TaxTMI 
TaxTMI 
2019 (7) TMI 1554
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....rivate Limited, an entity which is not in existence on the date of passing the order on account of merger with the Appellant. It is prayed that the draft assessment order passed by the learned AO be held as bad in law, null and void-ab-initio and accordingly the final assessment order passed by the learned AO pursuant to the directions of the Hon'ble Dispute Resolution Panel ('DRP') is also liable to be quashed. II. Corporate Tax Grounds Disallowance under Section 43B of the Income-tax Act, 1961 ('the Act') amounting to INR 46,88,806 2. On the facts and in the circumstances of the case and in law, the learned AO erred in applying the provisions of Section 43B of the Act to the impugned provision for leave encashment. The learned AO erred in not allowing deduction of amount paid during AY 2011-12 towards leave encashment before the specified date under Section 43B of the Act, which pertained to a provisions created in years prior to AY 2011 12. It is prayed that the disallowance of provision for leave encashment of INR 46,88,806 under Section 43B of the Act be deleted. It is further prayed that the deduct....
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.... in making an adjustment of INR 12,07,977 to the income of the Appellant in respect of notional interest arising on account of delay in collection of dues from Associated Enterprises ('AEs'). It is prayed that the learned AO be directed to delete the adjustment of INR 12,07,977 in respect of notional interest arising on account of delay in collection of dues from AEs. 8. On the facts and in the circumstances of the case and in law, the AO / TPO erred in: i. Disregarding the explicit directions issued by the DRP; and ii. Disregarding the fact that in actual conduct, the Appellant has not charged any interest to its non-AEs for the delay in collection of dues. It is prayed that the learned AO be directed to follow the explicit directions issued by the DRP and consider the actual conduct followed by the Appellant in charging interest to non-AEs, thereby deleting the transfer pricing adjustment of INR 12,07,977 on account of notional interest. 9. On the facts and in the circumstances of the case and in law, the AO / TPO / DRP erred in making an adjustment of INR 8,03,233 to the income of the Appellant in respect of notional interest ....
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.... amounting to INR 20,00,000. It is prayed that credit of advance tax paid amounting to INR 20,00,000 be granted to the Appellant V. Levy on interest 15. On the facts and in the circumstances of the case and in law, the learned AO erred in levying interest under Section 234B and 234C of the Act. It is prayed that the levy of interest under Section 234B and 234C of the Act ought to be deleted." 3. The assessee before us is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of clearing services. The return of income was filed by the assessee declaring an income of Rs. 13,08,38,720/-, which was subject to a scrutiny assessment whereby the total income has been assessed at Rs. 17,96,36,280/-. The difference between the returned and assessed income is primarily on account of transfer pricing adjustment and disallowance of Provision for leave encashment. The aforesaid aspects have been challenged by the assessee in appeal before us. 4. A perusal of the aforestated Grounds of appeal reveal that apart from assailing the merits of additions made to the returned income, assessee has....
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....assessee pointed out that the assessee submitted a communication dated 01.10.2013 to the Assessing Officer intimating the approval of scheme of amalgamation of the erstwhile FEIPL with FETSCS. It has also been brought out that a communication dated 28.01.2015 was also submitted to the TPO informing him about the amalgamation of FEIPL with FETSCS. The TPO passed the order under Section 92CA(3) of the Act in the name of the erstwhile FEIPL on 30.01.2015. Further, the draft assessment order under Section 143(3) r.w.s. 144C(1) of the Act was passed by the Assessing Officer on 03.03.2015 incorporating the order of the TPO also in the name of the erstwhile FEIPL. 7. On receipt of the draft assessment order, the assessee company, FETSCS, which was in existence at that point of time, filed its objections against the draft assessment order before the Dispute Resolution Panel (DRP) wherein, inter-alia, it objected to the validity of the draft assessment order on the ground that it has been passed in the name of amalgamating company which was not in existence on the date of passing of such order. The DRP has since dismissed such objections as a procedural mistake. In any case, the DRP pass....
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....sessment under Section 147/148 of the Act without issue of notice under Section 143(2) of the Act, etc. A reference has also been made to the judgments of the Hon'ble Delhi High Court in the case of Spice Entertainment Ltd. vs CIT, ITA Nos. 475 & 476 of 2011 (Del.) and CIT vs Dimension Apparels Pvt. Ltd., 370 ITR 288 (Del.) to canvass that the assessment order passed in the name of a non-existent entity is to be treated as an illegality and not merely a procedural defect. Reference has also been made to the following decisions to say that where a notice relating to assessment is issued on a non-existent amalgamating company, the entire assessment proceedings is liable to be set-aside :- i) Ambuja Cements Rajasthan Ltd. vs ACWT-LTU (WTA No. 11/Mum/2014) (Mum. Trib.) ii) I.K. Agencies Pvt. Ltd. vs. CWT (AWT No. 1, 2 & 3 of 2003 (Calcutta High Court) 10. Another aspect of the matter, and which has been vehemently canvassed before us, is with reference to the scheme of assessment as provided under Section 144C of the Act. In this context, it is canvassed that the provisions contained in Sec. 144C of the Act are special provisions in order to provide an alternat....
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....44C of the Act impacts assessee also since it empowers the Assessing Officer to make variation in the income or loss returned that is prejudicial to the interests of the assessee. Sec. 144C of the Act also gives a right to the assessee to agitate the draft order before the DRP in case assessee is aggrieved with the variation so proposed. In other words, as per the Learned Representative, existence of a legally valid draft assessment order becomes the foundation for commencement of a valid DRP proceedings and the subsequent final assessment order. It has been emphasised that because of invalidity in assuming jurisdiction while passing of a draft assessment order, the entire assessment proceedings in the instant case have become invalid; in this context, reliance has been placed on the judgment of the Hon'ble Bombay High Court in the case of International Air Transport Association vs DCIT and ors., WP (L) No. 351 of 2016 to say that passing of a valid draft assessment order is a statutorily mandated requirement. Emphasising the importance of a valid draft assessment order, the Learned Representative referred to two set of legal propositions. Firstly, it was pointed out that where....
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....hich is curable in terms of Sec. 292B of the Act. Apart therefrom, it has been contended that the draft assessment order cannot be equated with the final assessment order, and that the proceedings before the DRP are only a continuity of assessment proceedings and, therefore, any defect which has crept into the draft assessment order would not be fatal to the entire assessment proceedings. The Ld. DR also referred to the requirements of Sec. 170(2) of the Act, which refers to an 'assessment', and since the assessment is understood to be completed under Section 144C of the Act only on passing of the final assessment order; and, in the present case, such final assessment order has been passed in the name of the correct entity, i.e. FETSCS; therefore, according to the ld. CITDR, the objection raised by the assessee is not correct. In sum and substance, the stand of the Ld. DR is that the error, if any, in passing the assessment order in the name of a wrong entity does not affect the validity of the final assessment order which, in any case, has been passed in the name of the correct entity. 16. We have carefully considered the rival submissions. As our discussion in the earlier para....
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....ent to amalgamation of two companies being approved by a High Court, the amalgamating company ceases to exist in the eyes of law, as has been explained by the Hon'ble Supreme Court in the case of Saraswati Industrial Syndicate Ltd. vs CIT, 186 ITR 278 (SC). In fact, to the similar effect is also the judgment of Hon'ble Delhi High Court in the case of Spice Entertainment Ltd. (supra). 18. In the above factual background, what we are required to consider is as to whether the draft assessment order passed under Section 143(3) r.w.s. 144C(1) of the Act in the case of a non-existent entity is without jurisdiction, as canvassed by the assessee. Furthermore, if we were to accept the aforesaid proposition, the next question would be as to whether the final assessment order passed by the Assessing Officer under Section 143(3) r.w.s. 144C(13) of the Act is also without jurisdiction, especially in view of the fact that the final assessment order has been passed in the correct name, i.e. in the name of the amalgamated entity. 19. Before we proceed further, it would be appropriate to briefly touch upon the scheme of reference to Dispute Resolution Panel contained in Sec. 144C of t....
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.... name the TPO has proposed variation in the order passed under Section 92CA(3); and, secondly, any foreign company. In the instant case, FEIPL, the entity in whose name the draft assessment order has been passed, was not a foreign company and, therefore, it can be understood to be an 'eligible assessee' only if it falls within Sec. 144C(15)(b)(i) of the Act. Notably, sub-clause (i) of clause (b) of sub-section 15 of Sec. 144C of the Act refers to a 'person' in whose case variation is proposed by the order of TPO. The word 'person' has been defined in Sec. 2(31) of the Act to mean, inter-alia, a 'company', which in turn has been defined in Sec. 2(17) of the Act. Broadly speaking, a 'company' is understood to mean an 'Indian company or any institution, association or body corporate registered/incorporated/declared'. It is also notable that the expression 'Indian company' has also been defined in Sec. 2(26) of the Act to mean 'a company which is formed and registered under the Companies Act, 1956'. Therefore, on a conjoint reading of the above provisions, it is justifiably canvassed by the assessee before us that qua the instant case, the 'eligible assessee' under Section 144C of the ....
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.... of the proposed order of assessment if he proposes to make a variation in the returned income or loss which is prejudicial to the interests of the assessee. Undoubtedly, the draft assessment order has legal connotations as it lays the foundation of any prospective reduction in the income of the assessee or creates a tax liability over and above the returned income. Thus, in that sense, it is not merely a procedural step in the assessment proceedings. Further, if we go a little deeper into the scheme of Sec. 144C of the Act and consider sub-section (3) of Sec. 144C of the Act, which reads as under "(3) The Assessing Officer shall complete the assessment on the basis of the draft order, if ......", it envisages that an assessment has to be completed on the basis of a draft assessment order, thereby making it apparent that the draft order is a core component of assessment. In fact, the assessee has an option to accept the draft order proposed by the Assessing Officer as per Sec. 144C(2) of the Act. In such a case, the Assessing Officer will proceed to pass the final assessment order under Section 143(3) r.w.s. 144C(13) of the Act without making any further v....
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....ore the Assessing Officer passes a final order under Section 143(3) of the Act in case of an 'eligible assessee', and the relevant extract of the judgment reads as under :- "5. Therefore, in view of Section 144C(15) of the Act which defines eligible assessee to whom Section 144C(1) of the Act applies to inter alia mean any foreign company. Therefore, a draft assessment order under Section 144C(1) of the Act is mandated before the Assessing Officer passes a final order under Section 143(3) of the Act in case of eligible assessee. An draft assessment order passed under Section 144C(1) of the Act bestows certain rights upon an eligible assessee such as to approach the DRP with its objections to such a draft assessment order. This is for the reason that an eligible assessee's grievance can be addressed before a final assessment order is passed and appellate proceedings invoked by it. However, these special rights made available to eligible assessee under Section 144C of the Act are rendered futile, if directly a final order under Section 143(3) of the Act is passed without being preceded by draft assessment order. 6. In the above view, the assessment order dated 2....
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....n case, an assessee does not object to the draft assessment order, then a final assessment order is passed in terms of the draft assessment order by the Assessing Officer. It is only on passing of the final assessment order that the assessee, if aggrieved by it, would be able to approach the appellate authorities under the Act. These special rights are made available under Section 144C of the Act to an eligible assessee such as the petitioner. Therefore, it cannot be ignored by passing an final order under Section 144(13) of the Act without preceding it with a Draft Assessment order as required therein. 10. Moreover, so far as a Foreign Company is concerned, the Parliament has provided a special procedure for its assessment and appeal in cases where the Assessing Officer does not accept the returned income. In this case, in the working out of the order dated 5th May, 2017 of the Tribunal results in the returned income being varied, then the procedure of passing a draft assessment order under Section 144C(1) of the Act is mandatory and has to be complied with, which has not been done." (underlined for emphasis by us) 24. A perusal of the aforesaid judgments of t....
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.... Ld. DR is that such a mistake is rectifiable in terms of Sec. 292B of the Act. In this context, we have already inferred in the earlier paras that the draft assessment order cannot be passed unless there is an 'eligible assessee' in terms of Sec. 144C(15)(b)(i) of the Act. We have also noted earlier that 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 in our view, cannot be cured under Section 292B of the Act or corrected by passing the final assessment order in the correct name, as canvassed by the Ld. DR. To emphasise, a draft assessment order in the name of an 'eligible assessee' provides the requisite jurisdiction to the Assessing Officer under Section 144C(1) of the Act. If there is a mistake while complying with such a jurisdictional requirement, the same cannot be termed as a procedural irregularity or mistake rectifiable under Section 292B of the Act. Thus, the said stand of the Ld. DR is liable to be rejected. We hold so. 27. Before parting, we may also refer to the reliance placed by the Ld. DR on the judgment of the Hon'ble Delhi High Court in the case of Sky ....
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.... we may also discuss the reference made by the appellant to the provisions of Sec. 170 of the Act in order to demonstrate that the actions of the income-tax authorities (in the context of the order passed by the TPO and draft assessment order passed by the Assessing Officer) were not as per law. In this context, we may peruse Sec. 170 of the Act, which reads as under :- "170.(1) Where a person carrying on any business or profession (such person hereinafter in this section being referred to as the predecessor) has been succeeded therein by any other person (hereinafter in this section referred to as the successor) who continues to carry on that business or profession, - (a) the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession; (b) the successor shall be assessed in respect of the income of the previous year after the date of succession. (2) Notwithstanding anything contained in sub-section (1), when the predecessor cannot be found, the assessment of the income of the previous year in which the succession took place up to the date of succession and of the pre....
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....2CA(3) of the Act and the draft assessment order by the Assessing Officer ought to have been made on FETSCS, the amalgamated company. As regards the argument of the Ld. DR to the effect that the Assessing Officer has complied with Section 170 of the Act; according to the Ld. DR, the assessment referred to Sec. 170 of the Act means completion of assessment by passing a final order of assessment and the final assessment order has been passed in the name of FETSCS, the successor amalgamated company. In our view, the word 'assessment' under the Act cannot be interpreted so narrowly but has to be understood in each section with reference to the context in which it has been used, as held by the Hon'ble Supreme Court in the case of A. N. Lakshman Shenoy vs. ITO, (1958) 34 ITR 275 (SC). In fact, the Hon'ble Privy Council in the case of CIT v. Khemchand Ramdas, 4 ITR 414 (PC) has observed as under :- "One of the peculiarities of most Income-tax Acts is that the word "assessment" is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable, and sometimes the procedure laid down in the Act for imposing liability upon the tax....