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The Tax Publishers Change only in rate of tax but not income - Draft order made under Section 144C(1) sustainability prior to A.Y. 2020-21 *Facts:* Assessee a Cypriot investor/financing entity declared his interest received from Compulsorily convertible debentures under Article 11(2) of Indo-Cyprus DTAA @ 10% tax. AO denied DTAA benefits by alleging that assessee was not the beneficial owner of the interest income and sought to tax @ 30%. He passed a draft assessment order under Section 144C(1) followed by an order. On appeal to CIT(A) since Section 144C(1) as it then stood prior to amendment in Finance Act, 2020 only a revision in income warranted a draft assessment order and since no income stood altered but only tax rate the draft order/assessment made under Section 144C(3) was invalid/barred by limitation. This was not accepted by CIT(A). On higher appeal - Held in favour of the assessee the order under Section 144C(1) was warranted only if "variation in the income or loss returned" as it then stood in that Section This phrase "in the income or loss returned" was removed in Section 144C(1) vide Finance Act, 2020 w.e.f. 1-4-2020. Accordingly prior assessment years Section 144C(1) read with (3) could have been actioned only if there was a revision of income upwards with extended limit also applicable only to such cases. The assessment order accordingly stood quashed as it was hit by limitation as no extended period was allowed for such cases. *Applied:* Del ITAT ITA No. 3115/Del/2009 & Ors. vide Order, dated 20-9-2022 : 2022 TaxPub(DT) 6487 (Del-Trib) in Super Brands Ltd. [UK] v. ADIT, Del ITAT ITA No. 7397/Del/2018 Silver Bella Holdings Limited v. ACIT, dated 19-5-2021, Mumbai Bench in ITA No. 7026/Del./2018 Mausmi SA Investments v. ACIT, dated 10-4-2019 and IPF India Property Cyprus v. DCIT [ITA No. 6077/Mum/2018, dated 25-2-2020] : 2020 TaxPub(DT) 1488 (Mum-Trib) Chennai Bench in Wolrdpart Limited, Maharashtra v. DCIT, International Taxation, decided on 1-7-2022, IT(TP)A. No. 36/Chny/2018 "10. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The assessee challenged validity of assessment order passed by the Assessing Officer in light of provisions of Section 153(1) of the Act, and argued that the assessment order passed by the Assessing Officer is beyond limitation and thus, invalid and void ab initio. The question of issue of draft assessment order in terms of Section 144C arose only in case where any variation in income or loss returned which is prejudicial to the interest of the assessee. Therefore, in order to decide controversy, it is necessary to refer to Section 144C(1) and provisions of Section 153(1) of the Income Tax Act, 1961. The provisions of Section 144C(1) speaks about draft assessment order to be passed by the Assessing Officer making proposed variation in the income or loss returned which is prejudicial to the interest of the assessee. Therefore, from plain reading of the provisions of Section 144C(1) of the Act, it is clear that there are two jurisdictional pre-conditions that are to be met before an Assessing Officer can invoke proceedings under Section 144C of the Act and pass a draft assessment order therein. The first pre-condition is that the assessee should be eligible assessee as defined under Section 144C(15) of the Act. The second condition is that the Assessing Officer should propose to make any variation in income or loss returned by an assessee, which is prejudicial to the interest of the assessee. In this case, it is an undisputed fact that the assessee is eligible assessee for the purpose of above said Section, which is the first condition. However, it is also evident from above provision that jurisdictional precondition must exist before the Assessing Officer can invoke proceedings under Section 144C of the Act, and pass draft assessment order, as per the Assessing Officer should propose to make any variation in income or loss returned by the assessee, which is prejudicial to the interest of the Revenue. In this case, this condition is not satisfied, because, the assessee has declared total income of Rs.22,89,76,090/- and the Assessing Officer had also assessed total income of Rs.22,89,76,090/-, however, proposed to levy tax @ 30% as against 10% tax admitted by the assessee in terms of Article 11 of Indo-Cyprus DTAA. From the above, it is very clear that there is no variation in income or loss returned by the assessee, but there is variation in tax payable by the assessee. If you examine provisions of Section 144(1) in light of assessment order passed by the Assessing Officer, there is no doubt with regard to fact that second condition is not satisfied. In other words, except taxes payable by the assessee, there is no change in the income returned by the assessee. Therefore, in our considered view, variation as referred to in sub-section (1) of Section 144C of the Act, is returned income or loss, but not variation in taxes payable by the assessee. Thus, if you go by above provisions, there is no doubt that the Assessing Officer has wrongly invoked provisions of Section 144C(1) and passed draft assessment order, even though, A.O is not required to pass draft assessment order, when there is no variation in income or loss returned by the assessee, which is prejudicial to the interest of the assessee." *Case:* Amadoroco Ltd. v. ACIT 2023 TaxPub(DT) 1457 (Del-Trib)

The Tax Publishers

Change only in rate of tax but not income - Draft order made under Section 144C(1) sustainability prior to A.Y. 2020-21

Facts:

Assessee a Cypriot investor/financing entity declared his interest received from Compulsorily convertible debentures under Article 11(2) of Indo-Cyprus DTAA @ 10% tax. AO denied DTAA benefits by alleging that assessee was not the beneficial owner of the interest income and sought to tax @ 30%. He passed a draft assessment order under Section 144C(1) followed by an order. On appeal to CIT(A) since Section 144C(1) as it then stood prior to amendment in Finance Act, 2020 only a revision in income warranted a draft assessment order and since no income stood altered but only tax rate the draft order/assessment made under Section 144C(3) was invalid/barred by limitation. This was not accepted by CIT(A). On higher appeal -

Held in favour of the assessee the order under Section 144C(1) was warranted only if "variation in the income or loss returned" as it then stood in that Section This phrase "in the income or loss returned" was removed in Section 144C(1) vide Finance Act, 2020 w.e.f. 1-4-2020. Accordingly prior assessment years Section 144C(1) read with (3) could have been actioned only if there was a revision of income upwards with extended limit also applicable only to such cases. The assessment order accordingly stood quashed as it was hit by limitation as no extended period was allowed for such cases.

Applied:

Del ITAT ITA No. 3115/Del/2009 & Ors. vide Order, dated 20-9-2022 : 2022 TaxPub(DT) 6487 (Del-Trib) in Super Brands Ltd. [UK] v. ADIT,

Del ITAT ITA No. 7397/Del/2018 Silver Bella Holdings Limited v. ACIT, dated 19-5-2021,

Mumbai Bench in ITA No. 7026/Del./2018 Mausmi SA Investments v. ACIT, dated 10-4-2019 and

IPF India Property Cyprus v. DCIT [ITA No. 6077/Mum/2018, dated 25-2-2020] : 2020 TaxPub(DT) 1488 (Mum-Trib)

Chennai Bench in Wolrdpart Limited, Maharashtra v. DCIT, International Taxation, decided on 1-7-2022, IT(TP)A. No. 36/Chny/2018

"10. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The assessee challenged validity of assessment order passed by the Assessing Officer in light of provisions of Section 153(1) of the Act, and argued that the assessment order passed by the Assessing Officer is beyond limitation and thus, invalid and void ab initio. The question of issue of draft assessment order in terms of Section 144C arose only in case where any variation in income or loss returned which is prejudicial to the interest of the assessee. Therefore, in order to decide controversy, it is necessary to refer to Section 144C(1) and provisions of Section 153(1) of the Income Tax Act, 1961. The provisions of Section 144C(1) speaks about draft assessment order to be passed by the Assessing Officer making proposed variation in the income or loss returned which is prejudicial to the interest of the assessee. Therefore, from plain reading of the provisions of Section 144C(1) of the Act, it is clear that there are two jurisdictional pre-conditions that are to be met before an Assessing Officer can invoke proceedings under Section 144C of the Act and pass a draft assessment order therein. The first pre-condition is that the assessee should be eligible assessee as defined under Section 144C(15) of the Act. The second condition is that the Assessing Officer should propose to make any variation in income or loss returned by an assessee, which is prejudicial to the interest of the assessee. In this case, it is an undisputed fact that the assessee is eligible assessee for the purpose of above said Section, which is the first condition. However, it is also evident from above provision that jurisdictional precondition must exist before the Assessing Officer can invoke proceedings under Section 144C of the Act, and pass draft assessment order, as per the Assessing Officer should propose to make any variation in income or loss returned by the assessee, which is prejudicial to the interest of the Revenue. In this case, this condition is not satisfied, because, the assessee has declared total income of Rs.22,89,76,090/- and the Assessing Officer had also assessed total income of Rs.22,89,76,090/-, however, proposed to levy tax @ 30% as against 10% tax admitted by the assessee in terms of Article 11 of Indo-Cyprus DTAA. From the above, it is very clear that there is no variation in income or loss returned by the assessee, but there is variation in tax payable by the assessee. If you examine provisions of Section 144(1) in light of assessment order passed by the Assessing Officer, there is no doubt with regard to fact that second condition is not satisfied. In other words, except taxes payable by the assessee, there is no change in the income returned by the assessee. Therefore, in our considered view, variation as referred to in sub-section (1) of Section 144C of the Act, is returned income or loss, but not variation in taxes payable by the assessee. Thus, if you go by above provisions, there is no doubt that the Assessing Officer has wrongly invoked provisions of Section 144C(1) and passed draft assessment order, even though, A.O is not required to pass draft assessment order, when there is no variation in income or loss returned by the assessee, which is prejudicial to the interest of the assessee."

Case: Amadoroco Ltd. v. ACIT 2023 TaxPub(DT) 1457 (Del-Trib)