2022 (12) TMI 524 - AT - Income Tax

Validity of Order on a non-existing entity - order as it is passed on a non-existing entity i.e. erstwhile Marlabs Software Pvt. Ltd - approved scheme of amalgamation - HELD THAT - Respectfully following in case of PCIT vs. Maruti Suzuki India Ltd. 2019 (7) TMI 1449 - SUPREME COURT we hold that, since the assessee ceased to be in existence as on the date when the Ld.AO passed the impugned order of assessment, the assessment so framed is not sustainable in the eye of law. The final order of assessment is therefore liable to be annulled, and is hereby annulled. Assessee s appeal stands allowed.

Summary

Issues Involved:
1. Validity of the assessment order passed on a non-existing entity.
2. Transfer pricing adjustment in respect of international transactions between the assessee and its Associated Enterprise (AE).

Detailed Analysis:

1. Validity of the Assessment Order Passed on a Non-Existing Entity:
The primary issue raised by the assessee was the validity of the assessment order passed by the Assessing Officer (AO) on a non-existing entity, Marlabs Software Pvt. Ltd., which had ceased to exist due to amalgamation with Marlabs Innovations Pvt. Ltd. The assessee argued that the AO erred in passing the order on a non-existent entity, citing the Supreme Court's decision in PCIT vs. Maruti Suzuki India Ltd. (2019) 107 taxmann.com 375. The Supreme Court held that once an amalgamation scheme is approved, the amalgamating company ceases to exist and cannot be regarded as a person under Section 2(31) of the Income Tax Act. Consequently, any notice or assessment order issued to a non-existent company is void ab initio and lacks jurisdiction.

In the present case, the effective date of amalgamation was 01/04/2016, and the AO was informed about the amalgamation by a letter dated 15/12/2017. Despite this, the AO issued the final assessment order in the name of Marlabs Software Pvt. Ltd., a non-existent entity. The Dispute Resolution Panel (DRP) had issued directions in the name of the transferee company, Marlabs Innovations Pvt. Ltd. The Tribunal noted that the facts of the assessee's case were identical to those in the Maruti Suzuki India Ltd. case. Therefore, the assessment framed by the AO was deemed unsustainable in law and was annulled.

2. Transfer Pricing Adjustment:
The assessee also raised issues regarding the transfer pricing adjustment made concerning international transactions between the assessee and its AE. However, since the primary legal issue regarding the validity of the assessment order was decided in favor of the assessee, the Tribunal did not delve into the merits of the transfer pricing adjustments. These issues were left open for academic purposes.

Conclusion:
The Tribunal, following the decision of the Supreme Court in PCIT vs. Maruti Suzuki India Ltd., held that the assessment order passed on a non-existent entity was void ab initio and lacked jurisdiction. Therefore, the final order of assessment was annulled. As the legal issue was decided in favor of the assessee, the transfer pricing adjustment issues were not addressed on merits. The appeal filed by the assessee was allowed, and the assessment order was annulled.