Income Tax Appellate Tribunal - Bangalore
Skf Engineering & Lubrication India ... vs The Deputy Commissioner Of Income Tax, ... on 12 June, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER
AND
SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER
IT(TP)A No.805/Bang/2022
Assessment year : 2018-19
SKF Engineering & Lubrication Vs. The Deputy Commissioner /
India Pvt. Ltd., Assistant Commissioner of
[resultant company pursuant to Income Tax,
Merger of SKF Technologies India Circle 6(1)(1),
Private Limited], Bangalore.
No.249/250, Bommasandra
Industrial Area, Phase 3,
Hosur Road,
Bangalore - 560 099.
PAN: AAACL 2061P
APPELLANT RESPONDENT
Appellant by : Shri Siddesh Gaddi, CA
Respondent by : Shri Sunil Kumar Singh, CIT-2(DR)(ITAT), Bengaluru.
Date of hearing : 22.05.2023
Date of Pronouncement : 12.06.2023
ORDER
Per Laxmi Prasad Sahu, Accountant Member
This appeal is against the final assessment DIN & order No.ITBA/AST/S/143(3)/2022-23/1043842417(1) dated 14.7.2022 passed u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 [the Act] for the assessment year 2018-19 on the following grounds of appeal:-
IT(TP)A No.805/Bang/2022 Page 2 of 14 " 1. That the order of the learned Assessing Officer (Learned AO), to the extent prejudice to the Assessee, is bad in law and on the facts and circumstances of the case.
2. That on facts and circumstances of the case, the Learned AO has erred in passing the order on a non-existing entity i.e. erstwhile M/s SKF Technologies India Private Limited;
3. Transfer Pricing Adjustment Rs. 3,42,16,173/- (Tax effect Rs. 1,14,22,727/-) a. The learned AO, learned Transfer Pricing Officer ("learned TPO") and the Honourable Dispute Resolution Panel ("Hon'ble DRP") have grossly erred in law and facts of the case by proposing a transfer pricing adjustment of INR 3,42,16,173/-under section 92CA of the Income-tax Act, 1961("the Act") with respect to the international transactions.
b. On the facts and in the circumstances of the case and in law, the learned AO / TPO erred in disregarding the fact that none of the conditions set out in Section 92C(3) of the Act are satisfied. The Assessee has complied with the provisions of Section 92C(1) and 92C(2) of the Act and the learned AO/ TPO has erred in disregarding the transfer pricing analysis carried out by the Assessee.
c. On the facts and in the circumstances of the case and in law, the learned AO/TPO rejected the economic analysis undertaken by the Assessee without providing any cogent reasons for rejection of the comparable companies arrived at by the Assessee in its Transfer Pricing study report.
• Tata Consulting Engineers Ltd.
• Satyam Venture Engineering Services Private Ltd; and • Krikamit Engineering Pvt Ltd.
d. On the facts and in the circumstances of the case and in law, the learned AO / TPO erred in rejecting the following additional comparable companies selected by the Assessee without providing any cogent reasons:
• Sphinx Worldbiz Ltd; and • Intercontinental Consultants &Technocrats Pvt. Ltd.
IT(TP)A No.805/Bang/2022 Page 3 of 14 e. Without prejudice to the above, the learned AO / TPO has erred in law by arbitrarily selecting the following additional company and ignoring the detailed analysis undertaken by the Assessee to highlight its functional dissimilarity with the Assessee:
• L & T Technology Services Ltd.
f. Without prejudice to the above, the learned AO / TPO erred in facts and in law by not providing the detailed computation of operating profit margins carried out by the learned TPO for the final set of comparables selected by the learned TPO in the transfer pricing order.
g. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the learned AO / TPO disregarded the detailed computation of operating profit margins carried out by the Assessee and incorrectly computed the operating profit margin in the case of the following companies:
• Tata Elxsi Ltd.;
• Axiscades Technologies Ltd.;
• Taal Tech India Pvt. Ltd.; and • X S Cad India Pvt. Ltd.
h. On the facts and in the circumstances of the case and in law, the learned AO / TPO erred in arbitrarily computing transfer pricing adjustment on entire service revenue i.e. services provided to AEs as well as unrelated parties.
i. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the transfer pricing adjustment, if any, should be restricted to the value of international transactions only. Thus, transfer pricing adjustment if any, should be proportionate to the service income received from the AEs i.e. provision of technical services to the AEs.
4. On the facts and in the circumstances of the case, the learned AO erred in disallowing an amount of INR 3,04,628 treating entrance fees as expenses of personal nature;
[tax effect Rs. 1,01,697/-] IT(TP)A No.805/Bang/2022 Page 4 of 14
5. On the facts and in the circumstances of the case and in law, the learned AO erred in disallowing Rs. 32,50,605 under section 36(1)(va) of the Act on account of contribution to Employee's welfare Fund (PF, ESIC, etc.) though the same has been paid before ethe due date of filing of return of income.
[tax effect Rs. 10,85,182 /-]
6. Duty drawback amounting to INR 1,45,81,900/- (Tax effect Rs. 48,68,021/-) a. On the facts and in the circumstances of the case, the learned AO erred in adding duty drawback amounting to INR 1,45,81,900 as per the records of income-tax department without seeking any explanation / justification from the assessee.
b. Without prejudice to the above, the learned AO erred in not appreciating the fact that out of the total duty drawback amounting to INR 1,45,81,900 appearing as per records of income-tax department, an amount of INR 1,30,90,550 appearing in the Profit & Loss account of the assessee had already been offered to tax which has resulted in double taxation of duty drawback to the extent of Rs.130,90,550. The learned AO erred in not applying the principle of consistency by adding the amount of duty drawback only in the year under consideration.
7. On the facts and in the circumstances of the case, the learned AO erred in ignoring the submissions made by the assessee and disallowing 30% of Rs. 3,42,65,580 under section 40(a)(ia) of the Act despite the fact that tax was already deducted and paid on the said amount.
8. The learned AO erred in adding the amount of interest expense debited to the Profit & Loss account and the amount of accrued interest payable as on the year end appearing under the head Other current liabilities in the Balance Sheet disregarding the fact that the amount of accrued interest payable was already forming part of the interest expense debited to Profit & Loss account.
(tax effect Rs.34,31,766) IT(TP)A No.805/Bang/2022 Page 5 of 14
9. The Order is riddled with mistake and the same is rectifiable under section 154 of the Act;
10. In view of the above and on other grounds to be adduced at the time of hearing, it is requested that impugned assessment order be quashed.
On the basis of above grounds and other grounds which may be urged at the time of hearing with the consent of the Honorable Tribunal, it is prayed that the order , passed under section 143(3) .r.w.s.144C(13) of Act be quashed and relief sought be granted."
2. The brief facts of the case are that the assessee company, SKF Technologies India Private Ltd. [STIPL] merged into M/s. Lincoln Helios (India) Limited w.e.f. 1.4.2018 and now known as SKF Engineering and Lubrication India Pvt. Ltd. [SELIPL] filed its return of income for AY 2018-19 on 29.11.2018 declaring current year loss of Rs.5,18,57,548. The case was selected for scrutiny under CASS and statutory notices were issued to the assessee. As international transactions were involved, the case was referred to the TPO. During the TP proceedings, the assessee filed various details and informed the TPO about the merger of STIPL with M/s. Lincoln Helios (India) Ltd. and known as SELIPL vide its submissions dated 9.7.2021 & 19.7.2021. The TPO suggested TP adjustment towards international transactions of Rs.3,42,16,173 and passed the order dated 31.07.2021 in the name of STIPL. Accordingly the AO passed the draft assessment order dated 30.09.2021, against which the assessee filed the before the DRP in the name of STIPL stating the merger with the Lincoln Helios (India) Limited and name of the new company, IT(TP)A No.805/Bang/2022 Page 6 of 14 SELIPL. The Ld. DRP passed the order on 16.6.2022 in the name of old company, STIPL and accordingly final assessment order dated 14.7.2022 was passed in the name of old company, STIPL. Against this, the assessee is in appeal before the Tribunal.
3. At the outset, the ld. AR argued only on the legal ground No.2. The assessee has filed synopsis on this issue as follows:-
"1.1 The draft order has been passed in the name of M/s SKF Technologies India Private Limited bearing PAN number AAACC4393D. The said entity is non-existent pursuant to the merger which has taken effect from 1st April 2018. The Learned AO, while passing the draft order, was aware of this fact which is apparent from the impugned order wherein the AO has noted this fact.
1.2. The Assessee has intimated the Learned AO on multiple occasions (a reference may be made to Annexure 2 for general intimation and Annexure 4 for specific intimation during the course of assessment proceedings) wherein it has brought to the knowledge of the Learned AO that M/s SKF Technologies India Private Limited is merged with M/s. Lincoln Helios (India) Limited which is now called SKF Engineering and Lubrication India Pvt Ltd.
1.3. From the above it can be inferred that the learned AO was duly intimated and was privy to the information of the non- existent status of the Assessee, thereby rendering the assessment order passed on such entity is void ab initio.
1.4. We wish to place reliance on the ruling of the Hon'ble Supreme Court in the case of PCIT vs Maruti Suzuki India Ltd [2019] 416 ITR 613 (SC)[25-07-2019] (Para 33 and 34).
IT(TP)A No.805/Bang/2022 Page 7 of 14 1.5. It is relevant to note from the above that the honourable Supreme Court has referred to the coordinate bench of 2 judges which dismissed the appeal of the Revenue in M/s. Spice Enfotainment (Civil Appeal No. 285 of 2014, dated 2-11-2017) against the ruling of the Delhi High Court in the case of Spice Infotainment Ltd. v. Commissioner of Service Tax, [2012] 247 CTR 500 wherein it has been held as under:
'11. After the sanction of the scheme on 11th April, 2004, the Spice ceases 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 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 Assessing Officer 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.' 1.6. Similar to the facts in the present case, the Learned AO was dutybound to replace the name and PAN of the non-existent company with that of the existent company on being intimated of this fact. Moreover, as highlighted in the above extract, the mere fact that a return of income has been filed and notice under section 143(2) has been issued in the name of the erstwhile company does not make any difference as the existence of the Assessee has to be checked on the date of passing the draft order.
1.7. Additional reliance is placed on the following rulings of the jurisdictional ITAT : Marlabs Innovations (P.) Ltd. Vs. DCIT /[2022] 196 ITD 179 (Bangalore -Trib.)[13-07-2022];
M/s.Biocon Biologics Limited (Formerly known as Biocon Biologics India Limited) vs. DCIT (IT(TP)A No.299/Bang/2022).
IT(TP)A No.805/Bang/2022 Page 8 of 14 1.8. It is further submitted that passing a draft assessment order under section 143(3) r/w section 144C (1) of the Act in the name of a non-existing company renders all the subsequent proceedings null and void. Reliance is placed on − FedEx Express Transportation & Supply Chain Services (India) (P.) Ltd. v. Dy. CIT [2019] 108 taxmann.com 542 (Mum. - Trib.)/ ITA NO. 857/MUM/2016, wherein it was held that where draft assessment order under section 144C was passed in name of amalgamating company, which was a non-existent entity in eyes of law on the date of passing of such order, it became an illegal order and, thus, entire assessment proceedings based on such an invalid draft assessment order is void ab initio and deserve to be quashed. Additional reliance is placed on the following rulings:
− Honda Cars India Ltd. Vs. DCIT ITA No.629 /De1/2021 Assessment Year: 2016-17 − Siemens Ltd. Vs. DCIT [2023] 147 taxmann.com 118 (Mumbai - Trib.)[12-12-2022] − BOEING India (P.) Ltd. v. Asstt. CIT [2020] 121 taxmann.com 276 (Delhi - Trib.) 1.9. The limitation period for the conclusion of TP and Non-TP cases concluded on 30.09.2021 after considering various relaxations/extensions on account of COVID. The Learned AO should have passed assessment order u/s 143(3) on/before 30.09.2021 as provisions of section 144C are not applicable. Given the above, subsequent legislation (170(2A) applicable from 1.4.2022) cannot be invoked to revive proceedings that had attained finality on 30.09.2021.
1.10. Section 170(2A) has been inserted by Finance 2022 with effect from 01.04.2022. The above insertion would be applicable to the filings for such succession made after 01.04.2022. In the present case, the application for succession was filed on 14.11.2018 and therefore the provisions of section 170(2A) are not applicable to the facts in the present case.
IT(TP)A No.805/Bang/2022 Page 9 of 14 1.11. Without prejudice to the above submissions, even if it were to be construed that the amended provisions of section 170(2A) are applicable to the pending assessments, the same will not be applicable to the facts in the present case as the proceedings were closed or dead on that date. The proceedings were dead as the draft assessment order was passed on to a non-existent company. The same cannot be revived now by applying the provisions of section 170(2A) as the extended time limit to pass the final assessment order after considering the directions of the DRP would be available only if the draft assessment order is valid in the eyes of law.
1.12. Considering the above, we implore your goodself to allow the appeal of the Appellant by quashing the impugned Final Assessment Order that is issued on the basis of a draft assessment order that is issued on the non-existent company. Therefore, it is prayed before this Honourable Tribunal that, considering the above submission of the Appellant, the appeal may be allowed."
4. The ld. AR reiterated the submissions from the above synopsis and submitted that the assessee intimated the revenue authorities on different dates about the merger of STIPL with Lincoln Helios India) Ltd. and known as SELIPL and the ld. TPO, AO ( Draft & Final assessment order) & DRP passed order in the name of non-existent company STIPL is not sustainable and hence the subsequent orders passed by the TPO/DRP and the final assessment order is void ab initio.
IT(TP)A No.805/Bang/2022 Page 10 of 14
5. On the other hand, the ld. DR relied on the orders of lower authorities and submitted that in Form 35A, the assessee itself has mentioned the name & address as SKF Technologies India Private Limited and in the Verification part, Mr. Anurag Bhagania has signed in the capacity of Director of SKF Technologies India Private Limited and the same company was non-existent. He supported the orders of lower authorities and relied on the following decisions:-
- B.A. Continuum India (P.) Ltd., 87 taxmann.com 113 (hyderabad - trib.)
- Corio India Infotech Services (P.) Ltd. v. DCIT, 92 taxmann.com 445 (bengaluru - trib.)
6. After hearing both the sides, perusing the entire material on record and the orders of the lower authorities, we note that SKF Technologies India Private Ltd. [STIPL] merged into M/s. Lincoln Helios (India) Limited after passing of the order by NCLT dated 14.2.2020 w.e.f. 1.4.2018 and now known as SKF Engineering and Lubrication India Pvt. Ltd. [SELIPL]. Thereafter the assessee informed the revenue authorities about the amalgamation on 05.06.2020, 03.12.2020, 28.12.2020, 12.07.2021, 29.07.2021, 30.08.2021,13.09.2021 & 29.09.2021 . On perusal of the details on record, we note that the various notices are issued by all the revenue authorities viz., AO/TPO/DRP in the name of STIPL the replies are submitted by the assessee in the name of new company SELIPL on different dates. The AO in the draft assessment order has mentioned in his order as under:-
IT(TP)A No.805/Bang/2022 Page 11 of 14 "The assessee company M/s. SKF Technologies India Pvt. Ltd. merged into M/s. Lincoln Helios (India) Limited w.e.f. 01-04- 2018 and now known as M/s. SKF Engineering and Lubrication India Pvt. Ltd. filed its return of income for AY 2018-19 on 29- 11-2018, declaring current year loss of Rs.5,18,57,548/-. The case was selected for scrutiny under CASS. Notice u/s. 143(2) of the IT Act was issued and served on 23.09.2019. In response to the notice u/s. 143(2) of the IT Act, the assessee submitted reply on various dates".
7. It is clear from the draft assessment order that the AO was known the fact of change of name of company after amalgamation, but still he has passed the order in the name of old company. The assessee informed the TPO regarding the change of name of assessee and there were series of events in which the assessee made the correspondence with the department in the name of new company. However, all the revenue authorities i.e., the AO, TPO and DRP have passed the order in the name of old company. We are of the opinion that the order passed by the revenue authorities in the name of non-existent company which was in the knowledge of the revenue authority does not survive.
In support, we rely on the latest judgment of the Hon'ble Bombay High Court in the case of CLSA India (P) Ltd. v. DCIT, 149 taxmann.com 380 (Bombay)dated 10.2.2023 where it is held as under:-
"4. Be that as it may, it is thus clear that the notice under section 148 of the Act which forms the basis for reassessment proceedings was issued in the name of a non-existent entity and despite the fact that the Respondents had the knowledge regarding the non-existence of the said entity and despite having been informed, the order of assessment was passed in the name of the Petitioner while at the same time, mentioning the name of the assessee as Laysin BPO Pvt. Ltd.
IT(TP)A No.805/Bang/2022 Page 12 of 14
5. This is clearly untenable in view of the Apex Court judgment in Saraswati Industrial Syndicate Ltd. v. CIT [1990] 53 Taxman 92/186 ITR 278 wherein the following principles were formulated:
"5. Generally, where only one company is involved in change and the rights of the shareholders and creditors are varied, it amounts to reconstruction or reorganisation or scheme of arrangement. In amalgamation two or more companies are fused into one by merger or by taking over by another. Reconstruction or 'amalgamation' has no precise legal meaning. The amalgamation is a blending of two or more existing undertakings into one undertaking, the shareholders of each blending company become substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new company, or by the transfer of one or more undertakings to an existing company. Strictly 'amalgamation' does not cover the mere acquisition by a company of the share capital of other company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See: Halsbury's Laws of England (4th edition volume 7 para 1539). Two companies may join to form a new company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third company or one is absorbed into one or blended with another, the amalgamating company loses its entity."
In the case of Spice Entertainment Ltd. v. CST 2012 (280) ELT 43 (Delhi) a Division Bench of the Delhi High Court held that once the factum of amalgamation of a company had been brought to the notice of the A.O., despite which the proceedings are continued and an order of assessment passed in the name of non- existence company, the order of assessment would not be merely be a procedural defect but would render it void.
6. Recently, the Apex Court in the case of Pr. CIT v. Maruti Suzuki India Ltd. [2019] 107 taxmann.com 375/265 Taxman 515/416 ITR 613 reiterated the aforementioned principles and held as under:
IT(TP)A No.805/Bang/2022 Page 13 of 14 "33. 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 Enfotainment on 2 November 2017. The decision in Spice Enfotainment 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 Enfotainment.
7. The stand of the revenue that the reassessment was justified in view of the fact that the PAN in the name of the non-existent entity had remained active does not create an exception in favour of the revenue to dilute in any manner the principles enunciated hereinabove.
8. Be that as it may, the writ petition is allowed. The impugned notice dated 31st March, 2021, the order of assessment dated 31st March, 2022 as also the consequential demand notice and penalty notice dated 31st March, 2022 are set aside."
8. The decisions of the Tribunal cited by the ld. DR are not applicable since they are prior to the passing of the judgment of the Hon'ble Supreme Court in the case of Maruti Suzuki India Ltd. [2019] 416 ITR 613 (SC) dated 25.7.2019 relied by the assessee. This judgment is followed by the Hon'ble Bombay High Court in the case of CLSA India (P) Ltd. (supra). Therefore, Respectfully following this judgment of Hon'ble Bombay High Court, we allow the legal ground raised by the assessee.
IT(TP)A No.805/Bang/2022 Page 14 of 14
9. Since the legal ground raised by the assessee is allowed, the other grounds on merits are left open.
Pronounced in the open court on this 12th day of June, 2023.
Sd/- Sd/-
( GEORGE GEORGE K) (LAXMI PRASAD SAHU )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore,
Dated, the 12th June, 2023.
/Desai S Murthy /
Copy to:
1. Appellant 2. Respondent 3. CIT 4. CIT(A)
5. DR, ITAT, Bangalore.
By order
Assistant Registrar
ITAT, Bangalore.