 31st March, 2014) as per section 153 of the Act. And since the AO has framed the assessment only on 7th Feb, 2017, the action of the AO was clearly barred by limitation. The Ld. CIT(A) has allowed the appeal of the assessee by finding that the AO's action of framing the draft assessment order u/s 144C(1) of the Act was illegal since the condition prescribed for adopting such a course of action was not satisfied viz since there was no variation of returned income or loss which was prejudicial to the interest of the assessee. And therefore according to the Ld. CIT(A), the AO ought to have framed the assessment order u/s 143(3) of the Act on or before 31st Dec, 2016 and since AO passed the assessment order only on 07 Feb, 2017, it was held to be bad in law being time-barred and consequently allowed the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer. Clearly, 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 follows: Amendment in Dispute Resolution Panel (DRP). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take up the assessee's grievance against non issuance of a draft assessment order under section 144C. Section 144C, to the extent relevant for our discussion, provides as follows: Reference to dispute resolution panel. 144C. (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. [Emphasis, by underlining, supplied by us] (15) For the purposes of this section, ............ (b) "eligible assessee" means,- (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under subsection (3) of section 92CA; and (ii) any foreign company. [12] In order to successfully invoke the provisions of Section 144C, thus, two basic conditions are required to be fulfilled: - the assessee is an eligible assessee [i.e. (i) any person in whose cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he judicial precedents relied upon by the learned counsel, the common thread in all these judicial precedents, i.e. in the cases of Vijay Television (P.) Ltd. v. Dispute Resolution Panal [(2014) 46 taxmann.com 100 (Mad)], Jazzy Creations Pvt Ltd Vs ITO [(2016) 133 DTR 1 (Mum)] and Capsugel Healthcare Ltd Vs ACIT [(2015) 152 ITD 142 (Del)], is that all these precedents pertain to the situations in which applicability of Section 144C was not in slightest doubt and yet the Assessing Officer did not issue the draft assessment order- as is required to under the scheme of Section 144C. That is not the case here. It was a conscious, and in fact correct, decision of the Assessing Officer, as he has discussed in fair detail in the impugned order, that since there is no variation in the income returned by the assessee, the provisions of Section 144C cannot be invoked. Given these crucial variations in the facts of the case, the judicial precedents cited at the bar donot come to the rescue of the assessee. [16] We, therefore, reject the plea of the assessee that since the Assessing Officer has issued the impugned assessment order directly, without first issuing a draft assessment order, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order had violated the provisions of section 144C(1) of the Act. Admittedly, the assessee is a foreign company and is "eligible assessee". As pointed out in the paras hereinabove, the assessee had filed the return of income declaring total receipts of Rs. 11.76 crores (approx.) in the return of income filed on 25.03.2015. Thereafter, on its own motion the assessee had offered additional income of Rs. 62,12,060/- i.e. on account of receipts which were received by the assessee during the year but by an inadvertent error, were not offered in the return of income. We have already referred to the statement of facts in the paras above; 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 Rs. 62,12,060/- to the receipts offered in the return of income, then income totals to Rs. 12,38,01,862/-. The Assessing Officer has assessed the aforesaid income in the hands of assessee under section 143(3) of the Act. In such facts and circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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