2020 (6) TMI 370 - AT - Income Tax

Validity of the assessment on the reasoning that it was framed in the name of non-existent company - Admission of additional evidence - HELD THAT - Admittedly the additional ground of appeal was not raised by the assessee before the authorities below. However, all the facts related to the additional ground of appeal are arising from the order of the authorities below and no additional fact needs to be referred. Further, we also note that the issue raised by the assessee in the additional ground of appeal is legal in nature which can be admitted at any stage during the proceedings in view of the judgment in the case of NTPC Ltd Vs.CIT 1996 (12) TMI 7 - SUPREME COURT . Accordingly, we admit the additional ground of appeal raised by the assessee and proceed to adjudicate the same. Transfer pricing adjustment on specified domestic transactions of sale of finished goods undertaken with the AE - HELD THAT - In the case of a company, the ld. Commissioner was required to issue a show cause notice against a juridical person contemplated in section 2(31) of the Income Tax Act and if a juridical person ceases to exist then it would not be construed as a person within the meaning of section 2(31) against whom any action can be taken. The Commissioner would not assume proper jurisdiction and such type of defect would not be cured with help of section 292B of the Act, because it is not a procedural irregularity which could be cured. We also note that this Tribunal in the case of Snowhill Agencies Pvt. Ltd. Vs. Pr. CIT 2020 (1) TMI 1029 - ITAT AHMEDABAD involving identical facts and circumstances has decided the issue in favour of the assessee.We note that the assessment framed under section 143(3) r.w.s. 92CA of the Act is not sustainable. Hence the additional ground of appeal of the assessee is allowed.

Summary

Issues Involved:

1. Transfer Pricing Adjustments.
2. Corporate Tax Adjustments consequent to upward Transfer Pricing adjustment.
3. Validity of the assessment order passed in the name of a non-existent entity.
4. Penalty initiation under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustments:

The assessee contested the confirmation of an upward transfer pricing adjustment of ?192,84,97,000/- for transactions with its Associated Enterprise (AE). The grounds included:
a) Both the appellant and Intas Pharmaceuticals Limited (IPL) were paying AMT/MAT, negating the applicability of specified domestic transaction provisions due to the absence of tax arbitrage.
b) IPL should have been considered the tested party under Rule 10B of the Income Tax Rules due to more reliable data availability.
c) The AO/TPO failed to find appropriate comparables for the IP Firm, incorrectly benchmarking it with entities more akin to the appellant company.
d) The CIT(A) incorrectly observed that the appellant merged into the flagship concern to benefit from a scheme of arrangement.
e) The amalgamation of the appellant into IPL was sanctioned by the Gujarat High Court, and the tax department allowed the benefit of the tax holiday in IPL’s hands.
f) Under secondary analysis, the appellant and IPL substantiated the ALP under the internal Resale Price Method by comparing gross margins.

2. Corporate Tax Adjustments:

The CIT(A) confirmed the AO’s view that the appellant earned more than ordinary profit due to a close connection, leading to an upward adjustment of ?176,44,41,970/- to the Total Income by recomputing deductions under sections 80IC and 80IE of the Act.

3. Validity of the Assessment Order:

The assessee raised an additional ground challenging the validity of the assessment order, arguing it was framed in the name of a non-existent entity, Intas Pharmaceuticals, which had already merged with Intas Pharmaceuticals Ltd. The Tribunal admitted this ground, noting all related facts were on record, and the issue was legal in nature. The Tribunal cited the Supreme Court judgment in PCIT vs. Maruti Suzuki India Ltd., which held that an assessment order passed in the name of a non-existent entity is void ab initio. The Tribunal concluded that the assessment framed under section 143(3) read with section 92CA(3) of the Act was not sustainable, as it was made in the name of a non-existent entity despite the department being aware of the amalgamation.

4. Penalty Initiation under Section 271(1)(c):

The CIT(A) confirmed the AO’s action of initiating penalty under section 271(1)(c) of the Act. However, since the legal issues were decided in favor of the assessee, the Tribunal refrained from adjudicating on the merits of the disallowances under the Act, rendering the grounds of appeal on this issue infructuous.

Conclusion:

The Tribunal allowed the additional ground of appeal regarding the validity of the assessment order, declaring it void as it was framed in the name of a non-existent entity. Consequently, the grounds related to transfer pricing and corporate tax adjustments were dismissed as infructuous. Both appeals of the assessee were partly allowed.