Draft assessment procedure fails where only the tax rate changes and returned income remains unchanged.

Section 144C applies only where the Assessing Officer proposes a prejudicial variation in the returned income or loss. In this matter, the assessee, a foreign company, had no change in the quantum of returned income; the dispute related only to the tax rate under section 115A(1)(a)(ii). That did not meet the statutory condition for issuing a draft assessment order under the DRP procedure. The assessment made on that basis was therefore treated as invalid and quashed, with the assessment annulled for failure to satisfy the mandatory precondition.

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Issues: Whether the Assessing Officer could invoke section 144C of the Income-tax Act, 1961 and issue a draft assessment order where the returned income was not varied, but the tax rate was altered, and whether the resulting assessment order was liable to be quashed.

Analysis: Section 144C(1) applies only when the Assessing Officer proposes to make a variation in the income or loss returned which is prejudicial to the interest of the assessee. The assessee was an eligible assessee as a foreign company, but the assessment record showed no alteration in the quantum of returned income. The dispute concerned only the rate of tax applied under section 115A(1)(a)(ii), and that did not satisfy the statutory requirement of a variation in returned income or loss. The Tribunal followed the view that the condition precedent for the DRP route was absent when the returned income itself remained unchanged.

Conclusion: The invocation of section 144C was not valid, and the assessment order passed on that basis was liable to be quashed in favour of the assessee.

Final Conclusion: The assessment was annulled for want of compliance with the mandatory precondition for the draft-assessment procedure, and the appeal was allowed.

Ratio Decidendi: Section 144C can be invoked only when there is a proposed variation in the returned income or loss that is prejudicial to the assessee; a mere change in the rate of tax does not satisfy that condition.

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