2025 (4) TMI 476 - AT - Income Tax

Validity of the assessment order passed on a non-existing entity due to a merger - HELD THAT - The various other decisions relied on by the assessee also supports his case to the proposition that the assessment in the name of a non-existent company is bad in law and has to be quashed. Since admittedly in the instant case the assessment has been framed by the AO on a non-existing company despite knowing the fact that the assessee company is ceased to exist pursuant to its merger which was duly approved by the NCLT and which fact was also brought to the notice of the AO as well as the DRP therefore respectfully following the decisions cited above and in absence of any contrary decision brought to our notice by the DR we hold that such assessment on a non- existent company is invalid. We accordingly quash the assessment order passed by the AO and the legal ground raised by the assessee as per ground is allowed.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

The validity of the assessment order passed by the Assessing Officer on a non-existing entity due to a merger.
The legitimacy of the transfer pricing adjustments made by the Transfer Pricing Officer (TPO) and upheld by the Dispute Resolution Panel (DRP).
The appropriateness of corporate tax adjustments, including the rate applied to long-term capital gains and the computation of tax liability.
The procedural validity of the assessment order in light of jurisdictional and procedural challenges raised by the appellant.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Assessment on a Non-Existing Entity

Legal Framework and Precedents: The appellant argued that the assessment order was invalid as it was issued in the name of a non-existent entity following its merger with Capgemini Technology Services India Limited, effective April 1, 2020, as approved by the NCLT. The appellant relied on precedents such as Pr. CIT vs. Maruti Suzuki India Limited and Pr. CIT vs. Culver Max Entertainment (P.) Ltd., which establish that issuing an assessment order to a non-existent entity is a substantive illegality.
Court's Interpretation and Reasoning: The Tribunal found that the Assessing Officer was informed of the merger during the assessment proceedings, yet proceeded to issue the order in the name of the non-existent entity. The Tribunal cited various judicial precedents affirming that such actions are void ab initio.
Conclusions: The Tribunal concluded that the assessment order was invalid and quashed it, as the proceedings were initiated against a non-existent entity.

2. Transfer Pricing Adjustments

Legal Framework and Precedents: The appellant challenged the transfer pricing adjustments on several grounds, including the use of inappropriate comparables and methodologies. The appellant argued that the TPO's approach was inconsistent with the arm's length principle.
Court's Interpretation and Reasoning: The Tribunal did not adjudicate these grounds due to the quashing of the assessment order on the primary legal ground.
Conclusions: These issues were rendered academic and were not decided upon.

3. Corporate Tax Adjustments

Legal Framework and Precedents: The appellant contested the tax rate applied to long-term capital gains and the computation of tax liability, arguing for a lower rate under Section 112 of the Income Tax Act.
Court's Interpretation and Reasoning: Similar to the transfer pricing issues, these matters were not addressed due to the primary legal issue's resolution.
Conclusions: These issues were not adjudicated as they became moot following the decision on the primary legal issue.

4. Procedural Validity and Jurisdictional Challenges

Legal Framework and Precedents: The appellant raised concerns about procedural lapses, such as the failure to provide a copy of the Central Board of Direct Taxes approval for case transfer and the alleged barring of the assessment order by limitation.
Court's Interpretation and Reasoning: The Tribunal focused on the primary issue of the non-existent entity and did not delve into these procedural challenges.
Conclusions: These issues were not adjudicated due to the resolution of the primary legal issue.

SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal reinforced the principle that an assessment order issued to a non-existent entity is a substantive illegality, which cannot be cured by procedural provisions such as Section 292B of the Income Tax Act.
Final Determination: The Tribunal quashed the assessment order on the grounds that it was issued to a non-existent entity, rendering other grounds of appeal academic.

← Previous Next →