2018 (8) TMI 745 - AT - Income Tax

Assessment orders quashed for non-existent entity, appeals allowed. Transfer Pricing, interest, penalty issues not addressed.

The Tribunal quashed the assessment orders for both assessment years 2009-10 and 2010-11 as they were passed on a non-existent entity, making them void ab ... Validity of assessment order passed u/s 143(3) r.w.s. 144C - assessment post amalgamation with another company - transfer pricing adjustments - Held that:- the assessment framed by the AO on the non-existent company i.e. Akzo Noble Car Refinishes India Pvt. Ltd. is void ab initio. Accordingly, the same is quashed. - Decided in favor of assessee. Issues Involved:1. Validity of assessment order passed on a non-existent entity.2. Transfer Pricing adjustments related to R&D services.3. Arm's length price determination for administrative services.4. Interest on overdue receivables.5. Levy of interest under section 234D and withdrawal of interest under section 244A.6. Initiation of penalty proceedings under sections 271(1)(c), 271AA, and 271BA.Detailed Analysis:1. Validity of Assessment Order Passed on a Non-existent Entity:The primary issue was whether the assessment order passed on the non-existent entity, Akzo Nobel Car Refinishes India Pvt. Ltd., post its amalgamation with Akzo Nobel India Ltd., was valid. The Tribunal noted that the amalgamation was effective from April 1, 2011, and the AO was informed of this via a letter dated June 11, 2012. Despite this, the AO, TPO, and DRP continued to pass orders in the name of the erstwhile entity. Citing precedents such as Spice Entertainment Ltd. vs Commissioner of Service Tax and Genpact Infrastructure (Bhopal) Pvt. Ltd. vs DCIT, the Tribunal held that any assessment order passed on a non-existent entity is void ab initio. Consequently, the assessment framed was quashed.2. Transfer Pricing Adjustments Related to R&D Services:The assessee contested the Transfer Pricing adjustment of INR 56,223,008 for its R&D segment. The Tribunal considered multiple points:- The appellant had prepared Transfer Pricing documentation in compliance with Section 92D of the Act and Rule 10D of the Income Tax Rules, 1962.- The TPO rejected the use of multiple-year data and instead used current year data for comparable companies, which was not available to the appellant at the time of documentation.- The TPO ignored the comparability analysis undertaken by the appellant and performed his own.- The TPO did not provide appropriate adjustments for the limited risk nature of the services provided.- The benefit of the +/- 5% range mentioned in the proviso to Section 92C(2) was denied.3. Arm's Length Price Determination for Administrative Services:The TPO considered the payment of INR 41,942,829 towards administrative services from Associated Enterprises (AEs) to be 'Nil'. The Tribunal reviewed the following points:- The TPO applied the Comparable Uncontrolled Price method instead of the Transactional Net Margin Method.- The TPO concluded that no economic value or substantial commercial benefit was derived from the services.- The TPO disregarded the collective evidence provided by the appellant to justify the arms-length nature of the transaction.- The TPO viewed the support services as stewardship benefiting the AEs, which should be carried out by the parent companies.4. Interest on Overdue Receivables:The AO enhanced the income of the appellant by INR 11,56,859 on account of interest on overdue receivables. The Tribunal noted:- The AO applied an arbitrary interest rate of 14.25% (SBI lending rate plus 150 basis points).- The AO did not consider that the outstanding amounts were part of the normal course of business and were collected within a reasonable period.5. Levy of Interest Under Section 234D and Withdrawal of Interest Under Section 244A:The assessee contested the levy of interest under Section 234D and the withdrawal of interest under Section 244A. The Tribunal did not provide specific findings on this issue due to the quashing of the assessment order.6. Initiation of Penalty Proceedings Under Sections 271(1)(c), 271AA, and 271BA:The assessee challenged the initiation of penalty proceedings. The Tribunal did not address this issue separately due to the quashing of the assessment order.Conclusion:The Tribunal quashed the assessment orders for both assessment years 2009-10 and 2010-11 on the grounds that they were passed on a non-existent entity, rendering them void ab initio. Consequently, the Tribunal did not provide specific findings on the other issues raised by the assessee. The appeals were allowed in favor of the assessee.