2018 (7) TMI 825 - AT - Income Tax

Validity of assessment against non existent entity - curable defect - Held that - assessment framed by the Assessing Officer on a non-existent company is a nullity in the eyes of law and void and the provisions of section 292 B cannot rescue the department. Therefore, the order is unsustainable and accordingly the same is quashed. The additional ground raised by the assessee is accordingly allowed. Since the assessee succeeds on this legal ground, therefore, the various other grounds raised by the assessee in appeal are not adjudicated being academic in nature.

Issues Involved:
1. Validity of assessment orders passed in the name of a non-existent entity.
2. Assessment of AMP expenses as international transactions.
3. Application of the 'bright line method' for AMP expenses.
4. Penalty proceedings under sections 271, 271AA, and 271BA.

Detailed Analysis:

1. Validity of Assessment Orders Passed in the Name of a Non-Existent Entity:
The primary issue revolves around the validity of assessment orders issued by the Assessing Officer (AO) in the name of a non-existent entity due to the merger. The assessee argued that the assessment orders were void ab-initio as they were passed in the name of "M/s. Sony Ericsson Mobile Communications (India) Private Limited," which had ceased to exist following its merger with "Sony India Private Limited."

The Tribunal admitted the additional ground raised by the assessee, noting that all necessary materials were already on record. It was observed that the AO passed the final assessment order in the name of the old entity despite being informed of the merger. The Tribunal referred to the decision of the Hon’ble Delhi High Court in the case of Spice Entertainment Ltd., which held that framing an assessment against a non-existing entity is a jurisdictional defect, not a procedural irregularity, and cannot be cured under section 292B of the Income Tax Act.

The Tribunal quashed the assessment orders, concluding that they were unsustainable as they were passed in the name of a non-existent company. Consequently, the additional ground raised by the assessee was allowed, rendering other grounds academic and not adjudicated.

2. Assessment of AMP Expenses as International Transactions:
The assessee challenged the assessment of Advertising, Marketing, and Promotion (AMP) expenses as international transactions. The AO/TPO/DRP had treated AMP expenses incurred by the assessee as benefiting its associated enterprise (AE) and thus falling within the purview of an international transaction under section 92B of the Act. The assessee contended that these expenses were incurred in the normal course of its distribution business and were not solely for the benefit of the AE.

The Tribunal, however, did not adjudicate on this issue due to the quashing of the assessment orders on the ground of invalidity. Hence, the grounds related to AMP expenses remained unaddressed and were considered academic.

3. Application of the 'Bright Line Method' for AMP Expenses:
The assessee also contested the application of the 'bright line method' to determine excessive/non-routine AMP expenses. It argued that the AMP expenses should be benchmarked along with the main transaction of import and distribution of goods under a combined transaction approach.

Similar to the previous issue, the Tribunal did not delve into this matter due to the quashing of the assessment orders. The grounds related to the 'bright line method' were not adjudicated and deemed academic.

4. Penalty Proceedings Under Sections 271, 271AA, and 271BA:
The assessee raised grounds against the initiation of penalty proceedings under sections 271, 271AA, and 271BA of the Act, arguing that the AO/DRP erred in holding that the assessee furnished inaccurate particulars of income and failed to maintain proper documentation.

Given the Tribunal’s decision to quash the assessment orders, the grounds related to penalty proceedings were not adjudicated and were considered academic.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, quashing the assessment orders on the ground that they were passed in the name of a non-existent entity. Consequently, other grounds raised by the assessee, including those related to AMP expenses, the 'bright line method,' and penalty proceedings, were not adjudicated as they were rendered academic.

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