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TMI Blog2019 (7) TMI 1554X X X X Extracts X X X X X X X X Extracts X X X X ..... on 170 of the Act have been complied is untenable. We hold that the entire assessment in the present case is vitiated in law and is hereby quashed. In the result, Ground of appeal no. 1 is allowed. - ITA NO. 857/MUM/2016 - - - Dated:- 11-7-2019 - Shri G.S. Pannu, Vice President And Shri Sandeep Gosain, Judicial Member Appellant by : Shri Kanchan Kaushal And Shri Aliasgar Rampurawala Respondent by : Ms. Amrita Ranjan And Shri Manish Singh ORDER G.S. Pannu, The captioned appeal by the assessee is directed against the order of Assessing Officer dated 29.01.2016 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short the Act ), which is in terms of the directions issued by the Disputes Resolution Panel-1, Mumbai under section 144C(5) of the Act dated 28.12.2015. 2. In this appeal, assessee has raised the following Grounds of appeal: I. Ground on jurisdiction 1. On the facts and in the circumstances of the case and in law, the learned Assessing Officer ('AO') erred in passing the draft assessment order in the name of Federal Express India Private Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned AO be directed to reject Inmacs Management Services Limited from the set of comparable companies in relation to the IPB services provided by the Appellant. 5. On the facts and in the circumstances of the case and in law, the learned TPO / DRP erred in considering ICC International Agencies Limited as a comparable company in relation to the IPB services provided by the Appellant. It is prayed that the learned AO be directed to reject ICC International Agencies Limited from the set of comparable companies in relation to the IPB services provided by the Appellant. 6. On the facts and in the circumstances of the case and in law, the learned AO / TPO / DRP erred in not considering the correct margins of Indus Technical Financial Consultants Limited as submitted by the Appellant. It is prayed that the learned AO be directed to consider the correct margins of Indus Technical Financial Consultants Limited while arriving at the mean margin earned by comparable companies in relation to the IPB services provided by the Appellant. Notional Interest 7. On the facts and in the circumstances of the case and in law, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of high value packages at arm's length and accordingly, delete the transfer pricing adjustment of INR 4,94,545. 12. On the facts and in the circumstances of the case and in law, the learned TPO / DRP erred in considering PL Shipping Logistics India Ltd as a comparable company in relation to the co-ordination services provided in respect of high value packages. It is prayed that the learned AO be directed to reject PL Shipping Logistics India Ltd from the set of comparable companies in relation to the coordination services provided by the Appellant in respect of high value packages. 13. On the facts and circumstances of the case and in law, the learned TPO / DRP erred in considering South India Corporation Ltd as a comparable company in relation to the co-ordination services provided in respect of high value packages. It is prayed that the learned AO be directed to reject South India Corporation Ltd from the set of comparable companies in relation to the co-ordination services provided by the Appellant in respect of high value packages. IV. Credit of Advance Tax paid 14. The learned AO erred in not grantin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13,08,38,720/-, which was subsequently revised on 29.03.2013. The return was processed under Section 143(1) of the Act and subsequently it was taken up for scrutiny and a notice under Section 143(2) of the Act dated 21.09.2012 was issued in the name of FEIPL. As the assessee had entered into an international transaction within the meaning of Sec. 92B of the Act, the Assessing Officer also made a reference to the Transfer Pricing Officer (TPO) under Section 92CA(1) of the Act on 15.07.2013; thereafter, the TPO passed an order under Section 92CA(3) of the Act dated 30.01.2015 proposing various adjustments. Pertinently, a scheme of amalgamation was filed by FEIPL whereby it amalgamated into Federal Express Transportation Supply Chain Services (India) Pvt. Ltd. (in short FETSCS ). The said scheme of amalgamation was approved by the Hon'ble Bombay High Court vide order dated 05.07.2013 with retrospective effect from 01.04.2012; and, such merger was effective from 01.10.2013. As a consequence, FETSCS was the resultant amalgamated company and the amalgamating company, i.e. FEIPL, ceased to exist subsequent to the approval of scheme of amalgamation by the Hon'ble Bombay High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2012 was brought to the notice of the TPO as well as the Assessing Officer vide communications dated 28.01.2015 and 01.10.2013 respectively. At the time of hearing, a reference has been made to pages 49 to 50 and 125 of the Paper Book wherein is placed copies of the aforestated two communications. 9. As per the Learned Representative, by passing the transfer pricing order under Section 92CA(3) of the Act and the draft assessment order under Section 143(3) r.w.s. 144C(1) of the Act in the name of the erstwhile non-existent entity, the income-tax authorities have failed to adhere to the mandated assessment procedures laid down under the Act and, therefore, the subsequent assessment is invalid, being bad in law. It has been pointed out that there is a judicially accepted legal proposition that in case where the Assessing Officer has failed to comply with the assessment procedures laid down under the Act, the consequential assessment is to be construed as invalid in the eyes of law. In this context, the Learned Representative has referred to various instances, viz. service of notice under Section 143(2)(ii) of the Act beyond the statutory period; service of notice under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, such transfer pricing order has been passed in the name of erstwhile FEIPL, which was not in existence on the date of said order, having been amalgamated with FETSCS. Therefore, FEIPL cannot be viewed as an eligible assessee as understood for the purposes of Sec. 144C(15)(b) of the Act since on the date of draft assessment order it did not exist. It was further pointed out that FEIPL ceased to be an Indian company as per Sec. 2(26) of the Act and consequently ceased to be a person for the purposes of Sec. 2(31) of the Act and accordingly, it cannot be construed as an entity envisaged and referred to in Sec. 144C(15)(b)(ii) of the Act. For the said reason, Sec. 144C(1) of the Act could not be made applicable in the absence of an eligible assessee and thus, the entire scheme of Sec. 144C of the Act fails. In this manner, it has been sought to be pointed out that there was a lack of jurisdiction on the part of the Assessing Officer in making a draft assessment order under Section 144C(1) of the Act in the name of FEIPL in the absence of an eligible assessee . 11. It has also been emphasised that passing of a valid draft assessment order is mandatory for the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion No. 5557 of 2012 (AP) 13. Both the aforesaid propositions have been adverted to with the object of emphasising that existence of a legally valid draft assessment order is a pre-requisite for commencement of further legally valid DRP and final assessment proceedings. 14. In the above background, the Learned Representative submitted that even though the final assessment order has been passed in the correct name, but as the draft assessment order was invalid, the final assessment order is lacking in jurisdiction, which is liable to be quashed. According to the Learned Representative, the proceedings which are a nullity at the very initiation suffer from a jurisdictional defect and such nullity could encompass the entire proceedings; and, the same is beyond the purview of Sec. 292B or 292BB of the Act. 15. On the other hand, the Ld. DR appearing for the Revenue reiterated the stand of the DRP that passing of draft assessment order in the name of FEIPL, the erstwhile amalgamating company, was only a procedural mistake. In this context, our attention was drawn to the judgment of the Hon'ble Delhi High Court in the case of Sky Light Hospitality LLP v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay High Court dated 05.07.2013 whereby the scheme of amalgamation was approved with retrospective effect from 01.04.2012 and the effective date of merger was 01.10.2013. At the time of amalgamation, the assessment proceedings for the instant assessment year were being carried out before the Assessing Officer in the case of FEIPL consequent to issuance of notice under Section 143(2) of the Act dated 21.09.2012. It is also notable from the record that vide communication dated 01.10.2013, a copy of which is placed at pages 49-50 of the Paper Book, the Assessing Officer was informed about the amalgamation of FEIPL with FETSCS. Similarly, vide communication dated 28.01.2015, a copy of which is placed at page 125 of the Paper Book, the TPO was also informed about the amalgamation. Nevertheless, inspite of the aforesaid communications, the TPO passed the order under Section 92CA(3) of the Act dated 30.01.2015 and the Assessing Officer also passed the draft assessment order under Section 143(3) r.w.s. 144C(1) of the Act on 03.03.2015 in the name of FEIPL, the erstwhile amalgamating company. Thus, factually speaking, on the date of passing of the order by the TPO as well as the draft ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer. If the assessee opts for filing objections before the DRP, the DRP hears such assessee and gives directions to the Assessing Officer for completion of assessment. Thereafter, the Assessing Officer passes a final assessment order within the period prescribed. If the assessee chooses to accept such draft assessment order or fails to communicate the Assessing Officer within one month, the Assessing Officer shall pass the final assessment order within the period prescribed therein. As a perusal of Sec. 144C(1) of the Act shows, the Assessing Officer is required to forward the draft of the proposed order of assessment only to an eligible assessee , and not to every assessee under the Act. The meaning of the expression eligible assessee can be found in clause (b) to sub-section 15 of Sec. 144C of the Act, which reads as under :- (15) For the purposes of this section, - (a) .. (b) eligible assessee means, - (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (ii) any for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stood as an eligible assessee in the eyes of law under Section 144C(15)(b)(i) of the Act; and, in any case, on the date of passing of order by the TPO, the existing entity was FETSCS, but it is nobody s case that the TPO has passed any order in the name of FETSCS proposing any variation in the returned income. Therefore, in this background, it has to be inferred that in the absence of an eligible assessee as understood for the purposes of Sec. 144C(15)(b)(i) of the Act, no draft of the proposed order of assessment could have been passed by the Assessing Officer under Section 144C(1) of the Act, much less in the name of FEIPL. Therefore, the draft assessment order passed in the present case in the name of erstwhile FEIPL is invalid in the eyes of law. 20. The next question which we are required to examine now is as to whether a valid draft assessment order is mandatory to assume jurisdiction under Section 144C of the Act. In other words, it would be appropriate to examine as to whether an invalid draft assessment order, as noted above in the earlier paras, can be construed as a jurisdictional defect meaning thereby that the same is incurable thereby making the subseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the draft assessment order, it is only the assessee who has been given a right to object. Hence, such a right must arise from a legally sustainable valid draft order. If under the provisions of the Act an authority is required to exercise power or to do an act in a particular manner, then that power has to be exercised and the act has to be performed in that manner alone and not in any other manner, a proposition which is fortified by the judgment of the Hon'ble Allahabad High Court in the case of Dr. Shashi Kant Garg vs CIT (2006) 285 ITR 158. In other words, the existence of a legally valid draft order becomes the premise or foundation for the commencement of a legally valid DRP proceedings and consequently, a legally valid final assessment order as per Sec. 143(3) r.w.s. 144C(13) of the Act. In view of the above, we hold that it is mandatory for the Assessing Officer to pass a legally valid draft assessment order and without the same, he cannot assume jurisdiction to proceed with the assessment under Section 144C of the Act. 22. Our above understanding stands fortified by the judgment of the Hon'ble Bombay High Court in the case of International Air Transpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. We note that, it is an undisputed position before us, that the petitioner is a Foreign Company and an eligible assessee as defined in Section 144C(15)(b)(ii) of the Act. It has been held by this Court in International Air Transport Association (supra) that a Foreign Company is entitled to being assessed in accordance with Section 144C of the Act. It is the above Section 144C of the Act, which provides a separate scheme for the manner in which the Assessing Officer would pass assessment orders under the Act and a separate procedure to challenge an draft order i.e. before an assessment order which is subject to appeal under the Act is passed. The entire object is to ensure that the disputes of Foreign Companies are resolved expeditiously and final assessment orders are not passed without a re-look to the proposed order (draft order), if so desired by the Foreign Company. In essence, it obliges the Assessing Officer to first pass a draft of the proposed assessment order indicating the proposed variation in the income returned. This draft Assessment Order is to be passed under Section 144C(1) of the Act, which entitles an eligible assessee such as a Foreign Company to approac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said to be a valid draft assessment order in existence. It is for this reason we are inclined to uphold the stand of the assessee that all the subsequent proceedings post the invalid draft assessment order are illegal, bad in law and void ab initio. 25. We also derive support from the judgment of the Hon'ble Madras High Court in the case of Vijay Television (P.) Ltd. VS DRP (supra) and from the Hon'ble Andhra Pradesh High Court in the case of M/s. Zuari Cements Ltd. (supra) where a draft assessment order was required to be passed as per law but was not passed and hence the final assessment order was held to be without jurisdiction. Further, even in cases where a draft assessment order was passed but it was not so required to be passed in law, since the assessee was not an eligible assessee , the entire assessment proceedings thereafter have been held to be bad in law and liable to be quashed by the Hon'ble High Courts in the cases of Honda Cars India Ltd. vs DCIT, W.P (C) No. 4262 of 2015 (Del.), Pankaj Extrusion Ltd. vs ACIT, 198 Taxman 6 (Guj.) and ESPN Star Sports Mauritius S.N.C ET Compagnie vs. Union of India, W.P (C) No. 2384 2397 of 2015 (Del). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of hearing, the Ld. DR was specifically asked to point out any instance in the present case where the Department had correctly issued any notice, etc. in the name of the successor company before passing of the transfer pricing order by the TPO under Section 92CA(3) of the Act or the draft assessment order by the Assessing Officer. Nothing was brought on record by the Department in this regard and, therefore, in our view, the ratio of the judgment of the Hon'ble Delhi High Court in the case of Sky Light Hospitality LLP (supra) is not attracted to the facts of the present case. 28. In conclusion, to summarise, we hold that since the Transfer Pricing order under Section 92CA(3) of the Act was passed in the name of the amalgamating company, FEIPL, which was not an eligible assessee as per Sec. 144C(15)(b)(i) of the Act, the Assessing Officer did not have any jurisdiction under Section 144C(1) of the Act to pass a draft assessment order. Furthermore, the draft assessment order was also passed in the name of the amalgamating company, FEIPL which was a non-existent entity in the eyes of law on the date of passing of such order; thus, the draft assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the previous year preceding the year of succession, shall be made in the like manner and to the same extent as it would have been made on the predecessor and all the provisions of this Act shall, so far as may be, apply accordingly. Thus, Section 170(2) of the Act has clearly laid down the requirement of making an assessment on the successor in respect of the predecessor's income, in the like manner and to the same extent as it would have been made on the predecessor, and all the provisions of this Act shall, so far as may be, apply accordingly. This position has also been upheld by the Hon'ble Delhi High Court in the case of CIT vs. Dimension Apparels Pvt. Ltd. (ITA No. 327-329 330, 332 of 2014) and also by our co-ordinate bench at Kolkata in the case of Pampasar Distillery Ltd. vs. ACIT (2007) 15 SOT 331 (Kol). 32. Accordingly, in the present case, as on the date of passing of the draft assessment order, the amalgamating company, FEIPL had amalgamated with and into FETSCS, the amalgamated company. Thus, on the date of such order, the amalgamating company could not be found/was not in existence. Accordingly, we are of the view that as per provisions of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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