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Income Tax Appellate Tribunal, MUMBAI‘I’ BENCH, MUMBAI
Per Pramod Kumar, VP:
This appeal is directed against the order dated 30th October 2018, passed by the 1. Assessing Officer in the matter of assessment under section 143(3) r.w.s. 144C(13) and 92CA(3) of the Income Tax Act, 1961, for the assessment year 2014-15.
Grievances raised by the appellant, in the first ground of appeal, are as follows:
1.1 The impugned order passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 is barred by limitation. 1.2 The Assessing Officer has erred in passing a draft assessment order dated 29th December, 2017, under section 143(3) r.w.s. 144C(1) of the Income Tax Act, 1961 in the instant case. 1.3 The appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject, the draft assessment order dated
ITA No. 7412/Mum/2018 Assessment year: 2014-15 Page 2 of 5 29thDecember 2017 passed in its case for the year under consideration was incorrect, illegal and void ab initio and the Dispute Resolution Panel (DRP) ought to have held as such. 1.4 The appellant submits that the impugned order be struck down as void ab initio and bad in law.
Without prejudice to the foregoing:
1.6 The Dispute Resolution Panel has erred in dismissing the objections filed by the appellant in limine without considering merits of the case. 1.7 The Dispute Resolution Panel has erred in holding that the appellant has filed the objections before it beyond the time limit prescribed, and thereby refusing to condone the alleged delay without appreciating the fact that the appellant has filed the objections before the Dispute Resolution Panel within the time limit as prescribed in the Income Tax Act, 1961
To adjudicate on the above grievances, only a few material facts need to be taken note of. The assessee before us is a company incorporated, and fiscally domiciled, in Cyprus. The assessee had disclosed an interest income of Rs 55,01,17,499 and offered the same to tax @ 10% under article 11(3) of the India Cyprus Double Taxation Avoidance Agreement. In the draft order issued by the Assessing Officer, for the detailed reasons set out therein, this income was proposed to be assessed @ 20% on the ground that the treaty protection under article 11(3) was not admissible as the assessee was held to be not “beneficial owner” of the interest income in question. The Assessing Officer issued a draft assessment order on these lines. Aggrieved, assessee raised the objections before the Dispute Resolution Panel which were dismissed in limine on the ground that what the assessee had filed, within the prescribed time, was a scanned copy of the signed form 35A and not the form 35A in original. As to the signed copy that the assessee subsequently filed, the same was declined on the ground that the said copy was filed after the due date and the DRP did not have the powers to condone the delay. As we have noted earlier, the final assessment order, pursuant to the DRP order, was framed on 30th October 2018. The assessee is aggrieved of the final assessment order so passed and in appeal before us.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
Learned counsel’s plea before us is two fold- first, that the DRP ought to have examined the matter on merits, and, for this reason alone, the impugned order is vitiated in law; and, - second as there was no variation in the returned income vis-à-vis assessed income, the Assessing Officer clearly erred in issuing the draft assessment order, and, for that reason,
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the issuance of draft assessment order is to be ignore for the purpose of computing the time limit for completing the assessment under section 143(3). On both these aspects, the issue is covered in favour of the assessee by several orders of the coordinate benches. On the first issue, the lead coordinate bench decision is in the case of MSM Satellite (Singapore) Pte Ltd Vs JDIT [(2016) 75 taxmann.com 216 (Mum)] which holds that the objections before the DRP cannot be dismissed in limine simply on the ground that the form 35A submitted within the statutory time limit is a scanned copy of the original even when duly signed copy is furnished subsequently within a reasonable time. Much more important, however, is the legal position that when there is no variation in the returned income and assessed income, so far as period prior to 1st April 2020 is concerned, the Assessing Officer cannot issue a draft assessment order even in the case of an eligible assessee. In a rather recent decision in the case of IPF India Property (Cyprus) No. 1 Ltd Vs DCIT [(2020) TS 127 ITAT MUM], and speaking through one of us (i.e. the Vice President), a coordinate bench has, inter alia, observed as follows:
The short question that we are thus required to adjudicate in this appeal is whether or not the Assessing Officer was justified in passing a draft assessment order on the facts of this case, and, whether, the fact that the assessee chose to issue the draft assessment order, even though he was not required to pass the draft assessment order, would result in affecting the normal time limit within which the normal assessment order under section 143(3) is to be issued. 4. We have heard the rival submissions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 5. So far as the first issue is concerned, we find that, in the present case, there are no variations in the returned income and the assessee income. The controversy is thus confined to the question as to what will be the rate on which income returned by the assessee is to be taxed. While the assessee has claimed taxation @ 10% under article 11(2) of the India Cyprus DTAA, the Assessing Officer has declined the said treaty protection on the ground that the assessee was not beneficial owner of the said interest, and, accordingly, brought the income is to tax@ 40% thereof. There is, quite clearly, no variation in the quantum of income. The question whether it was a case in which the Assessing Officer could have issued the draft assessment order, on the facts of this case, needs to be examined in the light of provisions of Section 144C(1) which provides that, “The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward5 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]. The assessee before us is a non-resident company incorporated, and fiscally domiciled, in Cyprus. Accordingly, in terms of Section 144C(15)(b)(ii), the assessee is an eligible assessee but then there is no change in the figure of income returned by the assessee vis-a-vis the income assessed by the Assessing 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:
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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 Commissioners or Commissioners of Income-tax. DRP has nine months to pass directions which are binding on the AO. It is proposed that the provisions of section 144C of the Act may be suitably amended to:- (A) include cases, where the AO proposes to make any variation which is prejudicial to the interest of the assessee, within the ambit of section 144C; (B) expand the scope of the said section by defining eligible assessee as a non- resident not being a company, or a foreign company. This amendment will take effect from 1st April, 2020. Thus, if the AO proposes to make any variation after this date, in case of eligible assessee, which is prejudicial to the interest of the assessee, the above provision shall be applicable. Once this amendment is being introduced with effect from 1st April 2020, it is beyond 6. any doubt of controversy that so far as the period prior to 1st April 2020 is concerned, the cases in which no variations in the returned income or loss were proposed, the draft assessment orders were not required to be issued. We, therefore, uphold the plea of the assessee on this point. 7. Coming to the second point, we find that there is no dispute that if no draft assessment order was to be issued in this case, the assessment would have been time barred on 31st December 2017 but the present assessment order is passed on 17th August 2018. Once we hold that no draft assessment order could have been issued in this case, as the provisions of Section 144C(1) could not have been invoked in this case, the time limit of completion of assessment was available only upto 31st December 2017. The mere issuance of draft assessment order, when it was legally not required to be issued, cannot end up enhancing the time limit for completing the assessment under section 143(3). We, therefore, uphold the plea of the assessee on this point as well. The impugned assessment order is indeed, in our considered view, time barred. We, accordingly, hold so.
The same conclusions have been arrived at by a fairly large number of decisions of the coordinate benches on this issue. The material facts of the case, and even the assessment year involved, are the same. We, therefore, see no reasons to take any other view of the matter than the view so taken by the coordinate benches.
We have noticed that the assessment order was framed in this case on 30th October 7. 2018 but then there is no dispute that if no draft assessment order was to be issued in this
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case, the assessment would have been time barred on 31st December 2017. Once we hold that no draft assessment order could have been issued in this case, as the provisions of Section 144C(1) could not have been invoked in this case, the time limit of completion of assessment was available only upto 31st December 2017. The mere issuance of draft assessment order, when it was legally not required to be issued, cannot end up enhancing the time limit for completing the assessment under section 143(3). Accordingly, the assessment order passed by the Assessing Office must be held to be time barred.
In the light of the above discussions, as also bearing in mind entirety of the case, we have to hold the assessment as time barred. As the impugned assessment order itself is held to be time barred, all other grievances raised in appeal, which deal with the merits of stand taken by the Assessing Officer in the assessment order, are rendered academic and infructuous. No adjudication, therefore, is required on these grievances at this stage.
In the result, the appeal is allowed in the terms indicated above. Pronounced in the open court today on the 2nd day of March, 2020.
Sd/- Sd/- Ram Lal Negi Pramod Kumar (Judicial Member) (Vice President) Mumbai, dated the 2nd day of March, 2020
Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) DR (6) Guard File
By order True Copy Assistant Registrar Income Tax Appellate Tribunal Mumbai benches, Mumbai