NOVATEUR ELECTRICAL AND DIGITAL SYSTEMS PRIVATE LIMITED,MUMBAI vs. ACIT - 10(3)(1), MUMBAI

6. in not appreciating that the transfer pricing order mentioned only one PAN viz. AAACM5009Q being the one pertaining to Legrand.

Ground 2-Depreciation on Goodwill

On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in the following respects: 7. in upholding the disallowance of depreciation on goodwill amounting to Rs.81,30,26,569. 8. in not allowing depreciation on goodwill despite accepting the valuation report of the appellant and holding that goodwill is an intangible asset covered under section 32 of the Act and is entitled for depreciation.

4.1. Legrand India Pvt. Ltd. (Legrand) an Indian company having PAN- AAACM5009Q was amalgamated with the assessee vide order dated 06.07.2012, passed by the Hon’ble High Court of Bombay. The appointed date of amalgamation given by the Hon’ble Court was from 01.04.2011, i.e., from Financial Year 2011-12 relevant to Assessment Year 2012-13. At this juncture, it is important to note the PAN of assessee which is AAACCE4671N. Also, it is important to note that the year under consideration before us is Assessment Year 2011-12. Legrand had filed its original return of income for Assessment Year 2011-12 u/s.139(1) on 29.11.2011, alongwith Form 3CEB for its transfer pricing regulation compliance and Form 3CD for its tax audit requirements.

4.2. For Assessment Year 2011-12, both assessee and Legrand had individually filed their respective returns of income along with other relevant and necessary compliance. Separate scrutiny assessment proceedings were undertaken by the Income-tax authorities for each of them. Jurisdiction in the case of assessee during the relevant time lay with Income Tax Officer-6(2)(4), Mumbai from whose office, notice Novateur Electrical and Digital Systems Pvt. Ltd., AY 2011-12 u/s.143(2), dated 01.08.2012 was issued in the name of Novateur Electrical and Digital Systems Pvt. Ltd. Jurisdiction in the case of Legrand during the relevant time lay with ACIT-6(3), Mumbai, who issued notice u/s.143(2) on 02.08.2012 in the name of Legrand itself. Thus, two separate scrutiny assessment proceedings were initiated. Both the companies had international transactions and therefore both had filed their respective Form 3CEB in compliance with the transfer pricing regulations. In case of both, respective ld. Assessing Officers made a reference to the ld. Transfer Pricing Officer (TPO).

4.3. In the case of Legrand, pursuant to transfer pricing proceedings, addition of Rs.6,65,357/- in respect of export sales made to its Associated Enterprises (AEs) was made by the ld. TPO in order passed u/s.92CA(3), dated 12.01.2015. The said order was passed by Addl. CIT (TPO)-3(1), Mumbai. It is important to note that in the said order against the name of the assessee, ld. TPO mentioned the name of assessee as “Novateur Electrical and Digital Systems Pvt. Ltd. [formerly Legrand (India) Ltd./Indo Asian Electric Pvt. Ltd.]”. The PAN quoted in the header table is “AAACM5009Q”. which is of Legrand. Assessing Officer mentioned in the same header table is “DCIT-6(3), Mumbai”. In the first para of this order, it is stated that a reference u/s.92CA(1) in case of Novateur Electrical and Digital Systems Pvt. Ltd. i.e., the assessee was received from DCIT-6(3), Mumbai on 30.09.2013 who had made reference for determination of arm’s length price (ALP) for all the transactions reported in Form 3CEB filed by the assessee.

4.4 It is to be noted that there was cadre re-structuring of the jurisdiction owing to which jurisdiction in the case of Novateur Electrical and Digital Systems Ltd. i.e., assessee in the present case was changed to ACIT-10(3)(1), Mumbai. Similar change was made in Novateur Electrical and Digital Systems Pvt. Ltd., AY 2011-12 the jurisdiction of Legrand to DCIT-10(2)(1), Mumbai. Owing to such change in jurisdiction on account of cadre restructuring, subsequent proceedings were undertaken under the changed jurisdiction.

4.5. Pursuant to this order of ld. TPO passed in respect of reference made by the ld. Assessing Officer of Legrand, a draft assessment order was issued u/s. 143(3) r.w.s. 144C(1), dated 16.03.2015 by DCIT- 10(2)(1), Mumbai in the name of Legrand (India) Pvt. Ltd., again under the PAN “AAACM5009Q” by the ld. Assessing Officer having jurisdiction over Legrand. In the said draft assessment order, ld. Assessing Officer included the transfer pricing adjustments for the purpose of making addition of Rs.6,65,357/- on account of adjustment made in ALP in respect of international transactions with AEs. Subsequent to the draft assessment order, final assessment order was passed u/s.143(3) r.w.s. 144C(3), dated 20.04.2015 by DCIT-10(2)(1), Mumbai in the name of Legrand (India) Pvt. Ltd. with its PAN as stated above. In the final assessment order, addition towards adjustments made in ALP in respect of international transaction with AEs of Rs.6,65,357/- was retained as made in the draft assessment order.

4.6. In the case of Novateur Electrical and Digital Systems Pvt. Ltd., i.e., the assessee, though the reference was made by the ld. Assessing Officer to the ld. TPO for determination of ALP of international transactions with its AEs, yet there is no separate transfer pricing (TP) order passed pursuant to such reference. There is nothing on record for any adjustment proposed/made with respect to transactions undertaken by IAEL in Assessment Year 2011-12.

Novateur Electrical and Digital Systems Pvt. Ltd., AY 2011-12 4.7. It is worth noting a fact that the transfer pricing order passed with the PAN of Legrand, dated 12.01.2015 mentions name of the present assessee with the suffix ‘formerly Legrand (India) Ltd./Indo Asian Electric Pvt. Ltd.’ This TP order relating to the adjustment made in respect of international transaction of Legrand has been referred by the ld. Assessing Officer of Novateur Electrical and Digital Systems Pvt. Ltd. for the purpose of passing a draft assessment order in the name of Novateur Electrical and Digital Systems Pvt. Ltd., dated 30.03.2015. While passing this draft assessment order, the name mentioned is “Novatuer Electrical and Digital Systems Pvt. Ltd. (formerly known as Indo Asian Electric Pvt. Ltd.)” with PAN of Novateur, i.e., AACCE4672N. In this draft order in para 6.2, ld. Assessing Officer has mentioned about the TP order, dated 12.01.2015 passed by the Addl. CIT (TP)-3(1), Mumbai which has suggested an adjustment of Rs.6,65,357/- to the ALP of assessee’s international transactions relating to exports of finished goods. Pursuant to this draft assessment order, final assessment order has been passed by making the addition towards to the said TP adjustment by ACIT-10(3)(1), Mumbai in the name of Novateur Electrical and Digital Systems Pvt. Ltd. (formerly known as Indo Asian Electric Pvt. Ltd.) with the PAN of Novateur. In this final order, the same verbiage of para 6.2 has been retained.

7.1. Thus, from the above, it is noted that a draft order is required to be passed only in the following cases: a) Where variation is required to be made pursuant to the order passed by ld. TPO u/s.92CA. b) Where the assessee is a foreign company.

8.1. Further, there is no separate TP order u/s 92CA(3) pursuant to reference made by the ld. Assessing Officer having jurisdiction over Novateur. For this separate reference made by ld. Assessing Officer of Novateur, the combined order by the ld. TPO of Legrand has been taken into consideration for passing the draft assessment order and then the final assessment order. It is important to note that both in the draft and the final assessment order, the addition made by the ld. Assessing Officer on account of TP adjustment is in respect of international transactions with AEs undertaken by Legrand. Assessee had taken up this matter before the ld. CIT(A) who had held that no variation was made to the total income of the assessee pursuant to order passed u/s.92CA as the adjustment made in the TP order pertained to the transactions entered into by Legrand. Thus, he deleted the addition of Rs.6,65,357/- made towards ALP adjustment against which the Department is not in appeal.

8.2. We note that since there exists no TP variation, first in the case of assessee itself where no adjustment was per se made and secondly in the case of Legrand where the adjustment was made but deleted by CIT(A) and Department not coming up for an appeal before the Tribunal, the criteria of holding the assessee as eligible assessee specified u/s.144C(15) is not fulfilled. Once there is no variation arising as a consequence of the order of TPO, the draft assessment order could not have been passed. The statutory time limit provided u/s.153 of the Act in this respect is tabulated as under for ease of reference.

Particulars Limitation period Time limit for passing final assessment order 31 March 2014 for AY 2011-12 i.e. two years from the end of the relevant assessment year where no reference is made under section 92CA to Transfer Pricing Officer

Time limit for passing final assessment order 31 March 2015 for AY 2011-12 where reference is made under section 92CA of the Act i.e. 3 years from the end of the relevant assessment year (in case no TP adjustment is made)

Time limit for passing final assessment order To be passed in for AY 2011-12 where reference is made accordance with under section 92CA of the Act (in case TP variation is made) section 144C of the Act Appellant's case:

Transfer pricing order passed under section 12 January 2015 92CA(3) of the Act passed Draft Assessment Order passed on 30 March 2015 Final Assessment Order passed on 12 May 2015

10. In the given set of facts, ld. Assessing Officer has passed the impugned final assessment order on 12.05.2015 which ought to have been passed on or before 31.03.2015 as the present case is a case with no TP adjustment, whether it is Novateur or Legrand (since in the case of Legrand, the adjustment even though made by the ld. TPO had been deleted by ld. CIT(A) and Department is not in appeal for the same).

Extended time-limit under Extended time-limit under Explanation 1 to section 153 Explanation 1 to section 153 is is not available available provided that the assessee exercises opportunity of being re-heard 11.2. Accordingly, the contentions made by ld. CIT DR on applicability on explanation 1(i) to section 153 of the Act to make out a case as a case of re-hearing due to cadre restructuring is not tenable. To hold so, we find force from the decision of Hon’ble High Court of Delhi in the case of Shibani Dutta Vs. CIT(A) (2012) 26 taxmann.com 105 (Del), which has extensively dealt with the provisions of sections 127 and 129 for their applicability. The relevant extract from the said decision are as under: "10. The Revenue however contends, (which was accepted by the Tribunal) that Explanation 1(iii) to Section 158BE is applicable and in computing the period of limitation for the purpose of the Section "the time taken in reopening the whole or any part of the proceeding or giving an opportunity to the assessee to be reheard under the proviso to Section 129" shall be excluded. In our opinion the contention of the Revenue is misconceived. The period of limitation gets extended under clause (iii) of Explanation 1 only by the time taken to reopen the whole or any part of the proceeding or giving an opportunity to the assessee (to be reheard) under the proviso to Section 129. If we turn to Section 129 of the Act Novateur Electrical and Digital Systems Pvt. Ltd., AY 2011-12 we find that it provides for the procedure to be followed when there is a "change of incumbent of an office". The Section is as under: -

"Change of incumbent of an office.

Provided that the assessee concerned may demand that before the proceeding is so continued the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him, he be reheard."

11. We do not see how this provision helps the Revenue. It is applicable when in the same jurisdiction, there is a change of incumbent and one Assessing Officer is succeeded by another. In such a case, the main Section provides that the successor - officer is entitled to continue the proceeding from the stage at which it was left by his predecessor subject to the caveat, expressed in the proviso, that if the assessee demands that before the proceeding is continued the previous proceedings or any part thereof shall be reopened or that before any assessment order is passed against him, he shall be reheard, such a demand has to be accepted. If as a result of accepting the assessee's demand under the proviso to Section 129 some time is taken and the assessment proceedings cannot be completed within the normal period of limitation, then the period of limitation gets extended by such time taken for giving the assessee an opportunity to reopen the earlier proceedings or for rehearing. Section 129 is applicable to normal assessments made under Section 143(3) of the Act as well as the block assessments made under Section 158BC of the Act. The question however is whether there was a change in the incumbent of the office in the assessee's case so as to attract Section 129. We are afraid that Section 129 is not attracted to the assessee's case. The case of the assessee is one of a transfer under Section 127 from one jurisdiction to another jurisdiction. By order passed under Section 127 of the Act on 15.05.2002, the jurisdiction to assess the assessee was transferred from the ITO, Ward 2(7), Bangalore to Central Circle-25, New Delhi. Apparently because of search several cases had to be centralised and that is the reason for passing the order under section 127 and this has been referred to in Para 3 of the order of the CIT (Appeals). After the assessee's case was transferred to Delhi the Assessing Officer at Delhi issued notice under Section 158BC on 11.06.2002 calling for the block return of income. Section 129 speaks of change of an incumbent of an office without any change of the jurisdiction. Explanation-1 (iii) to Section 158BE speaks only of the proviso to Section 129. There were no earlier proceedings against the assessee pursuant to the search in Bangalore which got transferred to Delhi. The notice under Section 158BC was itself issued only by the Assessing Officer at Delhi and it is by this notice that the proceedings were commenced. If the proceedings had been commenced by the Assessing Officer at Bangalore and during the pendency of the proceedings the case had been transferred to Delhi it would possibly be argued that the proviso to Section 129 would extend the time limit. We, however, express no opinion about the same because that is not the factual position in the present case. In the present case the assessment proceedings were commenced only by the Assessing Officer at Delhi by notice issued on 11.06.2002. Thereafter there was no change in the incumbent of the Novateur Electrical and Digital Systems Pvt. Ltd., AY 2011-12 office so as to attract the provisions of Section 129. In such a situation there is no scope for importing the proviso to Section 129 to extend the period of limitation. Even factually there is nothing on record to show that the assessee made any request or demand before the Assessing Officer in Delhi that the previous proceedings, if any, should be reopened or that before any order of assessment is passed against her. she should be reheard. Therefore, both factually and legally there is no scope for invoking Explanation-1(ii) to Section 158BE of the Act to extend the period of limitation. The assessment under section 158BC ought to have, therefore, been completed on or before 30.06.2002 as per Section 158BE (1) (b) of the Act. Since it was completed only on 30.07.2002, it is barred by limitation."

Novateur Electrical and Digital Systems Pvt. Ltd., AY 2011-12 12.1. Ld. CIT DR has contested to make out a case that since it is a case of amalgamation of Legrand into Novateur, ultimately the onus is on Novateur only and therefore has no bearing even if a combined order has been passed by the ld. TPO. In this respect, it is to be noted that the scheme of amalgamation is effective from 01.04.2011 by the order of Hon’ble High Court of Bombay passed on 06.07.2012, hence the effective year for amalgamation is Assessment Year 2012-13 and not the year under consideration which is Assessment Year 2011-12. It is on record that two separate assessment proceedings were initiated by two different Income-tax authorities for two separate legal entities, i.e., Novateur (assessee) and Legrand. Though, Legrand did not exist at the time of culmination of the assessment proceeding so initiated, yet the same had to be brought to logical end by passing separate orders by taking into record the fact of amalgamation of Legrand into Novateur. It is a case where the statutory procedure mandated in section 144C has been attempted to be bypassed by merely mentioning the name of the assessee as the amalgamated entity with its former name and the name of amalgamating company. Section 144C provides for a detailed procedure to be followed in cases where any variation in income or loss returned which is prejudicial to the interest of an assessee on account of reference made in section 92CA. Non-compliance/adherence to the mandated procedure vitiates the assessment in itself. Thus, holistically taken, it is a case where there is no variation in the income by virtue of order of the ld. TPO, more particularly, no separate TP order for the transactions specific to Novateur, the condition prescribed for assessee to be an eligible assessee are not met and therefore procedure for issuance of draft order calling for objections and taking further steps do not apply.

Novateur Electrical and Digital Systems Pvt. Ltd., AY 2011-12 13. Considering the above detailed factual matrix and elaborate discussion on the same along with the applicable provisions of the law and judicial precedents, we hold that the impugned order passed u/s.143(3) r.w.s. 144C, dated 12.05.2015 is barred by limitation as it ought to have been passed on or before 31.03.2015. Thus, assessee succeeds on ground No.1 contesting on the validity of final assessment order. Since the impugned assessment order has been quashed as barred by limitation in terms of the discussion above, ground No.2 on the merits of the case is rendered academic and therefore not adjudicated upon.