2025 (5) TMI 321 - AT - Income Tax

Validity of order passed u/s 143(3) r.w.s.144C(3) as passed beyond the period of limitation provided u/s 153 - DR has contested to make out a case that since it is a case of amalgamation of Legrand into Novateur ultimately the onus is on Novateur only and therefore has no bearing even if a combined order has been passed by the TPO HELD THAT - TP order dated 12.01.2015 passed in the case of Legrand had merged into the final assessment order dated 20.04.2015 passed in the case of Legrand itself for Assessment Year 2011-12. Moreover CIT(A) in the case of Legrand has quashed the final assessment order on the ground that the same has been passed in the name of non-existent entity. Thus when the aforesaid TP order which got merged into the final assessment order of Legrand which has been quashed it has no legality on its standalone basis and cannot be referred into the proceedings of Novateur for the purpose of passing draft assessment order and thereafter the final assessment order. Accordingly the extended time limit of 12 months cannot be made available for passing the final assessment order in the case of Novateur i.e. the assessee. We thus find that the final assessment order ought to have been passed on or before 31.03.2015 which in fact has been passed on 12.05.2015 and is thus beyond the period of limitation liable to be quashed. We hold that the impugned order passed u/s.143(3) r.w.s. 144C dated 12.05.2015 is barred by limitation as it ought to have been passed on or before 31.03.2015. Thus assessee succeeds on ground No.1 contesting on the validity of final assessment order.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the final assessment order dated 12.05.2015 passed under section 143(3) read with section 144C(3) of the Income-tax Act, 1961 (the Act) is valid, given that it was passed beyond the period of limitation prescribed under section 153 of the Act;

(b) Whether the transfer pricing (TP) order dated 12.01.2015, which was a combined order for two separate legal entities with distinct PANs, could be validly relied upon for passing the final assessment order against the appellant;

(c) Whether Explanation 1(i) to section 153 of the Act, which allows extended limitation periods in cases of reopening or rehearing due to change of incumbent of office, applies in the present case involving change of jurisdiction due to cadre restructuring;

(d) Whether depreciation on goodwill amounting to Rs.81,30,26,569/- claimed by the appellant is allowable, considering the acquisition of the switchgear division was through slump sale and not amalgamation;

(e) Whether the provisions of the 6th proviso to section 32 and explanation 7 to section 43(1), which apply to amalgamation, can be invoked to deny depreciation on goodwill acquired through slump sale;

(f) Whether the reliance on judicial precedents disallowing depreciation on goodwill is appropriate given the differing facts in the appellant's case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a), (b), and (c): Validity of Final Assessment Order and Applicability of Limitation Periods

Relevant legal framework and precedents: Section 143(3) read with section 144C(3) governs the passing of assessment orders following transfer pricing proceedings. Section 153 prescribes limitation periods for passing assessment orders, including extended periods where references to the Transfer Pricing Officer (TPO) are involved. Explanation 1(i) to section 153 excludes certain periods from limitation calculation, particularly where there is reopening or rehearing under section 129, which deals with change of incumbent of an office. Section 127 governs change of jurisdiction.

The Tribunal relied on the decision of the Hon'ble Delhi High Court in Shibani Dutta v. CIT(A), which clarified that Explanation 1(i) to section 153 applies only to change of incumbent within the same jurisdiction (section 129) and not to change of jurisdiction (section 127). The extended limitation period is available only if the assessee demands a rehearing under section 129.

Court's interpretation and reasoning: The Tribunal observed that the final assessment order was passed on 12.05.2015, beyond the limitation date of 31.03.2015 applicable where no TP variation arises. The TP order dated 12.01.2015 was a combined order covering two separate legal entities-Legrand and the appellant-with distinct PANs. The only TP adjustment of Rs.6,65,357/- pertained to Legrand's international transactions and not to those of the appellant. The appellant had no separate TP order or adjustment. The CIT(A) had deleted the addition made in respect of Legrand, and the Department did not appeal against that deletion.

Since no variation arose for the appellant, it did not qualify as an "eligible assessee" under section 144C(15)(b)(i), which requires variation arising from TPO's order. Therefore, the procedure for issuance of draft and final assessment orders under section 144C was not applicable to the appellant.

The Tribunal rejected the Department's contention that Explanation 1(i) to section 153 applied due to cadre restructuring and change of jurisdiction, holding that the case involved change of jurisdiction under section 127, not change of incumbent under section 129. The appellant did not request any rehearing, so the extended limitation period was not available.

Further, since the TP order relied upon was merged into the final assessment order passed for Legrand, which was quashed by the CIT(A) for being passed in the name of a non-existent entity, it had no independent legal validity for use against the appellant.

Key evidence and findings: The appellant and Legrand filed separate returns and underwent separate scrutiny assessments for AY 2011-12. The TPO passed a single order referencing Legrand's PAN but mentioning the appellant's former names. No separate TPO order was passed for the appellant. The CIT(A) deleted the TP adjustment for Legrand, and the Department did not appeal. The final assessment order for the appellant was passed after the limitation period applicable in absence of TP variation.

Application of law to facts: The Tribunal applied the statutory limitation provisions strictly, emphasizing that the extended limitation under Explanation 1(i) to section 153 is contingent upon change of incumbent and demand for rehearing, neither of which existed. The absence of TP variation for the appellant meant the extended limitation period under section 144C did not apply, and the final assessment order passed beyond the prescribed time was barred by limitation.

Treatment of competing arguments: The Department argued for applicability of extended limitation due to cadre restructuring and amalgamation, contending that the appellant was liable for TP adjustments made for Legrand. The Tribunal rejected this, noting the effective date of amalgamation was after the year under consideration, and that separate assessment proceedings and references to TPO existed for both entities. The Tribunal held that the statutory procedure under section 144C could not be circumvented by referencing a combined TP order covering different entities.

Conclusions: The final assessment order dated 12.05.2015 is barred by limitation and hence invalid. The appellant is not an eligible assessee under section 144C(15) as no variation arose from TPO's order in its case. Explanation 1(i) to section 153 does not apply as there was no change of incumbent or rehearing demand. The combined TP order for two legal entities cannot be used to extend limitation or validate the assessment order against the appellant.

Issue (d), (e), and (f): Allowability of Depreciation on Goodwill

Relevant legal framework and precedents: Section 32 of the Act allows depreciation on intangible assets including goodwill. The 6th proviso to section 32 and explanation 7 to section 43(1) relate to assets acquired under a scheme of amalgamation and restrict depreciation claims on goodwill in such cases. Judicial precedents disallowing depreciation on goodwill often arise in the context of amalgamation or where goodwill is internally generated.

Court's interpretation and reasoning: The appellant claimed depreciation on goodwill arising from acquisition of the switchgear division of Indo Asian Fusegear Ltd. (IAFL) through a slump sale, not amalgamation. The CIT(A) disallowed depreciation relying on provisions applicable to amalgamation and judicial precedents. The appellant argued that since the acquisition was by slump sale, these provisions and precedents do not apply.

The Tribunal noted the factual distinction that the switchgear division was acquired by slump sale on 22.07.2010, with effective business transfer date 09.09.2010, and not under a scheme of amalgamation. The amalgamation of Legrand with the appellant was effective from 01.04.2011, i.e., subsequent to the year under consideration. Therefore, the provisions and judicial precedents relating to amalgamation were not applicable to deny depreciation on goodwill in the appellant's case.

Key evidence and findings: The valuation report accepted by the CIT(A) recognized goodwill as an intangible asset eligible for depreciation. The appellant's acquisition was through slump sale, supported by the business transfer agreement. The CIT(A) proceeded on a factually incorrect basis treating the acquisition as amalgamation.

Application of law to facts: The Tribunal emphasized that slump sale and amalgamation are distinct modes of acquisition with different legal consequences. The statutory provisions invoked to deny depreciation on goodwill apply specifically to amalgamation. Since the appellant's acquisition was not by amalgamation, depreciation on goodwill should be allowable under section 32.

Treatment of competing arguments: The Department relied on amalgamation provisions and precedents to deny depreciation. The appellant distinguished these on facts, supported by valuation evidence and the nature of acquisition. The Tribunal found the appellant's arguments factually and legally sound.

Conclusions: Although the Tribunal did not adjudicate this ground on merits due to the quashing of the assessment order on limitation grounds, it indicated that the appellant's claim for depreciation on goodwill arising from slump sale acquisition is prima facie sustainable and the denial based on amalgamation provisions is misplaced.

3. SIGNIFICANT HOLDINGS

"Once there is no variation arising as a consequence of the order of TPO, the draft assessment order could not have been passed."

"Explanation 1 to section 153 of the Act applies in a case where an opportunity to rehear is demanded by the assessee pursuant to succession of one Income-tax authority by another u/s.129 of the Act. In the present case, it is a case of change of jurisdiction and not a change of incumbent and therefore Explanation 1(i) to section 153 is not applicable."

"The transfer pricing order passed with the PAN of Legrand, which was amalgamated into the appellant subsequently, has no legal validity on its standalone basis and cannot be referred to for passing the draft and final assessment orders in the appellant's case."

"The final assessment order dated 12.05.2015 is barred by limitation as it ought to have been passed on or before 31.03.2015."

"The statutory procedure mandated in section 144C cannot be bypassed by merely mentioning the name of the appellant as the amalgamated entity with its former name and the name of amalgamating company."

"The appellant's acquisition of the switchgear division by slump sale is distinct from amalgamation, and therefore the provisions restricting depreciation on goodwill in amalgamation cases are not applicable."

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