2019 (10) TMI 1292 - AT - Income Tax

Appeal allowed as assessment order for A.Y. 2010-11 quashed due to non-existent entity post-merger.

M/s. Siemens Power Engineering Pvt. Ltd., (now merged with M/s. Siemens Limited) Versus Assistant Commissioner of Income Tax – Circle – 8 (2) (1), Mumbai

M/s. Siemens Power Engineering Pvt. Ltd., (now merged with M/s. Siemens Limited) Versus Assistant Commissioner of Income Tax – Circle – 8 (2) (1), Mumbai ... Issues Involved:1. Validity of assessment order passed in the name of a non-existent entity.2. Addition to the appellant's returned income.3. Granting of working capital adjustment.4. Rejection of economic analysis and filters applied by the appellant.5. Rejection of functionally comparable companies.6. Application of export turnover filter.7. Introduction of non-comparable companies.8. Consistency in rejecting comparable companies.9. Treatment of foreign exchange gain.10. Allowing risk adjustment.11. Use of prior years' data for benchmarking.12. Validity of assessment proceedings due to the merger.Issue-wise Detailed Analysis:1. Validity of assessment order passed in the name of a non-existent entity:The Tribunal emphasized the critical nature of Ground No.12, which questioned the validity of the assessment order passed in the name of Siemens Power Engineering Pvt. Ltd. (SPEPL), a non-existent entity due to its merger with Siemens Ltd. The sequence of events demonstrated that all proceedings were conducted in the name of SPEPL despite its merger. The Tribunal referred to the Supreme Court's decision in PCIT vs. Maruti Suzuki India Ltd., which held that issuing notices to a non-existent company is a substantive illegality and not a procedural defect. Consequently, the Tribunal concluded that the assessment made for A.Y.2010-11 in the name of SPEPL was void ab initio and quashed it.2. Addition to the appellant's returned income:The appellant contested the addition of Rs. 11,52,95,329 to the returned income of Rs. 24,07,36,549. However, since the Tribunal quashed the assessment order on the grounds of it being issued to a non-existent entity, this issue became infructuous and was not adjudicated further.3. Granting of working capital adjustment:The appellant argued that the Assessing Officer (AO) failed to grant the working capital adjustment already given by the Transfer Pricing Officer (TPO). The application for rectification under Section 154 of the Act was pending. This issue was rendered moot due to the quashing of the assessment order.4. Rejection of economic analysis and filters applied by the appellant:The appellant contended that the AO, TPO, and DRP erred in rejecting the economic analysis and filters used in the Transfer Pricing documentation without cogent reasons. This issue was also not adjudicated due to the primary issue's resolution.5. Rejection of functionally comparable companies:The appellant argued against the rejection of specific companies as comparables by the AO, TPO, and DRP. This issue became moot following the quashing of the assessment order.6. Application of export turnover filter:The appellant contested the rejection of the export turnover filter by the AO and TPO, which was intended to include additional comparable companies. This issue was not further addressed due to the primary issue's resolution.7. Introduction of non-comparable companies:The appellant argued against the inclusion of companies with different functional profiles as comparables. This issue was rendered moot due to the quashing of the assessment order.8. Consistency in rejecting comparable companies:The appellant highlighted the inconsistency in accepting certain companies as comparables in one assessment year and rejecting them in another. This issue was not further addressed due to the primary issue's resolution.9. Treatment of foreign exchange gain:The appellant contended that the AO, TPO, and DRP erred in treating foreign exchange gain as non-operating while computing the operating profit margin. This issue was not further addressed due to the primary issue's resolution.10. Allowing risk adjustment:The appellant argued that the AO, TPO, and DRP failed to allow risk adjustment to account for differences in risk profiles. This issue was not further addressed due to the primary issue's resolution.11. Use of prior years' data for benchmarking:The appellant contested the rejection of prior years' data for benchmarking international transactions. This issue was not further addressed due to the primary issue's resolution.12. Validity of assessment proceedings due to the merger:The Tribunal found that the entire proceedings were conducted in the name of SPEPL, a non-existent entity post-merger. The assessment order was declared void ab initio, and all other grounds became infructuous.Conclusion:The appeal was allowed, and the assessment order for A.Y.2010-11 was quashed due to it being issued in the name of a non-existent entity. The adjudication of other grounds was rendered unnecessary. The order was pronounced on 15/10/2019.