Appeal Details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 9377 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
7 month(s) 22 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
17-08-2020
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
I1
Assessment Year
2015-2016
Appeal Filed On
26-12-2019
Judgement Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 B ENCH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO. 9765/DEL/2019 [ASSESSMENT YEAR: 2015-16] BOEING INDIA PVT. LTD., VS THE A.C.I.T [SUCCESSOR TO BOEING INTERNATIONAL CIRCLE- 5(1) CORPORATION INDIA PVT LTD NEW DELHI. 3 RD FLOOR, DLF CENTRE, SANSAD MARG NEW DELHI. PAN : AAHCB1218 P [APPELLANT] [RESPONDENT] DATE OF HEARING : 10.08.2020 DATE OF PRONOUNCEMENT : 17.08.2020 ASSESSEE BY : SHRIARVIND DATAR, SR. ADV MS. ANURADHA DUTT, ADV SHRI SACHIT JOLLY, ADV SHRI TUSHAR JARWAL, ADV SHRI RAHUL SATEEJA, ADV MS. DISHA JHAM, ADV REVENUE BY : SHRI SURENDER PAL, CIT-DR 2 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST T HE ORDER DATED 29.10.2019FRAMED U/S 143(3) R.W.S 144C(5) OF THE IN COME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT']. 2. THE FIRST SUBSTANTIVE GRIEVANCE OF THE ASSESSEE IS THAT THE DISPUTE RESOLUTION PANEL[DRP] ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN PASSING DRAFT ASSESSMENT ORDER IN THE NA ME OF A NON-EXISTENT COMPANY. 3. THE OTHER GRIEVANCE RELATES TO TRANSFER PRICING ADJUSTMENT OF RS. 22.16 LAKHS ON ACCOUNT OF OUTSTANDING RECEIVABLES F ROM ASSOCIATES ENTERPRISES [AES] AND UNDER CORPORATE TAX, THE ASSE SSEE IS AGGRIEVED BY THE DISALLOWANCE OF RS. 56,58,19,799/- FOR ALLEG ED FAILURE IN DEDUCTING TAX U/S 195 OF THE ACT BY TREATING THE SA ID PAYMENTS AS FEES FOR INCLUDED SERVICES [FIS]. 3. FACTS RELATING TO FIRST SUBSTANTIVE GRIEVANCE OF THE ASSESSEE ARE THAT ON 19.01.2018, THE REGIONAL DIRECTOR, U/S 233 OF THE COMPANIES ACT, NOTIFIED A MERGER OF BICIPL WITH THE APPELLANT FROM THE EFFECTIVE 3 DATE. THE EFFECTIVE DATE MEANS THE DATE ON WHICH C ERTIFIED COPY OF ORDER U/S 233 OF THE COMPANIES ACT IS FILED WITH TH E REGISTRAR OF COMPANIES, WHICH WAS 15.02.2018. ON 10.04.2018, A LETTER WAS FILED BEFORE THE ASSESSING OFFICER INTIMATING THAT BICIPL WAS DISSOLVED AND ALL PROCEEDINGS BE TRANSFERRED IN THE NAME OF THE A PPELLANT I.E. BIPL. ON 19.10.2018, THE TPO FRAMED AN ORDER U/S 92CA(3) OF THE ACT IN THE NAME OF THE AMALGAMATED ENTITY I.E. BIPL I.E. THE A PPELLANT. HOWEVER, ON 25.12.2018, THE ASSESSING OFFICER FRAME D A DRAFT ASSESSMENT ORDER U/S 144C OF THE ACT IN THE NAME OF A NON-EXISTENT AMALGAMATED COMPANY I.E. BICIPL. 4. ON 25.01.2019, OBJECTIONS WERE RAISED BEFORE THE DRP THAT THE ASSESSING OFFICER HAS FRAMED DRAFT ASSESSMENT ORDER IN THE NAME OF A NON-EXISTENT ENTITY. SURPRISINGLY, THE ASSESSING O FFICER FILED REMAND REPORT BEFORE THE DRP ACCEPTING THAT THE DEPARTMENT WAS AWARE THAT THE OLD COMPANY HAS MERGED INTO NEW. HOWEVER, THE DRP DIRECTED THE ASSESSING OFFICER TO RECTIFY THE MISTAKE AND PASS F INAL ASSESSMENT ORDER IN THE NAME OF AMALGAMATED COMPANY BIPL. 4 5. SECTION 144C(1) OF THE ACT PROVIDES THAT THE ASSESSING OFFICER SHALL FORWARD A DRAFT OF THE PROPOSED ORDER OF ASSE SSMENT TO THE ELIGIBLE ASSESSEE . SUB-SECTION (15)(B) DEFINES ELIGIBLE ASSESSEE AS ANY PERSON IN WHOSE CASE THE VARIATION REFERRED TO IN SUB-SECTION (1) ARISES AS A CONSEQUENCE OF THE ORDER OF THE TRANSFE R PRICING OFFICER PASSED UNDER SUB-SECTION (3) OF SECTION 92CA OF THE ACT. 6. AS MENTIONED ELSEWHERE, THE TPO HAS FRAMED THE O RDER U/S 92CA(3) OF THE ACT IN THE NAME OF BIPL, THE APPELLA NT AND AS PER THE DEFINITION OF ELIGIBLE ASSESSEE BIPL IS THE ELIGI BLE ASSESSEE. HOWEVER, THE ASSESSING OFFICER CHOSE TO PASS THE ASSESSMENT ORDER IN THE NAME OF THE NON-EXISTENT COMPANY BICIPL, WHICH WAS DISSO LVED ON 15.02.2018. 7. SECTION 2, SUB-SECTION (31) DEFINES PERSON WHI CH INCLUDES A COMPANY. ON THE DATE OF ISSUING DRAFT ASSESSMENT O RDER, THE COMPANY BICIPL DID NOT EXIST. MOREOVER, AS PER THE SCHEME U/S 144C(1) AND (3), THE ASSESSING OFFICER BECOMES FUNCTUS OFFICIO AFTER PASSING DRAFT ASSESSMENT ORDER WHICH MEANS THAT ONLY THE ASSESSEE CAN FILE OBJECTIONS OR ACCEPT THE SAID DRAFT ASSESSMENT ORDE R. IF THE ASSESSEE CHOSE NOT TO FILE OBJECTIONS, THE ASSESSING OFFICER CANNOT ALTER THE 5 ASSESSMENT. IN OUR UNDERSTANDING OF THE LAW, ISSUA NCE OF VALID DRAFT ORDER IS SINE QUA NON FOR SECTION 144C OF THE ACT TO APPLY. ONLY A VALID DRAFT ASSESSMENT ORDER WILL TRIGGER FURTHER PROCEED INGS BEFORE THE DRP. MEANING THEREBY, THAT PASSING A DRAFT ASSESSMENT OR DER IS A JURISDICTIONAL REQUIREMENT AND IF THE ASSESSING OFF ICER PASSES SUCH AN ORDER IN THE NAME OF A NON EXISTING PERSON, THERE C AN NEVER BE A VALID DRAFT ORDER IN THE EYES OF LAW, MAKING THEREBY THE ENTIRE PROCEEDING INHERENTLY WITHOUT JURISDICTION. 8. UNDER SIMILAR CIRCUMSTANCES, THE CO-ORDINATE BEN CH IN THE CASE OF FEDEX EXPRESS TRANSPORTATION AND SUPPLY CHAIN SE RVICES (INDIA) (P.) LTD. [2019] 108 TAXMANN.COM 542 (MUMBAI - TRIB.) HA S HELD AS UNDER: 16. WHILE THE STAND OF THE ASSESSEE IS THAT A MIST AKE IN PASSING OF THE DRAFT ASSESSMENT ORDER IN THE NAME OF A NON- EXISTENT ENTITY IS VITAL, BEING A JURISDICTIONAL DEFECT, LEADING TO NU LLIFICATION OF THE ENTIRE ASSESSMENT PROCEEDINGS, THE STAND OF THE REV ENUE IS THAT IT IS ONLY A PROCEDURAL MISTAKE AND THE SAME HAS ALSO BEE N CURED BY THE ASSESSING OFFICER AT THE STAGE OF THE FINAL ASSESSM ENT ORDER, WHICH IS PASSED IN THE NAME OF THE CORRECT ENTITY, I.E. T HE AMALGAMATED COMPANY WHICH WAS IN EXISTENCE. 6 20. THE NEXT QUESTION WHICH WE ARE REQUIRED TO EXAM INE NOW IS AS TO WHETHER A VALID DRAFT ASSESSMENT ORDER IS MANDATORY TO ASSUME JURISDICTION UNDER SECTION 144C OF THE ACT. IN OTHE R 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 PROCEEDING S 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 FOR WARD 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 ORD ER HAS LEGAL CONNOTATIONS AS IT LAYS THE FOUNDATION OF ANY PROSP ECTIVE REDUCTION IN THE INCOME OF THE ASSESSEE OR CREATES A TAX LIABILI TY OVER AND ABOVE THE RETURNED INCOME. THUS, IN THAT SENSE, IT IS NOT MERELY A PROCEDURAL STEP IN THE ASSESSMENT PROCEEDINGS. FURT HER, IF WE GO A LITTLE DEEPER INTO THE SCHEME OF SEC. 144C OF THE A CT AND CONSIDER SUBSECTION (3) OF SEC. 144C OF THE ACT, WHICH READS AS UNDER '(3) THE ASSESSING OFFICER SHALL COMPLETE THE ASSESSMENT ON THE BASIS OF THE DRAFT ORDER, IF ', IT ENVISAGES THAT AN ASSES SMENT HAS TO BE COMPLETED ON THE BASIS OF A DRAFT ASSESSMENT ORDER, THEREBY MAKING IT APPARENT THAT THE DRAFT ORDER IS A CORE COMPONEN T OF ASSESSMENT. IN FACT, THE ASSESSEE HAS AN OPTION TO ACCEPT THE D RAFT ORDER PROPOSED BY THE ASSESSING OFFICER AS PER SEC. 144C( 2) OF THE ACT. IN SUCH A CASE, THE ASSESSING OFFICER WILL PROCEED TO PASS THE FINAL ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 144C(1 3) OF THE ACT 7 WITHOUT MAKING ANY FURTHER VARIATION IN INCOME/LOSS AS ASSESSED BY HIM IN THE DRAFT ASSESSMENT ORDER. IN SUCH A SITUAT ION, THE ASSESSING OFFICER WOULD NOT HAVE THE OPTION TO AMEND THE DRAF T ORDER OF ASSESSMENT PROPOSED BY HIM. THUS, LOOKED AT FROM TH E ANGLE OF THE ASSESSING OFFICER, THE DRAFT ASSESSMENT ORDER IS IN FACT THE FINAL ASSESSMENT OF INCOME/LOSS OF THE ASSESSEE SINCE ONL Y THE ASSESSEE HAS BEEN ACCORDED A RIGHT UNDER SECTION 144C(2) TO FILE OBJECTIONS BEFORE THE DRP. FURTHER, THE FACT THAT THE ASSESSIN G OFFICER DOES NOT HAVE ANY RIGHT TO APPEAL AGAINST THE FINAL ASSE SSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) FURTHER PROVES THE POINT THAT THE DRAFT ASSESSMENT ORDER PROPOSED IS A FINAL ORDER OF ASSESSMENT FROM THE POINT OF VIEW OF THE DEPARTMENT . 26. WE MAY NOW REFER TO THE ARGUMENTS SET-UP BY THE LD. DR. OSTENSIBLY, THE LD. DR ADMITTED THAT DRAFT ASSESSME NT ORDER BEING PASSED IN THE NAME OF A NON-EXISTENT ENTITY IS A MI STAKE; BUT, THE STAND OF THE LD. DR IS THAT SUCH A MISTAKE IS RECTI FIABLE IN TERMS OF SEC. 292B OF THE ACT. IN THIS CONTEXT, WE HAVE ALRE ADY INFERRED IN THE EARLIER PARAS THAT THE DRAFT ASSESSMENT ORDER C ANNOT 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 O BLIGATORY ON THE PART OF THE ASSESSING OFFICER TO PASS A VALID DRAFT ASSESSMENT ORDER; FAILURE TO DO SO AMOUNTS TO A JURISDICTIONAL DEFECT, WHICH IN OUR VIEW, CANNOT BE CURED UNDER SECTION 292B OF THE ACT OR CORRECTED BY PASSING THE FINAL ASSESSMENT ORDER IN THE CORRECT NAME, AS CANVASSED BY THE LD. DR. TO EMPHASISE, A DRAFT A SSESSMENT ORDER 8 IN THE NAME OF AN 'ELIGIBLE ASSESSEE' PROVIDES THE REQUISITE JURISDICTION TO THE ASSESSING OFFICER UNDER SECTION 144C(1) OF THE ACT. IF THERE IS A MISTAKE WHILE COMPLYING WITH SUC H A JURISDICTIONAL REQUIREMENT, THE SAME CANNOT BE TERMED AS A PROCEDU RAL IRREGULARITY OR MISTAKE RECTIFIABLE UNDER SECTION 292B OF THE AC T. THUS, THE SAID STAND OF THE LD. DR IS LIABLE TO BE REJECTED. WE HO LD SO. 27. BEFORE PARTING, WE MAY ALSO REFER TO THE RELIAN CE PLACED BY THE LD. DR ON THE JUDGMENT OF THE HON'BLE DELHI HIGH CO URT IN THE CASE OF SKY LIGHT HOSPITALITY LLP (SUPRA) TO CANVASS THA T THE MISTAKE IN THE DRAFT ASSESSMENT ORDER BY PASSING IT IN THE NAM E OF A NON- EXISTENT ENTITY IS A PROCEDURAL MISTAKE. WE HAVE CA REFULLY 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. TH E NOTICE WAS ISSUED IN THE NAME OF THE ERSTWHILE AMALGAMATING CO MPANY, SO HOWEVER, ALL OTHER DOCUMENTS, NAMELY, TAX EVASION R EPORT, REASONS TO BELIEVE, APPROVAL BY THE PRINCIPAL COMMISSIONER, OR DER UNDER SECTION 127 OF THE ACT, ETC. CORRECTLY RECORDED THE NAME OF THE AMALGAMATED COMPANY, I.E. THE ENTITY WHICH WAS IN E XISTENCE. IN THE BACKGROUND OF SUCH PECULIAR CIRCUMSTANCES, THE HON' BLE HIGH COURT TOOK A VIEW THAT MERE INCORRECT MENTIONING OF THE N AME IN THE NOTICE WAS A DEFECT CURABLE IN TERMS OF SEC. 292B OF THE A CT. HOWEVER, THE FACTS IN THE CASE BEFORE US ARE IN COMPLETE CONTRAS T. IN FACT, IN THE COURSE OF HEARING, THE LD. DR WAS SPECIFICALLY ASKE D TO POINT OUT ANY INSTANCE IN THE PRESENT CASE WHERE THE DEPARTMENT H AD CORRECTLY 9 ISSUED ANY NOTICE, ETC. IN THE NAME OF THE SUCCESSO R COMPANY BEFORE PASSING OF THE TRANSFER PRICING ORDER BY THE TPO UN DER SECTION 92CA(3) OF THE ACT OR THE DRAFT ASSESSMENT ORDER BY THE ASSESSING OFFICER. NOTHING WAS BROUGHT ON RECORD BY THE DEPAR TMENT IN THIS REGARD AND, THEREFORE, IN OUR VIEW, THE RATIO OF TH E JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SKY LIGHT H OSPITALITY LLP (SUPRA) IS NOT ATTRACTED TO THE FACTS OF THE PRESEN T CASE. 9. AGAIN IN THE CASE OF NOKIA SOLUTIONS AND NETWORK INDIA PVT LTD 402 ITR 21 [DELHI], THE HON'BLE HIGH COURT HAS HELD AS UNDER: 5. THE ASSESSEE, WHICH IS REPRESENTED ON ADVANCE N OTICE, URGES THAT THE DRP COULD NOT HAVE DIRECTED ASSESSMENTS TO BE C OMPLETED IN THE MANNER THAT IT DID, GIVEN THAT THE REMAND ORDER OF THE ITAT WAS CONFINED TO ONLY REQUIRING IT TO RENDER FINDINGS AS TO WHETHER THE ASSESSMENT ORIGINALLY FRAMED WAS IN RESPECT OF A NO N EXISTING ENTITY. IT WAS SUBMITTED THAT THE DRP EXCEEDED ITS REMAND A ND CONSEQUENTLY THE ITAT WAS JUSTIFIED IN HOLDING THAT SPICE ENTERTAINMENT LTD. (SUPRA) APPLIED. 6. IT IS EVIDENT FROM THE NARRATION OF FACTS THAT I N THE FIRST INSTANCE THE ASSESSMENT WAS CONDUCTED IN THE NAME OF A NON E XISTING ENTITY. THE DRP TO WHOM THE MATTER WAS DIRECTED BY THE FIRS T REMAND OF THE ITAT, WAS NOT DIRECTED TO, IN TURN, REQUIRE THE AO TO 'BETTER' THE ORIGINAL INCURABLE ILLEGALITY AND HERE THE DRP CLEARLY DID THAT. THE FACT THAT THE MATTER WAS REMITTED AT THE INSTANCE O F THE ASSESSEE 10 WHO DID NOT QUESTION THE REMAND IPSO FACTO DOES NOT , IN ANY MANNER, FURTHER THE REVENUE'S CONTENTIONS. THE REVENUE HAD ALSO URGED THAT EVEN IN THE FIRST PLACE WHEN THE ASSESSEE APPROACHE D THE DRP, THE NAME OF THE OLD ENTITY WAS INVOKED AND THAT CONSEQU ENTLY IT CANNOT NOW SAY THAT THE ASSESSMENT WAS A NULLITY. THIS COU RT IS OF THE OPINION THAT THE RULING IN SPICE ENTERTAINMENT LTD. (SUPRA) IS CATEGORICAL, IN THAT, IF THE ASSESSMENT IS CONCLUDE D IN FAVOUR OF A NON EXISTING ENTITY, THEN NOTWITHSTANDING SECTION 292B , THE POSITION DOES NOT IMPROVE. APPLYING SPICE ENTERTAINMENT LTD. (SUP RA), THIS COURT HAD IN COMMISSIONER OF INCOME TAX V. DIMENSION APPARELS PV T. LTD . (2015) 370 ITR 288 ALSO HELD THAT THE POSITION TAKE N OR URGED BY THE ASSESSEE CANNOT BE HELD AGAINST IT IF THE PRIMARY J URISDICTION DOES NOT EXIST I.E. TO CONCLUDE AN ASSESSMENT IN THE NAM E OF A NON EXISTING ENTITY. 10. THE HON'BLE SUPREME COURT IN THE CASE OF MARUTI SUZUKI INDIA LTD 416 ITR 613 HAS HELD AS UNDER: 19. (III) THIRDLY, THE CONSEQUENCE OF THE SCHEME OF AMALGAMATION APPROVED UNDER SECTION 394 OF THE COMP ANIES ACT 1956 IS THAT THE AMALGAMATING 24 8 ITA NO. 583/DEL/ 2020 COMPANY CEASED TO EXIST. IN SARASWATI INDUSTRIAL SYNDICATE LTD., THE PRINCIPLE HAS BEEN FORMULATED BY THIS COURT IN THE FOLLOWING OBSERVATIONS: 5. GENERALLY, WHERE ONLY ONE COMPANY IS INVOLVED IN CH ANGE AND THE 11 RIGHTS OF THE SHAREHOLDERS AND CREDITORS ARE VARIED , IT AMOUNTS TO RECONSTRUCTION OR REORGANISATION OF SCHEME OF ARRAN GEMENT. IN AMALGAMATION TWO OR MORE COMPANIES ARE FUSED INTO O NE BY MERGER OR BY TAKING OVER BY ANOTHER. RECONSTRUCTION OR AMALG AMATION HAS NO PRECISE LEGAL MEANING. THE AMALGAMATION IS A BLENDI NG OF TWO OR MORE 30 [2019] 260 TAXMAN 412 (DEL.) 31 (2019) 261 TAXMA N 137 (GUJ) EXISTING UNDERTAKINGS INTO ONE UNDERTAKING, THE SHA REHOLDERS OF EACH BLENDING COMPANY BECOME SUBSTANTIALLY THE SHAREHOLD ERS IN THE COMPANY WHICH IS TO CARRY ON THE BLENDED UNDERTAKIN GS. 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 UN DERTAKINGS TO AN EXISTING COMPANY. STRICTLY AMALGAMATION DOES NOT COVER THE MERE ACQUISITION BY A COMPANY OF THE SHARE CAPITAL OF OT HER 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 (4T H EDITION VOLUME 7 PARA 1539). TWO COMPANIES MAY JOIN TO FORM A NEW CO MPANY, BUT THERE MAY BE ABSORPTION OR BLENDING OF ONE BY THE O THER, BOTH AMOUNT TO AMALGAMATION. WHEN TWO COMPANIES ARE MERG ED AND ARE SO JOINED, AS TO FORM A THIRD COMPANY OR ONE IS ABSORB ED INTO ONE OR BLENDED WITH ANOTHER, THE AMALGAMATING COMPANY LOSE S ITS ENTITY. (IV) FOURTHLY, UPON THE AMALGAMATING COMPANY CEASING TO EXIST, IT CANNOT BE REGARDED AS A PERSON UNDER SECTION 2(31) OF THE ACT 1961 AGAINST WHOM ASSESSMENT PROCEEDINGS CAN BE INITIATED OR AN ORDER OF ASSESSMENT PASSED; (V) FIFTHLY, A NOTICE UNDER SECT ION 143 (2) WAS ISSUED ON 26 SEPTEMBER 2013 TO THE AMALGAMATING COM PANY, SPIL, 12 WHICH WAS FOLLOWED BY A NOTICE TO IT UNDER SECTION 142(1); (VI) SIXTHLY, PRIOR TO THE DATE ON WHICH THE JURISDICTIO NAL NOTICE UNDER SECTION 143 (2) WAS ISSUED, THE SCHEME OF AMALGAMAT ION HAD BEEN APPROVED ON 29 JANUARY 2013 BY THE HIGH COURT OF DE LHI UNDER THE COMPANIES ACT 1956 WITH EFFECT FROM 1 APRIL 2012; ( VII) SEVENTHLY, THE ASSESSING OFFICER ASSUMED JURISDICTION TO MAKE AN ASSESSMENT IN PURSUANCE OF THE NOTICE UNDER SECTION 143 (2). THE NOTICE WAS ISSUED IN THE NAME OF THE AMALGAMATING COMPANY IN SPITE OF THE FACT THAT ON 2 APRIL 2013, THE AMALGAMATED COMPANY MSIL HAD ADDR ESSED A COMMUNICATION TO THE ASSESSING OFFICER INTIMATING T HE FACT OF AMALGAMATION. IN THE ABOVE CONSPECTUS OF THE FACTS, THE INITIATION OF ASSESSMENT PROCEEDINGS AGAINST AN ENTITY WHICH HAD CEASED TO EXIST WAS VOID AB INITIO. 11. STRONGLY SUPPORTING THE ORDER OF THE DRP, THE L D. DR STATED THAT THE ASSESSING OFFICER HAS MERELY FRAMED A DRAFT OF THE PROPOSED ORDER OF ASSESSMENT. HENCE IT CANNOT BE EQUATED WITH THE DRAFT OF ANY ORDER OF ASSESSMENT. THEREFORE, THERE IS NO ORDER AT THA T POINT OF TIME AND CLAIM OF AN ORDER IN THE NAME OF NON EST ENTITY CAN NOT BE MADE BY THE ASSESSEE. 12. BOTH THESE OBJECTIONS OF THE LD. DR DO NOT HOLD ANY GROUND, IN AS MUCH, AS THE FIRST OBJECTION HAS BEEN ANSWERED BY J UDICIAL DECISIONS DISCUSSED ELSEWHERE,AND IN SO FAR AS NON-INTIMATION IS CONCERNED, 13 FIRSTLY, THERE IS NO OBLIGATION UPON THE ASSESSEE T O INTIMATE THE ASSESSING OFFICER AND SECONDLY, AS MENTIONED ELSEWH ERE, VIDE LETTER DATED 10.04.2018, THE ASSESSEE HAS INTIMATED THE AS SESSING OFFICER REGARDING THE DISSOLUTION OF BICIPL AND TO TRANSFER ALL PROCEEDINGS IN THE NAME OF THE APPELLANT, BIPL. 13. CONSIDERING THE FACTUAL MATRIX DISCUSSED ELSEWH ERE IN THE LIGHT OF JUDICIAL DECISIONS REFERRED TO HEREINABOVE, WE HOLD THAT THE DRAFT ORDER FRAMED U/S 144C(1) OF THE ACT IS IN THE NAME OF A N ON-EXISTENT COMPANY AND ACCORDINGLY, VOID AB INITIO , MAKING ALL SUBSEQUENT PROCEEDINGS NON- EST. FIRST SUBSTANTIVE GRIEVANCE IS, ACCORDINGLY, ALLOWED. 14. FOR THE SAKE OF COMPLETENESS OF THE ADJUDICATIO N, WE WILL NOW ADDRESS TO THE ISSUES ON MERITS. 15, FIRST ISSUE IS IN RESPECT OF TP ADJUSTMENT OF R S. 22.16 LAKHS ON ACCOUNT OF OUTSTANDING RECEIVABLES. 16. FACTS ON RECORD SHOW THAT, ACCORDING TO THE TPO , PAYMENT FOR INVOICES RAISED BY THE ASSESSEE WERE NOT RECEIVED W ITHIN THE TIME 14 STIPULATED AS PER SERVICE AGREEMENT WITH THE AES WH ICH WAS 30 DAYS. THEREFORE, ACCORDING TO THE TPO, SUCH OUTSTANDING A MOUNT/DELAYED PAYMENTS ARE IN THE NATURE OF UNSECURED LOANS/ADVAN CES TO THE AES AND BY TREATING THE SAME AS ADVANCE, THE TPO IMPUTE D INTEREST RATE OF 4.3405%, BEING SIX MONTHS INTEREST RATE OF LIBOR PL US 400 BASIS POINTS ON THE OUTSTANDING RECEIVABLES FROM AES AND, ACCORD INGLY, PROPOSED, AN ADJUSTMENT OF RS. 22,96,268/-. 17. OBJECTIONS WERE RAISED BEFORE THE DRP AND THE D RP WAS PLEASED,PARTIALLY ACCEPTING THE ASSESSEES CONTENTI ON AND ALLOWED INTEREST ON OUTSTANDING PAYMENT TO BE NETTED OFF AG AINST INTEREST ON OUTSTANDING RECEIVABLES AND, ACCORDINGLY, ADJUSTMEN T WAS REDUCED TO RS. 22,16,059/-. 18. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEH EMENTLY STATED THAT INTEREST ON RECEIVABLES IS NOT A SEPARATE INTE RNATIONAL TRANSACTION. FOR THIS PROPORTION, RELIANCE WAS PLACED ON THE DEC ISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF MILL IPORE INDIA LTD IN ITA NO. 327/BANG/2015. IT IS THE SAY OF THE LD. COUNSE L FOR THE ASSESSEE THAT THE ASSESSEE HAD SUFFICIENT CASH BALANCE TO MA NAGE CASH FLOW REQUIREMENT AND NO INTEREST EARNED FROM ADVANCES WE RE PAID TO 15 UNRELATED PARTIES. THE LD. COUNSEL FOR THE ASSESSE E FURTHER STATED THAT THE APPELLANT IS A DEBT FREE COMPANY AND NO INTERES T WAS PAID TO THE CREDITOR/SUPPLIER. THE LD. COUNSEL FOR THE ASSESSE E CONCLUDED BY SAYING THAT THE FACTS OF THE APPELLANT ARE IDENTICA L TO THE FACTS CONSIDERED BY THE TRIBUNAL IN THE CASE OF BECHTEL I NDIA PVT LTD ITA NO. 1478/DEL/2015,WHICH WAS AFFIRMED BY THE HON'BLE HIG H COURT OF DELHI IN ITA 379/2016 AND SLP WAS DISMISSED BY THE HON'BL E SUPREME COURT VIDE CC NO. 4956/2017. 19. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE LOWER AUTHORITIES. 20. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT THE ASSESSEE IS A DEBT FREE COMPANY. IT IS ALSO NOT IN DISPUTE THAT NO INTEREST WAS PAID TO TH E CREDITOR/SUPPLIER NOR ANY INTEREST HAS BEEN EARNED FROM UNRELATED PAR TY. MOREOVER, BEING A 100% CAPTIVE SERVICE PROVIDER, THE REVENUE OF THE ASSESSEE IS 100% FROM ITS AES. IN OUR CONSIDERED OPINION, THE QUESTION OF RECEIVING ANY INTEREST ON RECEIVABLES DOES NOT ARISE. CONSID ERING THE FACTS OF THE ASSESSEE IN HAND, IN TOTALITY, WE DO NOT FIND ANY M ERIT IN THE TP 16 ADJUSTMENT OF RS. 22.16 LAKHS AND THE SAME IS,ACCOR DINGLY,DIRECTED TO BE DELETED. 21. TH NEXT GRIEVANCE RELATES TO THE DISALLOWANCE O F RS. 56.58 CRORES FOR ALLEGED FAILURE OF NON-DEDUCTION OF TAX AT SOUR CE. 22. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER SOUGHT CLARIFICATION OF SERVICES PERFORMED BY BOEING COMPANY USA, BOEING DEFENCE AUSTRALIA LTD, BOEING KOREA LLC AND WHETHER THE SALARY PAID TO EXPATRIATES HAS BEEN INCLUDED IN THE TOTAL SALARY. FURTHER, THE ASSESSEE WAS ASKED TO EXPLAIN THE WORK PERFORMED BY THE EXPATRIATES. THE ASSESSEE WAS ASKED TO EXPLAIN THE REIMBURSEMENT OF EXPENSES TO BOEING COMPANY USA, BOEING INTERNATIONA L CORPORATION KOREA AND BOEING DEFENCE AUSTRALIA. THE ASSESSEE F URNISHED NECESSARY DETAILS. IT WAS EXPLAINED THAT REIMBURSEMENT OF SA LARY COST TO EXPATRIATE EMPLOYEES IS NOT TAXABLE AS FIS, BOTH UN DER THE PROVISIONS OF THE ACT AND RELEVANT DTAA, AND NO WITHHOLDING TA X WAS REQUIRED ON THE SAME. 23. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE WAS A REAL AND ECONOMIC EMPLOYER OF EXPATRIATE EMPLOYEES, AS THESE EMPLOYEES WERE 17 UNDER THE CONTROL OF THE COMPANY WITHOUT ANY RELATI ON/CONNECTION WITH THE AES AND SALARY EXPENSES HAVE BEEN BORNE BY THE ASSESSEE ON WHICH THE APPROPRIATE TAXES WERE DULY DEDUCTED AND DEPOSITED U/S 192 OF THE ACT. IT WAS STRONGLY CONTENDED THAT REIMBUR SEMENT OF COST CHARGES OF SALARY OF EXPATRIATE EMPLOYEES IS NOT TA XABLE AS FTS/FIS. 24. THE ASSESSING OFFICER WAS NOT CONVINCED WITH TH E SUBMISSIONS OF THE ASSESSEE AND REFERRING TO THE TERMS OF SECONDME NT AGREEMENT AND DRAWING SUPPORT FROM THE DECISION OF THE HON'BLE HI GH COURT IN THE CASE OF CENTRICAINDIA OFFSHORE INDIA LTD 364ITR 336 AND FURTHER REFERRING TO VARIOUS JUDICIAL DECISIONS, THE ASSESS ING OFFICER FINALLY CAME TO THE CONCLUSION THAT THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE ON THE EXPENDITURE TOWARDS SALARIES AND OTHE R ALLOWANCES AND INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS. 56,58,19,799/-. 25. OBJECTIONS WERE RAISED BEFORE THE DRP BUT WERE OF NO AVAIL. 26. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEH EMENTLY STATED THAT THE ASSESSEE HAS DEDUCTED TAX AT SOURCE/S 192 OF THE ACT, AND, THEREFORE, THERE SHOULD NOT BE ANY DISALLOWANCE U/S 40(A)(I) OF THE ACT. 18 RELIANCE WAS PLACED ON THE DECISION OF THE CO-ORDIN ATE BENCH IN THE CASE OF NEEMRANA HOTELS PVT LTD ITA NO. 98/DEL/2017 ORDER DATED 10.07.2019. IT IS THE SAY OF THE LD. COUNSEL FOR T HE ASSESSEE THAT SINCE TAX HAS BEEN DEDUCTED U/S 192 OF THE ACT, PROVISION S OF SECTION 195 WILL NOT APPLY. 27. DISTINGUISHING THE DECISION OF CENTRICA INDIA O FFSHORE INDIA LTD [SUPRA], THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTL Y STATED THAT THE DECISION IN THE CASE OF CENTRICA INDIA OFFSHORE IND IA LTD WAS BASED UPON ENTIRELY DIFFERENT SET OF FACTS WHEREIN IN THA T CASE,THE INDIAN COMPANY WAS A NEWLY FORMED ENTITY AND DID NOT HAVE NECESSARY TRAINED HUMAN RESOURCES AND SCOPE OF WORK EMERGING FROM SER VICE AGREEMENT AND SECONDMENT AGREEMENT CLEARLY SHOWS THAT SECONDE ES WERE SENT TO INDIA WITH THE KNOWLEDGE OF VARIOUS PROCESSES AND P RACTICES AND ALSO WITH EXPERIENCE IN MANAGING AND APPLYING SUCH PROCE SSES AND PRACTICES. 28. ON THESE FACTS, THE HON'BLE HIGH COURT WAS SATI SFIED THAT THE SECONDARY EMPLOYEES ARE MAKING AVAILABLE THEIR EXPE RIENCE AND SKILL IN MANAGING AND APPLYING THE PROCESSES. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN SO FAR AS THE ASSESSEE IS CONCERNED, IT IS IN 19 EXISTENCE SINCE 2003 AND THE EMPLOYEES RECRUITED OU TSIDE INDIA DO NOT POSSESS ANY SPECIFIC SKILL SET THAT IS NOT AVAILABL E WITH INDIAN EMPLOYEES. THE LD. COUNSEL FOR THE ASSESSEE EXPLAI NED THAT IN IN-HOUSE ADMINISTRATION SUPPORT DIVISION, THE APPELLANT HAS 58 EMPLOYEES OUT OF WHICH ONLY 6 ARE EXPATRIATE EMPLOYEES. THIS DIVISION RENDERS TRAVEL LOGISTICS, FINANCE AND ACCOUNTING SUPPORT ETC AND T HE QUALIFICATIONS AND ROLE SHOW THAT SUCH EXPATRIATEEMPLOYEES CANNOT MAKE AVAILABLE ANY KNOWLEDGE. FURTHER RELIANCE WAS PLACED ON THE DECI SION OF THE CO- ORDINATE BENCH IN THE CASE OF AT & T COMMUNICATION SERVICES INDIA PVT LTD 101 TAXMANNN.COM 105 [DELHI TRIB] 29. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE LOWER AUTHORITIES AND PLACED STRONG RELIANCE ON THE DECISION OF THE HON'BLE HIGH COURT IN THE CASE OF CENTRICA INDIA OF FSHORE PVT LTD [SUPRA]. 30. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CAREFULLY PERUSED T HE SALARY REIMBURSEMENT AGREEMENT, WHICH IS PLACED AT PAGES 2 96 ONWARDS OF THE PAPER BOOK, AND AS PER CLAUSE1.1, IT IS PROVIDE D THAT THE SECONDEES HAVE EXPRESSED THEIR WILLINGNESS TO BE DEPUTED TO B IPICL [THE 20 APPELLANT] AND TBC [AE] HAVE AGREED TO RELEASE THES E EMPLOYEES TO BIPICL. IT IS PROVIDED THAT TBC WILL FACILITATE PA YMENT OF SALARIES IN SECONDEES HOME COUNTRY ON BEHALF OF BICIPL. UNDER THE HEAD EMPLOYMENT STATUS, IT IS PROVIDED THAT THE SECONDEE S SHALL BE WORKING FOR BICIPL AND WILL BE UNDER SUPERVISION, CONTROL A ND MANAGEMENT OF BICIPL AS AN EMPLOYEE OF BICIPL. 31. IT IS CLEAR FROM THE AFORE-STATED RELEVANT CLAU SES THAT THE SECONDEES WERE, IN FACT, IN EMPLOYMENT OF THE APPEL LANT AND AS PER THE TERMS, THE A WAS PAYING SALARIES AT THE HOME COUNTRY OF THE SECONDEES AND, THEREFORE, THERE WAS REIMBURSEMENT B Y THE APPELLANT. THESE FACTS CLEARLY SHOW THAT THE ASSESSEE HAS BEEN PAYING TO ITS OWN EMPLOYEES AND THIS FACT ALONE CLEARLY DISTINGUISHES THE FACTS OF THE DECISION IN THE CASE OF CENTRICA INDIA OFFSHORE LTD [SUPRA]. 32. THE CO-ORDINATE BENCH IN THE CASE OF AT & T COM MUNICATION SERVICES INDIA PVT LTD. [SUPRA], DISTINGUISHING THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CENTRICA IN DIA OFFSHORE PVT LTD [SUPRA], HAS HELD AS UNDER: 30. THE DRP HAS AFFIRMED THE DECISION OF THE LD. A O BY HOLDING THAT THE ASSESSEE HAS DEDUCTED WITHHOLDING TAX ON 21 SUBSTANTIAL PAYMENTS AND YET ARGUED THAT THE TAX IS NOT DEDUCTIBLE U/S 195 OF THE ACT AND PROVISION OF SECT ION 40(A)(I) CANNOT BE INVOKED IN THE CASE OF SAID PAYMENT. 31. THE DRP HAS AFFIRMED THE DECISION OF THE AO BY HOLDING THAT THE ASSESSEE HAS DEDUCTED WITHHOLDING TAX ON SUBSTA NTIAL PAYMENTS AND YET ARGUED THAT THE TAX IS NOT DEDUCTI BLE U/S 195 OF THE ACT AND PROVISION OF SECTION 40(A)(I) CANNOT BE INVOKED IN THE CASE OF SAID PAYMENT. 32. THE SPECIAL AUDITORS IN THEIR AUDIT REPORT HAVE WORKED OUT PARTICULARS OF PAYMENTS IN RESPECT OF WHICH NO TDS WAS DEDUCTED U/S 40(A)(IA) OF THE ACT. CONSEQUENTLY, AN AMOUNT OF RS. 54,06,328/- WAS NOT TO BE ALLOWED AS EXPENDITURE. 33. WE HAVE ALSO PERUSED THE TDS CERTIFICATES, FORM S 15CA AND 15CB, TAX DEDUCTED BY THE ASSESSEE AND ALL THESE DOCUMENT S ARE PART OF THE PAPER BOOK. THERE IS NO DISPUTE THAT THE ASSESSEE HAS DEDUCTED TAX AT SOURCE U/S 192 OF THE ACT. ON THE GIVEN FACTS OF T HE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE PROVISIONS OF SECTI ON 195 OF THE ACT DO NOT APPLY. CONSIDERING THE FACTS OF THE CASE IN TO TALITY, IN LIGHT OF JUDICIAL DECISIONS REFERRED TO HEREINABOVE, WE DO N OT FIND ANY MERIT IN 22 THE DISALLOWANCE MADE BY THE ASSESSING OFFICER/DRP. WE, ACCORDINGLY, DIRECT FOR DELETION OF ADDITION OF RS. 56.58 CRORES . 34. THE OTHER GRIEVANCE RELATES TO NON GRANTING OF CREDIT TO PRE PAID TAXES. 35. WE DIRECT THE ASSESSING OFFICER TO GIVE CREDIT OF PRE PAID TAX AS PER PROVISIONS OF LAW. 36. ON MERITS ALSO, THE APPEAL OF THE ASSESSEE IS A LLOWED. 37. FOR THE SAKE OF CLARITY, MERITS OF THE APPEAL H AVE BEEN DISCUSSED FOR COMPLETENESS OF THE ORDER. OTHERWISE, AS MENTI ONED ELSEWHERE, THE ASSESSMENT ORDER FRAMED U/S 144C IS VOID AB INI TIO. 38. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO. 9765/DEL/2019 IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 17 .0 8.2020. SD/- SD/- [SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER 23 DATED: 17 TH AUGUST,2020. VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT ASST. REGISTRAR 4. CIT(A) ITAT, NEW DELHI 5. DR 24 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER
