DIAMOND DYE-CHEM LTD,MUMBAI vs. ASST CIT CIR 6(2)(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 596/Mum/2015 (A.Y: 2010-11) Diamond Dye-Chem Ltd Vs. ACIT, Circle – 6(2)(2) (Now merged with BASF 5th Floor, Aayakar India Ltd) Bhavan, Plot No. 37, Chandivali Mumbai – 400 001. Farm Road, Chandivali, Andheri (East), Mumbai – 400 072. �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACD3478N Appellant .. Respondent Appellant by : Mr.Nitesh Joshi.AR Respondent by : Dr.Yogesh Kamat, CIT DR & Sri.Satya Pinisetty.DR Date of Hearing 27.01.2022 Date of Pronouncement 03.03.2022 आदेश / O R D E R PER PAVAN KUMAR GADALE JM:

The assessee has filed the appeal against the order u/s 143(3) r.w.s 144C(13) passed in pursuance to the directions of the Hon’ble DRP. The assessee has raised the grounds of appeal no 1 to 6 on corporate tax and Transfer pricing adjustments.

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At the time of hearing, the Ld.AR made submissions on the additional grounds of appeal and are admitted. The assessee has raised the following additional grounds of appeal;

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is not the TPO & hence is not authorised to pass the transfer pricing order u/s 92CA. 3. The Applicant therefore seeks to raise the following additional preliminary ground of appeal as ground no. 1: "1. Re.: Assessment on a non-existing person: Though the assessee had notified the learned Assessing Officer vide its letter dated April, 2010 that erstwhile Diamond Dye-Chem Limited had amalgamated into BASF India Ltd. by Hon'ble Bombay High Court order dated 26th February, 2010, the learned Assessing Officer has erred in passing of the impugned Assessment Order dated 28111 November, 2014, on non-existing person Diamond Dye-Chem Limited. The impugned order is incorrect and ought to be struck down as bad-in-law." "6.1 Re.: Order passed u/s 92CA by Addl. CIT-Transfer Pricing 1(3): On the facts and circumstances of the case and in law, the transfer pricing order dated 31 st December. 2013, passed under section 92CA(3) is without jurisdiction and thus null and void. Consequently, the transfer-pricing additions made in the assessment order dated 28111 November. 2013, are liable to be deleted. 6.2 Reference made by Assessing Officer to the Transfer Pricing Officer: On the facts and circumstances of the case and in law, the reference made by the Assessing Officer to the Transfer Pricing Officer is not as per provisions of section 92C(3) and section 92CA, thus the transfer-pricing additions made in the assessment order dated 31St December 2013, are liable to be deleted. 4. The above grounds are purely questions of law and go to the root of jurisdiction and do not require any new facts. 5. The Appellant, therefore, prays that: a) the Appellant be allowed to raise the above additional

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grounds as ground No. 1 and No.6.1 and 6.2 as set out in para 3 above; and b) Original ground Nos. 1 to 5 be allowed to be renumbered as ground Nos. 2 to 6 and the original ground No. 6 be allowed to be renumbered as ground No. 7; c) pass such further orders as may be deemed fit. 2. The brief facts of the case are that, the assessee company is engaged in the business of manufacture of optical brightening agents and color formers and thermal developers. The assessee has filed the return of income for the A.Y 2010-11 on 14.10.2010 disclosing a total income of Rs.37,68,68,613/-. Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act was issued. In compliance the Ld. AR of the assessee appeared from time to time and submitted the details. The A.O on perusal of the facts found that the assessee has international transactions with its associate enterprises(AE) as per Form 3CEB, where the transactions are more than the specified limits and the matter was referred to Transfer Pricing Officer for determination of arms length price(ALP).The TPO has passed the order u/s 92CA(3) of the Act dated 31.12.2013 with upward adjustment to the ALP of Rs. 2,18,06,496/-.The Draft assessment order U/sec

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143(3) r.w.s144C(1) of the Act dated 27-01-2014 was passed with transfer pricing adjustments, disallowance of depreciation on Racks, Adjustment of Closing stock U/sec145A of the Act and disallowance u/sec14A of the Act.

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scheme of amalgamation w.e.f 1-02-2010.The Ld.AR explained the chronology of events and substantiated the submissions with the judicial decisions and prayed for allowing the appeal. Contra, the Ld.DR supported the orders of the lower authority.

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r.w.s 144C(1) of the Act dated 27-01-2014. Further on filling of objections in Form no 35A against the Draft Asst Order. The DRP has passed the order u/sec144C(5) of the Act with the directions dated 30/12/2014.Subsequently the learned assessing officer, has passed final assessment order u/sec143(3) r.w.s 144C(13) of the Act on 28-11-2014 in the name of M/s Diamond Dye-Chem Ltd(Now merged with BASF India Ltd) being nonexistent entity. Thus, it is clear that as on the date of passing of assessment order, i.e. on 28/11/2014, “Diamond Dye-Chem Ltd ’’was not in existence as it was merged with BASF India Ltd and the assessment order was passed on nonexistent company/entity and is invalid.

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make any difference because the facts remains that the assessment order has been passed by the assessing officer in the name of a nonexistent company. In the present case, despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued only in its name. The basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation. Participation in the proceedings by the appellant in the circumstances cannot operate as an estoppels against law.

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We do not find any reason to interfere with the impugned judgment(s) passed by the High Court. In view of this, we find no merit in the appeals and special leave petitions. Accordingly, the appeals and special leave petitions are dismissed.” 25 The doctrine of merger results in the settled legal position that the judgment of the Delhi High Court stands affirmed by the above decision in the Civil Appeals. 26 The order of assessment in the case of the respondent for AY 2011-12 was set aside on the same ground. This resulted in a Special Leave Petition by the Principal Commissioner of Income Tax – 6 Delhi32. The Special Leave Petition was dismissed by a two judge Bench of this Court consisting of Hon’ble Mr Justice Rohinton Fali Nariman and Hon’ble Ms Justice Indu Malhotra on 16 July 2018 in view of the order dated 2 November 2017 governing Civil Appeal No. 285 of 2014 in Spice Enfotainment and the connected batch of cases. Though, leave was not granted by this Court, reasons have been assigned by this Court for rejecting the Special Leave Petition. The law declared would attract the applicability of Article 141 of the Constitution. For, as this Court has held in Kunhayammed: “40…Where the order rejecting an SLP is a speaking order, that is, where reasons have been assigned by this Court for rejecting the petition for special leave and are stated in the order still the order remains the one rejecting prayer for the grant of leave to appeal. The petitioner has been turned away at the threshold without having been allowed to enter in the appellate jurisdiction of this Court. Here also the doctrine of merger would not apply. But the law stated or declared by this Court in its order shall attract applicability of Article 141 of the Constitution. The reasons assigned by this Court in its order expressing its adjudication (expressly or by necessary implication) on point of fact or law shall take away the jurisdiction of any other court, tribunal or authority to express any opinion in conflict with or in departure from the view taken by this Court because permitting to do so would be

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subversive of judicial discipline and an affront to the order of this Court. However this would be so not by reference to the doctrine of merger.” 27 The submission however which has been urged on behalf of the Revenue is that a contrary position emerges from the decision of the Delhi High Court in Skylight Hospitality LLP which was affirmed on 6 April 2018 by a two judge Bench of this Court consisting of Hon’ble Mr Justice A K Sikri and Hon’ble Mr Justice Ashok Bhushan33 . In assessing the merits of the above submission, it is necessary to extract the order dated 6 April 2018 of this Court: “In the peculiar facts of this case, we are convinced that wrong name given in the notice was merely a clerical error which could be corrected under Section 292B of the Income Tax Act. The special leave petition is dismissed. Pending applications stand disposed of.” Now, it is evident from the above extract that it was in the peculiar facts of the case that this Court indicated its agreement that the wrong name given in the notice was merely a clerical error, capable of being corrected under Section 292B. The “peculiar facts” of Skylight Hospitality emerge from the decision of the Delhi High Court34 . Skylight Hospitality, an LLP, had taken over on 13 May 2016 and acquired the rights and liabilities of Skylight Hospitality Pvt. Ltd upon conversion under the Limited Liability Partnership Act 200835. It instituted writ proceedings for challenging a notice under Sections 147/148 of the Act 1961 dated 30 March 2017 for AY 2010-2011. The “reasons to believe” made a reference to a tax evasion report received from the investigation unit of the income tax department. The facts were ascertained by the investigation unit. The reasons to believe referred to the assessment order for AY 2013-2014 and the findings recorded in it. Though the notice under Sections 147/148 was issued in the name of Skylight Hospitality Pvt. Ltd. (which had ceased to exist upon conversion into an LLP), there was, as the Delhi

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High Court held “substantial and affirmative material and evidence on record” to show that the issuance of the notice in the name of the dissolved company was a mistake. The tax evasion report adverted to the conversion of the private limited company into an LLP. Moreover, the reasons to believe recorded by the assessing officer adverted to the approval of the Principal Commissioner. The PAN number of the LLP was also mentioned in some of the documents. The notice under Sections 147/148 was not in conformity with the reasons to believe and the approval of the Principal Commissioner. It was in this background that the Delhi High Court held that the case fell within the purview of Section 292B for the following reasons: “18…There was no doubt and debate that the notice was meant for the petitioner and no one else. Legal error and mistake was made in addressing the notice. Noticeably, the appellant having received the said notice, had filed without prejudice reply/letter dated 11.04.2017. They had objected to the notice being issued in the name of the Company, which had ceased to exist. However, the reading of the said letter indicates that they had understood and were aware, that the notice was for them. It was replied and dealt with by them. The fact that notice was addressed to M/s. Skylight Hospitality Pvt. Ltd., a company which had been dissolved, was an error and technical lapse on the part of the respondent. No prejudice was caused.” 28 The decision in Spice Entertainment was distinguished with the following observations: “19. Petitioner relies on Spice Infotainment Ltd. v. Commissioner of Service Tax, (2012) 247 CTR 500. Spice Corp. Ltd., the company that had filed the return, had amalgamated with another company. After notice under Section 147/148 of the Act was issued and received in the name of Spice Corp. Ltd., the Assessing Officer was informed about amalgamation but the Assessment Order was passed in the name of the amalgamated company and not in the name of amalgamating company. In the said situation, the amalgamating company

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had filed an appeal and issue of validity of Assessment Order was raised and examined. It was held that the assessment order was invalid. This was not a case wherein notice under Section 147/148 of the Act was declared to be void and invalid but a case in which assessment order was passed in the name of and against a juristic person which had ceased to exist and stood dissolved as per provisions of the Companies Act. Order was in the name of non-existing person and hence void and illegal.” 29 From a reading of the order of this Court dated 6 April 2018 in the Special Leave Petition filed by Skylight Hospitality LLP against the judgment of the Delhi High Court rejecting its challenge, it is evident that the peculiar facts of the case weighed with this Court in coming to this conclusion that there was only a clerical mistake within the meaning of Section 292B. The decision in Skylight Hospitality LLP has been distinguished by the Delhi, Gujarat and Madras High Courts in: (i) Rajender Kumar Sehgal; (ii) Chandreshbhai Jayantibhai Patel; and (iii) Alamelu Veerappan. 30 There is no conflict between the decisions of this Court in Spice Enfotainment (dated 2 November 2017) 36 and in Skylight Hospitality LLP (dated 6 April 201837). 31 Mr Zoheb Hossain, learned Counsel appearing on behalf of the Revenue urged during the course of his submissions that the notice that was in issue in Skylight Hospitality Pvt. Ltd. was under Sections 147 and 148. Hence, he urged that despite the fact that the notice is of a jurisdictional nature for reopening an assessment, this Court did not find any infirmity in the decision of the Delhi High Court holding that the issuance of a notice to an erstwhile private limited company which had since been dissolved was only a mistake curable under Section 292B. A close reading of the order of this Court dated 6 April 2018, however indicates that what weighed in the dismissal of the Special Leave Petition were the peculiar facts of the case. Those facts have been noted above. What

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had weighed with the Delhi High Court was that though the notice to reopen had been issued in the name of the erstwhile entity, all the material on record including the tax evasion report suggested that there was no manner of doubt that the notice was always intended to be issued to the successor entity. Hence, while dismissing the Special Leave Petition this Court observed that it was the peculiar facts of the case which led the court to accept the finding that the wrong name given in the notice was merely a technical error which could be corrected under Section 292B. Thus, there is no conflict between the decisions in Spice Enfotainment on the one hand and Skylight Hospitality LLP on the other hand. It is of relevance to refer to Section 292B of the Income Tax Act which reads as follows: “292B. No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.” In this case, the notice under Section 143(2) under which jurisdiction was assumed by the assessing officer was issued to a non-existent company. The assessment order was issued against the amalgamating company. This is a substantive illegality and not a procedural violation of the nature adverted to in Section 292B. In this context, it is necessary to advert to the provisions of Section 170 which deal with succession to business otherwise than on death. Section 170 provides as follows: “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

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successor) who continues to carry on that business or profession,— (a) the predecessor shall be assesseed 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 assesseed 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 previous year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly.

(3) When any sum payable under this section in respect of the income of such business or profession for the previous year in which the succession took place up to the date of succession or for the previous year preceding that year, assesseed on the predecessor, cannot be recovered from him, the 99[Assessing] Officer shall record a finding to that effect and the sum payable by the predecessor shall thereafter be payable by and recoverable from the successor and the successor shall be entitled to recover from the predecessor any sum so paid.

(4) Where any business or profession carried on by a Hindu undivided family is succeeded to, and simultaneously with the succession or after the succession there has been a partition of the joint family property between the members or groups of members, the tax due in respect of the income of the business or profession succeeded to, up to the date of succession, shall be assesseed and recovered in the manner provided in section 171, but without prejudice to the provisions of this section.

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Explanation.—For the purposes of this section, “income” includes any gain accruing from the transfer, in any manner whatsoever, of the business or profession as a result of the succession”

Now, in the present case, learned Counsel appearing on behalf of the respondent submitted that SPIL ceased to be an eligible assessee in terms of the provisions of Section 144C read with clause (b) of sub section 15. Moreover, it has been urged that in consequence, the final assessment order dated 31 October 2016 was beyond limitation in terms of Section 153(1) read with Section 153 (4). For the purposes of the present proceeding, we do not consider it necessary to delve into that aspect of the matter having regard to the reasons which have weighed us in the earlier part of this judgment. 32 On behalf of the Revenue, reliance has been placed on the decision of this Court in Commissioner of Income Tax, Shillong v Jai Prakash Singh38 (“Jai Prakash Singh”). That was a case where the assessee did not file a return for three assessment years and died in the meantime. His son who was one of the legal representatives filed returns upon which the assessing officer issued notices under Section 142 (1) and Section 143 (2). These were complied with and no objections were raised to the assessment proceedings. The assessment order mentioned the names of all the legal representatives and the assessment was made in the status of an individual. In appeal, it was contended that the assessment proceedings were void as all the legal representatives were not given notice. In this backdrop, a two judge Bench of this Court held that the assessment proceedings were not null and void, and at the worst, that they were defective.

In this context, reliance was placed on the decision of the Federal Court in Chatturam v CIT39 holding that the jurisdiction to assess and the liability to pay tax are not conditional on the validity of the notice : the liability to pay

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tax is founded in the charging sections and not in the machinery provisions to determine the amount of tax. Reliance was also placed on the decision in Maharaja of Patiala v CIT40 (“Maharaja of Patiala”). That was a case where two notices were issued after the death of the assessee in his name, requiring him to make a return of income. The notices were served upon the successor Maharaja and the assessment order was passed describing the assessee as “His Highness…late Maharaja of Patiala”. The successor appealed against the assessment contending that since the notices were sent in the name of the Maharaja of Patiala and not to him as the legal representative of the Maharaja of Patiala, the assessments were illegal. The Bombay High Court held that the successor Maharaja was a legal representative of the deceased and while it would have been better to so describe him in the notice, the notice was not bad merely because it omitted to state that it was served in that capacity. Following these two decisions, this Court in Jai Prakash Singh held that an omission to serve or any defect in the service of notices provided by procedural provisions does not efface or erase the liability to pay tax where the liability is created by a distinct substantive provision.

The omission or defect may render the order irregular but not void or illegal. Jai Prakash Singh and the two decisions that it placed reliance upon were evidently based upon the specific facts. Jai Prakash Singh involved a situation where the return of income had been filed by one of the legal representatives to whom notices were issued under Section 142(1) and 143(2). No objection was raised by the legal representative who had filed the return that a notice should also to be served to other legal representatives of the deceased assessee. No objection was raised before the assessing officer. Similarly, the decision in Maharaja of Patiala was a case where the notice had been served on the legal representative, the successor Maharaja and the Bombay High Court held that it was not void merely because it omitted to state that it was served in that capacity.

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33 In the present case, despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued only in its name. The basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation. Participation in the proceedings by the appellant in the circumstances cannot operate as an estoppel against law. This position now holds the field in view of the judgment of a co-ordinate Bench of two learned judges which dismissed the appeal of the Revenue in Spice Enfotainment on 2 November 2017. The decision in Spice Enfotainment has been followed in the case of the respondent while dismissing the Special Leave Petition for AY 2011-2012. In doing so, this Court has relied on the decision in Spice Enfotainment.

34 We find no reason to take a different view. There is a value which the court must abide by in promoting the interest of certainty in tax litigation. The view which has been taken by this Court in relation to the respondent for AY 2011-12 must, in our view be adopted in respect of the present appeal which relates to AY 2012-13. Not doing so will only result in uncertainty and displacement of settled expectations. There is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable.

35 For the above reasons, we find no merit in the appeal. The appeal is accordingly dismissed. There shall be no order as to costs.

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the company with which they were merged. Therefore, no prejudice has been caused to the assessee. Explaining further, he submitted, the reason for mentioning the name and PAN No. of the amalgamated company in the assessment orders is because reference to the Transfer Pricing Officer was made before the amalgamation. Finally, he submitted, the appeals filed by the assessee are not maintainable as in the challans for paying the appeal fee the assessee has mentioned the name of the erstwhile company. 5. In rejoinder, the learned Counsel for the assessee submitted, the very fact that the assessment orders have been passed in the name of non-existing entities make them invalid. Further, she submitted, mentioning the name of amalgamating company afterwards in the assessment orders would not validate them. She submitted, under identical facts and circumstances, the Hon’ble Supreme Court in case of Pr. CIT vs. Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC) has held the assessment orders passed in the name of amalgamated company to be invalid. 6. We have considered rival submissions and perused the material on record. The issue raised in the additional ground being a purely legal and jurisdictional issue going to the root of the matter and considering the fact that the issue can be decided on the basis of facts and material available on record and does not require investigation into fresh facts, We are inclined to admit the additional ground for adjudication. 7. Before we proceed to decide the issue, it is necessary to deal with the basic facts. By virtue of order dated 14.01.2011 passed by the Hon’ble Bombay High Court, BASF Coatings (India) Private Ltd. and BASF Polyurethanes India Ltd. amalgamated (merged) with BASF India Ltd. As per the scheme of amalgamation approved by the Hon’ble Bombay High Court, the amalgamation was effective from 1st April, 2010. After the decision of the Hon’ble Bombay High Court approving the amalgamation of the aforesaid two companies with the present appellant, which happened after filing of return of income for the assessment years under dispute in the present appeals, the assessee on 8th March, 2011

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intimated in writing to the Assessing Officer about the fact of amalgamation of the two entities with BASF India Ltd. Along with the said letter, the assesse also enclosed copy of the order passed by the Hon’ble Bombay High Court approving amalgamation. In spite of such intimation by the assessee, the Assessing Officer not only proceeded to pass the draft assessment orders in the name of the erstwhile companies but also proceeded to pass the final assessment orders in the name of the erstwhile companies. To be precise, against the name of the assessee in the assessment orders. The Assessing Officer mentioned as under:-

(i) M/s BASF Coatings India Pvt. Ltd. (now merged with BASF India Ltd.) (ii) M/s BASF Polyurethanes India Ltd. (now amalgamated into M/s BASF India Ltd.)

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facts involved in the present assessee’s case are identical to the facts involved in the case of M/s Maruti Suzuki India Ltd. (supra). While dealing with the issue of validity of the assessment order passed in the name of the erstwhile company followed by the name of the amalgamating company, The Hon’ble Supreme Court held the assessment order to be invalid as it was passed the name of a non-existing entity. Thus, as could be seen, the facts are no different in case the present assessee as well, as, the Assessing Officer has passed the assessment orders in the name of the erstwhile companies. Though, of course, he has also mentioned the name of the amalgamating companies afterwards. However, that will not validate the orders in view of the decision of the Hon’ble Supreme Court in the case of M/s Maruti Suzuki India Ltd. (supra). Therfore, the assessment orders passed by the Assessing Officer have to be declared as invalid and quashed. Accordingly, we do so. The additional grounds are allowed. 10. As we have quashed the assessment orders while deciding the additional ground, the other grounds raised by the assessee having become infructuous do not require adjudication. 11. In the result, appeals filed by the assessee are allowed as indicated above

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the assessment order. Since we have adjudicated the legal issue and allowed in favour of the assessee adjudicating on the merits of the case become academic and are left.

Order pronounced in the open court on 03.03.2022.

Sd/- Sd/- (PRAMOD KUMAR) (PAVAN KUMAR GADALE) VICE PRESIDENT JUDICIAL MEMBER

Mumbai, Dated 03.03.2022

KRK, PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / The CIT(A) 4. आयकर आयु�त(अपील) / Concerned CIT �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Mumbai 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// 1. ( Asst. Registrar)