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Facts
The assessee, Vodafone Mobile Services Limited, was in appeal against the final assessment order. The core issue was a jurisdictional challenge to the draft assessment order passed in the name of a company that had ceased to exist due to amalgamation prior to the order's issuance. The assessee had duly informed the AO about the amalgamation.
Held
The Tribunal held that a draft assessment order passed in the name of a non-existent entity is void ab initio and renders all subsequent proceedings, including the final assessment order, invalid. The jurisdictional defect cannot be cured by subsequent actions or passing the final order in the name of the successor entity.
Key Issues
Whether a draft assessment order passed in the name of a non-existent entity (due to amalgamation) is void ab initio and vitiates the entire assessment proceedings.
Sections Cited
143(3), 144C, 144C(4), 144C(5), 144C(2), 92CA(1), 92CA(3), 37(1), 14A, 40(a)(ia), 40(a)(i), 201, 35ABB, 32, 115JB, 271(1)(c), 292B
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Income Tax Appellate Tribunal, “J” BENCH MUMBAI
आदेश / ORDER
PER MAKARAND VASANT MAHADEOKAR, AM:
The present appeal is filed by the assessee against the final assessment order dated 27.01.2017 passed by the Deputy Commissioner of Income-tax, Circle–26(2), New Delhi [hereinafter Vodafone Mobile Services Limited referred to as “Assessing Officer or AO”] , for Assessment Year 2012–13, under section 143(3) read with section 144C(4) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), pursuant to the directions dated 16.12.2016 issued by the Dispute Resolution Panel–2, New Delhi [hereinafter referred to as “DRP”], under section 144C(5) of the Act.
The brief facts of the case are that the assessee, originally known as Vodafone West Limited and thereafter known as Vodafone Mobile Services Limited, is engaged in the business of providing cellular mobile telephony services in the State of Gujarat. For the year under consideration, the assessee filed its return of income on 30.11.2012, declaring a total income of Rs. 180,97,31,710/-. The return was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny. During the course of assessment proceedings, the Assessing Officer made a reference to the Transfer Pricing Officer (TPO) under section 92CA(1) of the Act for determination of the arm’s length price in respect of the international transactions entered into by the assessee. The Joint Commissioner of Income-tax (Transfer Pricing Officer), Ahmedabad, passed an order under section 92CA(3) of the Act dated 19.01.2016, proposing certain transfer pricing adjustments. Thereafter, the Assessing Officer passed a draft assessment order under section 144C read with section 143(3) of the Act in March 2016, incorporating the proposed transfer pricing adjustments as well as certain other disallowances.
Vodafone Mobile Services Limited 3. Aggrieved by the draft assessment order, the assessee filed objections before the DRP under section 144C(2) of the Act.The DRP, after considering the objections of the assessee, issued its directions under section 144C(5) of the Act vide order dated 16.12.2016, partly confirming the variations proposed in the draft assessment order. Pursuant to the directions of the Dispute Resolution Panel, the Assessing Officer passed the final assessment order dated 27.01.2017 under section 143(3) read with section 144C(4) of the Act, determining the total income after making, inter alia, additions and disallowances on account of depreciation on passive infrastructure assets, network site rentals, roaming charges, licence fees, royalty, disallowance under section 14A, transfer pricing adjustments in respect of royalty and interest on external commercial borrowings, and other consequential adjustments.
Aggrieved by the final assessment order, the assessee preferred the present appeal before us raising following substantive grounds of appeal:
Ground No. 1 Disallowance of depreciation on Passive Infrastructure (PI) assets – The assessee has challenged the action of the learned AO, sustained by the DRP, in disallowing depreciation amounting to Rs. 22,83,02,775/- on Passive Infrastructure assets. The assessee contends that the transfer of PI assets to Vodafone Infrastructure Limited was a bona fide commercial transaction duly approved by the Hon’ble High Court, and that the said transaction was undertaken with the objective of tax neutrality. It is asserted that the PI assets continued to be used for business purposes and that the disallowance of depreciation is contrary to law and facts.
Vodafone Mobile Services Limited Ground No. 2 Disallowance of network site rentals - The assessee has assailed the disallowance of network site rental expenses amounting to Rs. 254.11 crores paid to Indus Towers Limited, which has been disallowed by the AO and confirmed by the DRP under section 37(1) of the Act. The grievance of the assessee is that the expenditure was wholly and exclusively incurred for the purposes of business, that similar expenditure has been allowed in earlier and subsequent years, and that the authorities below erred in treating the expenditure as excessive or not allowable. Ground No. 3 Disallowance under section 14A of the Act - The assessee has challenged the disallowance of Rs. 92,75,000/- made under section 14A read with Rule 8D, contending that no exempt income was earned during the relevant assessment year and, therefore, no disallowance could have been made in law. Ground No. 4 Disallowance of roaming charges - The assessee has contested the disallowance of roaming charges amounting to Rs. 86,57,30,779/-, which has been made by the AO and upheld by the DRP by invoking section 40(a)(ia) and section 40(a)(i) of the Act. The assessee’s case is that roaming charges constitute standard facility charges and not fees for technical services, that no human intervention is involved, and that tax was not deductible at source. The assessee has also challenged the applicability of section 201 and the denial of deduction on this account. Ground No. 5 Disallowance of licence fees under section 35ABB - The assessee has raised grounds against the treatment of licence fees paid pursuant to the New Telecom Policy as capital expenditure amortisable under section 35ABB. It is contended that the licence fees represent revenue expenditure, or in the alternative, that the amortisation has not been correctly allowed. Ground No. 6 Vodafone Mobile Services Limited Disallowance of royalty paid to Wireless Planning Commission - The assessee has challenged the disallowance of royalty paid to the Wireless Planning Commission, which has been treated as capital in nature and disallowed under section 35ABB of the Act. The assessee contends that the royalty is revenue in nature and allowable as a deduction. Ground No. 7 Disallowance of depreciation on 3G Spectrum - The assessee has contested the disallowance of depreciation on 3G spectrum, asserting that the right to use spectrum constitutes an intangible asset eligible for depreciation under section 32 of the Act. Ground No. 8 Transfer pricing adjustment on royalty payments - The assessee has challenged the transfer pricing adjustment of Rs. 17,52,36,946/- in respect of royalty payments, contending that the ALP determination by the TPO and upheld by the DRP is erroneous in law and on facts. The assessee disputes the rejection of its benchmarking analysis and the method adopted by the TPO. Ground Nos. 9 and 10 Transfer pricing adjustment on interest paid on ECBs - The assessee has raised detailed grounds against the transfer pricing adjustments in respect of interest paid on External Commercial Borrowings obtained from Vodafone Overseas Finance Limited and Vodafone Investment Luxembourg S.àr.l., amounting to Rs. 19,60,38,080/- and Rs. 15,30,891/- respectively. The challenge is directed against the ALP determination, rejection of comparables, and alleged non-consideration of RBI approvals and commercial realities. Ground No. 11 Addition under section 115JB of the Act - The assessee has challenged the addition of Rs. 92,75,000/- while computing book profits under section 115JB of the Act, contending that the adjustment is not permissible in law. Ground No. 12 Vodafone Mobile Services Limited Short grant of TDS credit - The assessee has raised a ground against short grant of credit for taxes deducted at source amounting to Rs. 94,168/-. Ground No. 13 Initiation of penalty proceedings - The assessee has challenged the initiation of penalty proceedings under section 271(1)(c) of the Act as being premature and unsustainable.
The assessee filed an application on 22.05.2017 seeking admission of additional Ground No. 14, raising a pure jurisdictional challenge to the validity of the draft assessment order and the consequential final assessment order forA.Y. 2012– 13.The additional ground specifically assails the draft assessment order passed in March 2016 under section 144C read with section 143(3) on the ground that the same was passed in the name of a company which had ceased to exist on account of amalgamation. The said ground in reproduced as below:
Ground No. 14 : Grounds on Jurisdiction 14.1 That the Draft Order passed by the Assessing Officer under Section 144C read with Section 143(3) in March, 2016 was bad in law as the Draft Order was passed on a company which was no longer in existence. 14.2 That given that the Draft Assessment Order was a nullity in the eyes of law all consequential proceedings including the Final Assessment Order dated 27.01.2017 was bad in law and are liable to be quashed. 14.3 That passing of the Draft Order on an entity no longer in existence was an illegality, not being curable and hence all proceedings pursuant thereto were to be quashed.
Vodafone Mobile Services Limited 6. The assessee has further filed an application under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, seeking admission of additional documentary evidence in support of the additional jurisdictional ground (Ground No. 14). It has been stated that the additional evidence sought to be produced consists of documents such as the order of the Hon’ble High Court approving the scheme of amalgamation, intimations and correspondence addressed to the Assessing Officer regarding the factum of merger, approval of the Department of Telecommunications for transfer of licences, and intimation filed with the Registrar of Companies, evidencing that the amalgamating company had ceased to exist prior to the passing of the draft assessment order.
It has been contended by the assessee that the additional evidence is purely documentary in nature, goes to the root of the jurisdiction assumed by the Assessing Officer, and is necessary for proper adjudication of the additional ground raised
. The assessee has further submitted that the jurisdictional issue is a pure question of law, based on undisputed facts, and therefore the additional evidence deserves to be admitted in the interest of justice.
8. During the course of hearing before us, the learned Authorised Representative of the assessee elaborated the factual background relating to the passing of the draft assessment order under section 144C read with section 143(3) of the Act. The learned AR submitted that much prior to the passing of the draft Vodafone Mobile Services Limited assessment order, the assessee had formally and specifically intimated the Assessing Officer about the factum of amalgamation of Vodafone West Limited with Vodafone Mobile Services Limited.
In this regard, the learned AR drew our attention to the letter dated 12.02.2016 addressed to the Deputy Commissioner of Income-tax, Circle–4(1)(2), Ahmedabad, wherein it was categorically brought to the notice of the Assessing Officer that Vodafone West Limited had merged with Vodafone Mobile Services Limited pursuant to a scheme of amalgamation approved by the Hon’ble High Courts, with the appointed date being 01.04.2012. It was further intimated therein that the approval of the Department of Telecommunications for transfer of telecom licences had been received on 05.02.2016 and that the certified copy of the High Court order along with the approval of DoT had been duly filed with the Registrar of Companies on 11.02.2016, rendering the scheme fully effective in terms of the court orders.
The learned AR further pointed out that in the said letter, it was expressly stated that, in terms of the approved scheme, Vodafone West Limited stood dissolved without winding up with effect from the appointed date, and that all business operations, assets, liabilities, registrations, licences and permits of the amalgamating entity stood vested in Vodafone Mobile Services Limited. The Assessing Officer was also requested therein to carry out all future proceedings, communications and notices in the name of Vodafone Mobile Services Limited as successor to Vodafone Mobile Services Limited Vodafone West Limited, and to migrate the PAN records and tax credits accordingly.
It was submitted that despite such a detailed and contemporaneous intimation having been furnished to the Assessing Officer, along with reference to the statutory approvals and judicial orders, the draft assessment order was nevertheless passed in March 2016 in the name of Vodafone West Limited, an entity which, as per the approved scheme, had already ceased to exist. The learned AR emphasized that the letter dated 12.02.2016 formed part of the additional evidence placed on record and squarely demonstrated that the Assessing Officer was fully apprised of the amalgamation prior to the passing of the draft order. It was submitted that these documents conclusively demonstrate that the entity in whose name the draft assessment order was passed was non-existent on the date of the draft order, rendering the draft assessment order void ab initio and all consequential proceedings unsustainable in law.
The learned AR placed reliance on following judicial precedents to substantiate the jurisdictional objection that the draft assessment order passed under section 144C of the Act in the name of a non-existent entity is void ab initio, and that all consequential proceedings are liable to be quashed.The judicial precedents relied upon by the assessee, as placed on record and referred to during the course of hearing, are the following:
Vodafone Mobile Services Limited i. FedEx Express Transportation and Supply Chain Services (India) (P.) Ltd. v. DCIT, Mumbai Bench of the ITAT Reported in (2019) 108 taxmann.com 542 (Mumbai – Trib.), Decision dated 11.07.2019 ii. Boeing India (P.) Ltd. v. Assistant Commissioner of Income-tax, Delhi Bench of the ITAT,Reported in (2020) 121 taxmann.com 276 (Delhi – Trib.), Decision dated 17.08.2020 iii. Siemens Ltd. v. Deputy Commissioner of Income-tax, Mumbai Bench of the ITAT, Reported in (2023) 147 taxmann.com 118 / (2023) 199 ITD 470 (Mumbai – Trib.), Decision dated 12.12.2022 13. Per contra, the learned Departmental Representative submitted that the directions of the Dispute Resolution Panel as well as the final assessment order passed under section 143(3) read with section 144C of the Act were issued in the name of the amalgamated company, i.e. the new name as communicated by the assessee to the Assessing Officer. It was contended that the Assessing Officer had duly taken note of the factum of amalgamation while passing the final assessment order and that the assessment ultimately stood completed in the correct name. The learned DR, therefore, supported the impugned orders and submitted that no infirmity arises merely because the draft assessment order was issued in the name of the erstwhile entity, and that the assessment proceedings, having culminated in a final order in the correct name, are valid in law.
Vodafone Mobile Services Limited 14. At the outset, we consider the assessee’s application for admission of the additional jurisdictional ground and the accompanying application for admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.
The additional ground challenges the very jurisdiction of the Assessing Officer to frame the assessment on the footing that the draft assessment order under section 144C read with section 143(3) was passed in the name of a non-existent entity. It is well settled that a pure question of law, which goes to the root of the assessment and does not require fresh investigation of facts, can be raised at any stage of appellate proceedings.
The additional evidence sought to be admitted comprises the order of the Hon’ble High Court approving the scheme of amalgamation, the letters dated 12.02.2016 and 15.03.2016 addressed to the Assessing Officer, the approval of the Department of Telecommunications, and the filings made with the Registrar of Companies. These documents are purely documentary, emanate from statutory and judicial records, and are directly relevant for adjudication of the jurisdictional issue.
We find that these documents merely corroborate undisputed facts already borne out from the record, namely, that the amalgamating company had ceased to exist prior to the passing of the draft assessment order. Their admission is therefore necessary to enable the Tribunal to adjudicate the Vodafone Mobile Services Limited jurisdictional issue effectively. Accordingly, the additional ground as well as the additional evidence are admitted.
On a careful consideration of the material on record, the following facts emerge beyond dispute:
The assessee had undergone amalgamation pursuant to a i. scheme approved by the Hon’ble High Court, with the appointed date being 01.04.2012. The amalgamating company stood dissolved without ii. winding up in terms of the approved scheme.
The assessee specifically intimated the Assessing Officer, iii. vide letter dated 12.02.2016, about the factum of amalgamation, enclosing details of the High Court approval, approval of the Department of Telecommunications, and filing of the certified order with the Registrar of Companies.
Despite such intimation, the draft assessment order under iv. section 144C read with section 143(3) was passed in March 2016 in the name of the amalgamating company, which had already ceased to exist.
The directions of the DRP and the final assessment order v. were passed in the name of the amalgamated entity. 19. Thus, the core issue for adjudication is whether the passing of the draft assessment order in the name of a non-existent entity vitiates the entire assessment proceedings, notwithstanding the Vodafone Mobile Services Limited fact that the final assessment order was passed in the name of the successor entity.
Section 144C of the Act engrafts a special, distinct and self- contained code of assessment applicable to an eligible assessee, which departs from the ordinary assessment procedure under the Act. The statutory framework makes it abundantly clear that the assumption of jurisdiction by the Assessing Officer under this provision is conditioned upon the issuance of a legally valid draft assessment order in the first instance. The draft assessment order is the jurisdictional trigger which alone enables the eligible assessee to exercise its statutory right to either accept the proposed variations or to raise objections before the Dispute Resolution Panel, and correspondingly empowers the Dispute Resolution Panel to issue directions binding on the Assessing Officer.
The scheme further demonstrates that the draft assessment order is not an interlocutory or tentative step, but a substantive statutory act with consequences. From the perspective of the Revenue, the draft assessment order represents the final determination of proposed variations, subject only to the assessee’s statutory right of objection. Once the draft assessment order is issued, the Assessing Officer becomes functus officio insofar as the proposed variations are concerned and cannot unilaterally alter or cure defects therein. The entire edifice of proceedings before the Dispute Resolution Panel and the final Vodafone Mobile Services Limited assessment order passed thereafter rests exclusively on the legal existence and validity of the draft assessment order.
It is equally well settled that the draft assessment order must be passed on a juridically existing and identifiable person who answers the description of an “eligible assessee” under the Act. If, on the date of passing of the draft assessment order, the entity in whose name the order is issued has ceased to exist in law, the draft order is rendered non est, as there can be no assumption of jurisdiction against a non-existent person. Such a defect strikes at the very root of the jurisdiction exercised by the Assessing Officer and is not in the nature of a procedural irregularity. The absence of a valid draft assessment order necessarily vitiates the entire chain of proceedings that follow, as the jurisdiction of the Dispute Resolution Panel and the validity of the final assessment order are derivative and consequential.
The law further recognizes that a jurisdictional defect cannot be cured either by subsequent participation of the assessee, by issuance of directions by the Dispute Resolution Panel, or by passing of the final assessment order in the name of a successor or amalgamated entity. The jurisdiction under section 144C must be validly assumed at the inception, and any infirmity at that stage is fatal to the proceedings as a whole. Consequently, where the foundational requirement of a valid draft assessment order is not satisfied, the entire assessment proceedings are rendered void ab initio, being without authority of law.
Vodafone Mobile Services Limited 24. The issue is no longer res integra and stands conclusively settled by a catena of judicial precedents as relied upon by the assessee. In FedEx Express Transportation and Supply Chain Services (India) (P.) Ltd. v. DCIT (supra), the Co-ordinate Bench of the Tribunal has held that it is mandatory for the Assessing Officer to pass a legally valid draft assessment order and without the same, he cannot assume jurisdiction to proceed with the assessment under section 144C. Failure on the part of the Assessing Officer to pass a valid draft assessment order amounts to a jurisdictional defect, which cannot be cured under section 292B or corrected by passing the final assessment order in the correct name. It was further held that where the draft assessment order under section 144C was passed in the name of the amalgamating company, which was a non-existent entity in the eyes of law on the date of passing of such order, the same became an illegal order and the entire assessment proceedings based on such an invalid draft assessment order were void ab initio and deserved to be quashed. A similar view has been taken by the Delhi Bench of the Tribunal in Boeing India (P.) Ltd. v. ACIT (supra) and by the Co-ordinate Bench in case of Siemens Ltd. v. DCIT(supra).
In the light of the foregoing discussion, the admitted factual position, and the settled judicial principles governing the scope and operation of section 144C of the Act, we hold that the draft assessment order having been passed in the name of an entity which had ceased to exist in law on the date of its issuance is a Vodafone Mobile Services Limited nullity and void ab initio. Since the draft assessment order constitutes the jurisdictional foundation for assumption of authority under the special procedure prescribed in section 144C, the absence of a valid draft order vitiates the entire chain of proceedings. Consequently, the directions issued by the Dispute Resolution Panel and the final assessment order passed pursuant thereto, being derivative and consequential, cannot stand independently and are equally unsustainable in law. The jurisdictional defect goes to the very root of the matter and is incapable of being cured by subsequent proceedings, participation of the assessee, or by passing the final order in the name of the successor entity.
Accordingly, the impugned assessment is quashed in its entirety, and the additional ground raised
by the assessee is allowed.
27. In view of this conclusion, the remaining grounds raised on merits are rendered academic and are therefore left open.
28. In the result the appeal of the assessee is allowed. Order pronounced in the open court on 09.01.2026.