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I. On the facts and n circumstances of the case and in law, the learned Assessing Officer has erred and the Hon. CIT(A) has further erred in upholding/confirming the action of the Ld Assessing Officer in

1.1 Concluding that the appellant is not the beneficial owner of interest income and consequently denying benefits under India- Cyprus Double Taxation Avoidance Agreement (DTAA)

1.2 Treating XE Advisors India Private Limited (XE Advisors) as he beneficiary of interest income attributable one of the shareholders, Vitelina Holdings Co. Limited .

2. On the facts and in circumstances of the case and in law, the learned Hon'ble CIT(A) has erred in passing order without giving an opportunity of being heard to the Appellant.

3. On the facts and circumstances of the case, and in law, the A.O has erred on the facts and in law in initiating penalty proceeding under Section 271(l)(c) of the Act."

3. The assessee had also filed a petition for admission of additional grounds and challenged final assessment order passed by the Assessing Officer u/s.143(3) Income Tax Act, 1961, being time barred by limitation. The learned A.R for the assessee referring to petition filed by the assessee for admission of additional grounds submitted that facts in relation to additional grounds were already on record and since, additional grounds raised is purely question of law, same may be admitted and adjudicated. In this regard, the learned A.R

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relied upon the decision of Hon'ble Supreme Court in the case of National Thermal Power Corporation Ltd. Vs.CIT (1998)

229 ITR 383.

4. The learned DR, on the other hand, strongly opposing additional grounds filed by the assessee, submitted that the assessee having co-operated with assessment proceedings cannot challenge validity or otherwise of the assessment order passed by the Assessing Officer at this stage and thus, additional grounds filed by the assessee may be rejected.

5. We have heard both the parties and considered petition filed by the assessee for admission of additional grounds. After carefully considering necessary facts and also additional grounds filed by the assessee, we find that additional grounds taken by the assessee challenging validity of assessment order passed by the Assessing Officer u/s.143(3) r.w.s.144C of the Income Tax Act, 1961 dated 28.02.2017 and its limitation is purely a question of law which can be taken at any time of proceedings, including proceedings before the Tribunal. Further, the Hon'ble Supreme Court in the case of National Thermal Power Corporation Ltd. Vs. CIT (supra) had very

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clearly held that legal grounds can be raised at any time, including proceedings before the appellate authorities. Therefore, considering question of law involved in additional grounds filed by the assessee and also by following the decision of the Hon'ble Supreme Court in the case of National Thermal Power Corporation Ltd., (supra), we are of the considered view that additional grounds filed by the assessee deserves to be admitted and thus, same is admitted for adjudication.

6. The additional grounds filed by the assessee are as under:-

"Final order passed u/s.143(3) of the Income Tax Act, 1961 being time barred by limitation. Without prejudice to the above, the learned Assessing Officer has erred in invoking provisions of section 144C of the Act in absence of any variation in the income and consequentially passing the final assessment order after due date prescribed under Section 153 of the Act. The order under Section 143(3) r.w.s144C is thus, void ab initio and time barred by limitation."

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7. Brief facts of the case are that the assessee is a non- resident company incorporated in Cyprus as an investment Company. The assessee has investments in India in the form of equity and Fully and Compulsorily Convertible Debentures (FCCDs) on which it earns interest income. The assessee has earned interest income of Rs.22,89,76,090/- which has been offered to tax in its return of income filed on 25.09.2014 for Assessment Year 2014-I5, and paid for tax @ 10% in terms of the India and Cyprus DTAA. The assessee claimed a refund of 20% of TDS deducted in the return filed, claiming applicability of the provisions of India-Cyprus Double Taxation Avoidance Agreement, as per which only 10% tax rate is chargeable on the interest income. The case of the assessee was selected for scrutiny, and during the course of assessment proceedings, the Assessing Officer denied treaty benefit to the assessee and taxed interest income at 30%. Subsequently, the Assessing Officer passed the draft assessment order under Section I44C of the Act on 30.12.2016 and thereafter, a final assessment order was passed under section 144C(3)(b) r.w.s 143(3) of the Act dated 28.02.2017.

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8. The learned A.R for the assessee submitted that despite no variation in the returned income of the assessee, the Assessing Officer had invoked proceedings under Section 144C of the Act and passed a draft assessment order, as per section 144C(1) of the Act, a draft assessment order can only be issued when there is a variation in the income or loss returned. Since there is no variation in income and only change in the tax rate the Assessing Officer has violated the provisions of section 144C(1) of the Act. The learned A.R further submitted that since, scheme of Section 144C of the Act was not applicable to the assessee, the limitation to pass an order under Section 143(3) of the Act, has already expired in the present case. The limitation to issue assessment order as per section 153(1) of the Act was 31.12.2016 and the assessment order was issued on 08.02.2017. Therefore, the learned A.R submitted that the assessment order issued u/s.144C(3)(b) r.w.s 143(3), is barred by limitation, because the scheme of section 144C of the Act is not applicable to the assessee, and thus, the assessment order passed by the Assessing Officer is invalid and void ab initio. The learned AR further submitted that the issue is squarely covered in favour of the assessee by the

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decisions of ITAT., Mumbai/Chennai and in support of his contention relied upon following decisions:-

1. ACIT Vs. Mausmi Investments in ITA No.7026/Mum/2018 of ITAT., Mumbai

2. ADIT Vs. Mosbacher India LLC in ITA No.1085/Chny/2015 of ITAT., Chennai.

3. DCIT Vs. IPF India Property Cyprus (No.1) Ltd. in ITA No.6077/Mum/2018.

9. The learned DR has filed detailed written submissions on the issue of additional grounds filed by the assessee and argued that reference to DRP is a benevolent provision for the benefit of taxpayers and hence, the assessee having not opted for filing objection before the DRP, has filed appeal against CIT(A) order and thus, it cannot question validity of assessment order passed by the Assessing Officer in light of provisions of section 153(1) of the Act. In this regard, the learned DR has filed detailed written submissions, which is reproduced as under:-

" Without prejudice to the above, the learned Assessing officer has erred in invoking the provisions of Section 144C of the Act in absence of any variation in the income and consequently passing the final assessment order after due date prescribed under Section 153 of the Act. The order u/s 143(3) r.w.s 144C is thus, void ab initio

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and time barred by limitation. In this regard at the outset, it would be pertinent to refer to the section 144C of the Act,

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.

(2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,

(a) file his acceptance of the variations to the Assessing Officer; or (b) file his objections, if any, to such variation with,

(i) the Dispute Resolution Panel; and

(ii) the Assessing Officer. ……………….

(15) For the purpose of this section-

(a) …………

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. The intent of introduction of the above benevolent provision in the statute is to provide speedy disposal of disputes. It is a fact that assessee is aggrieved against the proposed assessment entailing a tax dispute. It is undisputed that the appellant is "eligible assessee"

as per sub-clause (ii) of clause (b) of sub-section (15) to section

144C.

Accordingly the benevolent provisions which are extended only exclusively to "eligible assessee" has been extended by the

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assessing officer to the appellant. In response to the assessing officer serving draft assessment intimated vide stipulated in sub-section (2) to section 144C, the appellant intimated vide letter in dated 13.02.2017 the appellant is not filing its objection to the variation before Hon'ble DRP and submitted that it intends to file an appeal before the Commissioner of Income Tax (Appeals).

In the above undisputed factual matrix, it has be examined whether there is any merit in the additional grounds raised by the appellant in as much as that the appellant has appeared and co-operated in proceedings before the Assessing Officer and hence it is precluded from. raising additional ground on this issue in view of the provisions of section 292BB. In this connection, reliance is placed on the judgement in the case of Sky Light Hospitality LLP v ACIT (2018) 90 taxmann.com 413 (Delhi).

Appellant in this case claimed in its return of income that the provisions of clause (1) of Article 15 of Indo-Cyprus DTAA relating to

"interest" is applicable. Assessing officer during the proceedings u/ s 143(3) after detailed inquiry came to the conclusion that claim of the appellant is not as per the provisions of law and accordingly proposed to vary by applying the provisions of clause (2) of Article 15 of Indo- Cyprus DTAA which is the cause of action for the assessee to knock the door of Commissioner of Income Tax (Appeals) u/s 246A. Alternatively, it is submitted that as the assessing officer in this case has accepted the returned income. Where is the case for the appellant to file appeal before Commissioner of Income Tax (Appeals) u/ s 246A but for the fact that there is variation in tax payable as claimed by the appellant and as determined by the assessing officer?

In this context it is relevant to peruse Hon'ble Finance Minister's speech

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and the Explanatory Note to Finance Bill, 2009 while inserting the provisions of Section 144C which are extracted hereunder.

Extract from Budget speech of Hon'ble Finance Minister

"96. In order to further improve the investment climate in the country, we need to facilitate the resolution of tax disputes faced by foreign companies within a reasonable time frame. This is particularly relevant for such companies in the Information Technology (IT) sector. I, therefore, propose to create an alternative dispute resolution mechanism within the Income Tax Department for the resolution of transfer pricing disputes. To reduce the impact of judgemental errors in determining transfer price in international transactions, it is proposed to empower the Central Board of Direct Taxes (CBDT) to formulate 'safe harbour' rules."

Dispute Resolution Panel.

The subjects of transfer pricing audit and the taxation of foreign company are at nascent stage in India. Often the Assessing Officers and Transfer Pricing Officers tend to take a conservative view. The correction of such view take very long time with the existing appellate structure.

With a view to provide speedy disposal, it is proposed to amend the Income- tax Act so as to create an alternative dispute resolution mechanism within the income-tax department and accordingly, section 144C has been proposed to be inserted so as to provide inter alia the Dispute Resolution Panel as an alternative dispute resolution mechanism.

This amendment will take effect from 1^stOctober, 2009."

Perusal of the above two extracts makes it clear that the insertion of Section 144C is for the benefit of "eligible assessee category" to which the appellant undisputedly belong to and the appellant having opted to follow the conventional route of agitating the matter before Commissioner of Income Tax(Appeals) as provided in section 144C now cannot turnaround and claim that provisions of section

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144C are not applicable. Notwithstanding the fact that the assessing officer has not tweaked the returned income of the appellant the order in effect results in variation in tax payable vis- a-vis the tax payable as returned and therefore, the additional ground raised by the assessee deserves to be dismissed at threshold level.

Reliance in this regard is also placed on the order of the Hon'ble Madras H.C. in assessee's own case in WP nos.7135 and 7138 of 2019."

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

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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 u/s.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 u/s.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 u/s.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

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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.

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11. Having said so, let us examine limitation issue questioned by the assessee in light of provisions of section 153(1) of the Act. The provisions of section 153(1) prescribed time limit for completion of assessment for the assessee. As per the said provisions, limitation to pass assessment order under sub- section (3) of section 143 of the Act, for the concerned assessment year 2014-15 was 21 months which ends on 31.12.2016. In this case, assessment order has been passed u/s.143(3) r.w.s 144C(3)(b) on 28.02.2017. If the assessment order passed by the Assessing Officer is considered as assessment order passed u/s.143(3), then the Assessing Officer ought to have passed order on or before 31.12.2016. If you consider the Assessing Officer is right in passing draft assessment order u/s.144C(1), then the Assessing Officer gets extended time and time limit for passing order is 31.12.2017. In this case, since, the Assessing Officer cannot invoke jurisdiction u/s.144C(1) and pass draft assessment order, question of extended 12 months period cannot be given to the Assessing Officer. Therefore, we are of the considered view that final assessment order passed by the Assessing Officer u/s.144C(3) r.w.s 143(3) of the Act, dated 28.02.2017 is

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barred by limitation, because time limit available for completion of assessment u/s.143(3) is 31.12.2016.

12. The assessee has relied upon various judicial precedents in support of his argument, including decision of the ITAT., Mumbai Benches in the case of DCIT Vs. IPF India Property Cyprus (No.1) Ltd. in ITA No.6077/Mum/2018 dated 25.02.2020. The Mumbai Bench of this Tribunal has considered an identical issue in light of provisions of section 144C(1) and amended provisions u/s.144C(1) w.e.f. 01.04.2020 and held that when there is no variation in income or loss returned by the assessee, which is prejudicial to the interest of the assessee, then question of issuing draft assessment order does not arise and consequently, the Assessing Officer does not get extended period for completion of assessment u/s.143(3) of the Income Tax Act, 1961. The relevant findings of the Tribunal are as under:-

"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

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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(l) which provides that, "The Assessing Officer shall, notwithstanding anything To the contrary contained in this Act, in the first instance, forwards 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 I44C(I5)(b)(ii), the assessee is an eligible assessee but then there is no change in the figure of income returned by 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 Bilf proposes to make the issuance of draft assessment orders in the case of eligible assessees mandatory when there is no variation in the income or loss returned b the assessee but then this t e law with effect from I April 2020 this amendment, amendments in the Finance Bill 2020 states as follows:

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

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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.

6. Once this amendment is being introduced with effect from 1st April 2020, it is beyond 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 31^st December 2017 but the present assessment order is passed on 17^th August 2018. Once we hold that no draft assessment order could have been issued in this case, as the provisions of Section 144C(l) could not have been invoked in this case, the time limit of completion of assessment was available only upto 31^st 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

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is indeed, in our considered view, time barred. We, accordingly, hold so."

13. The assessee had also relied upon decision of the ITAT., Mumbai Benches in the case of ACIT Vs Mausmi Investments in ITA No.7026/Mum/2018 dated 10.04.2019, where the Tribunal, under identical circumstances held as under:-

"In the instant case, the assessee herein is an eligible assessee. However, there is no variation in the income or loss returned, which is prejudicial to the interests of the assessee. Hence the second condition prescribed in sec.144C(1) was not satisfied. Hence the approach of the Ld. AO in adopting the procedure prescribed in sec.144C of the Act is not in accordance with the mandate of law. We get support for our view from the decisions rendered by Chennai bench and Pune bench of Tribunal in the cases referred above. Hence the assessment order passed passed by the Ld. AO gets vitiated and the same is liable to be quashed. We order accordingly."

14. The assessee had also relied upon decision of the ITAT., Chennai Benches in the case of ADIT Vs. Mosbacher India LLC in ITA No.1085/Chny/2015 76 taxmann.com 31, where the Tribunal under identical circumstances held as under:-

"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

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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-a-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. In this view of the matter and by respectfully following the case laws cited by the learned A.R for the assessee, we are of the considered view that assessment order passed by the Assessing Officer u/s.143(3) r.w.s 144C(3)(b) of the Income Tax Act, 1961 dated 28.02.2017 is clearly barred by limitation and thus, assessment order passed by the Assessing Officer is void ab initio. Hence, we quash the assessment order passed by the Assessing Officer.

16. The assessee had also challenged issue on merits in levying 30% tax on interest income by ignoring Article 11 of India-Cyprus DTAA on the ground that the assessee is

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beneficial owners which is covered under Article 11 of India- Cyprus tax treaty. The assessee has filed various details, including tax residency certificate issued by Republic of Cyprus, Ministry of Finance, to prove residential status and also notification No.86/2013 issued in terms of sec.94A of the Act and also subsequent withdrawal of said notification vide Circular No.15/2017 dated 21.04.2017 and argued that the assessee is covered under Article-11 of India-Cyprus tax treaty and liable to pay tax @ 10%. However, fact remains that although, the assessee has challenged issue on merits, but the issue has not been adjudicated at this point, because assessment order passed by the Assessing Officer has been quashed as void ab initio. Hence, we are not inclined to adjudicate the issue raised by the assessee on merits. However, we keep open the issue to be decided at appropriate time.

17. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 1^stJuly, 2022 Sd/- Sd/-

(राहुल चौधर ) (जी. मंजुनाथ)

(Rahul Chaudhary) (G.Manjunatha) 'या यक सद)य /Judicial Member लेखा सद)य / Accountant Member

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चे'नई/Chennai, +दनाकं ^st/Dated 1 July, 2022

DS

आदेश क त-ल.प अ/े.षत/Copy to:

1. Appellant 2. Respondent 3. आयकर आय0ुत (अपील)/CIT(A) 4. आयकर आय0ुत/CIT 5. .वभागीय त न4ध/DR 6. गाड  फाईल/GF.