The Delhi High Court in the case The Commissioner Of Income Tax – International Taxation Versus S. A. Chitra Ventures Ltd. observed and has held that the Assessing Officer under section 144C of the Income Tax Act, would have no jurisdiction to pass a draft assessment order in the absence of any variation in the income or loss returned, which being prejudicial to the interest of the assessee.
The bench comprising of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav in the case observed that Section 144C of the Income Tax Act as it stood prior to the amendments would have empowered the Assessment Order, AO to frame a draft assessment order only if a variation in the income returned was suggested in the matter.
It has been submitted by the respondent or assessee before the court that the Return of Income on 26.11.2014, wherein it declared its income for the year for an amount of Rs. 26,62,42,773. Thus, the return was selected for scrutiny and assessment, and notices is to be issued under Section 143(2).
The Assessing Officer in the case observed and took notice of an international transaction between the assessee and its associate enterprises, wherein it led to the matter to be referred to the Transfer Pricing Officer. Therefore, the arm’s length price was determined by the TPO and no adverse inference was drawn.
However, the AO proceeded to frame a draft assessment order. The AO formed an opinion that the income as shown was liable to be taxed which being at the rate of 20% as per the provisions of Section 115A. the Assessment Order, AO appears to have rejected the stand of the assessee, who had claimed benefits as stated under Article 11 of the India-Cyprus DTAA and the assessee chose not to file any objections before the DRP against the order.
The court stated that the Final Assessment Order came to be framed on February 9, 2018, in which, while the total income as declared by the assessee remained untouched, it was subjected to tax at the rate of 20%.
Therefore, the assessee assailed the Final Assessment Order by way of an appeal before the CIT (A), thus, the same came to be allowed with the appellate authority while taking the view that the assessee would be entitled to claim the benefits of Article 11 of the DTAA.
Further, the appeal was preferred by the appellants or department before the ITAT.
The assessee also filed cross objections, principally wherein it is contended that since the changes as suggested by the AO originally would not impact the income or loss returned, the provisions of Section 144C of the Finance Act, 2020, would not be attracted, and the AO would have no authority or jurisdiction to frame a draft assessment order in terms of that provision. Thus, it being this objection that has ultimately come to be accepted by the ITAT in terms of the order.
It has also been noticed by the ITAT that the assessee was an eligible assessee in terms of Section 144C(15)(b)(ii). It, however, took note of Section 144C as it stood at the relevant time and prior to the amendments that came to be introduced by virtue of the Finance Act, 2020, w.e.f. April 1, 2020.
The provisions as it stands presently uses the expression ‘any variation which is prejudicial to the interest of such assessee. Thus, prior to the provision being recast by the Finance Act, 2020, the aforenoted provision employed the phrase “any variation in the income or loss returned.
The court in the case observed and has stated that it is manifest that it was only a variation that would impact the “income or loss returned” that Section 144C(1) would have attracted. The ITAT noticed that there was no variation in the income returned. The only point of dispute was with respect to whether the assessee was entitled to claim the benefits under Article 11 of the DTAA.
The court while considering the facts and circumstances observed and has noted that the appeals thus raise no substantial question of law and shall consequently stand dismissed.
Accordingly, the court in the case found no error in the view as expressed by the ITAT.
The counsel, Advocate Ruchir Bhatia appeared for the Petitioner.
The counsel, Advocate Piyush Kaushik represented the respondent.