FEDEX EXPRESS TRANSPORTATION AND SUPPLY CHAIN SERVICES (INDIA)PRIVATE LIMITED ('FETSCS')[FEDERAL EXPRESS INDIA PVT. LTD. MERGED WITH FETSCS WITH EFFECT FROM OCTOBER1,2013],MUMBAI vs. DCIT ,CIR 9(3)(1), MUMBAI

On the facts and in the circumstances of the case and in law, the learned AO erred in applying the provisions of Section 43B of the Act to the impugned provision for leave encashment.

On the facts and in the circumstances of the case and in law, the learned AO / Transfer Pricing Officer (‘TPO') / DRP erred in recomputing the arm's length price of the international transaction in respect of IPB services provided by the Appellant at INR 35,92,18,459 instead of INR 31,68,12,137, thereby making a transfer pricing adjustment of INR 4,24,06,322

On the facts and in the circumstances of the case and in law, the learned TPO / DRP erred in considering Inmacs Management Services Limited as a comparable company in relation to the IPB services provided by the Appellant.

On the facts and in the circumstances of the case and in law, the learned TPO / DRP erred in considering ICC International Agencies Limited as a comparable company in relation to the IPB services provided by the Appellant.

On the facts and in the circumstances of the case and in law, the learned AO / TPO / DRP erred in not considering the correct margins of Indus Technical & Financial Consultants Limited as submitted by the Appellant.

On the facts and in the circumstances of the case and in law, the AO / TPO erred in making an adjustment of INR 12,07,977 to the income of the Appellant in respect of notional interest arising on account of delay in collection of dues from Associated Enterprises ('AEs').

On the facts and in the circumstances of the case and in law, the AO / TPO erred in: i. Disregarding the explicit directions issued by the DRP; and ii. Disregarding the fact that in actual conduct, the Appellant has not charged any interest to its non-AEs for the delay in collection of dues.

On the facts and in the circumstances of the case and in law, the AO / TPO / DRP erred in making an adjustment of INR 8,03,233 to the income of the Appellant in respect of notional interest arising on account of advances given to a third party i.e. a non - AE.

Without prejudice to ground nos. 7-9, on the facts and in the circumstances of the case and in law, the AO/ TPO erred in levying interest beyond the end of the Previous Year.

On the facts and in the circumstances of the case and in law, the learned AO / TPO / DRP erred in recomputing the arm's length price of the international transaction in respect of provision of co-ordination support services for high value packages at INR 59,43,945 instead of INR 54,49,491 thereby making a transfer pricing adjustment of INR 4,94,454.

On the facts and in the circumstances of the case and in law, the learned TPO / DRP erred in considering PL Shipping & Logistics India Ltd as a comparable company in relation to the co-ordination services provided in respect of high value packages.

On the facts and circumstances of the case and in law, the learned TPO / DRP erred in considering South India Corporation Ltd as a comparable

The learned AO erred in not granting credit of advance tax paid amounting to INR 20,00,000.

On the facts and in the circumstances of the case and in law, the learned AO erred in levying interest under Section 234B and 234C of the Act.

The assessee before us is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of clearing services. The return of income was filed by the assessee declaring an income of `13,08,38,720/-, which was subject to a scrutiny assessment whereby the total income has been assessed at `17,96,36,280/-. The difference between the returned and assessed income is primarily on account of transfer pricing adjustment and disallowance of Provision for leave encashment. The aforesaid aspects have been challenged by the assessee in appeal before us.

A perusal of the aforestated Grounds of appeal reveal that apart from assailing the merits of additions made to the returned income, assessee has also assailed the assessment order as being bad in law, null and void ab initio. Since the aforesaid aspect of the matter challenging the validity of the assessment goes to the root of the matter, the rival parties have been heard on this aspect at the threshold itself. Therefore, we proceed to adjudicate the aforesaid aspect hereinafter.

The plea of the assessee regarding the validity of the assessment, which is manifested in Ground of appeal no. 1 is to the effect that the assessment order passed by the Assessing Officer is bad in law, null and void ab initio because the draft assessment order dated 03.03.2015 was passed in the name of an entity which was not existing as on the date of the draft assessment order and, therefore, the entire assessment proceedings leading upto the final assessment order dated 29.01.2016 deserves to be quashed.

Before we proceed to appreciate the rival stands, the facts relevant to the said dispute can be summarised as follows. The return of income for Assessment Year 2011-12 was e-filed by Federal Express (India) Pvt. Ltd. (in short ‘FEIPL’) declaring an income of `13,08,38,720/-, which was subsequently revised on 29.03.2013. The return was processed under Section 143(1) of the Act and subsequently it was taken up for scrutiny and a notice under Section 143(2) of the Act dated 21.09.2012 was issued in the name of FEIPL. As the assessee had entered into an ‘international transaction’ within the meaning of Sec. 92B of the Act, the Assessing Officer also made a reference to the Transfer Pricing Officer (TPO) under Section 92CA(1) of the Act on 15.07.2013; thereafter, the TPO passed an order under

On receipt of the draft assessment order, the assessee company, FETSCS, which was in existence at that point of time, filed its objections against the draft assessment order before the Dispute Resolution Panel (DRP) wherein, inter-alia, it objected to the validity of the draft assessment order on the ground that it has been passed in the name of amalgamating company which was not in existence on the date of passing of such order.

In the above background, the case sought to be set-out by the appellant is that the order passed by the TPO as well as the draft assessment order passed by the Assessing Officer are in the name of non-existent entity, i.e. FEIPL, which is bad in law and as a result, all the subsequent proceedings are to be treated as illegal, bad in law and void ab initio. As per the appellant, such a mistake cannot be construed as a procedural mistake, but the same is a jurisdictional defect, which cannot be cured. It has also been pointed out that there is no dispute on the factual matrix inasmuch as the fact of the amalgamation being approved by the Hon'ble Bombay High Court on 05.07.2013 with retrospective effect from 01.04.2012 was brought to the notice of the TPO as well as the Assessing Officer vide communications dated 28.01.2015 and 01.10.2013 respectively. At the time of hearing, a reference has been made to pages 49 to 50 and 125 of the Paper Book wherein is placed copies of the aforestated two communications.

As per the Learned Representative, by passing the transfer pricing order under Section 92CA(3) of the Act and the draft assessment order under Section 143(3) r.w.s. 144C(1) of the Act in the name of the erstwhile non-existent entity, the income-tax authorities have failed to adhere to the

Another aspect of the matter, and which has been vehemently canvassed before us, is with reference to the scheme of assessment as

It has also been emphasised that passing of a valid draft assessment order is mandatory for the Assessing Officer to assume jurisdiction under Section 144C(1) of the Act. It is pointed out that Sec. 144C of the Act impacts assessee also since it empowers the Assessing Officer to make variation in the income or loss returned that is prejudicial to the interests of the assessee. Sec. 144C of the Act also gives a right to the assessee to agitate the draft order before the DRP in case assessee is aggrieved with the variation so proposed. In other words, as per the Learned Representative, existence of a legally valid draft assessment order becomes the foundation for commencement of a valid DRP proceedings and the subsequent final assessment order. It has been emphasised that because of invalidity in assuming jurisdiction while passing of a draft assessment order, the entire assessment proceedings in the instant case have become invalid; in this context, reliance has been placed on the judgment of the Hon'ble Bombay High Court in the case of International Air Transport Association vs DCIT and ors., WP (L) No. 351 of 2016 to say that passing of a valid draft assessment order is a statutorily mandated requirement. Emphasising the importance of a valid draft assessment order, the Learned Representative referred to two set of legal propositions. Firstly, it was pointed out that where a draft assessment order was passed, but was not so required to be passed by law as the assessee was not an ‘eligible assessee’, the subsequent proceedings

On the other hand, the second proposition referred was where a draft assessment was indeed required to be passed on an ‘eligible assessee’ as per Sec. 144C(1) of the Act, but the same was not so passed, in the following decisions the entire assessment proceedings have been held to be invalid and liable to be quashed :-

Both the aforesaid propositions have been adverted to with the object of emphasising that existence of a legally valid draft assessment order is a pre-requisite for commencement of further legally valid DRP and final assessment proceedings.

In the above background, the Learned Representative submitted that even though the final assessment order has been passed in the correct

On the other hand, the Ld. DR appearing for the Revenue reiterated the stand of the DRP that passing of draft assessment order in the name of FEIPL, the erstwhile amalgamating company, was only a procedural mistake. In this context, our attention was drawn to the judgment of the Hon'ble Delhi High Court in the case of Sky Light Hospitality LLP vs ACIT, W.P No. 10870 of 2017 to contend that mentioning of erstwhile entity’s name in the draft assessment order is a mistake which is curable in terms of Sec. 292B of the Act. Apart therefrom, it has been contended that the draft assessment order cannot be equated with the final assessment order, and that the proceedings before the DRP are only a continuity of assessment proceedings and, therefore, any defect which has crept into the draft assessment order would not be fatal to the entire assessment proceedings. The Ld. DR also referred to the requirements of Sec. 170(2) of the Act, which refers to an ‘assessment’, and since the assessment is understood to be completed under Section 144C of the Act only on passing of the final assessment order; and, in the present case, such final assessment order has been passed in the name of the correct entity, i.e. FETSCS; therefore, according to the ld. CIT- DR, the objection raised by the assessee is not correct. In sum and substance, the stand of the Ld. DR is that the error, if any, in passing the assessment order in the name of a wrong entity does not affect the validity

We have carefully considered the rival submissions. As our discussion in the earlier paras show, the plea of the assessee revolves around the validity of the Transfer Pricing order passed by the TPO under Section 92CA(3) of the Act, the draft assessment order passed under Section 143(3) r.w.s. 144C(1) of the Act; and, the validity of the consequent final assessment order based on the draft assessment order. 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.

Though in the earlier paras we have succinctly noted the factual matrix, but in order to recapitulate, the following discussion is relevant. The company, FEIPL amalgamated with FETSCS in terms of the order of the Hon'ble Bombay High Court dated 05.07.2013 whereby the scheme of amalgamation was approved with retrospective effect from 01.04.2012 and the effective date of merger was 01.10.2013. At the time of amalgamation, the assessment proceedings for the instant assessment year were being carried out before the Assessing Officer in the case of FEIPL consequent to issuance of notice under Section 143(2) of the Act dated 21.09.2012. It is also notable from the record that vide communication dated 01.10.2013, a

In the above factual background, what we are required to consider is as to whether the draft assessment order passed under Section 143(3) r.w.s. 144C(1) of the Act in the case of a non-existent entity is without jurisdiction, as canvassed by the assessee. Furthermore, if we were to accept the aforesaid proposition, the next question would be as to whether the final assessment order passed by the Assessing Officer under Section 143(3) r.w.s. 144C(13) of the Act is also without jurisdiction, especially in view of the fact that the final assessment order has been passed in the correct name, i.e. in the name of the amalgamated entity.

Before we proceed further, it would be appropriate to briefly touch upon the scheme of reference to Dispute Resolution Panel contained in Sec. 144C of the Act. Prior to the introduction of Sec. 144C of the Act by the Finance (no.2) Act, 2009 with retrospective effect from 01.04.2009, if assessee was aggrieved by any of the additions/disallowances made by the Assessing Officer, an appeal would lie to the Commissioner (Appeals) under Section 246A of the Act. However, a new scheme of dispute resolution was brought into the Act by insertion of Sec. 144C of the Act in the context of ‘eligible assessee’ prescribed therein. Sec. 144C of the Act contains 15 sub- sections and provides for a mechanism for dispute resolution, powers of Dispute Resolution Panel, definition of Dispute Resolution Panel, eligible assessee, etc. In terms of the schematic arrangement prescribed in Sec. 144C of the Act, firstly a ‘draft proposed order of assessment’ would be passed in the case of an ‘eligible assessee’; thereafter such ‘eligible assessee’ is permitted within 30 days of receipt of the order, either to file objections before the DRP or accept such draft assessment order and communicate the same to the Assessing Officer. If the assessee opts for filing objections before the DRP, the DRP hears such assessee and gives directions to the Assessing Officer for completion of assessment. Thereafter, the Assessing Officer passes a ‘final assessment order’ within the period prescribed. If the assessee chooses to accept such draft assessment order or fails to communicate the Assessing Officer within one month, the Assessing Officer shall pass the final assessment order within the period prescribed therein. As a perusal of Sec. 144C(1) of the Act shows, the Assessing Officer is required to forward the draft of the proposed order of assessment only to an ‘eligible assessee’, and not to every assessee under the Act. The meaning

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 sub-section (3) of Sec. 144C of the Act, which reads as under

Thus, it can be concluded that Sec. 144C of the Act impacts the assessee as it empowers the Assessing Officer to make a variation in the income or loss returned which is prejudicial to the interest of the assessee. Against such variation proposed by the Assessing Officer in the draft assessment order, it is only the assessee who has been given a right to object. Hence, such a right must arise from a legally sustainable valid draft order. If under the provisions of the Act an authority is required to exercise power or to do an act in a particular manner, then that power has to be exercised and the act has to be performed in that manner alone and not in any other manner, a proposition which is fortified by the judgment of the Hon'ble Allahabad High Court in the case of Dr. Shashi Kant Garg vs CIT (2006) 285 ITR 158. In other words, the existence of a legally valid draft order becomes the premise or foundation for the commencement of a legally valid DRP proceedings and consequently, a legally valid final

Our above understanding stands fortified by the judgment of the Hon'ble Bombay High Court in the case of International Air Transport Association vs. DCIT & Ors., Writ Petition (L) No. 351 of 2016 (Bom. HC) which has clearly held that a draft assessment order under Section 144C(1) of the Act is ‘mandated’ before the Assessing Officer passes a final order under Section 143(3) of the Act in case of an ‘eligible assessee’, and the relevant extract of the judgment reads as under :-

The Hon'ble Bombay High Court in the case of Dimension Data Asia Pacific PTE Ltd vs DCIT (WP No. 921 of 2018) (Bom HC) has also emphasised that it is imperative for the Assessing Officer to first pass a draft assessment order as per provisions of section 144C in the case of an eligible assessee and a final assessment order cannot be passed in absence of a draft assessment order since the assessee has been granted special rights to appeal under the scheme of section 144C of the Act. The relevant portion of the judgment reads as under :-

A perusal of the aforesaid judgments of the Hon'ble Bombay High Court leads to an irresistible conclusion that the draft assessment order imbibes a jurisdictional power in terms of Sec. 144C(1) of the Act. Obviously, passing of draft assessment order creates a right upon an ‘eligible assessee’ to approach the DRP. In other words, the triggering of special provisions contained in Sec. 144C of the Act or the special right available to the ‘eligible assessee’ springs up only by virtue of passing of draft assessment order under Section 144C(1) of the Act on the ‘eligible assessee’. Thus, if such an order is passed on an assessee who is not an ‘eligible assessee’ as defined in Sec. 144C(15)(b)(i) of the Act, it would render the entire proceedings pursuant to such order null and void. Therefore, in the present case, as the draft assessment order has been passed in the name of FEIPL, which is a non-existent entity, and there is no draft assessment order passed in the

We also derive support from the judgment of the Hon'ble Madras High Court in the case of Vijay Television (P.) Ltd. VS DRP (supra) and from the Hon'ble Andhra Pradesh High Court in the case of M/s. Zuari Cements Ltd. (supra) where a draft assessment order was required to be passed as per law but was not passed and hence the final assessment order was held to be without jurisdiction. Further, even in cases where a draft assessment order was passed but it was not so required to be passed in law, since the assessee was not an ‘eligible assessee’, the entire assessment proceedings thereafter have been held to be bad in law and liable to be quashed by the Hon'ble High Courts in the cases of Honda Cars India Ltd. vs DCIT, W.P (C) No. 4262 of 2015 (Del.), Pankaj Extrusion Ltd. vs ACIT, 198 Taxman 6 (Guj.) and ESPN Star Sports Mauritius S.N.C ET Compagnie vs. Union of India, W.P (C) No. 2384 & 2397 of 2015 (Del).

We may now refer to the arguments set-up by the Ld. DR. Ostensibly, the Ld. DR admitted that draft assessment order being passed in the name of a non-existent entity is a mistake; but, the stand of the Ld. DR is that such a mistake is rectifiable in terms of Sec. 292B of the Act. In this context, we have already inferred in the earlier paras that the draft assessment order cannot be passed unless there is an ‘eligible assessee’ in terms of Sec. 144C(15)(b)(i) of the Act. We have also noted earlier that it is obligatory on

Before parting, we may also refer to the reliance placed by the Ld. DR on the judgment of the Hon'ble Delhi High Court in the case of Sky Light Hospitality LLP (supra) to canvass that the mistake in the draft assessment order by passing it in the name of a non-existent entity is a procedural mistake. We have carefully perused the said decision and find that in the case before the Hon'ble High Court, there was a mistake by the Assessing Officer only while issuing the notice under Section 148 of the Act. The notice was issued in the name of the erstwhile amalgamating company, so however, all other documents, namely, tax evasion report, reasons to believe, approval by the Principal Commissioner, order under Section 127 of the Act, etc. correctly recorded the name of the amalgamated company, i.e. the entity which was in existence. In the background of such peculiar circumstances, the Hon'ble High Court took a view that mere incorrect mentioning of the name in the notice was a defect curable in terms of Sec. 292B of the Act. However, the facts in the case before us are in complete contrast. In fact, in the course of hearing, the Ld. DR was specifically asked

In conclusion, to summarise, we hold that since the Transfer Pricing order under Section 92CA(3) of the Act was passed in the name of the amalgamating company, FEIPL, which was not an ‘eligible assessee’ as per Sec. 144C(15)(b)(i) of the Act, the Assessing Officer did not have any jurisdiction under Section 144C(1) of the Act to pass a draft assessment order. Furthermore, the draft assessment order was also passed in the name of the amalgamating company, FEIPL which was a non-existent entity in the eyes of law on the date of passing of such order; thus, the draft assessment order passed in the present case is illegal and bad in law. Accordingly, the entire assessment proceedings based on such a draft assessment order are illegal and the same are hereby quashed.

Before we conclude, we may also discuss the reference made by the appellant to the provisions of Sec. 170 of the Act in order to demonstrate that the actions of the income-tax authorities (in the context of the order passed by the TPO and draft assessment order passed by the Assessing Officer) were not as per law. In this context, we may peruse Sec. 170 of the Act, which reads as under :-

Sub-section (1) of Sec. 170 of the Act prescribes that when a business or profession carried on by a person is succeeded by another person, who continues to carry on that business, the predecessor shall be assessed in respect of the income up to the date of succession and the successor shall be assessed in respect of the income after the date of succession in the particular previous year in which the succession has taken place. If the predecessor cannot be found, then, provisions of sub-section (i) would not apply, but provisions of sub-section (2) would apply.

A reading of the above provisions suggest that where the predecessor cannot be found, then, the assessment of income upto the date of

Accordingly, in the present case, as on the date of passing of the draft assessment order, the amalgamating company, FEIPL had amalgamated with and into FETSCS, the amalgamated company. Thus, on the date of such order, the amalgamating company could not be found/was not in existence. Accordingly, we are of the view that as per provisions of Section 170(2) of the Act, the Assessing Officer ought to have made the assessment in the name of amalgamated entity, in like manner and to same extent, had the assessment been made on amalgamating company, i.e. the transfer pricing order under Section 92CA(3) of the Act and the draft assessment order by the Assessing Officer ought to have been made on FETSCS, the amalgamated company. As regards the argument of the Ld. DR to the effect that the Assessing Officer has complied with Section 170 of the Act; according to the Ld. DR, the assessment referred to Sec. 170 of the Act means completion of assessment by passing a final order of assessment and the final assessment

Thus, the expression ‘assessment’ can also mean the procedures laid down in the Act, if the context so requires; and, qua Sec. 170 of the Act, the word ‘assessment’ has to be understood as procedure laid down therein. Accordingly, under Section 170 of the Act, the Assessing Officer was required not only to complete, but also to conduct assessment (i.e. following the prescription of Sec. 144C of the Act in this case) in the hands of the successor in the like manner and to the same extent as it would have been done in the hands of the predecessor. Ostensibly, in the present case, the TPO as well as the Assessing Officer have failed to do so by passing the transfer pricing order under Section 92CA(3) of the Act and the draft assessment in the name of FEIPL, a non-existent entity and hence the argument of the ld. DR that the provisions of Section 170 of the Act have been complied is untenable.

In view of the above, we hold that the entire assessment in the present case is vitiated in law and is hereby quashed. In the result, Ground of appeal no. 1 is allowed.

Since we have quashed the entire assessment, all other Grounds are not being adjudicated for the present, as they are rendered academic.

Resultantly, appeal of the assessee is allowed, as above.