2020 (7) TMI 329 - AT - Income Tax

Validity u/s 143(3) r.w.s 144C(3) - scheme of merger conceived - Entity non-existent on the date on which the assessment order was passed - HELD THAT - Assessee viz. Satyam Computers Services Ltd. w.e.f 1-4-2011 merged with M/s Tech Mahindra Ltd. After the said merger, all the proceedings against Satyam Computer Services Ltd. were taken over by Tech Mahindra Ltd. Assessment order passed by the A.O u/s 143(3) r.w.s 144C(3), dated 25-5-2015 in the hands of M/s Satyam Computers Services ltd., i.e an entity that was non-existent on the date on which the assessment order was passed, the same would thus be non-est in the eyes of law.

Issues Involved:
1. Adding reversal of unbilled revenue to the total income.
2. Disallowance of penalties paid in foreign countries.
3. Disallowance under section 14A.
4. Disallowance of depreciation on company cars.
5. Various grounds of appeal raised by the revenue.
6. Additional ground of appeal regarding the assessment order passed in the name of a non-existent entity.
7. Transfer Pricing adjustments and related issues for A.Y 2011-12.
8. Disallowance of expenses incurred on hardware and software.
9. Disallowance of leasehold registration expenses.
10. Not granting of TDS credit.

Detailed Analysis:

1. Adding Reversal of Unbilled Revenue to Total Income:
The assessee contested the addition of ?1,90,52,225/- as taxable income, arguing that it was a reversal of previously recognized unbilled revenue. The CIT(A) upheld this addition, treating it as taxable income.

2. Disallowance of Penalties Paid in Foreign Countries:
The assessee challenged the disallowance of ?32.60 lakhs paid as penalties in foreign countries under Explanation 1 to Section 37(1) of the Act. The CIT(A) upheld the disallowance.

3. Disallowance under Section 14A:
The assessee disputed the disallowance of ?85,10,737/- under Section 14A read with Rule 8D of the Income-tax Rules, 1962. The CIT(A) confirmed this disallowance.

4. Disallowance of Depreciation on Company Cars:
The assessee appealed against the disallowance of ?7,76,47,184/- for depreciation on cars provided to employees for official purposes. The CIT(A) upheld the disallowance.

5. Various Grounds of Appeal Raised by the Revenue:
The revenue raised multiple issues, including the treatment of unearned income, comparables in Transfer Pricing, and the nature of certain expenses. The CIT(A) provided partial relief, rejecting some contentions of the revenue and upholding others.

6. Additional Ground of Appeal Regarding Assessment Order Passed in the Name of a Non-Existent Entity:
The assessee raised an additional ground, arguing that the assessment order dated 5 January 2015 was passed in the name of a non-existent entity (M/s Satyam Computers Services Ltd., which had merged with Tech Mahindra Ltd. w.e.f 1-4-2011). The Tribunal admitted this ground, citing Supreme Court judgments, and quashed the assessment order on this basis.

7. Transfer Pricing Adjustments and Related Issues for A.Y 2011-12:
For A.Y 2011-12, the assessee and revenue raised multiple issues related to Transfer Pricing adjustments. The CIT(A) provided partial relief by excluding high-margin comparables and adjusting interest rates on loans to AEs. The Tribunal upheld the CIT(A)'s decisions but quashed the assessment order as it was passed in the name of a non-existent entity.

8. Disallowance of Expenses Incurred on Hardware and Software:
The CIT(A) allowed the expenses incurred on hardware and software items, directing the AO to verify that these expenses formed part of the billed invoices raised by the assessee on its customers.

9. Disallowance of Leasehold Registration Expenses:
The CIT(A) deleted the disallowance of ?8,80,000/- incurred on leasehold land registration, treating it as revenue expenditure instead of capital expenditure.

10. Not Granting of TDS Credit:
The CIT(A) directed the AO to examine the TDS certificates and allow credit for the TDS payments to the assessee.

Conclusion:
The Tribunal quashed the assessment orders for both A.Y 2010-11 and A.Y 2011-12, citing that they were passed in the name of a non-existent entity, rendering them non-est in the eyes of law. Consequently, the appeals of the assessee were allowed, and those of the revenue were dismissed. The Tribunal refrained from addressing the merits of other issues, as they were rendered academic in nature.

← Previous Next →