Transfer pricing orders issued in name of non-existent amalgamating company void ab initio despite final assessment in correct entity name

ITAT Chennai held that transfer pricing orders and draft assessment orders issued in the name of a non-existent amalgamating company were void ab initio, invalidating the entire assessment proceedings. Despite the final assessment order being issued in the correct name of the amalgamated entity, the tribunal ruled that valid TP and draft assessment orders are foundational cornerstones for valid assessment. Following SC precedent in Maruti Suzuki India Ltd, orders issued on non-existent entities are illegal and without jurisdiction, not mere clerical errors curable under Section 292B. The assessee's appeal was allowed.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

- Whether the final assessment order dated 30.10.2024 passed under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961 (the 'Act') is barred by limitation under Sections 153(1) and 153(4) of the Act and thus void ab initio.

- Whether the transfer pricing order dated 26.10.2023, draft assessment order dated 29.12.2023, and final assessment order dated 30.10.2024 issued in the name of a non-existent entity (the amalgamating company) are illegal, invalid, and liable to be quashed.

- Whether the final assessment order passed by the Jurisdictional Assessing Officer (JAO) instead of the Faceless Assessing Officer (NFAC) is contrary to the provisions of the Act and invalid.

- Whether the reference made by the Technical Unit under Section 92CA(1) of the Act is illegal and without jurisdiction, thereby invalidating consequential orders.

- Whether the downward transfer pricing (TP) adjustment towards payment of management service fees determined to be NIL by adopting the "Other Method" is erroneous.

- Whether the rejection of the aggregation approach adopted by the assessee for benchmarking management service fees is justified.

- Whether the conclusions that the assessee did not receive the impugned services, failed to establish need and benefit, and that such services are shareholder activities, are correct.

- Whether the upward TP adjustment towards interest on overdue receivables is justified, including the choice of benchmark rate and credit period.

- Whether the computation of total income and levy of interest and fees by the Assessing Officer is correct.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Assessment Proceedings and Limitation

Legal Framework and Precedents: The provisions of Sections 143(3), 144C(1), 144C(13), 153(1), and 153(4) of the Income Tax Act govern the assessment and limitation periods. Section 144C mandates issuance of a valid draft assessment order before final assessment. The Supreme Court decision in Maruti Suzuki India Ltd [416 ITR 613] establishes that any order issued in the name or PAN of a non-existent entity is illegal, invalid, and without jurisdiction. The decision in Mahagun Realtors Pvt Ltd [443 ITR 194] was distinguished since the facts differ regarding intimation of merger.

Court's Interpretation and Reasoning: The Tribunal noted that the amalgamation of the amalgamating company into the assessee was approved by the Regional Director with effect from 01.04.2021. The assessee duly intimated the Jurisdictional Assessing Officer and the Transfer Pricing Officer about the merger. Despite this, the Transfer Pricing order dated 26.10.2023 and the draft assessment order dated 29.12.2023 were issued in the name and PAN of the non-existent amalgamating company. The final assessment order was passed in the name of the existing entity but on the PAN of the non-existent entity.

The Tribunal held that the issuance of the Transfer Pricing order and draft assessment order in the name of a non-existent entity is a jurisdictional error that cannot be cured by Section 292B of the Act (which deals with rectification of mistakes). Such an error renders the entire assessment proceedings void ab initio. The Tribunal relied heavily on the Supreme Court's ruling in Maruti Suzuki India Ltd and subsequent decisions of various High Courts and Tribunals, including Pharmazell India Pvt Ltd, L&T Infrastructure Development Projects Ltd, Biocon Biologics Ltd, FedEx Express Transportation and Supply Chain Services India Pvt Ltd, Siemens Ltd, and Boeing India Pvt Ltd.

Key Evidence and Findings: The timeline showed that notices and orders were issued on the name and PAN of the amalgamating company after the merger and after intimation was given to authorities. The Tribunal found that the Assessing Officer was aware of the merger and the transfer of proceedings from NFAC to JAO due to the merger.

Application of Law to Facts: The Tribunal applied the principle that a valid draft assessment order is a sine qua non for jurisdiction under Section 144C. Since the draft order was issued in the name of a non-existent entity, it was invalid, and thus the final assessment order premised on it was also invalid.

Treatment of Competing Arguments: The Revenue argued that the final assessment order was passed in the correct name and hence the proceedings are valid. The Revenue also contended that the mistake in the draft order could be rectified under Section 292B. The Tribunal rejected these arguments, stating that the error was jurisdictional and not a mere procedural irregularity. The Tribunal distinguished the Mahagun Realtors case on facts.

Conclusion: The Tribunal concluded that the Transfer Pricing order and draft assessment order issued in the name of the non-existent entity are illegal and void ab initio, and consequently, all subsequent proceedings including the final assessment order are invalid and liable to be quashed.

Issue 2: Downward Transfer Pricing Adjustment Towards Management Service Fees

Legal Framework and Precedents: Transfer pricing provisions under Chapter X of the Income Tax Act govern the determination of arm's length price for international transactions. The "Other Method" is one of the prescribed methods for benchmarking.

Court's Interpretation and Reasoning: Since the Tribunal quashed the entire assessment on legal grounds, it did not delve into the merits of the downward adjustment towards management service fees. However, the assessee contended that the lower authorities erred in adopting the "Other Method" to benchmark the fees as NIL, rejected the aggregation approach, and made erroneous factual conclusions denying receipt, need, benefit, and characterizing the services as shareholder activities.

Conclusion: These grounds were dismissed as infructuous in view of the quashing of the assessment on legal grounds.

Issue 3: Upward Transfer Pricing Adjustment Towards Interest on Overdue Receivables

Legal Framework and Precedents: Chapter X of the Act also governs interest on overdue receivables. Benchmarking of interest rates and credit periods is critical in such adjustments.

Court's Interpretation and Reasoning: The assessee challenged the upward adjustment on grounds that the provisions of Chapter X were extraneous, the primary transaction was at arm's length, working capital adjustments accounted for the impact, no interest was charged on non-associated enterprises, and the benchmark rate and credit period adopted were arbitrary.

Conclusion: These issues were also dismissed as infructuous due to the quashing of the entire assessment on legal grounds.

Issue 4: Computation of Total Income and Levy of Interest and Fees

Legal Framework and Precedents: The computation of total income must be consistent with the final assessment order. Levy of interest and fees must be in accordance with the Act.

Court's Interpretation and Reasoning: The assessee contended that the Assessing Officer erred in considering an inflated total income and levying interest and fees incorrectly.

Conclusion: These grounds were dismissed as infructuous following the quashing of the assessment.

3. SIGNIFICANT HOLDINGS

"Any order issued in the name or PAN of the non-existent entity would be illegal, invalid and without jurisdiction accordingly liable to be quashed." (Maruti Suzuki India Ltd)

"Mentioning the name and PAN of the non-existent entity on the orders or notices is not a clerical error that can be cured by Section 292B of the Act, rather an erroneous assumption of jurisdiction which makes such an order illegal, invalid and liable to be quashed."

"The existence of a valid draft assessment order is the foundational cornerstone for a valid assessment and accordingly absence of the same will invalidate the entire assessment proceeding." (FedEx Express Transportation and Supply Chain Services India Pvt Ltd)

"Passing a draft assessment order is a jurisdictional requirement and if the Assessing Officer passes such an order in the name of a non existing person, there can never be a valid draft order in the eyes of law, making thereby the entire proceeding inherently without jurisdiction." (Boeing India Pvt Ltd)

"It is obligatory on the part of the Assessing Officer to pass a valid draft assessment order; failure to do so amounts to a jurisdictional defect, which cannot be cured under Section 292B of the Act or corrected by passing the final assessment order in the correct name."

Final Determinations:

- The Transfer Pricing order and draft assessment order issued in the name of a non-existent entity are void ab initio.

- The final assessment order premised on such invalid orders is also void and liable to be quashed.

- The other grounds relating to transfer pricing adjustments and income computation become infructuous in view of the quashing of the assessment on legal grounds.

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