The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) while quashing the final assessment passed by the Assessing Officer (AO), held that failure of passing of a Draft Order is not a curable defect.
The bench of the Per Padmavathy S (Accountant Member) has observed that failure of passing of a Draft Order under Section 144C (1) of the Income Tax Act, 1961 is not a curable defect since this a violation of a statutory right of the assessee to raise grievance that can be addressed before a final assessment order is passed and appellate proceedings invoked.
The appellant/assessee is a company registered under the domestic laws of Singapore and is engaged in the business of operation of ships in international traffic. The assessee earns income from freight from shippers/ customers from the vessel voyages performed. The assessee filed the return of income for AY 2018-19 on 10.09.2018.
The assessee earned freight income of Rs. 45,57,04,930 from the vessel voyages performed in the international traffic and claimed the relief under Article-8 of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore. The assessee while filing the return of income has disclosed Rs. 3,41,77,870/- (7.5% of Rs. 45,57,04,930/-) as deemed income under the provisions of section 44B of the Income Tax Act, 1961.
Since the income is not taxable in India by virtue of Article-8 of India and Singapore DTAA, the assessee claimed relief accordingly in the return of income. The case was selected for scrutiny and the statutory notices were duly served on the assessee.
The assessee submitted before the Assessing Officer (AO) that the freight income earned by the assessee is not taxable in India as per Article-8 of India Singapore DTAA. The AO however based on the details furnished in the various schedule of the return of income filed by the assessee made an addition of Rs. 3,41,77,870/- stating that the assessee itself has offered the same to tax under section 44B of the Act and that the AO does not have power to reduce the income declared by the assessee in the return.
On appeal, the CIT(A) upheld the decision of the AO by placing reliance on the decision of the Supreme Court in the case of Goetz (India) Ltd. vs. CIT [284 ITR 323 (SC)]. The assessee is in appeal before the Tribunal against the order of the CIT(A).
The appellant contended that the assessee is a non-resident and falls within the definition of eligible assessee under section 144C of the Income Tax Act. The assessee has clearly mentioned the status as non-resident and in Schedule-FSI (page 66) has declared the details of income outside India and tax relief sought accordingly. The assessee instead of treating the income as not taxable under Article-8 of India Singapore DTAA has inadvertently computed 7.5% of the freight income earned under section 44B of the Act and claimed the same as exempt under Article-8.
The tribunal noted that the assessee is a non-resident foreign company and this fact is being recorded both in the assessment order as well as the CIT(A) order where the residential status of the assessee is being recorded as non-resident. The AO should mandatorily issue the draft assessment order before passing the final assessment order in the case of the eligible assessee i.e. foreign company.
The tribunal partly allowed the appeal of the appellant and quashed the final order passed without issuing the draft order.
Case Details
Case Title: Feedertech Pte. Ltd. Versus ACIT (International Tax)
Case No.: I.T.A. No. 4206/Mum/2023
Date: 18.02.2025
Counsel For Appellant: M.P. Lohia
Counsel For Respondent: Krishna Kumar
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