2023 (12) TMI 459 - AT - Income Tax

TP Adjustment - draft assessment order without making a reference to the Ld. TPO u/s 92 CA(3) and relying upon the findings of the TP Order issued in relation to different assessee merged with the assessee pursuant to a scheme of merger - HELD THAT - Upon careful consideration, we note that assessee was incorporated on 9th March, 2017 i.e. during FY 2016-17. It has not undertaken any business operation during the year. There was no reference to TPO in this case. AO took the TPO s order in the case of Boeing Corporation India Ltd. (BCIL) and made an identical addition in this regard in the hands of the assessee. Thus, it is amply clear that there was no reference to TPO in the case of the assessee and the TPO in this case relates to BCIL. The BCIL merged with the assessee pursuant to a scheme of merger on appointed date of 1st April 2017. Thus, since BCIL merged with the assessee in AY 2018-19, it was an independent entity until March 31, 2017. Hence, any adjustment in the case of BCIL has nothing to do with the assessment of the assessee. The assessee s submissions has sufficient cogency that impugned international transaction referred to in TP order has not been entered by the assessee for the subject year and thus, does not pertain to the assessee. The said TPO s order which has been referred in the assessment order is in the case of BCIL, thus, the TP order pertains to BCIL rather than the assessee. In this factual background, when the assessee has not entered said transaction and there was no TPO reference in the case of assessee and the transaction of BCIL, which has merged with the assessee company on 01.04.2017, has been taken as assessee s transaction, the assessment order in this case is liable to be quashed. Ld. DR for the Revenue could not refute any submission of the assessee. Hence, we set aside the orders of the authorities below and direct that the transfer pricing adjustment is deleted. Appeal of the assessee is allowed.

Summary

Issues involved:
The appeal challenges the assessment order passed under section 143 (3) r.w.s. 144C read with section 144B of the Income-tax Act, 1961 for the Assessment Year 2017-18, involving issues related to transfer pricing adjustments, interest on outstanding receivables, levy of interest under section 234A, and merger implications.

Transfer Pricing Adjustment:
The assessee, incorporated during FY 2016-17, filed a return declaring nil income. The Assessing Officer (AO) proposed a transfer pricing adjustment of INR 21,52,899 without any reference to the Transfer Pricing Officer (TPO). Despite objections raised before the Dispute Resolution Panel (DRP), no relief was granted. The appeal contends that the adjustment related to another entity, Boeing Corporation India Ltd. (BCIL), which merged with the assessee post the subject year. As the transaction in question was not entered by the assessee and the TPO order referred to pertained to BCIL, the Tribunal held that the assessment order, based on BCIL's transaction, was liable to be quashed. Consequently, the transfer pricing adjustment was deleted.

Interest on Outstanding Receivables:
The assessee argued that since it did not engage in business operations during FY 2016-17, the issue of interest on outstanding receivables did not apply for that year. The AO's decision to levy interest under section 234A was contested, highlighting that the return of income was filed within the specified due date under section 139 (1) of the Act. However, the Tribunal's decision did not specifically address this issue as the focus was on the transfer pricing adjustment.

Merger Implications:
The merger of BCIL with the assessee, approved in FY 2017-18, raised concerns regarding the treatment of transactions and adjustments made in BCIL's assessment in the hands of the assessee. The Tribunal emphasized that as BCIL was an independent entity until March 31, 2017, any adjustment related to BCIL should not impact the assessment of the assessee. The Tribunal concluded that the assessment order, based on BCIL's transactions, was not applicable to the assessee post-merger, leading to the deletion of the transfer pricing adjustment.

Conclusion:
The Tribunal allowed the appeal, setting aside the orders of the lower authorities and directing the deletion of the transfer pricing adjustment. The decision was based on the lack of TPO reference for the assessee, the non-applicability of BCIL's transactions post-merger, and the absence of entered transactions by the assessee for the subject year. The Tribunal's ruling focused on the specific issue of transfer pricing adjustment, highlighting the importance of accurate attribution of transactions and adjustments in merger scenarios.