MAUSMI SA INVESTMENTS LLC (UNDER LIQUIDATION)FOR AND ON BEHALF O LIQUIDATED SUBSIDIARY MAUSMI VENTURES LIMITED,MUMBAI vs. ACIT(IT)-3(2)(1), MUMBAI

O R D E R

PER B. R. BASKARAN, AM:

“[10] 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 [11] We will first 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 sub- section (3) of section 92CA; and (ii) any foreign company. .2018 A.Y.2014-15 [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 case the variation referred to the income or loss in the returned income or loss, which is prejudicial to the interest of the assessee, is made on account of an order under section 92A(3) i.e.an ALP adjustment], or (ii) any foreign company]; and - the Assessing Officer proposes to make “any variation in the income or loss returned by the assessee which is prejudicial to the interest of such assessee”. [13] There is no dispute that the assessee is an eligible assessee inasmuch as the assessee is a foreign company. The first condition for giving a choice to the assessee to follow the DRP route, which, in turn, requires issuance of draft assessment order, is thus clearly fulfilled. [14] As for the second condition, i.e. the Assessing Officer proposing to make “any variation in the income or loss returned by the assessee which is prejudicial to the interest of such assessee”, since the Assessing Officer has merely accepted the returned income, as filed by the assessee, the second condition is not fulfilled. In the present case, while making the impugned assessment under section 143(3), the Assessing Officer has not made any variation in the income or the loss returned by the assessee. The Assessing Officer has simply accepted the income returned by the assessee, and the variations, if at all, are in the computation of tax payable in respect of income returned by the assessee. The variation, as the statutory provision unambiguously states, has to be vis-à-vis returned income or loss. That is certainly not the case before us. The assessee’s contention is that the income returned by the assessee was an inadvertent mistake and the Assessing Officer ought to have corrected the mistake as all the relevant facts were on record and what the Assessing Officer can bring to tax is income of the assessee in accordance with the law. We will deal with that aspect of the matter separately as and when the occasion comes to deal with the matter on merits. So far as the application of Section 144C is concerned, in our considered view, it is a condition precedent that the Assessing Officer proposes a “variation in the income or loss returned by the assessee which is prejudicial to the interest of the assessee”, and since this condition is admittedly not satisfied on the facts of this case, no fault can be found in the path taken by the Assessing Officer. [15] Coming to the 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 .2018 A.Y.2014-15 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 impugned assessment order should be quashed and treated as non est.”

“11. 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. 6 at 10% (plus surcharge and cess), which was applicable for the year under consideration. The assessee during the course of assessment CO No.54/PUN/2018 Magna International Inc Association Vs. DCIT (supra) had quashed the assessment order passed by the Assessing Officer.

12. 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. .2018 A.Y.2014-15 13. 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 when the Assessing Officer passes the order after including sum of ₹ 62,12,060/- to the receipts offered in the return of income, then income totals to ₹ 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 circumstances, variation in the income is not on account of any addition made by the Assessing Officer but is on account of voluntary offer of additional income by the assessee and it cannot be said that the Assessing Officer has made variation in the income returned, which is prejudicial to the interest of such assessee. The variation in the income is qualified by the words which is prejudicial to the interest of such assessee.

raised by the Revenue are thus, allowed.”

10. The Ld A.R also placed his reliance on the decision rendered by Hon’ble Delhi High Court in the case of ESPN Star Sports Mauritius SNC ET Campagnie vs. Union of India (2016)(68 taxmann.com 377). In this case, the AO, following the procedure laid down in sec.144C of the Act, passed a draft assessment order in the hands of the assessee. Before Ld DRP, the assessee raised an objection that the provisions of sec.144C will not apply to it, since it was not an “eligible assessee” in terms of sec.144C of the Act. Ld DRP also accepted the said contentions of the assessee. However, the AO, disregarding the order of Ld DRP, passed the final assessment order on the basis draft assessment order. This action of the assessing officer was found to be illegal .2018 A.Y.2014-15 by Hon’ble Delhi High Court. Following are the relevant observations made by the Court:-

“29. The above submissions have been considered. In the first place the Court would like to observe that this is an instance of blatant disregard by the AO of the order of the DRP notwithstanding that the DRI' had categorically held that the two Petitioners do not satisfy the conditions of an 'eligible assessee' in terms of Section 144(15)(b)(ii) of the Act. As already noticed under Section I 44C(10) of the Act the AO had no option but to comply with the order of the DRP. Even if no direction was issued by the DRI' under Section 144C(5) of the Act, the tact that the DRP held that 1)0111 the Petitioners were not 'eligible Assessees' could 1101 have been ignored by the 40.