2024 (4) TMI 492 - AT - Income Tax

Validity of 263 proceeding issued in the name of non-existing entities which got amalgamated during the assessment proceeding - HELD THAT - Cause title itself speaks about the change of name of the Company. It is the fact that amalgamation though destroys outer shell of the corporate entity, the Corporate venture continues enfolded within the new or the existing transferee entity. The business and the adventure lives on but within a new corporate residence, i.e., the transferee company. Therefore, at this juncture, it is essential to look beyond the mere concept of destruction of corporate entity which brings to an end or terminates any assessment proceedings. The scheme of amalgamation in which rights and liabilities of one company are transferred or devolved upon another company, the successor-ininterest becomes entitled to the liabilities and assets of the transferor company subject to the terms and conditions of contract of transfer or merger as it were. When two companies amalgamate and merge into one the transferor company loses its entity as it ceases to have its business. However, their respective rights and liabilities are determined under the scheme of amalgamation but the corporate identity of the transferor company ceases to exist w.e.f. the date of amalgamation is made effective. Though, such concept is absolutely correct but merely because the issuance of notice in the name of erstwhile company by the PCIT cannot be said to be without jurisdiction or nullity, particularly, when the said fact of amalgamation is mentioned in the cause title itself as in the case before us. Thus case in hand before us the order has been issued clarifying the entire status of the appellant and the factor of amalgamation as it reflects from the cause title itself. We, thus, do not find any lacuna in the order issued by the Ld. PCIT on the issue of maintainability Revision u/s 263 by CIT - addition of invocation of provision of Section 40(a)(i) for non-deducting TDS of payment made to non-resident and addition u/s 14A r.w. Rule 8D - HELD THAT - As specifically pointed out by the Ld. PCIT that no details whatsoever was furnished in regard to the issue relating to non-payment of TDS before the Ld. AO, neither the Ld. AO has examined/verified the said issue. Appellant/assessee before us also failed to show any document which could establish that this particular issue was examined by the AO during assessment period or that the appellant furnished the documents before the said authority below. Similarly, the issue relating to exempt income u/s 14A r.w. Rule 8D has not found to have been examined by the Ld. AO; the expenditure attributable to the exempt income must be worked out in accordance with the Rule 8D which would include direct as well as indirect expenditure attributable to the exempt income. In fact, such duty to examine the issues though cast upon the Ld. AO, that has not been performed by the said Revenue Officer and, therefore, the order passed by the PCIT setting aside the order passed by the AO upon considering it erroneous insofar as prejudicial to the interest of the Revenue and further directing the Ld. AO to reframe the assessment afresh is found to be just and proper without any ambiguity so as to warrant interference. Thus, the appeal filed by the appellant is found to be devoid of any merit and, hence, dismissed. Decided against assessee.

Summary

Issues Involved:
1. Jurisdictional Error due to Merger
2. Escaping Assessment u/s 40A(i) for Non-Deducted TDS
3. Escaping Assessment u/s 14A for Exempt Income

Summary:

1. Jurisdictional Error due to Merger:
The appellant argued that the order issued by the PCIT in the name of a non-existing company, M/s. Simens Healthcare Diagnostics Ltd., post-merger with Simens Ltd. was not sustainable. The appellant relied on the ITAT Mumbai judgment in Westlife Development Ltd. vs. PCIT-5, Mumbai, which held assessments on non-existing entities as null and void. However, the tribunal noted that the cause title mentioned the merger, indicating that the PCIT considered the merger while issuing the order. The tribunal emphasized that amalgamation does not terminate assessment proceedings and upheld the PCIT's jurisdiction.

2. Escaping Assessment u/s 40A(i) for Non-Deducted TDS:
The PCIT found that the assessee paid SAP Implementation charges and Accounting & Reporting Support charges to non-residents without deducting TDS, which should have been disallowed u/s 40A(i). The appellant contended that TDS was deducted for SAP charges and that the Accounting & Reporting Support charges were disallowed and offered for taxation. However, the tribunal noted that no details were furnished to the AO during the assessment, and the AO did not examine this issue. Therefore, the PCIT's direction for reassessment was upheld.

3. Escaping Assessment u/s 14A for Exempt Income:
The PCIT observed that the assessee earned exempt income but did not disallow related expenditures as required u/s 14A r.w. Rule 8D. The appellant argued that no new investments were made, and no expenditure was incurred to earn the exempt income. The tribunal noted that the AO did not examine this issue and that strategic decisions related to investments involve administrative and managerial expenses. The tribunal upheld the PCIT's direction to reframe the assessment, including direct and indirect expenditures attributable to exempt income.

Conclusion:
The tribunal found the appeal devoid of merit and dismissed it, upholding the PCIT's order to reassess the issues afresh. The tribunal emphasized the duty of the AO to examine and verify the issues, which was not performed in this case. The appeal was dismissed, and the PCIT's order was deemed just and proper.