2022 (9) TMI 1113 - AT - Income Tax

Validity of assessment - notice against non-existing /Amalgamated entity - approval of scheme of amalgamation / merger - HELD THAT - A.O. in the instant case had passed the assessment order in the name of Biocon Research Limited, even though sufficient intimation have been made to the A.O. about the merger of Biocon Research Limited with Biocon Biologics Limited during the course of assessment proceedings. The intimation in this regard is tabulated. A.O. was diligently informed about the amalgamation during the course of assessment proceedings and prior to the passing of the draft assessment order / final assessment order, hence, the ratio of the judgment in the case of Maruti Suzuki India Limited 2019 (7) TMI 1449 - SUPREME COURT and Spice Infotainment 2011 (8) TMI 544 - DELHI HIGH COURT continues to apply and the assessment order in the name of amalgamated company is treated as null and void. Appeal of assessee allowed.

Issues Involved:
1. Validity of assessment proceedings on a non-existent entity.
2. Transfer Pricing adjustments on notional interest for outstanding receivables.
3. Disallowance of foreign exchange loss relating to fixed assets.

Issue-wise Analysis:

1. Validity of Assessment Proceedings on a Non-Existent Entity:
The primary issue was the validity of the assessment proceedings conducted on Biocon Research Limited, which had ceased to exist due to its merger with Biocon Biologics Limited. The assessee argued that the assessment order was void since it was issued in the name of a non-existent entity despite repeated notifications to the Assessing Officer (AO) regarding the merger. The Tribunal referred to the Supreme Court's decision in Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC), which established that an assessment order passed on a non-existent company due to amalgamation is a substantive illegality and void. The Tribunal noted that the AO was informed multiple times about the merger, yet the final assessment order was still issued in the name of Biocon Research Limited. Consequently, the assessment order was declared null and void.

2. Transfer Pricing Adjustments on Notional Interest for Outstanding Receivables:
The assessee contested the addition of INR 1,10,31,130 on account of notional interest imputed on outstanding receivables from Associated Enterprises (AEs). The grounds included the argument that the outstanding dues should not be treated as a loan and should be considered closely linked with the primary international transaction of providing research services. The assessee also argued that since the primary transaction was at arm's length, no separate addition for notional interest was necessary. Additionally, the assessee pointed out that it did not charge interest from unrelated parties in similar transactions. Although this issue was raised, the Tribunal did not adjudicate on it due to the quashing of the assessment order on the primary issue of the non-existent entity.

3. Disallowance of Foreign Exchange Loss Relating to Fixed Assets:
The assessee challenged the disallowance of a foreign exchange loss amounting to INR 1,36,423 related to fixed assets. The grounds included the lack of a show cause notice for the proposed adjustment, violation of the Faceless Assessment Scheme, and principles of natural justice. The assessee also argued that the disallowance led to a double disallowance since the amount was already disallowed in the tax computation. However, this issue was not adjudicated by the Tribunal due to the quashing of the assessment order on the primary issue of the non-existent entity.

Conclusion:
The Tribunal quashed the assessment order on the grounds that it was issued in the name of a non-existent entity, rendering it null and void. The other grounds related to Transfer Pricing adjustments and disallowance of foreign exchange loss were not adjudicated. The appeal filed by the assessee was partly allowed.

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