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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM
These cross appeals by the assessee and the Revenue are directed against the order of Commissioner of Income Tax (Appeals)-1, Pune dated 22.11.2016 for the assessment year 2011-12.
The brief facts of the case as emanating from records are: The assessee is engaged in product development as well as marketing, customization, on-going support, warranty services, etc. The assessee during the period relevant to the assessment year under appeal had entered into certain international transactions with ‘Associated Enterprises’. For benchmarking international transactions, reference was made to Transfer Pricing Officer (TPO) u/s.92CA(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). The Assessing Officer after receiving the order dated 10.09.2014 from TPO made adjustment in the international transactions as proposed and also made certain other additions/disallowances.
Aggrieved against the assessment order dated 27.03.2015, the assessee filed appeal before the Commissioner of Income Tax (Appeals) inter alia challenging validity of assessment order on the ground that it was
3 ITA Nos.376 & 398/PUN/2017 A.Y.2011-12
passed in the name of non-existent entity. The Commissioner of Income Tax
(Appeals) vide impugned order dismissed the grounds raised by the assessee
challenging validity of assessment order. On the merits of the addition, the
Commissioner of Income Tax (Appeals) granted part relief to the assessee.
Against the findings of Commissioner of Income Tax (Appeals), both, the
assessee and the Revenue are in appeal before Tribunal.
The assessee in appeal before the Tribunal has raised three grounds.
Ground No.1 of appeal is against the assessment order made in the name of
non-existent entity.
Ground No.2 of appeal is against the adjustment made u/s.10A(7)
read with section 80IA(10) of the Act.
Ground No. 3 of the appeal is against levy of interest u/s.234B of the
Act.
The Department in appeal before the Tribunal has challenged the
findings of Commissioner of Income Tax (Appeals) in granting part relief to
the assessee by adopting profit margin at 20% instead of 12.95% computed
by the Assessing Officer for working of disallowance of excess profit
u/s.10A(7) r.w.s. 80IA(10) of the Act. The Department has also assailed the
manner of computing deduction u/s.10A of the Act.
Before adverting to the merits of the addition, it would be imperative
to first decide the legal issue raised by assessee challenging validity of
assessment order purportedly made in the name of non-existent entity.
4 ITA Nos.376 & 398/PUN/2017 A.Y.2011-12
Shri P.J. Pardiwalla appearing on behalf of the assessee narrating the
sequence of events submitted that the initial name of the assessee-company
was “Amdocs Business Services Private Limited”. Thereafter, the said
company was merged with “Amdocs Development Centre India Private
Limited” w.e.f.1st April, 2012 vide order of Hon'ble Bombay High Court dated
10th May, 2013. The assessee vide communication dated 23rd July, 2013
intimated the Assessing Officer regarding merger of “Amdocs Business
Services Private Limited” with “Amdocs Development Centre India Private
Limited”. Thus, from the date of merger as per order of the Hon'ble Bombay
High Court, “Amdocs Business Services Private Limited” ceases to exist.
However, despite an intimation of merger by the assessee to the Assessing
Officer, the Assessing Officer issued notice u/s.143(2) of the Act in the name
of erstwhile “Amdocs Business Services Private Limited” on 8th August,
2013. The assessee again vide communication dated 17th September, 2013
intimated the Assessing Officer regarding merger of the company. The
Assessing Officer without taking notice of the repeated intimations by the
assessee finalized the assessment u/s.143(3) r.w.s.92CA of the Act on
27.03.2015 in the name of erstwhile “Amdocs Business Services Private
Limited” that was not in existence on the date of finalization of assessment
order. The ld. AR submitted that during assessment proceedings, various
communications were made by the assessee to Assessing Officer and all the
communications were made in the name of “Amdocs Development Centre
India Private Limited”. In all such communications, it was specifically
mentioned in title that it is a successor of “Amdocs Business Services
Private Limited”. The ld. AR referred to one such communication dated
12.03.2015 at page 53 of the paper book.
5 ITA Nos.376 & 398/PUN/2017 A.Y.2011-12
7.1 The ld. AR submitted that the Commissioner of Income Tax (Appeals)
rejected the contentions of the assessee on the ground that in the
communication, relevant assessment year was not mentioned and thus,
intimation made to the Assessing Officer regarding change of name/merger
was just a passive information. The ld. AR submitted that it is a well settle
law that assessment made in the name of non-existent entity is
unsustainable and without jurisdiction. In support of his submissions, the
ld. AR placed reliance on the following decisions:
i) Jitendra Chandralal Navlani Vs. Union of India, reported in 80 taxmann.com 107 ( Bombay) ii) Spice Entertainment Limited Vs. Commissioner of Service Tax in ITA No. 475 of 2011 and ITA No.476 of 2011
On the other hand, Shri S.B. Prasad representing the Department
vehemently defended the impugned order. The ld. DR submitted that the
order passed by the Assessing Officer has merged with the order of
Commissioner of Income Tax (Appeals). The Commissioner of Income Tax
(Appeals) has passed the appellate order in the correct name of Assessee
Company. Hence, the objection raised by the assessee in ground No.1 of
appeal does not survive.
We have heard the submissions made by representatives of rival sides
and have perused the orders of Authorities below. It is no more res-integra
that the order passed in the name of non-existent entity is invalid and
unsustainable in the eye of law. The company “Amdocs Business Services
Private Limited” was merged with “Amdocs Development Centre India
Private Limited” vide order of Hon'ble Bombay High Court dated 10th May,
2013, approving the scheme of amalgamation w.e.f. 1st April, 2012. Thus,
6 ITA Nos.376 & 398/PUN/2017 A.Y.2011-12
after the date of merger has been notified in the order of Hon'ble High Court,
merged company ceases to subsist. The assessee intimated Assessing
Officer about merger of the two companies vide communication dated 23rd
July, 2013. The copy of said communication by assessee to Assessing
Officer is placed at page 205 of the paper book. Despite intimation regarding
merger of “Amdocs Business Services Private Limited” with “Amdocs
Development Centre India Private Limited”, the Assessing Officer issued
notice u/s.143(2) of the Act to the assessee company in the name of
erstwhile company which was not in existence on 8th August, 2013. We
further observe that during the course of assessment proceedings, various
communications were made by assessee to the Assessing Officer in the
name of new company and it was specifically mentioned in each such
communication that erstwhile “Amdocs Business Services Private Limited”
has been merged with “Amdocs Development Centre India Private Limited”.
The assessee discharged his onus of intimating the fact of merger of
company with “Amdocs Development Centre India Private Limited”. The
Assessing Officer despite having intimation regarding merger of “Amdocs
Business Services Private Limited” with “Amdocs Development Centre India
Private Limited”, passed assessment order in the name of company which
had ceased to exist on the date of passing assessment order. The
assessment made in the name of non-existent company is invalid and
unsustainable in the eye of law.
The Hon'ble Jurisdictional High Court in the case of Jitendra
Chandralal Navlani Vs. Union of India (supra.) has held that issuance of
notice (u/s.148 of the Act) and assessment order in the name of a non
existing entity is without jurisdiction.
7 ITA Nos.376 & 398/PUN/2017 A.Y.2011-12
The Hon'ble Delhi High Court in the case of Spice Entertainment Ltd.
Vs. Commissioner of Service Tax (supra.) while dealing with the case of
company that had ceased to exist after merger and the assessment order
was passed in the name of non-existent entity held as under:
“8. A company incorporated under the Indian Companies Act is a juristic person. It takes its birth and gets life with the incorporation. It dies with the dissolution as per the provisions of the Companies Act. It is trite law that on amalgamation, the amalgamating company ceases to exist in the eyes of law. This position is even accepted by the Tribunal in para-14 of its order extracted above. Having regard this consequence provided in law, in number of cases, the Supreme Court held that assessment upon a dissolved company is impermissible as there is no provision in Income-Tax to make an assessment thereupon. In the case of Saraswati Industrial Syndicate Ltd. Vs. CIT, 186 ITR 278 the legal position is explained in the following terms:
"The question is whether on the amalgamation of the Indian 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 liaiblity, 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 two or more companies are fused into one by merger or by taking over by another. Reconstruction or amalgamation has no precise legal meaning. The amalgamation is a blending of two or more existing undertakings into one undertaking, the share holders of each blending Company become substantially the share holders in the Company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new Company, or by the transfer of one or more undertakings to an existing Company. Strictly amalgamation does not cover the mere acquisition by a Company of the share capital of other Company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See Halsburys Laws of England 4th Edition Vol. 7 Para
8 ITA Nos.376 & 398/PUN/2017 A.Y.2011-12
1539. Two companies may join to form a new Company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third Company or one is absorbed into one or blended with another, the amalgamating Company loses its entity."
The Court referred to its earlier judgment in General Radio and Appliances Co. Ltd. Vs. M.A. Khader (1986) 60 Comp Case 1013. In view of the aforesaid clinching position in law, it is difficult to digest the circuitous route adopted by the Tribunal holding that the assessment was in fact in the name of amalgamated company and there was only a procedural defect.
Section 481 of the Companies Act provides for dissolution of the company. The Company Judge in the High Court can order dissolution of a company on the grounds stated therein. The effect of the dissolution is that the company no more survives. The dissolution puts an end to the existence of the company. It is held in M.H. Smith (Plant Hire) Ltd. Vs. D.L. Mainwaring (T/A Inshore), 1986 BCLC 342 (CA) that "once a company is dissolved it becomes a non-existent party and therefore no action can be brought in its name. Thus an insurance company which was subrogated to the rights of another insured company was held not to be entitled to maintain an action in the name of the company after the latter had been dissolved".
After the sanction of the scheme on 11th April, 2004, the Spice ceases to exit w.e.f. 1st July, 2003. Even if Spice had filed the returns, it became incumbent upon the Income tax authorities to substitute the successor in place of the said “dead person‟. When notice under Section 143 (2) was sent, the appellant/amalgamated company appeared and brought this fact to the knowledge of the AO. He, however, did not substitute the name of the appellant on record. Instead, the Assessing Officer made the assessment in the name of M/s Spice which was non existing entity on that day. In such proceedings and assessment order passed in the name of M/s Spice would clearly be void. Such a defect cannot be treated as procedural defect. Mere participation by the appellant would be of no effect as there is no estoppel against law.
Once it is found that assessment is framed in the name of non- existing entity, it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of Section 292Bof the Act. Section 292B of the Act reads as under:-
"292B. No return of income assessment, notice, summons or other proceedings furnished or made or issue 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 reasons 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 proceedings is in substance and effect in conformity with or according to the intent and purpose of this Act."
The Punjab & Haryana High Court stated the effect of this provision in CIT Vs. Norton Motors, 275 ITR 595 in the following manner:-
9 ITA Nos.376 & 398/PUN/2017 A.Y.2011-12
"A reading of the above reproduced provision makes it clear that a mistake, defect or omission in the return of income, assessment, notice, summons or other proceeding is not sufficient to invalidate an action taken by the competent authority, provided that such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the provisions of the Act. To put it differently, Section 292B can be relied upon for resisting a challenge to the notice, etc., only if there is a technical defect or omission in it. However, there is nothing in the plain language of that section from which it can be inferred that the same can be relied upon for curing a jurisdictional defect in the assessment notice, summons or other proceeding. In other words, if the notice, summons or other proceeding taken by an authority suffers from an inherent lacuna affecting his/its jurisdiction, the same cannot be cured by having resort to Section 292B.
The issue again cropped up before the Court in CIT Vs. Harjinder Kaur (2009) 222 CTR 254 (P&H). That was a case where return in question filed by the assessee was neither signed by the assessee nor verified in terms of the mandate of Section 140 of the Act. The Court was of the opinion that such a return cannot be treated as return even a return filed by the assessee and this inherent defect could not be cured inspite of the deeming effect of Section 292B of the Act. Therefore, the return was absolutely invalid and assessment could not be made on a invalid return. In the process, the Court observed as under:-
"Having given our thoughtful consideration to the submission advanced by the learned Counsel for the appellant, we are of the view that the provisions of Section 292B of the 1961 Act do not authorize the AO to ignore a defect of a substantive nature and it is, therefore, that the aforesaid provision categorically records that a return would not be treated as invalid, if the same "in substance and effect is in conformity with or according to the intent and purpose of this Act". Insofar as the return under reference is concerned, in terms of Section 140 of the 1961 Act, the same cannot be treated to be even a return filed by the respondent assessee, as the same does not even bear her signatures and had not even been verified by her. In the aforesaid view of the matter, it is not possible for us to accept that the return allegedly filed by the assessee was in substance and effect in conformity with or according to the intent and purpose of this Act. Thus viewed, it is not possible for us to accept the contention advanced by the learned Counsel for the appellant on the basis of Section 292B of the 1961 Act. The return under reference, which had been taken into consideration by the Revenue, was an absolutely invalid return as it had a glaring inherent defect which could not be cured in spite of the deeming effect of Section 292B of the 1961 Act."
Likewise, in the case of Sri Nath Suresh Chand Ram Naresh Vs. CIT (2006) 280 ITR 396, the Allahabad High Court held that the issue of notice under Section 148 of the Income Tax Act is a condition precedent to the validity of any assessment order to be passed under section 147 of the Act and when such a notice is not issued and assessment made, such a defect cannot be treated as cured
10 ITA Nos.376 & 398/PUN/2017 A.Y.2011-12
under Section 292B of the Act. The Court observed that this provisions condones the invalidity which arises merely by mistake, defect or omission in a notice, if in substance and effect it is in conformity with or according to the intent and purpose of this Act. Since no valid notice was served on the assessee to reassess the income, all the consequent proceedings were null and void and it was not a case of irregularity. Therefore, Section 292B of the Act had no application.
When we apply the ratio of aforesaid cases to the facts of this case, the irresistible conclusion would be provisions of Section 292B of the Act are not applicable in such a case. The framing of assessment against a non-existing entity/person goes to the root of the matter which is not a procedural irregularity but a jurisdictional defect as there cannot be any assessment against a ‘dead person’.
The order of the Tribunal is, therefore, clearly unsustainable. We, thus, decide the questions of law in favour of the assessee and against the Revenue and allow these appeals.”
Thus, in view of the facts of the case and case laws discussed above,
we find merit in ground No.1 raised by assessee challenging validity of
assessment in the name of non-existent entity. Thus, assessments order
dated 27.03.2015 in the name of erstwhile “Amdocs Business Services
Private Limited” is invalid and without jurisdiction as the said company had
ceased to exist on the date of assessment order. The assessment order
passed in the name of non-existent entity i.e. “Amdocs Business Services
Private Limited” is invalid and subsequent proceedings arising there from
are vitiated. Hence, ground No.1 raised in appeal by the assessee is
allowed.
Since ground No.1 raised in appeal by assessee is allowed, the
remaining grounds raised by assessee in appeal have become academic and
hence, are not deliberated upon.
11 ITA Nos.376 & 398/PUN/2017 A.Y.2011-12
The appeal of Revenue does not survive as the assessment order from which it emanates, has been held to be invalid. Therefore, the same has to be dismissed. We hold and direct accordingly.
In the result, appeal of the assessee is allowed and appeal of the Revenue is dismissed.
Order pronounced on Monday, the 03rd day of June, 2019.
Sd/- Sd/- (डी. क�णाकरा राव/D. KARUNAKARA RAO) (�वकास अव�थी /VIKAS AWASTHY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER
पुणे / Pune; �दनांक / Dated : 03rd June, 2019 SB
आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :
अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-1, Pune. 4. The Pr. CIT-1, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.
// True Copy // आदेशानुसार / BY ORDER,
�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.
12 ITA Nos.376 & 398/PUN/2017 A.Y.2011-12
Date 1 Draft dictated on 28.05.2019 Sr.PS/PS 2 Draft placed before author 29.05.2019 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order