TaxTMI 
TaxTMI 
2020 (7) TMI 329
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee has assailed the impugned order on the following grounds of appeal before us: "Being aggrieved by the order under section 250 of the Income-tax Act, 1961 ('the Act') passed by the Commissioner of Income-tax (Appeals) - 58, Mumbai (hereinafter referred to as "the CIT(A)" ), the Appellant hereby submits the following grounds of appeal for your sympathetic consideration: (1) Ground No. 1 -Adding reversal of unbilled revenue to the total income - Rs. 1,90,52,225/. 1.1. 0n the facts and in the circumstances of the case and in law, the learned AO erred and the Hon'ble CIT(A) further erred in treating the reversal of unbilled revenue of Rs. 1,90,52,225/-as taxable income, through recognized as revenue in prior years. (2) Disallowance of penalties paid in foreign countries - Rs. 32.60 Lakhs 2.1 On the facts and in the circumstances of the case and in law, the learned AO erred and the Hon'ble CIT(A) further erred in upholding the action of the learned AO of disallowing an amount of Rs. 32.60 lakhs under Explanation 1 to Section 37(1) of the Act. (3) Disallowance under section 14A - 85,10,737/- 3.1 On the facts....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to reconcile the software and hardware expenditure with neither reimbursement from client nor milestones of the customer identifying the supply of hardware and software. 6. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in allowing leasehold land registration 'expenses of Rs. 8,80,000/- as revenue expenditure instead of capital expenditure. 7. On the facts and in the circumstances of the case and in law, the I d. CIT (A) erred in restricting u/s 14A disallowance to the extent of tax exempt income i.e. Rs. 85,10,737/- without considering the fact that Notification 43/2016 dated 2-6-2016 will not apply for the this Assessment year. 8. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred allowing of Rs. Rs. 51,50,00,000/- (gross debit balances' reflected in the balance Sheet) as unexplained cash credit without considering the fact that assessee failed to explain cash credit in his books of account. 9. For these and other grounds that may, Inc urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored." Further, the assessee vide i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the case of Pr. CIT, New Delhi v. Maruti Suzuki India Limited (Civil appeal No. 5409 of 2019, dated 25-7-2019). It was further submitted by the ld. A.R, that in case the additional ground of appeal was decided in favour of the assessee, then the other grounds of appeal would be rendered as merely academic in nature. Per contra, the ld. Departmental representative (for short "D.R") strongly objected to the admission of the additional ground of appeal as was sought by the assessee. It was submitted by the ld. D.R that as substantial delay was involved on the part of the assessee in seeking admission of the additional ground of appeal, therefore, the same did not merit to be admitted. Apart from that, it was averred by the ld. D.R that now when the assessee had participated in the assessment proceedings, henceforth validity of the same could not be challenged by it. Rebutting the said claim of the ld. D.R, Mr. J.D Mistry, Ld. Senior advocate for the assessee submitted, that the Hon'ble Apex Court in the case of PCIT v. Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC), had observed, that now when the very basis on which jurisdiction was invoked was fundamentally at odds with the le....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s an estoppel against law. Accordingly, in the totality of the aforesaid facts, we find no reason as to why the additional ground of appeal raised by the assessee, therein seeking adjudication of a legal issue based on the facts borne from the records may not be admitted. We thus not being persuaded to accept the objection raised by the ld. D.R as regards admission of the aforesaid additional ground of appeal raised by the assessee, admit the same. 3. Briefly stated, M/s Satyam Computers Services Ltd. which was engaged in the business of Software development had e-filed its return of income for A.Y. 2010-11 on 15-10-2010, declaring its total income at Rs. nil under the normal provisions of the Act. The return of income filed by the aforementioned assessee viz. M/s Satyam Computers Services Ltd. was processed as such under Sec. 143(1) of the Act on 8-3-2011. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 4. As is discernible from the records the objects of the assessee company which was incorporated as Satyam Computer Services Pvt. Ltd. at Hyderabad on 24-6-1987, were to undertake design and development of system and a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er dated 14-11-2014 u/s 143(3) r.w.s 144C(1) r.w.s 153 of the Act. In reply, the assessee vide its letter dated 1-12-2014 intimated that it would prefer an appeal before the CIT(A). The A.O thereafter framed the assessment in the case of the assessee and after making certain additions/disallowances, vide his assessment order passed u/s 143(3) r.w.s 153 r.w.s 144C(4), dated 5-1-2015 assessed its loss at (Rs. 250,86,52,830/-). On appeal, the additions/disallowances made by the A.O were partly vacated by the CIT(A), details as regards which are charted as under: Sr. No. Particular of addition/disallowance made by A.O Amount As per order of CIT(A) 1. TP adjustment as regards receipt of Services from AEs. Rs. 1,84,00,000/- (i). Rejection of CPM as the MAM as per the TPSR was upheld by the CIT(A); 2. TP adjustment as regards provision of Software Development Services to AEs Rs. 43,20,000/- (ii). The exclusion of Rs. 854 million as the operating income of the assessee was set aside by the CIT(A); (iii) The exclusion of M/s Akshay Software Technologies Limited AND M/s Quintegra Solutions as comparables by the TPO was uphe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g of interest the rate of 7% that was charged by the assessee from its other AEs. 6. Addition of unbilled revenue recognized as revenue in the preceding year, to the extent the same was in excess of the prior period reversal. Rs. 1,90,52,225/- Addition was sustained by the CIT(A). 7. Addition of short recorded interest on bank deposit. Rs. 72,00,000/- Addition was confirmed by the CIT(A) (as the assessee had claimed that it had offered the interest income for tax in A.Y 2011-12 i.e at the time of maturity of deposits, therefore, the CIT(A) had directed the A.O to verify the factual position and allow relief to the said extent in the year of maturity of deposits. 8. Disallowance of prior period expenses Rs. 1,51,12,637/- Disallowance was deleted by the CIT(A). 9. Disallowance of amounts paid by the assessee as penalties to (i). Municipal Corporation of Vishakapatnam; (ii). Assistant Registrar of Customs Southern range; and (iii). Foreign authorities. Rs. 34,00,000/- Disallowance was confirmed by the CIT(A). 10. Disallowance of excess depreciation on fixed assets capitalized prior to 1-4-2009. Rs. 1,12,10,000/- Disallowance ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith the assessee company was in the notice of the A.O, however, he had framed the assessment under Sec. 143(3) r.w.s 153 r.w.s 144C(4), dated 5-1-2015 in the name of "M/s Satyam Computers Services Ltd." Accordingly, it was submitted by the ld. A.R that the assessment framed in the name of the amalgamating company viz. M/s Satyam Computers services Ltd. which had ceased to exist in the eyes of law was invalid and untenable in law. It was averred by the ld. A.R that the A.O despite being well informed of the fact that M/s Satyam Computers Services Ltd. which had w.e.f 1-4-2011 merged with the assessee company, had thus ceased to exist, however, had chosen to frame the assessment in the hands of the said non-existent entity. In order to drive home his aforesaid claim the ld. A.R drew our attention to Page 2 - Para 4 of the assessment order, wherein the A.O had categorically observed that Satyam Computers Services Limited had w.e.f 1-4-2011 merged with M/s Tech Mahindra Ltd. Further, the Ld. A.R in order to buttress his contention that an assessment on a non-existent entity was invalid in the eyes of law, therein relied on the judgment of the Hon'ble Supreme Court in the case of PC....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld. D.R relied on the orders of the lower authorities. It was once again reiterated by the ld. D.R, that now when the assessee had participated in the assessment proceedings, therefore, it was not permissible on its part to now assail the validity of the assessment order. 8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. In order to appreciate the nature of the controversy involved in the present appeal, the narration of the facts would be instructive. M/s Satyam Computers Services Ltd. was initially incorporated as Satyam Computers Pvt. Ltd. at Hyderabad on 24-6-1987. Objects of the company were to undertake design and development system and application software either for its own use or for export. On 15-7-1991 the company changed its name to M/s Satyam Computers Services ltd. Subsequently, on 26-8-1991, the company went public and 81.22% shareholding was offered to the public. M/s Satyam Computers Services Ltd. was subsequently merged with the assessee company i.e M/s Tech Mahindra Ltd. i.e w.e.f 1-4-2011. Subs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uently, w.e.f 8-2-2015, its name was changed to Suzuki Powertrain India Ltd. On 28-11-2012, the assessee had filed its return of income in the name of Suzuki Powertrain India Ltd. (no amalgamation having been taken place on the relevant date). On 29th January, 2013 a scheme for amalgamation of Suzuki Powertrain India Ltd. and Maruti Suzuki India Ltd. was approved by the High court w.e.f 1-4-2012. As per the terms of the approved scheme the liabilities and duties of the transferor company were to stand transferred to the transferee company without any further act or deed. On 2nd April, 2013, Maruti Suzuki India Ltd. intimated the A.O about the amalgamation. The case was selected for scrutiny and a notice under Sec. 143(2) of the Act was issued on 26-9-2013, followed by a notice under Sec. 142(1) to the amalgamating company. On 22nd January, 2016, the Transfer Pricing Officer passed an order under Sec. 92CA (3) of the Act. On 11th March, 2016, a draft assessment order was passed in the name of Suzuki Powertrain (amalgamated with Maruti Suzuki India ltd.). It is a matter of fact that the assessee viz. Maruti Suzuki India Ltd. had participated in the assessment proceedings of the erstw....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Supreme Court in the case of Saraswati Industrial Syndicate Ltd. v. CIT, 186 ITR 278, wherein it was observed, that it was trite law that on amalgamation, the amalgamating company ceases to exist in the eyes of law. The Hon'ble Supreme Court while concluding as hereinabove had observed as under: "The question is whether on the amalgamation of the India Sugar Company with the appellant Company, the Indian Sugar Company continued to have its entity and was alive for the purposes of Section 41(1) of the Act. The amalgamation of the two companies was effected under the order of the High Court in proceedings under section 391 read with Section 394 of the Companies Act. The Saraswati Industrial Syndicate. the trans free Company was a subsidiary of the Indian Sugar Company, namely, the transferor Company. Under the scheme of amalgamation the Indian Sugar Company stood dissolved on 29th October, 1962 and it ceased to be in existence thereafter. Though the scheme provided that the transferee Company the Saraswati Industrial Syndicate Ltd. undertook to meet any liability of the Indian Sugar Company which that Company incurred or it could incur, any liability, before the dissolu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e eyes of law. Accordingly, as per the settled position of law laid down by the Hon'ble Supreme Court in the case of Maruti Suzuki India Ltd. (supra) and M/s Spice Enfotainment Ltd. (supra), we are of the considered view that as the assessment order passed in the hands of a non-existent entity viz. M/s Satyam Computer Services Ltd., has no sanctity of law, therefore, the same cannot be sustained and is hereby quashed. 10. As we have quashed the assessment order for want of jurisdiction, therefore, we refrain from adverting to the merits of the case which having been rendered as academic in nature are thus left open. The additional ground of appeal raised by the assessee is allowed. 11. Resultantly, the appeal of the assessee in ITA No. 7319/Mum/2016 is allowed, while for the appeal of the revenue in ITA No. 7156/Mum/2016 is dismissed. ITA No. 4909/Mum/2017 ITA No. 4856/Mum/2017 A.Y.-2011-12 12. We shall now take up the cross-appeals of the assessee and the revenue for A.Y 2011-12. The assessee has assailed the impugned order on the following grounds of appeal before us: "Being aggrieved by the order under section 25....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of depreciation on cars purchased by the Appellant and provided to its employees by treating the same as personal expenses when the vehicles were provided to employees for carrying our duties in relation to business c The Appellant craves leave to add, amend, delete, rectify, substitute and modify any of the aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing the appeal. The Appellant craves leave to submit such facts/documents/evidences in the course of hearing as may be necessary." On the other hand, the revenue has challenged the order of the CIT(A) on the following grounds of appeal before us : "1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in excluding TPO's selection of cases where high margins were there, citing higher margin as reason wherein higher margin should not e ground alone to rule out comparables and when nothing is established to prove comparables are functionally different or exceptional reasons for high margin normal entity of same industry cannot generate. 2. On the facts and in the circumstances of the case and in law....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e A.O were partly vacated by the CIT(A), details as regards which is charted as under: Sr. No. Particular of addition/disallowance made by A.O Amount As per order of CIT(A) 1. TP adjustment as regards receipt of Services from AEs. Rs. 5,41,26,947/- (i). Rejection of RPM/CPM as the MAM as per the TPSR was upheld by the CIT(A). It was observed by the CIT(A), that comparing the segmental financial results and operations of the company vis-à-vis the comparables on OP/OC basis was fully justified under TNMM method adopted by the TPO; 2. TP adjustment as regards provision of Software Development Services to AEs Rs. 1,73,71,369/- (ii). On comparables, it was observed by the CIT(A) that the assessee had submitted a list of 16 comparables. Out of the said 16 comparables, the TPO had rejected 7 comparables. Finally, the TPO had adopted 13 comparables i.e 9 comparables (selected by the assessee) & 4 comparables (selected by the TPO). The CIT(A) was of the view that as the 4 comparables included by the TPO in the final list of comparables, had a high margins ranging from 28.55% to 56.44%, therefore, it would be reasonable if the final list of comparab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he date of allotment of shares). 6. Disallowance of expenses incurred by the assessee on purchase of hardware by characterizing of the same as a 'capital expenditure' by the A.O, despite the claim of the assesse that the said hardware items were billed to the customers in their bills. Rs. 13,53,40,000/- The CIT(A) observing that the claim for deduction of hardware items was prima facie allowable, directed the A.O to verify that the same formed part of the billed invoices raised by the assessee on its customers. 7. Disallowance of depreciation on cars given by the assessee to its employees. Rs. 5,93,72,171/- Disallowance was confirmed by the CIT(A). 8. Not granting of TDS credit (as per 'Form 26AS') Rs. 41,08,88,050/- The CIT(A) directed the A.O to examine he TDS certificates and allow credit for the TDS payments to the assessee. 15. Both the assessee and the revenue being aggrieved with the order of the CIT(A) have carried the mater by way of cross-appeals before us. The ld. Authorized Representative (for short 'A.R') for the assessee at the very outset of the hearing of the appeal submitted that a coordinate bench of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ltd. at Hyderabad on 24-6-1987. Objects of the company were to undertake design and development system and application software either for its own use or for export. On 15-7-1991 the company changed its name to M/s Satyam Computers Services ltd. Subsequently, on 26-8-1991, the company went public and 81.22% shareholding was offered to the public. M/s Satyam Computers Services ltd. was subsequently merged with the assessee company i.e M/s Tech Mahindra Ltd. w.e.f 1-4-2011. Subsequent to the aforesaid merger, the existing proceedings against Satyam Computers Services Ltd. were taken over by the assessee company. 8. Admittedly, as is discernible from the assessment order the fact that M/s Satyam Computers Services Ltd. had been merged with M/s Tech Mahindra Ltd. 1-4-2011 was clearly to the knowledge of the assessing officer. In fact, a specific mention of the fact that M/s Satyam Computers Services Ltd. had merged with the assessee company on 1-4-2011 and all the existing proceedings against it were taken over by the assessee company finds a specific mention in the assessment order passed by the A.O under Sec. 143(3) r.w.s 144C(3), dated 25-5-2015. However, we find that desp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ia Ltd. (no amalgamation having been taken place on the relevant date). On 29th January, 2013 a scheme for amalgamation of Suzuki Powertrain India Ltd. and Maruti Suzuki India Ltd. was approved by the High court w.e.f 1-4-2012. As per the terms of the approved scheme the liabilities and duties of the transferor company were to stand transferred to the transferee company without any further act or deed. On 2nd April, 2013, Maruti Suzuki India Ltd. intimated the A.O about the amalgamation. The case was selected for scrutiny and a notice under Sec. 143(2) of the Act was issued on 26-9-2013, followed by a notice under Sec.142(1) to the amalgamating company. On 22nd January, 2016, the Transfer Pricing Officer passed an order under Sec. 92CA (3) of the Act. On 11th March, 2016, a draft assessment order was passed in the name of Suzuki Powertrain (amalgamated with Maruti Suzuki India ltd.). It is a matter of fact that the assessee viz. Maruti Suzuki India Ltd. had participated in the assessment proceedings of the erstwhile amalgamating entity i.e Suzuki Powertrain India Ltd., through its authorized representatives and officers. On 14thOctober, 2016, the DRP issued its order in the name of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ourt while concluding as hereinabove had observed as under: "The question is whether on the amalgamation of the India Sugar Company with the appellant Company, the Indian Sugar Company continued to have its entity and was alive for the purposes of Section 41(1) of the Act. The amalgamation of the two companies was effected under the order of the High Court in proceedings under section 391 read with Section 394 of the Companies Act. The Saraswati Industrial Syndicate. the trans free Company was a subsidiary of the Indian Sugar Company, namely, the transferor Company. Under the scheme of amalgamation the Indian Sugar Company stood dissolved on 29th October, 1962 and it ceased to be in existence thereafter. Though the scheme provided that the transferee Company the Saraswati Industrial Syndicate Ltd. undertook to meet any liability of the Indian Sugar Company which that Company incurred or it could incur, any liability, before the dissolution or not thereafter. Generally, where only one Company is involved in change and the rights of the share holders and creditors are varied, it amounts to reconstruction or reorganisation or scheme of arrangement. In amalgamation tw....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aw as had been so laid down by the Hon'ble Supreme Court in the case of Maruti Suzuki India Ltd. (supra) and M/s Spice Enfotainment Ltd. (supra), we are of the considered view that the order passed by the Pr. CIT-2, Mumbai, cannot be sustained and is liable to be vacated on the said count itself. Apart there from, we are also persuaded to subscribe to the claim of the ld. A.R that in case the assessment in itself having been framed in the hands of a non-existent entity is found to be non-est in the eyes of law, the same thereafter cannot be revised by the CIT under Sec. 263 of the Act. In fact, we are of a strong conviction that an assessment order which in itself is found to be non-est in the eyes of law cannot be revised by the CIT, for the reason, that the same would imply extending/granting fresh limitation to the A.O for passing of a fresh assessment order. Our aforesaid view is fortified by the order of a coordinate bench of the Tribunal i.e ITAT, Mumbai "G" Bench in the case of West Life Development Ltd. v. PCIT-5, Mumbai (2017) 88 taxman.com 439 (Mum). Accordingly, in the backdrop of our aforesaid observations, we are of the considered view that now when the assessment ....