DEPUTY COMMISSIONER OF INCOME-TAX vs. MAGNA INTERNATIONAL INC.,, PUNE

The appeal filed by Revenue and Cross Objections filed by the assessee were heard together and are being disposed of by this consolidated order for the sake of convenience.

The Revenue in ITA No.2098/PUN/2016 has raised the following grounds of appeal:- 1. The Ld. CIT(A) erred in law and on facts in deleting the addition on the ground the no draft order is passed u/s 144C(1) ignoring the fact that during the course of scrutiny assessment proceedings, the assessee offered the above income sue moto for taxation @ 10% and that the assessee had disclosed other income of Rs.11,75,89,902/- and had taxed the same @ 10% and that the AO had applied 25% plus SC & EC which was applicable for the relevant period u/s 115A(1) of the Act. Since the variation in the income/loss was not prejudicial to the interest of the assessee as prescribed in section 144C(1), no draft assessment order was required to be passed. 2. The Ld. CIT(A) erred in law and on facts in deleting the addition ignoring the fact that in this case the draft order u/s 143(3) r.w.s. 144C(1) was not required to be passed since the criteria mentioned in the provisions of section 144C(1) are not fulfilled in this case.

The assessee in CO No.54/PUN/2018 has raised the following grounds of objections:- 1. The Assessee contends that the learned Assessing Officer erred in applying an incorrect rate of tax at 25% (plus surcharge and education cess) u/s 115A of Income Tax Act, 1961 on the income offered to tax by the assessee, instead of the correct tax at the rate of 10% (plus applicable surcharge and cess) as prescribed under section 115A of the Act applicable for AY 2013-14.

The Revenue is in appeal against the order of CIT(A) in holding that since no draft order was passed under section 144C(1) of the Act, no addition is to be made in the hands of assessee. The assessee has also filed Cross Objections and has raised the issue against the rate to be applied on the income offered to tax by the assessee.

Briefly, in the facts of the case, the assessee is foreign company and for the year under consideration had furnished return of income declaring income of ₹ 11,75,89,802/-. The Assessing Officer at page 2 of assessment order has tabulated the transactions entered into by the assessee during the year with several concerns. During the year under consideration, the assessee had provided certain automotive engineering and project related support services to Cosma India, for which it had charged sum of ₹ 62,12,060/-. TDS was deducted @ 10.506% on the income under the head „Engineering Charges‟. The assessee during the course of assessment proceedings stated that by an error, the said income was not offered to tax in the return of income filed. However, the amount was offered to tax during assessment proceedings which was after gap of approximately three years from the end of financial year. The Assessing Officer was of the view that such an offer was not in good faith. The assessee had neither filed revised return of income nor filed any submissions prior to selection of case. The Assessing Officer was of the view that the assessee had concealed the income to the tune of ₹ 62,12,060/- which was added in the hands of assessee. The Assessing Officer also noted that the assessee had filed belated return on 25.03.2015 and had offered income to the tax in India on gross basis under section 115A of the Act and not as per DTAA

The CIT(A) observed that the assessee was foreign company and hence, was „eligible assessee‟ under section 144C(15)(b)(ii) of the Act. The CIT(A) further noted that the Assessing Officer had made addition of ₹ 62,12,060/- and assessed the income in the hands of assessee at ₹ 12.38 crores and along with assessment order, had also issued demand notice under section 156 of the Act. The CIT(A) observed that hence the assessment order passed by Assessing Officer was final assessment order and not draft assessment order. The CIT(A) was of the view that the Assessing Officer ought to have passed draft assessment order first, in accordance with provisions of section 144C(1) of the Act, before passing final assessment order. Since the Assessing Officer had failed to do so and hence, the assessee was denied the opportunity to defend against the addition made by Assessing Officer, before the Dispute Resolution Panel (DRP). The assessment order passed by the Assessing Officer was thus, quashed by the CIT(A) in turn, relying on the decision of the Hon‟ble Bombay High Court in the case of International Air Transport Association Vs. DCIT in WP (L) No.351 of 2016, dated 18.02.2016.

The Revenue is in appeal against the order of CIT(A).

The first issue by way of ground of appeal raised by the Revenue is jurisdictional issue. The learned Departmental Representative for the Revenue pointed out that the assessee himself had admitted the said additional income and offered it to tax @ 10% ++ but the Assessing Officer taxed it at @ 25% and now before the Tribunal the assessee alleges that since no draft assessment order was passed, then assessment made in the hands of assessee be quashed.

The learned Authorized Representative for the assessee pointed out that by genuine bonafide mistake, the assessee had failed to offer the said income which was noted by the Assessing Officer at para 5 of assessment order. Then, he relied on the ratio laid down by the Hon‟ble Bombay High Court in International Air Transport Association Vs. DCIT (2016) 68 taxmann.com 246 (Bom) for the proposition that when the moment there was variation in the income to be assessed in the hands of assessee, it was incumbent upon the Assessing Officer to pass draft assessment order and thereafter, follow the provisions of the Act and pass final assessment order.

We have heard the rival contentions and perused the record. The assessee is a foreign company. For the year under consideration, the assessee had furnished return of income declaring total income at ₹ 11,75,89,802/- on 25.03.2015. The said fact is mentioned in the statement of facts filed by the assessee before the CIT(A). On the other hand, the Assessing Officer starts assessment order with a remark that the assessee had furnished the return of income at nil, which is incorrect. The assessee being a Non-resident had offered the said income to tax under section 115A of the Act

The relevant provisions of the Act are in section 144C(1) of the Act, which provide that the Assessing Officer in the first instance forward a draft of the proposed order of assessment 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. The term “eligible assessee” is defined under section 144C(15)(b) of the Act. As per definition, “eligible assessee” means any person (i) in whose case variation referred to in sub-section (1) arises as a consequence of the order of Transfer Pricing Officer passed under section 92CA(3); and (ii) in foreign company.

The issue which arises before us is whether in the present set of facts is there any variation in the income or loss returned by the assessee and the Assessing Officer not having passed draft assessment 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 ₹ 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 ₹ 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,

In the facts of present case, 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.

Now, coming to the next aspect of the issue which is raised by way of Cross Objections by the assessee i.e. the rate to be applied at the relevant time under section 115A(BB) of the Act. The 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%. 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

In the result, appeal of Revenue and Cross Objections of assessee are allowed.