BOEING INDIA PVT. LTD (SUCCESSOR TO BOEING INTERNATIONAL CORPORATION INDIA PRIVATE LIMITED),NEW DELHI vs. ACIT CIRCLE- 5(1), NEW DELHI

PER N.K. BILLAIYA, ACCOUNTANT MEMBER,

3. The other grievance relates to Transfer Pricing adjustment of Rs. 22.16 lakhs on account of outstanding receivables from Associates Enterprises [AEs] and under Corporate Tax, the assessee is aggrieved by the disallowance of Rs. 56,58,19,799/- for alleged failure in deducting tax u/s 195 of the Act by treating the said payments as Fees for Included Services [FIS].

On 19.10.2018, the TPO framed an order u/s 92CA(3) of the Act in the name of the amalgamated entity i.e. BIPL i.e. the appellant.

However, on 25.12.2018, the Assessing Officer framed a draft assessment order u/s 144C of the Act in the name of a non-existent amalgamated company i.e. BICIPL.

6. As mentioned elsewhere, the TPO has framed the order u/s 92CA(3) of the Act in the name of BIPL, the appellant and as per the definition of “Eligible assessee” BIPL is the eligible assessee. However, the Assessing Officer chose to pass the assessment order in the name of the non-existent company BICIPL, which was dissolved on 15.02.2018.

Meaning thereby, that 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.

Ltd. [2019] 108 taxmann.com 542 (Mumbai - Trib.) has held as under:

“16. While the stand of the assessee is that a mistake in passing of the draft assessment order in the name of a non-existent entity is vital, being a jurisdictional defect, leading to nullification of the entire assessment proceedings, the stand of the Revenue is that it is only a procedural mistake and the same has also been cured by the Assessing Officer at the stage of the final assessment order, which is passed in the name of the correct entity, i.e. the amalgamated company which was in existence.

20. The next question which we are required to examine now is as to whether a valid draft assessment order is mandatory to assume jurisdiction under Section 144C of the Act. In other words, it would be appropriate to examine as to whether an invalid draft assessment order, as noted above in the earlier paras, can be construed as a jurisdictional defect meaning thereby that the same is incurable thereby making the subsequent assessment proceedings null and void in the eyes of law. The phraseology of Sec. 144C(1) of the Act itself shows that the Assessing Officer is required to forward a draft 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 subsection (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 variation in income/loss as assessed by him in the draft assessment order. In such a situation, the Assessing Officer would not have the option to amend the draft order of assessment proposed by him. Thus, looked at from the angle of the Assessing Officer, the draft assessment order is in fact the final assessment of income/loss of the assessee since only the assessee has been accorded a right under Section 144C(2) to file objections before the DRP. Further, the fact that the Assessing Officer does not have any right to appeal against the final assessment order passed under Section 143(3) r.w.s. 144C(13) further proves the point that the draft assessment order proposed is a final order of assessment from the point of view of the Department.

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.

issued any notice, etc. in the name of the successor company before passing of the transfer pricing order by the TPO under Section 92CA(3) of the Act or the draft assessment order by the Assessing Officer. Nothing was brought on record by the Department in this regard and, therefore, in our view, the ratio of the judgment of the Hon'ble Delhi High Court in the case of Sky Light Hospitality LLP (supra) is not attracted to the facts of the present case.”

“5. The assessee, which is represented on advance notice, urges that the DRP could not have directed assessments to be completed in the manner that it did, given that the remand order of the ITAT was confined to only requiring it to render findings as to whether the assessment originally framed was in respect of a non existing entity. It was submitted that the DRP exceeded its remand and consequently the ITAT was justified in holding that Spice Entertainment Ltd. (supra) applied.

who did not question the remand ipso facto does not, in any manner, further the Revenue's contentions. The Revenue had also urged that even in the first place when the assessee approached the DRP, the name of the old entity was invoked and that consequently it cannot now say that the assessment was a nullity. This Court is of the opinion that the ruling in Spice Entertainment Ltd. (supra) is categorical, in that, if the assessment is concluded in favour of a non existing entity, then notwithstanding Section 292B, the position does not improve. Applying Spice Entertainment Ltd. (supra), this Court had in Commissioner of Income Tax v. Dimension Apparels Pvt. Ltd. (2015) 370 ITR 288 also held that the position taken or urged by the assessee cannot be held against it if the primary jurisdiction does not exist i.e. to conclude an assessment in the name of a non existing entity.”

“19. …………………… (iii) Thirdly, the consequence of the scheme of amalgamation approved under Section 394 of the Companies Act 1956 is that the amalgamating 24 8 company ceased to exist. In Saraswati Industrial Syndicate Ltd., the principle has been formulated by this Court in the following observations: “5. Generally, where only one company is involved in change and the rights of the shareholders and creditors are varied, it amounts to reconstruction or reorganisation of 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 30 [2019] 260 Taxman 412 (Del.) 31 (2019) 261 Taxman 137 (Guj) existing undertakings into one undertaking, the shareholders of each blending company become substantially the shareholders 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: Halsbury's Laws of England (4th edition volume 7 para 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.” (iv) Fourthly, upon the amalgamating company ceasing to exist, it cannot be regarded as a person under Section 2(31) of the Act 1961 against whom assessment proceedings can be initiated or an order of assessment passed; (v) Fifthly, a notice under Section 143 (2) was issued on 26 September 2013 to the amalgamating company, SPIL, which was followed by a notice to it under Section 142(1); (vi) Sixthly, prior to the date on which the jurisdictional notice under Section 143 (2) was issued, the scheme of amalgamation had been approved on 29 January 2013 by the High Court of Delhi under the Companies Act 1956 with effect from 1 April 2012; (vii) Seventhly, the assessing officer assumed jurisdiction to make an assessment in pursuance of the notice under Section 143 (2). The notice was issued in the name of the amalgamating company in spite of the fact that on 2 April 2013, the amalgamated company MSIL had addressed a communication to the assessing officer intimating the fact of amalgamation. In the above conspectus of the facts, the initiation of assessment proceedings against an entity which had ceased to exist was void ab initio.”

15, First issue is in respect of TP adjustment of Rs. 22.16 lakhs on account of outstanding receivables.

Therefore, according to the TPO, such outstanding amount/delayed payments are in the nature of unsecured loans/advances to the AEs and by treating the same as advance, the TPO imputed interest rate of 4.3405%, being six months interest rate of LIBOR plus 400 basis points on the outstanding receivables from AEs and, accordingly, proposed, an adjustment of Rs. 22,96,268/-.

For this proportion, reliance was placed on the decision of the Bangalore Bench of the Tribunal in the case of Millipore India Ltd in ITA No. 327/Bang/2015. It is the say of the ld. counsel for the assessee that the assessee had sufficient cash balance to manage cash flow requirement and no interest earned from advances were paid to unrelated parties. The ld. counsel for the assessee further stated that the appellant is a debt free company and no interest was paid to the creditor/supplier. The ld. counsel for the assessee concluded by saying that the facts of the appellant are identical to the facts considered by the Tribunal in the case of Bechtel India Pvt Ltd was affirmed by the Hon'ble High Court of Delhi in ITA 379/2016 and SLP was dismissed by the Hon'ble Supreme Court vide CC No. 4956/2017.

The undisputed fact is that the assessee is a debt free company. It is also not in dispute that no interest was paid to the creditor/supplier nor any interest has been earned from unrelated party. Moreover, being a 100% captive service provider, the revenue of the assessee is 100% from its AEs. In our considered opinion, the question of receiving any interest on receivables does not arise. Considering the facts of the assessee in hand, in totality, we do not find any merit in the TP adjustment of Rs. 22.16 lakhs and the same is,accordingly,directed to be deleted.

Further, the assessee was asked to explain the work performed by the expatriates. The assessee was asked to explain the reimbursement of expenses to Boeing company USA, Boeing International Corporation Korea and Boeing Defence Australia. The assessee furnished necessary details. It was explained that reimbursement of salary cost to expatriate employees is not taxable as FIS, both under the provisions of the Act and relevant DTAA, and no withholding tax was required on the same.

26. Before us, the ld. counsel for the assessee vehemently stated that the assessee has deducted tax at source/s 192 of the Act, and, therefore, there should not be any disallowance u/s 40(a)(i) of the Act.

Reliance was placed on the decision of the co-ordinate bench in the case of Neemrana Hotels Pvt Ltd order dated 10.07.2019. It is the say of the ld. counsel for the assessee that since tax has been deducted u/s 192 of the Act, provisions of section 195 will not apply.

27. Distinguishing the decision of Centrica India Offshore India Ltd [supra], the ld. counsel for the assessee vehemently stated that the decision in the case of Centrica India Offshore India Ltd was based upon entirely different set of facts wherein in that case,the Indian company was a newly formed entity and did not have necessary trained human resources and scope of work emerging from service agreement and secondment agreement clearly shows that secondees were sent to India with the knowledge of various processes and practices and also with experience in managing and applying such processes and practices.

31. It is clear from the afore-stated relevant clauses that the secondees were, in fact, in employment of the appellant and as per the terms, the ‘A’ was paying salaries at the home country of the secondees and, therefore, there was reimbursement by the appellant.

These facts clearly show that the assessee has been paying to its own employees and this fact alone clearly distinguishes the facts of the decision in the case of Centrica India Offshore Ltd [supra].

32. The co-ordinate bench in the case of AT & T Communication Services India Pvt Ltd. [supra], distinguishing the decision of the Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt Ltd [supra], has held as under:

“30. The DRP has affirmed the decision of the Ld. AO by holding that the assessee has deducted withholding tax on substantial payments and yet argued that the tax is not deductible u/s 195 of the act and provision of section 40(a)(i) cannot be invoked in the case of said payment.

per provisions of law.

The order is pronounced in the open court on 17 .08.2020.