Draft assessment procedure under unamended Section 144C applies only when returned income changes, not merely tax rate disputes.

Under the unamended Section 144C of the Income-tax Act, the draft assessment order procedure applied only where there was a variation in the returned income or loss of an eligible assessee. A change only in the tax consequence, such as denial of treaty benefit and application of a higher tax rate, did not satisfy that pre-amendment condition when the returned income itself remained unchanged. The later amendment extending the provision to any variation prejudicial to the assessee was not applicable to the assessment years in question, so the draft assessment mechanism was not attracted on those facts.

---

---

Issues: Whether, under the unamended Section 144C of the Income-tax Act, 1961, the Assessing Officer could validly issue a draft assessment order where the returned income remained unchanged and the dispute concerned only the applicable tax rate and treaty benefit.

Analysis: Section 144C, as it stood at the relevant time, applied only where there was a variation in the income or loss returned by an eligible assessee. The later amendment introducing the wider phrase "any variation which is prejudicial to the interest of such assessee" was not applicable to the assessment years in question. Since the returned income was not altered and the dispute related only to denial of treaty benefit and consequential application of tax at 20%, the pre-amendment condition for invoking Section 144C(1) was not satisfied.

Conclusion: The draft assessment order mechanism under the unamended Section 144C was not attracted, and the assessee's challenge to the final assessment order failed.

Ratio Decidendi: Under the pre-2020 version of Section 144C, the draft assessment order procedure applies only when there is a variation in the returned income or loss, and not merely when the tax consequence changes without alteration of the returned income.

---