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2016 (1) TMI 892 - ITAT BANGALORE

2016 (1) TMI 892 - ITAT BANGALORE - TMI - Validity of assessment and jurisdiction - non-existent entity consequent to the order of merger - Held that:- The proceedings have been continued in the name of ‘GE’ rather than, as was warranted, in the name of ‘Wipro’ even after the appointed date of 1.4.2012 rendered by both the Hon'ble High Courts of Karnataka and Delhi. We find that the draft order of assessment was passed on 28.2.2014 after the last hearing took place in both the Hon'ble High Court .....

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on a non-existent entity is a nullity and invalid. Applying these principles to the case on hand, we hold that the impugned final order of assessment for Assessment Year 2010-11 dt.30.12.2014 passed in the name of ‘GE’ is null and void and the assessment is therefore held to be invalid and accordingly cancelled as the same has been passed after the appointed date 1.4.2012 on a non-existent entity. - Decided in favour of assessee. - I.T.(T.P.) A. No.328/Bang/2015, I.T.(T.P.) A. No.224/Bang/2015 .....

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ispute Resolution Panel ( DRP ) Under Section 144C(5) of the Act. 2. The facts of the case, briefly, are as under :- 2.1 The assessee company is engaged in the manufacture and selling of Medical Equipment, undertakes engineering related services worldwide and renders software development services and IT Enabled services to its group companies. For Assessment Year 2010-11, the assessee filed its return of income on 4.10.2010 declaring income of ₹ 61,30,89,140. The return of income was proce .....

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three segments, namely (i) Contract manufacturing, (ii) Software development services and (iii) Engineering Support Services and ITES. The TPO then undertook his own T.P. Study and after obtaining the assessee's submissions in the matter passed an order under Section 92CA of the Act dt.30.1.2014 wherein the T.P. Adjustments proposed were as under :- S.No. Particulars Amount Rs. 1. Software development services 4,40,47,940 2. IT Enabled Services 13,81,98,347 3. Contract Manufacturing 64,90,07 .....

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1.2014 and under Section 154 r.w.s. 144C(5) of the Act on 28.11.2014 and under Section 154 r.w.s. 144C(5) of the Act dt.16.12.2014. In pursuance thereof, the Assessing Officer completed the final order of assessment for Assessment Year 2010-11 under Section 143(3) rws 144C(13) of the Act vide order dt.30.12.2014 wherein the income of the assessee was determined at ₹ 129,48,856 which included T.P. Adjustment of ₹ 68,67,29,714. 3. Both Revenue and the assessee are aggrieved by the impu .....

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total income computed and the total tax computed is hereby disputed. VALIDITY OF ASSESSMENT/JURISDICTION 3. The authorities below erred in framing an assessment against the appellant company which ceased to exist, consequent to the order of merger dated: 24.07.2013 of Karnataka High Court effective from 01.04.2012. Thus, the authorities erred in making an order of assessment against a non-existent entity on the date of assessment. 4. The authorities below ought to have appreciated that the succ .....

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s and directions of Dispute Resolution Panel (DRP) u/s 144C are a bundle of contradictions and clearly unsustainable in law requires to be rejected. Consequently the addition based on such directions requires to be deleted. 7. The DRP erred in not considering the relevant materials, evidences and data and the directions issued are without application of mind. 8. That the order of the DRP and the directions given therein are bad in law and not as per law requires to be cancelled. 9. That the AO/T .....

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r and the directions of DRP. Sl.No Description Amount 1 Arm s Length Price difference in Software services ₹ 2,65,22,495/- 2 Arm s Length Price difference in the Contract Manufacturing ₹ 64,90,07,221/- Total adjustment U/s 92CA ₹ 67,55,29,716/- 12. The AO erred in wrongly adopting the adjustment u/s 92CA at ₹ 68,17,29,716/- as against the actual amount of ₹ 67,55,29,716/-. 13. The AO/TPO/DRP erred in making adjustment of ₹ 2,65,22,495/- towards the Software Se .....

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6. The AO/TPO failed to follow/giving effect to the directions of the DRP. 17. The AO/DRP erred in upholding the TPO s contention of adopting CPM as the most appropriate method for bench marking the contract manufacturing segment. 18. The AO/DRP erred in not following the orders of the CIT(A) and DRP for earlier years in the appellant s own case on similar issue, when the facts being the same for this year. 19. The AO/TPO/DRP erred in not carrying out the adjustments sought by the assessee. 20. .....

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ns recorded for making the reference to the TPO has been furnished nor copy of the approval obtained for making the reference has been furnished to the appellant. 23. The TPO erred in ignoring the fact that before making an adjustment neither a comparable transaction entered into has been identified nor the enterprise which has entered into such a transaction has been identified. Unless these two are identified as explained in Rule 10B(2) no further proceedings are possible. In this case, in vie .....

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by the Supreme Court in 131 ITR 597 and further has erred in not relying on the circular. 26. The Learned AO/TPO/DRP have failed to identify comparables in terms of Rule 10B(3). 27. The Learned AO/TPO/DRP failed to make the necessary adjustments as is required in terms of Rule 10B(2). 28. The AO/TPO/DRP erred in not granting the variances deduction of 5% envisaged in the Act and Circular. 29. No opportunity was given to the assessee before making the reference and before according the approval .....

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rity the appellant begs for consequential relief in the levy of interest u/s 234B and 234C. 33. The appellant denies liability for interest u/s 234B on the adjustment made u/s 92CA of the Act and relies on the decision of the Supreme Court in the case of CIT v Kwality Biscuits Ltd reported in 284 ITR 434. 34. The appellant denies the liability for interest u/s 234D of the Act. No opportunity has been given before the levy of interest u/s 234D of the Act. 35. With prior permission of the ITAT, th .....

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s per the actual figures worked out by the assessee without putting any cap without appreciating the fact that the TPO had put a cap as the average cost of working capital of the comparables selected by the TPO was 1.71%. 3. The DRP erred in directing the exclusion of Infosys Ltd., ICRA Online, Acropetal Technologies, Eclerx Services Ltd., Nittany outsourcing Services Limited, KALS Information Systems, Persistant Systems and R S Softwre as comparables without appreciating the fact that the TPO h .....

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. Specific FAR analysis. 6. Whether the Hon'ble DRP instead of relying on decision of other benches of ITAT, ought to have decided the comparability of these companies on the basis of specific facts brought on record by the TPO in the case of the assessee. 7. The DRP erred in directing the Assessing Officer to follow the ratio of the Hon'ble Court in the case of Tata Elxsi Ltd 349 ITR 98 and exclude ₹ 57,93,554 being the expenses incurred in foreign exchange on travel and ₹ 1 .....

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sdictional High Court s decision in the case of Tata Elxsi Ltd. 349 ITR 98 has not been accepted by the department and an appeal has been filed before the Hon'ble Supreme Court. 9. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the DRP be reversed and that of the Assessing Officer be restored. 10. The appellant craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of the .....

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ised Representative, that the order of assessment for Assessment Year 2010-11 passed under Section 143(3) rws 144C(13) of the Act vide order dt.30.12.2014 has been passed by the Assessing Officer in respect of a non-existent entity in the name of GE Medical Systems Pvt. Ltd. ( GE ). 4.1.2 The learned Authorised Representative submitted that the facts in support of the above contentions are that GE merged with Wipro GE Healthcare Pt. Ltd. ( Wipro ) w.e.f. the appointed date of 1.4.2012. The order .....

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ng proceedings is dealt with in para 7(i) of the Scheme which is extracted hereunder :- LEGAL PROCEEDINGS. 7(i). If any suit, appeal or any other proceedings of whatsoever nature (hereinafter called Proceedings ) by or against the Transferor Companies is pending, the same shall not abate, be discontinued or in any way be prejudicially affected by reason of the transfer of the undertaking of the transferor Companies or anything contained in this Scheme; but the proceedings may be continued, prose .....

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rosecuted and enforced by or against the transferor company. 4.1.3 The learned Authorised Representative submitted that the facts in the case on hand were that, GE filed the return of income for Assessment Year 2010-11 on 4.10.2010, after which the case was taken up for scrutiny by issue of notice under Section 143(2) of the Act dt.29.8.2011 which was duly served on the assessee. Subsequently, the Assessing Officer made a reference to the TPO for determining the ALP of the international transact .....

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of the Assessing Officer the fact of merger, but, however, the Assessing Officer without taking cognizance of the fact of merger passed the draft order of assessment on 28.2.2014 in the name of GE the transferor company rather than Wipro the transferee company. It is submitted that thereafter, even though the assessee filed its objections in respect of the draft order of assessment before the DRP in Form No.35A in the name of Wipro GE Healthcare Pvt. Ltd. ( Wipro ), the DRP proceeded to issue it .....

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the day the final order of assessment under Section 143(3) rws 144C of the Act was made, i.e. on 30.12.2014, GE had already ceased to exist as a corporate entity and therefore the said order of assessment passed on a non-existent entity would be a nullity and invalid in the eyes of law. In support of this contention, the learned Authorised Representative placed reliance on the following judicial pronouncements - i) Impsat (P) Ltd. V ITO (91 ITD 354) (Del) ii) Hewlett Packard India Pvt. Ltd. in I .....

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file a certified copy of the Court s Order with the Registrar of Companies, Karnataka. Since the regd. Office of H.P. India was at Delhi a petition u/s.391 to 394 of the Companies Act was also filed before the Hon'ble Delhi High Court for sanction of the scheme. The Hon'ble Delhi High Court by its order dt.12.2.2004 sanctioned the scheme of amalgamation. Thus consequent to the orders of the Hon'ble High Court and the scheme of amalgamation H.P. India stood dissolved with effect from .....

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t in existence. The Assessing Officer however, considered this claim of the assessee and proceeded to frame the order of assessment. 7…… 8….. 9…… 10…… 11…. 12. In view of the legal position as laid down in the aforesaid decisions, it is clear tha the assessment made in the present case in the name of HP India after the date of its dissolution is not valid. The fact that this company filed a return of income is not of any consequence. The or .....

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ant material on record. the facts of the case and also the various case laws relied upon by the ld AR. we find that thc assessments in this case are void abinitio because the company on which the assessments for these two years were completed were not in existence at the time of passing the assessment on 26.3.2002. The AO was duly informed by the assessee regarding the amalgamation with MIL. Copy of intimation dated 24.4.2001 and 20.2.2002 are placed at pages 195, 196 & 244 of the paper book .....

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ty as it ceases to have its business. However, their respective rights and liabilities are determined under the scheme of amalgamation but the corporate entity of the transferor company ceases to exist w.e.f. date of amalgamation is made effective. In the view of the above discussed we agree with the Tribunal s view that amalgamating company ceased to exist in the eye of the law. 28….. 29….. 30…. 31….. 32….. 33. The Supreme Court in the case of Marshall Sons &a .....

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e company was amalgamated w.c.f 1.4.2000 and the assessments were completed on 26.3.2002 which was after the date of amalgamation of the assessee into MIL, therefore, the assessments completed on non existence entity, in our considered view voi ab-initio. Accordingly we hold that the assessments for these years were invalid, therefore, they are quashed. 4.1.5 The learned Authorised Representative submits that the above orders, placed reliance upon, have been passed after considering and followin .....

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tra, the learned Departmental Representative for Revenue submitted that the appointed date of 1.4.2012 was after the end of the Assessment Year 2010-11 and consequently, the decisions relied on by the learned Authorised Representative would not be applicable to a year prior to the appointed date. It was contended that even if the impugned order of assessment was made on a non-existent entity, the mistake, if any, is only procedural and not fatal and therefore the same was curable under Section 2 .....

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ed Departmental Representative further submitted that the objections raised by the assessee on the issue of validity of assessment / jurisdiction was frivolous and not tenable and in this regard relied on the provisions of section 170(2) of the Act. It was accordingly prayed by the learned Departmental Representative that the grounds raised by the assessee on the issue of validity of assessment / jurisdiction be rejected. 4.3.1 In his rejoinder, the learned Authorised Representative for the asse .....

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at the assessment made upon it may be held to be valid. This raises the question whether the assessee can consent to the AO making an assessment upon it, though there is no provision in the IT Act to do so. In Asit Kumar Ghose vs. Commr. of Agrl. IT (1952) 22 ITR 177 (Cal), the Calcutta High Court held that should an assessee file return or intervene in an assessment proceeding pending against an executor of an estate under the impression that he is liable to be charged as beneficiary of the est .....

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303 (Del), the Hon ble Delhi High Court held, where the assessee itself included the dividend in his return but later challenged the assessment of the same in the year in question, then it must be taken that the assessee had resiled from the position which it had wrongly taken while filing the return. In the light of these authorities, the conduct of the assessee before us in filing the return of income and in participating in the proceedings for assessment does not confer jurisdiction upon the .....

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a 3 of the Scheme of Amalgamation / Merger. 3. TRANSFER OF UNDERTAKINGS The whole of the Undertakings of the Transferor Companies, whether moveable or immovable, real or personal, corporeal or incorporeal, present or contingent, including but without being limited to all assets, fixed assets, work in progress, current assets, investments, reserves, provisions, funds, quota rights, import quotas, licenses, registrations, patents, trade name, trademarks and other industrial rights and licenses in .....

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ction 394(2) of the Act, without any further act or deed, be transferred to and vested in or be deemed to be transferred to and vested in the Transferee Company as a going concern, with effect from the Appointed Date, in the following manner: (a) With effect from the Appointed Date, the whole of the Undertakings as aforesaid of the Transferor Companies, except for the portions specified in sub - clause (b) and (c) below, of whatsoever nature and wheresoever situated and incapable of passing by m .....

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ivery shall be so delivered or endorsed and delivered, as the case may be, to the Transferee Company to the end and intent that the property therein passes to the Transferee Company, on such delivery or endorsement and delivery, pursuant to the provisions of Section 394(2) of the Act without requiring any deed or instrument of conveyance for transfer of the same, subject to the provisions of the Scheme. Such delivery and transfer shall be made on a date mutually agreed upon between the respectiv .....

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ll, to the extent possible, be followed…. 4.3.3 The learned Authorised Representative submitted that consequent to the vesting of such assets/liabilities, the corporate entity GE ceased to exist. It was also submitted with regard to the learned Departmental Representative relying on section 170(2) of the Act, that this aspect has also been looked into and considered by the ITAT, Delhi in the case of Hewlett Packard India Pvt. Ltd. (supra). The learned Authorised Representative contended t .....

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; 4 go to the very root of the matter and are therefore to be considered at the outset. We have perused the order of the Hon'ble High Court of Karnataka approving the scheme of amalgamation / merger of GE and Wipro and also that of the Hon'ble High Court of Delhi in this regard. Both the Hon'ble High Courts in their orders have confirmed 1.4.2012 as the appointed date and therefore the legal effects of these orders are w.e.f. 1.4.2012; the appointed date. The legal consequences are l .....

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