Section 144C jurisdiction is limited to prejudicial variations; DRP cannot make substantive findings where no variation exists.

Section 144C can be invoked only when the Assessing Officer proposes a variation in returned income or loss that is prejudicial to the assessee; where the returned income is accepted without variation, the draft assessment procedure is not attracted and the normal limitation under section 153 applies. On that basis, an assessment order passed beyond the permissible time could not stand. The Dispute Resolution Panel also cannot record substantive findings on beneficial ownership or treaty entitlement after holding that the objection itself was beyond the scope of section 144C, because such findings are outside its jurisdiction and cannot bind future years.

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Issues: (i) Whether the Assessing Officer could invoke the procedure under section 144C of the Income-tax Act, 1961 and pass a draft assessment order when no variation was made to the returned income. (ii) Whether the Dispute Resolution Panel could go beyond its jurisdiction and record findings on beneficial ownership and entitlement to treaty benefit when it had already held the objection to be beyond the scope of section 144C.

Issue (i): Whether the Assessing Officer could invoke the procedure under section 144C of the Income-tax Act, 1961 and pass a draft assessment order when no variation was made to the returned income.

Analysis: Section 144C applies only where the Assessing Officer proposes to make a variation in the returned income or loss that is prejudicial to the assessee. The returned income was accepted without any variation, so there was no prejudice to the assessee and no occasion to trigger the draft assessment procedure. In that situation, the normal limitation under section 153 applied, and the order passed beyond the permissible time was not sustainable.

Conclusion: The draft assessment procedure was not warranted and the assessment order passed beyond limitation could not stand, in favour of the assessee.

Issue (ii): Whether the Dispute Resolution Panel could go beyond its jurisdiction and record findings on beneficial ownership and entitlement to treaty benefit when it had already held the objection to be beyond the scope of section 144C.

Analysis: The Dispute Resolution Panel itself recorded that the objection did not relate to any variation in returned income and was beyond its powers under section 144C. Having so held, it could not nevertheless return a substantive finding that the assessee was not the beneficial owner of royalty or was not entitled to treaty benefit. Such a finding was outside jurisdiction and could not operate as a binding determination for future years.

Conclusion: The findings on beneficial ownership and treaty benefit were set aside, in favour of the assessee.

Final Conclusion: The appeal succeeded because the statutory precondition for invoking the draft assessment and DRP mechanism was absent, and the DRP's substantive findings on matters beyond its jurisdiction were unsustainable.

Ratio Decidendi: The DRP procedure under section 144C can be invoked only when the Assessing Officer proposes a variation prejudicial to the assessee, and neither the Assessing Officer nor the DRP can travel beyond that jurisdiction to make substantive findings when no such variation exists.

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