M/S MARUTI SUZUKI INDIA LTD.,,NEW DELHI vs. DCIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘I-1’, NEW DELHI Before Sh. N. K. Saini, AM and Smt. Beena Pillai, JM Asstt. Year : 2011-12 Maruti Suzuki India Ltd. Vs Dy. Commissioner of Income Tax, Plot No. 1, Nelson Mandela Road, Circle-16(1), C.R. Building, Vasant Kunj, New Delhi-110070 New Delhi (APPELLANT) (RESPONDENT) PAN No. AAGCS7346J Assessee by : Sh. Ajay Vohra, Sr. Adv., Neeraj Jain, Rohit Jain, Advs. Ramit Katyah & Ms. Tejasvi jain, CAs Revenue by : Sh. Amrendra Kumar, CIT DR Date of Hearing : 18.07.2016 Date of Pronouncement : 21.07.2016 ORDER Per N. K. Saini, AM:

This is an appeal by the assessee against the order dated 29.12.2015 passed by the AO u/s 143(3) r.w.s. 144C(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act).

“1. That on the facts and circumstances of the case and in law, the impugned order dated 29.12.2015 passed under section 143(3) r.w.s. 144C(1) of the Income Tax Act. 1961 ("the Act") is without jurisdiction, illegal and bad in law.

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2. That the assessing officer ('AO') erred on facts and in law in making transfer pricing adjustment amounting to Rs.69,93,38,000/- on account of the alleged difference in the arm's length price of international transactions of payment of royalty entered into by the appellant on the basis of the order under section 92CA(3) of the Act. 2.1 That the Transfer Pricing Officer ('TPO') /Dispute Resolution Panel ('DRP') erred on facts and in law in holding that the international transaction of payment of royalty does not satisfy the arm's length principles as envisaged under the Act. 2.2 That the TPO/DRP erred on facts and in law not appreciating that the transaction of payment of royalty was closely linked to the business of the assessee and was appropriately benchmarked by the appellant applying Transactional Net Margin Method ('TNMM') at entity level. 2.3 That the TPO/DRP erred on facts and in rejecting the benchmarking analysis undertaken by the assessee without providing any cogent reasons. 2.4 That the TPO/DRP erred on facts and in law in incorrectly applying Comparable Uncontrolled Price ('CUP') method, not appreciating that application of CUP method requires high degree of product and functional comparability. 2.5 That the TPO/DRP erred on facts and in law in selecting functionally dissimilar license agreements for the purpose of benchmarking the international 3 Maruti Suzuki India Ltd. transaction of payment of royalty undertaken by the appellant. 2.6 That the TPO/DRP erred on facts and in law in selecting license agreements relating to manufacture/assembly of products which are different than those covered under the license agreement entered into by the appellant with the associated enterprise. 2.7 That the TPO/DRP erred on facts and law in not appreciating that licensing transactions where the licensee incurs significant Research and Development (‘R&D') activity cannot be regarded as an appropriate comparable for benchmarking the transaction of payment of royalty undertaken by the appellant, who does not undertake any R&D activity. 2.8 That the TPO/DRP erred on facts and in law in not appreciating that due to differences in the economies, competitiveness and other dynamics of the Indian and Chinese automotive markets, the transactions involving Chinese licensees of technology cannot be regarded as an appropriate comparable for benchmarking the transaction of licensing of technology undertaken by the appellant, manufacturing and selling products in the Indian market. 2.9 That the TPO/DRP erred on facts and in law in selecting comparable license agreements having significantly different contractual covenants as compared to the license agreement entered into by the assessee for the purpose of benchmarking the 4 Maruti Suzuki India Ltd. international transaction of payment of royalty undertaken by the appellant. 2.10 That the TPO/DRP erred on facts and in law in not appreciating that the license agreement entered into between Edmond B Cicotte and William Controls Inc provides for minimum royalty payments and is therefore not an appropriate comparable for the purpose of benchmarking the transaction of payment of royalty undertaken by the appellant. 2.11 That the TPO/DRP erred on facts and in law in arbitrarily rejecting the comparable license agreements submitted by the appellant. 2.12 That the TPO/DRP erred on facts and in law in not appreciating that the royalty paid by the appellant is pursuant to specific approval from the Secretariat of Industrial Assistance, Ministry of Commerce and Industry and therefore cannot be regarded as excessive or unreasonable. 2.13 That the TPO/DRP erred on facts and in law in not appreciating that the arrears of royalty have been appropriately benchmarked by the appellant by applying TNMM wherein such arrears were considered as part of cost of sales. 2.14 That the TPO/DRP erred on facts and in law in making adjustment in respect of royalty paid by the assessee during financial years 2006-07. 2008- 09 and 2009-10 which have already examined and accepted to be arm's length by the TPO.

5 Maruti Suzuki India Ltd. 2.15 That the TPO/DRP erred on facts and in law in failing to appreciate that the transaction of payment of royalty was accepted to be at arm's length in all the preceding years.

3. That the assessing officer/DRP erred on facts and in law in holding that royalty aggregating to Rs. 16,67,00,000 was not allowable as deduction during the relevant year since the same pertained to earlier years, and consequently, making net disallowance of Rs.2,63,00,000 as prior period item. 3.1 That the assessing officer/DRP erred on facts and in law in not appreciating that even though royalty pertained to earlier year(s), the liability crystallized after receipt of regulatory approvals during the year under consideration.

4. Without prejudice, the AO/ DRP erred in not allowing/ directing royalty, held to be prior period item, to be allowed as deduction in the year to which the royalty pertains and consequently, appropriate direction may be given.

5. That the assessing officer erred on facts and in law in computing/levying interest under Section 234A, Section 234B and Section 234C of the Act. The appellant prays leave to add, amend, alter, delete or forego any of the grounds either before or during the course of hearing.”

6 Maruti Suzuki India Ltd. 144C(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act) vide order dated 29.12.2015.

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� CIT v. Amarchand N. Shroff: 48 ITR 59 (SC) � Rustagi Engineering Udyog P. Ltd. v. DCIT: 382 ITR 443 (Del) � CIT v. Micron Steels (P.) Ltd.: 233 Taxman 120 (Del) � ACIT v. Micra India (P.) Ltd.: 231 Taxman 809 (Del) � CIT v. Intel Technology India Pvt. Ltd.: 380 ITR 272 (Kar) � CIT v Express Newspaper : 40 ITR 38 (Mad) [affirmed by Supreme Court in 53 ITR 250] � Birla Cotton v CIT: 123 ITR 354 (Delhi) � R. C. Jain v. CIT : 140 Taxman 379 (Del) � CIT v. Kumari Prabhavati Gupta: 231 ITR 188 (MP) � CIT vs. Fatelal (1996) 88 Taxman 320 (MP) � Sajjan Kumar Saraf vs. CIT: 114 ITR 155 (Cal)

10 Maruti Suzuki India Ltd. � CIT vs. Surendra Kumar Bhandan: 164 ITR 323 (Pat) � Smt. Sudha Prasad V. Chief CIT: 186 CTR 475/133 Taxman 864 (Jharkhand) � Braham Prakash vs. ITO (2004) 192 CTR 190 (Del) � CIT vs. Ram Das Deokinandan Prasad (HUF): 277 ITR 197 (All) � M/s Computer Engineering Services India (P.) Ltd. v. ACIT: 172 TTJ 317 (Del) � M/s Mevron Projects Pvt. Ltd. vs. ACIT: to 5416/DeI/2013 (Del) � Makers Development Services Ltd. v. CIT: 40 ITD 185(Bom) � Late A.Y. Prabhakar (Indl.) v. ACIT: 105 TTJ 391(Chenn.) � Impsat (P) Limited V. ITO: 91 ITD 354 (Del.) � Slocum Investment (P) Limited: 106 ITD It 101 TTJ 658 (Del.) � ACIT vs. Wellvest Investment (P) Ltd.: CO No. 251/Del./2006 � Hewlett Packard (I)(P) Ltd. v ACIT: ITA No : 4016/Del/05 � Pampasar Distillery Ltd. v ACIT:[2007] 15 SOT 331 (Kol) 8. The ld. Counsel for the assessee submitted that a mere participation by the amalgamated company in the assessment proceeding would not cure the defect as the assessment framed in the name of a non-existent entity would tantamount to jurisdictional defect, thus making it void ab initio. The reliance was placed on the following case laws: � CIT v. Amarchand N. Shroff: 48 ITR 59 (SC)

11 Maruti Suzuki India Ltd. � Saraswati Industrial Syndicate Ltd. v. CIT [1990]: 53 Taxman 92 (SC) � ITO v. Ram Prasad: 86 ITR 145 (SC) � Vived Marketing Servicing (P) Limited in (Del) � CIT v. Dimensions Apparels Pvt. Ltd.: 370 ITR 288 [Del HC] � CIT v. Micron Steels (P.) Ltd.: 233 Taxman 120 (Del) � Birla Cotton v CIT: 123 ITR 354 (Delhi) � R. C. Jain v. CIT : 140 Taxman 379 (Del) � CIT v Express Newspaper : 40 ITR 38 (Mad) [affirmed by Supreme Court in 53 ITR 250] � CIT v. Kumari Prabhavati Gupta: 231 ITR 188 (MP) � Smt. Sudha Prasad V. Chief CIT: 186 CTR 475 (Jharkhand) � CIT v. Intel Technologies India (P.) Ltd.: 232 Taxman 279 (Kar) � Satwant Exports (P.) Ltd. vs. ACIT: ITA No.5340 to 5345/Del/2013 (Del) � ACIT v. DLF Cyber City Developers Ltd.: ITA No.4010, 4270/Del/2010 (Del) � Impsat (P) Limited V. ITO: 91 ITD 354 (Del.) � Images Credit & Portfolio (P) Ltd. vs. ACIT: ITA No. 5301 to 5306 & 5418 to 5423/Del/13 (Del) � Makers Development Services Ltd. v. CIT: 40 ITD 185 (Bom) � Slocum Investment (P) Limited: 101 TTJ 558 (Del.) � HCL Corporation Limited V. ACIT: ITA No. 447/Del/2004 (Del Trib) � Eicher International Ltd. vs. DCIT in ITA No.l824/Del/2011 (Del) � ACIT v. DLF Cyber City Developers Ltd.: 34 ITR(Trib) 696 (Del)

12 Maruti Suzuki India Ltd. � Late A.Y. Prabhakar (Indl.) v. ACIT: 105 TTJ 391 (Chenn.) � Modi Corp. Ltd. (as successor to Calcutta Instalments (P) Ltd.) v. Jt. CIT: 105 TTJ 303 (Del.) � Century Enka Ltd. v. DCIT: 105 TTJ 528 (Mum) 9. In his rival submissions the ld. CIT DR submitted that the assessee filed the return of income in the name of M/s Suzuki Powertrain India Ltd. and the notice u/s 143(2) r.w.s. 142(1) of the Act was issued to the assessee who had filed the return of income and the assessment was also framed in the name of the person who filed the return. It was further submitted that in the present case, the assessment year involved is assessment year 2011-12 and the return of income was filed on 28.11.2011 while the scheme of amalgamation was approved by the Hon’ble Delhi High Court vide order dated 29.01.2013. Therefore, the income was earned for the assessment year under consideration by the erstwhile entity M/s Suzuki Powertrain India Ltd. and the AO rightly assessed the income in its hand. It was further submitted that as per the provisions of Section 170(1) of the Act. The predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession and that the successor shall be assessed in respect of the income of the previous year after the date of succession. It was pointed out that in the present case, the 13 Maruti Suzuki India Ltd. succession took place w.e.f. 01.04.2012 as a result of scheme of amalgamation duly approved by the Hon’ble Delhi High Court vide order dated 29.01.2013, therefore, the predecessor M/s Suzuki Powertrain India Ltd. was to be assessed in respect of the income of the previous years ending on or before 31.03.2012 and as such the AO rightly assessed the income in the name of amalgamating company i.e. M/s Suzuki Powertrain India Ltd.

In the instant case, no doubt there was participation during the course of assessment; however, the Assessing Officer, despite being told that the original company was no longer in existence, did not take remedial measures and did not transpose the transferee as the company which had to be assessed, instead, he resorted to a peculiar procedure of describing the original assessee as the one in existence; the order also mentioned the transferee's name below that of assessee's company. Now, that did not lead to the assessment being completed in the name of the transferee-company. According to the Assessing Officer, the assessee-company was still in existence. Clearly, this was a case where the assessment was contrary to law, as having being completed against a non-existent company. The Tribunal's decision is, in the circumstances, justified and warranted.

15 Maruti Suzuki India Ltd. “No doubt, M/s Spice was an assessee and as an incorporated company and was in existence when it filed the returns in respect of two assessment years in question. However, before the case could be selected for scrutiny and assessment proceedings could be initiated, M/s Spice got amalgamated with M Corp Pvt. Ltd. It was the result of the scheme of the amalgamation filed before the Company Judge of this Court which was dully sanctioned vide orders dated 11th February, 2004. With this amalgamation made effective from 1st July, 2003, M/s Spice ceased to exist. That is the plain and simple effect in law. The scheme of amalgamation itself provided for this consequence, inasmuch as simultaneous with the sanctioning of the scheme, M/s Spice was also stood dissolved by specific order of this Court. With the dissolution of this company, its name was struck off from the rolls of Companies maintained by the Registrar of Companies. 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. In view of the aforesaid clinching position in law, it is difficult to digest the circuitious 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. After the sanction of the scheme on 11th April, 2004, the Spice ceased 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 16 Maruti Suzuki India Ltd. 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 AO 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.” It has been further held as under: “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 292B. 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’.”

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