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Income Tax Appellate Tribunal, HYDERABAD BENCHES ‘B’, HYDERABAD
Before: Shri Laliet Kumar, Hon’ble & Shri Madhusudan Sawdia, Hon’ble
This appeal filed by Erstwhile Amalgamating Company – Sitapuram Power Limited (Now Amalgamated Company – Zuari Cement Limited), (“the assessee”) against the final assessment order of the Learned Assessing Officer (“Ld. AO”) dated 25/01/2022 passed U/s. 143(3) r.w.s 144C(13) r.w.s 144B of the Income Tax Act, 1961 [“the Act”] for the AY 2017-18.
2. In the present appeal, the assessee has raised the following grounds of appeal:
“1. That on the facts and in the circumstances of the case and in law, the order of the assessment framed by the DCIT, National e-Assessment Centre, Delhi pursuant to the directions passed by the Hon’ble DRP U/s. 144C(5) of the Act is a vitiated order having been passed in violation of principles of natural justice and is otherwise arbitrary and is thus bad in law and void-ab-initio.
That the Hon’ble DRP directions are bad in law to the extent the same are prejudicial to the appellant.
3. That the Ld.AO has erred on the facts and in law in making the TP adjustment of Rs. 23,09,89,366/- in respect of the specified domestic transactions, hereinafter referred to as impugned transaction.
4. Ground on applicability of specified domestic transactions provisions. 4.1. The Ld. AO / Ld. TPO / Hon’ble DRP has erred in law and on facts of the case by proposing TP adjustment in relation to the impugned transaction despite the fact that the appellant has not claimed any deduction U/s. 80IA of the Act. Thus, the impugned transaction is not covered under the ambit of “Specified Domestic Transaction” as per section 92BA of the Act read with section 40A(2)(b), section 80IA(1), Section 80IA(10) and section 92(2A) of the Act. 4.2. The Ld. AO / Ld. TPO / Hon’ble DRP has erred in law and on facts by adopting a materially defective approach to propose an adjustment of Rs. 23,09,89,366/- by re-determining the arm’s length price of the transaction pertaining to sale of electricity by appellant to its domestic related party.
Ground on rejection of the bonafide TP documentation / Economic Analysis maintained by the appellant. 5.1. That the Ld. AP / Ld. TPO / Hon’ble DRP erred on the facts and in law, in rejecting the economic analysis in the TP documentation filed by the appellant in terms of section 92D of the Act read with Rule 10D of the IT Rules, 1962 and proceeded to make the TP addition based on re-determination of the arm’s length price of the impugned transaction pertaining to sale of electricity without giving any cogent basis and without demonstrating the inadequacy or infirmity in the analysis so conducted by the appellant and making modifications to this analysis in a subjective and arbitrary manner.
6. Grounds of appeal on TP adjustment proposed in contravention to the Indian TP Regulations and section 80IA(10) of the Act.
6.1. Notwithstanding and without prejudice to the above ground, in contravention to the conditions laid down in section 92(3) of the Act that governs the applicability of Indian TP regulations, the Ld.AO / TPO / Hon’ble DRP has erred in law and on the facts of the case by proposing the TP adjustment, as read with section 80IA(10) of the Act. 6.2. Without prejudice to the above, the Ld. AO / Ld. TPO / Hon’ble DRP has erred in law and on the facts by proposing the TP adjustment to the total income of the assessee without considering that the appellant and the related party have not claimed deductions U/s. 80IA of the Act and such an action is inconsequential from taxable income perspective for the amalgamated entity.
7. Other grounds 7.1. The Hon’ble DRP / Ld. AO / Ld. TPO has erred in law and on facts by not giving a proper treatment to the transfer pricing adjustment, as computed by the Ld. TPO in his order.”
3. The assessee also raised the following additional ground before us: 8. That the orders passed by the Transfer Pricing Officer and the Assessing Officer are void, illegal and bad in law having been passed in the name of a non-existent entity. 8.1. That the issue of illegality of the order passed by the Assessing Officer on a non-existent entity is no longer res integra, having been covered by the decision of the Hon’ble Supreme Court of India in the case of Principle Commissioner of Income Tax, New Delhi vs. Maruti Suzuki India Ltd [2019] 107 taxmann.com 375 (SC).”
Learned AR submitted that additional ground so filed are admissible in view of judgment rendered by the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC). The prayer for admission of additional ground noted above which are not in memorandum of appeal are being admitted for adjudication in terms of Rule 11 of the Income Tax (Appellate Tribunal) Rules, 1963 owing to the fact that objections raised in additional ground are legal in nature for which relevant facts are stated to be emanating from the existing records.
At the outset, the learned AR submitted that the additional 5. ground raised by the assessee may kindly be adjudicated first as the outcome of this ground will have bearing on the other grounds raised by the assessee. For that purpose, the learned AR drawn our attention to Ground No.8.1 of the Additional Grounds of appeal as extracted herein above.
5.1 With regards to their submission on Ground No.8.1, the learned AR contended that, during the proceedings before the learned Transfer Pricing Officer (“ Ld. TPO”), the assessee, intimated to the Ld. TPO that the assessee-company got amalgamated with the present appellant viz., Zuari Cement Limited w.e.f. 5th June, 2020. However, despite information given to the Ld. TPO, the Ld. TPO has passed the order in the name of amalgamating entity viz., Sitapuram Power Limited . Based on the order of Ld. TPO, the Ld. AO also passed the Draft Assessment order in the name of Sitapuram Power Limited despite the fact that the order was required to be passed in the name of the present appellant ie., Zuari Cement Limited. The assessee in its objection before the Learned Dispute Resolution Panel (“Ld. DRP”) at page 87 vide ground 2.8.2 has raised a specific ground that the assessee Sitapuram Power Limited got amalgamated with the present appellant Zuari Cement Limited by the order of the National Company Law Tribunal (NCLT). Consequently, it was observed by the Ld. DRP that the draft assessment order passed by the Ld.AO, was in the name of the non-existent company and therefore, the Ld. DRP in its wisdom relying on the provisions of section 292B of the Act directed the Ld. AO to pass the order in the name of M/s. Zuari Cement Limited. The directions issued in this regards by the Ld. DRP and more particularly page no. 36 of the directions, wherein the Ld. DRP has reproduced one table. To this effect, the relevant paragraphs of the order of Ld. DRP [2.8.1 to 2.8.6] are extracted herein below for reference:
“2.8.1. having considered the submissions, in paper book submission dated 26th April, 2021, the assessee has stated as below: Sl Date Event No.
November The assessee filed its return of income in the name of 30, 2017 Sitapuram Power Limited [“SPL”] 2. April 1, Appointed date of amalgamation of SPL with ZCL vide 2019 order passed by the NCLT, Amaravati Bench, Hyderabad dated May 4, 2020.
Letters filed with the income tax authorities intimating the amalgamation of SPL into and with ZCL with effect from June 5, 2020. June 18, Deputy Commissioner of Income Tax, Circle-3(2), 2020 Hyderabad, Telangana June 18, Assistant Commissioner of Income Tax (Transfer 2020 Pricing), Hyderabad, Telangana June 18, Assistant Commissioner of Income Tax, Circle-1, 2020 Andhra Pradesh 4. January Order U/s. 92CA of the Act passed by the Assistant 31, 2021 Commissioner of Income Tax (Transfer Pricing) DCIT, TPO-2, Hyderabad in the name of SPL 5. March 27, Draft Assessment order passed U/s. 143(3) read with 2021 section 144C of the Act by the additional / joint / Deputy / Assistant Commissioner of Income Tax / Income Tax Officer, National e-assessment centre, Delhi in the name of SPL
2.8.2. the assessee got amalgamated with its holding company ie., ZCL, with effect from 5th June, 2020. The assessee has filed the communication before the Ld. AO / Ld. TPO vide the submissions dated June 18, 2020 along with the copy of the scheme and the orders of the National Company Law Tribunal, Amaravati Bench (refer page 376 to 414 of the paper book) 2.8.3. Having considered the submissions, we opine that there is no mistake in passing the orders by the TPO as well as by the AO in the name of the Sitapuram Power Limited bearing PAN- AAJCS2098E as the assessee has filed the return in the same name with same PAN number. The assessee has been amalgamated into and the with ZCL w.e.f 01/04/2019 which effect, as per the assessee, has been intimated to TPO also. The assessee objects that in spite of informing to the TPO the order has been passed in the name of Sitapuram Power Limited only, which according to assessee is non-existent. 2.8.4. In the order of TPO under section 92CA doesn’t mean that the order has been passed on non-existing entity. As per the section 292B of the Income Tax Act, 1961, “No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have ben furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice summons or other proceedings is in substance and effect in conformity with order according to the intent and purpose of this Act”. The intention of the TPO and AO is evident from the order that the TPO has correctly mentioned the name, address of the assessee and the year of the reference in the said order. Hence, it is not a mistake or error which makes the order null and void. 2.8.5. In such type of cases, the assessee has to make a request in the e-filing portal for the amalgamation of two entities along with the required documents. As per the new procedure, the system will acknowledge the amalgamation and the PAN of the amalgamating company will be linked with the amalgamated company. Only on approval of the amalgamation by the system notices will be generated with new name and PAN. Further, in the current scenario of generating notices by the system as against issue of notices manually earlier it is only technical glitch which cannot be taken as ground for making the order al together null and void. 2.8.6. Further, both the order of TPO as well as draft order of the AO has not reached any finality till the orders passed based on the directions issued by the DRP U/s. 144C. Most importantly, the assessee itself filed Form-35A in the name of amalgamating company / and amalgamated company by quoting both PAN Numbers. This supports the fact that system has not acknowledged and approved the merger with the new name and PAN. Hence, the panel opines that it is a curable defect. Accordingly, we direct the AO to pass the order in the name of Zuari Cement Limited.” 5.2 The Ld. AR further submitted that the Ld. AO, in complete defiance of the directions issued by the Ld. DRP, passed the final assessment order U/s. 144C(13) of the Act in the name of M/s. Sitapuram Power Limited (Non-existent company). The submissions of the Ld. AR are that:-
(i) the draft assessment order passed by the Ld. AO, order passed by Ld. TPO and the final assessment order of the Ld. AO were passed in name of non-existent entity and therefore, the respective orders passed by the Ld. Revenue Authorities are unsustainable in law. The Ld. AR relied upon judgment of the Hon’ble jurisdictional High Court in the case of Virchow Drugs Ltd. Vs. Income Tax Officer reported in [2023] 156 taxmann.com 89 and the judgment of the Hon’ble Supreme Court in the case of Principle Commissioner of Income Tax, New Delhi vs. Maruti Suzuki India Ltd [2019] 107 taxmann.com 375 (SC). (ii) As per the provisions of section 144C(13) of the Act, the directions issued by the Ld. DRP are binding on the Ld. AO and therefore by not following the directions issued by the Ld. DRP, the final assessment order passed by the Ld. AO has become void and is required to be rejected.
On the other hand, learned DR heavily relied on the orders of the Ld. AO and argued in support of the same.
We have heard the rival contentions and perused the material available on record as well as the orders passed by the Ld. Revenue Authorities. Admittedly, the assessee has intimated the fact of amalgamation to the Ld. TPO as reproduced by the Ld. TPO in the order dated 31/01/2021 wherein it was mentioned that the assessee- company [M/s. Sitapuram Power Limited] was amalgamated with Zuari Cement Limited w.e.f. 5th June, 2020. The above said fact, remain unrebutted and rather it has been re-verified by the Ld. DRP in their directions, as reproduced herein above, wherein the Ld. DRP has acknowledged that the assessee-company has amalgamated with Zuari Cement Limited and therefore the Ld. DRP has mentioned in their order that the draft assessment order was passed by the Ld. AO in the name of the non-existent company. In our view, the Ld. DRP while passing the order had relied upon the provisions of section 292B of the Act to cure the defect. We have all sympathies for the Ld. DR but the fact remains that the Hon’ble jurisdictional High Court in the case of Virchow Drugs Ltd., vs. ITO (supra) has considered the above contention of the Revenue and has decided the issue against the Revenue by holding that the Revenue cannot take shield of section 292B of the Act. The sum and substance of our discussion is that the draft assessment order, after the fact of amalgamation came to the notice of the Ld. TPO / AO was required to be passed in the name of the amalgamated company i.e., Zuari Cement Limited and not in the name of the amalgamating company viz., M/s. Sitapuram Power Limited. Since the order was required to be passed in the name of the M/s. Zuari Cement Limited and was not passed in its name, therefore, the order passed by the Ld. AO was required to be struck down being it was passed in the name of a non-existent company i.e., M/s. Sitapuram Power Limited. For the above said propositions, we rely upon the judgment of the Hon’ble Supreme Court in the case of Principle Commissioner of Income Tax, New Delhi vs. Maruti Suzuki India Ltd (supra).
Having held that the order was required to be passed in the name of the M/s. Zuari Cement Limited, we have also examined the scheme approved by the National Company Law Tribunal wherein it has been mentioned that all debts, liabilities / obligations would be of the amalgamated company i.e., M/s. Zuari Cement Limited and not of the amalgamating company i.e., M/s. Sitapuram Power Limited. At page no.387 of the paper book it has been mentioned as under:
“(iv) all debts, liabitlities, contingent liabilities, duties and obligations, whether secured or unsecured or wither provided for or not in the books of account or disclosed in the balance sheet of the Amalgamating Company, shall be deemed to be the debts, liabilities, contingent liabilities, duties and obligations of the Amalgamated company without any further act, instrument of deed, and the Amalgamated Company shall meet, discharge and satisfy the same in terms of their respective terms and conditions, if any. For the avoidance of doubt, it is hereby clarified that it shall not be necessary to obtain the consent of any third party or other person who is a party to any contract or arrangement by virtue of which such debts, liabilities, duties and obligations have arisen in order to give effect to the provisions of this clause 3.1.2, and the approval of this scheme in accordance with the terms set out herein shall be deemed sufficient for the purposes of giving effect to the provisions of this clause 3.1.2. All loans, advances and other obligations due from the Amalgamating Company to the Amalgamated Company or vice versa shall stand cancelled and shall have no effect;”
On perusal of the above statutory approved scheme by the National Company Law Tribunal, it is clear that all the liabilities of the erstwhile entity M/s. Sitapuram Power Limited stand vested and transferred in the name of the present assessee viz., M/s. Zuari Cement Limited. The above said discussion is essential as the Hon’ble Supreme Court in the case of Principle Commissioner of Income Tax vs. Mahagun Realtors (P.) Ltd reported in [2022] 443 ITR 194 (SC) have carved out an exception to the judgment of the Hon’ble Supreme Court in the case of Principle Commissioner of Income Tax, New Delhi vs. Maruti Suzuki India Ltd (supra) and held that in case the liability of the earlier amalgamating company (erstwhile Company) continues to be owned by amalgamated company, then there is no error in passing the order in the name of the amalgamating company. The relevant paragraph from the judgment of the Hon’ble Supreme Court in the case of Mahagun Realtors (P.) Ltd (supra) is extracted herein below for reference:
This court notices that there are not less than 100 instances17 under the Income Tax Act, wherein the event of amalgamation, the method of treatment of a particular subject matter is expressly indicated in the provisions of the Act. In some instances, amalgamation results in withdrawal of a special benefit (such as an area exemption under Section 80IA) - because it is entity or unit specific. In the case of carry forward of losses and profits, a nuanced approach has been indicated. All these provisions support the idea that the enterprise or the undertaking, and the business of the amalgamated company continues. The beneficial treatment, in the form of set-off, deductions (in proportion to the period For instance, Section 35A, 35AB (3); 35ABB; 35D (5); 35DDA; 35E; 41 (1) (Any benefit accrued by the amalgamated co.) from cessation of liability of amalgamating company shall be taxed in the hands of the amalgamated company); 43 (1); 43 (6); 32 and 43 (6) (c); 43C; 47 (vi); (via) (viaa) (viab); 47 (vii); 72A; 72AB, etc. the transferee was in existence, vis-à-vis the transfer to the transferee company); carry forward of loss, depreciation, all bear out that under the Act, (a) the business-including the rights, assets and liabilities of the transferor company do not cease, but continue as that of the transferor company; (b) by deeming fiction- through several provisions of the Act, the treatment of various issues, is such that the transferee is deemed to carry on the enterprise as that of the transferor.
In Bhagwan Dass Chopra v. United Bank of India18 it was held that in every case of transfer, devolution, merger or scheme of amalgamation, in which rights and liabilities of one company are transferred or devolved upon another company, the successor-in-interest becomes entitled to the liabilities and assets of the transferor company subject to the terms and conditions of contract of transfer or merger, as it were. Later, in Singer India Ltd v. Chander Mohan Chadha19 this court held as follows: "8. ..there can be no doubt that when two companies amalgamate and merge into one, the transferor company loses its identity as it ceases to have its business. However, their respective rights and liabilities are determined under the scheme of amalgamation, but the corporate identity of transferor company ceases to exist with effect from the date the amalgamation is made effective."
The combined effect, therefore, of Section 394 (2) of the Companies Act, 1956, Section 2 (1A) and various other provisions of the Income Tax Act, is that despite amalgamation, the business, enterprise and undertaking of the transferee or amalgamated company- which ceases to exist, after amalgamation, is treated 1988 (1) SCR 1088 [2004] Supp (3) SCR 535 as a continuing one, and any benefits, by way of carry forward of losses (of the transferor company), depreciation, etc., are allowed to the transferee. Therefore, unlike a winding up, there is no end to the enterprise, with the entity. The enterprise in the case of amalgamation, continues.
In Maruti Suzuki (supra), the scheme of amalgamation was approved on 29.01.2013 w.e.f. 01.04.2012, the same was intimated to the AO on 02.04.2013, and the notice under Section 143(2) for AY 2012-13 was issued to amalgamating company on 26.09.2013. This court in facts and circumstances observed the following: “35. In this case, the notice under Section 143(2) under which jurisdiction was assumed by the assessing officer was issued to a non- existent company. The assessment order was issued against the amalgamating company. This is a substantive illegality and not a procedural violation of the nature adverted to in Section 292B. *** “39. In the present case, despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued only in its name. The basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation. Participation in the proceedings by the appellant in the circumstances cannot operate as an estoppel against law. This position now holds the field in view of the judgment of a co-ordinate Bench of two learned judges which dismissed the appeal of the Revenue in Spice Entertainment on 2 November 2017. The decision in Spice Entertainment has been followed in the case of the respondent while dismissing the Special Leave Petition for AY 2011-2012. In doing so, this Court has relied on the decision in Spice Entertainment.
We find no reason to take a different view. There is a value which the court must abide by in promoting the interest of certainty in tax litigation. The view which has been taken by this Court in relation to the respondent for AY 2011-12 must, in our view be adopted in respect of the present appeal which relates to AY 2012-13. Not doing so will only result in uncertainty and displacement of settled expectations.There is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable.”
The court, undoubtedly noticed Saraswati Syndicate. Further, the judgment in Spice (supra) and other line of decisions, culminating in this court’s order, approving those judgments, was also noticed. Yet, the legislative change, by way of introduction of Section 2 (1A), defining “amalgamation” was not taken into account. Further, the tax treatment in the various provisions of the Act were not brought to the notice of this court, in the previous decisions.
There is no doubt that MRPL amalgamated with MIPL and ceased to exist thereafter; this is an established fact and not in contention. The respondent has relied upon Spice and Maruti Suzuki (supra) to contend that the notice issued in the name of the amalgamating company is void and illegal. The facts of present case, however, can be distinguished from the facts in Spice and Maruti Suzuki on the following bases.”
In the light of the above discussion, we are of the opinion that the 10. order was required to be passed in the name of M/s. Zuari Cement Limited i.e., the amalgamated company, instead of in the name of M/s. Sitapuram Power Limited i.e., the amalgamating company. Hence, we are of the considered opinion that the additional ground raised by the assessee is required to be allowed and accordingly the assessment order passed by the Ld. AO against the non-existent company is required to be struck down. Thus, we hereby allow the additional ground (Ground No.8.1) raised by the assessee and the final assessment order passed by the Ld. AO is being declared as void. It is ordered accordingly.
With respect to the other grounds raised by the assessee, since we have allowed the core issue raised by the assessee vide Ground No. 8.1, the adjudication of the other grounds raised by the assessee becomes as a mere academic exercise. Accordingly, the other grounds are disposed of.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 2nd July, 2024.