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TMI Blog2019 (6) TMI 1404X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer and the learned DRP erred in making an adhoc disallowance of 5% of the total staff welfare expenses, aggregating to Rs. 4,79,537/-, incurred by the Appellant. Having regard to the facts and circumstances of the case, the Appellant submits that the disallowance is unwarranted and requires to be deleted. 2. The Assessing Officer and the learned DRP erred in disallowing commission payments, aggregating to Rs. 1,62,05,703/- on the ground that confirmations had not been filed by the Appellant before the Assessing Officer and that the confirmations filed before the DRP were not relevant or material. Having regard to the facts and circumstances of the case, the Appellant submits that the commission paid he allowed as a deduction as claimed by the Appellant in its Return of Income. 3. The Assessing Officer erred in observing that the process of amalgamation of the Appellant Company with Tech Pacific (India) Ltd. was not completed and in holding that the Appellant Company had not filed its returns of income for Assessment Year 2006-07 onwards. 4. The Assessing Officer erred in not granting credit for tax deducted at source aggregating to Rs. 15,34,052/-, without assigning an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal. As the aforesaid additional ground of appeal raised by the assessee involves purely a question of law based on the facts available on record, therefore, the same pursuant to the judgement of the Hon'ble Supreme Court in the case of National Thermal Power Company Ltd. Vs. CIT (1996) 229 ITR 383 (SC) is admitted. 3. Briefly stated, the assessee viz. M/s Ingram Micro India Pvt. Ltd. (hereinafter referred to as "IMIPL‟) was during the year under consideration engaged in trading of computer software and computer peripherals both domestically and abroad. The assessee had filed its return of income on 30.06.2006, declaring its total income at Rs. 15,68,26,750/-. Subsequently, as per the scheme of amalgamation sanctioned by the Hon‟ble High Court‟s of Bombay and Karnataka, the assessee company was amalgamated into Tech Pacific (India) Limited w.e.f 01.01.2005. Thereafter, the assessee filed a revised return of income for a period of 9 months ended 31.12.2004 on 14.10.2008, declaring its total income at Rs. 12,36,75,606/-. 4. Search and seizure/survey action under Sec. 132/133A were carried out at the business premises of the assessee on 06.09.2007. As is dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taff welfare and other welfare expenses of Rs. 9,59,074/-; and (ii) disallowance of commission expenditure of Rs. 2,25,96,858/-. Accordingly, the A.O after making the aforesaid disallowance proposed to assess the income of the assessee company at Rs. 15,63,35,670/-. 7. The assessee being aggrieved with the aforesaid disallowances proposed by the A.O, vide his draft assessment order, therein filed objections before the DRP. As regards the adhoc disallowance of Rs. 9,59,074/- i.e 10% of the aggregate staff welfare expenses, as was proposed by the A.O, it was observed by the DRP, that the A.O had sought to carry out the said disallowance because the assessee could not support the same on the basis of any documentary evidence. In the backdrop of the fact, that the A.O had failed to place on record sufficient material which would justify disallowance of 10% of the total staff welfare expenses, the DRP followed the view taken by the CIT(A) in the assesses own case for the preceding years and directed the A.O to restrict the disallowance to 5% of the total staff welfare expenses. Insofar, the disallowance of commission expenditure of Rs. 2,25,96,858/- was concerned, it was observed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome at Rs. 14,03,60,850/-. 9. The assessee being aggrieved with the order passed by the A.O has carried the matter in appeal before us. The ld Authorized Representative (for short "A.R‟) for the assessee, at the very outset of the hearing of the appeal adverted to the "additional ground of appeal‟, wherein the assessee had assailed the validity of the assessment order passed by the A.O and also, the directions given by the DRP vide its order passed under Sec.144C(5), dated 23.09.2011. It was averred by the ld. A.R, that as the aforesaid order/directions were passed/given in the name of the assessee viz. M/s Ingram Micro India Pvt. Ltd., which was non-existent at the time of passing of the said respective orders, thus, the same being unsustainable in law were liable to be quashed on the said count itself. It was submitted by the ld. A.R, that based on the scheme of amalgamation sanctioned by the Hon‟ble High Court‟s of Bombay and Karnataka the assessee company viz. M/s Ingram Micro India Pvt. ltd. was amalgamated into M/s Tech Pacific (India) Ltd. w.e.f 01.01.2005. It was submitted by him that the Hon‟ble High Court of Bombay had, vide its order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of issuance of such directions. Further, the ld. A.R also took us through the submissions which were filed before the DRP, which revealed, that the fact pertaining to the scheme of amalgamation and also, the orders passed by the Hon‟ble High Court‟s of Mumbai and Karnataka were furnished with the A.O during the course of the assessment proceedings. In the backdrop of the aforesaid facts, it was averred by the ld. A.R, that as the assessment in the present case was framed on the dissolved/amalgamating company, therefore, the same was invalid and liable to be struck down on the said count itself. In support of his aforesaid contention the ld. A.R relied on certain judicial pronouncements viz. (i) CIT-III Vs. Dimension Apparels (P) Ltd. (2015) 370 ITR 288 (Del); and (ii) Spice Entertainment Limited Vs. Commissioner of Service Tax (ITA No. 475 & 476 of 2011, dated 03.08.2011) (Del). It was submitted by the ld. A.R, that in the aforementioned judicial pronouncements the Hon‟ble High Court‟s had observed, that an assessment framed in the hands of a dissolved/amalgamating company i.e a non-existent entity, being a jurisdictional defect could not be cured under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP to have drawn adverse inferences as regards the veracity of the said expenses and, disallow the same. In support of his aforesaid contention the ld. A.R relied on certain judicial pronouncements viz. (i) Mether & Platt (India) Ltd. Vs. CIT (1987) 168 ITR 493 (Cal); (ii) CIT Vs. M/s National Rayon Corporation Ltd. (1992) 193 ITR 744 (Bom); (iii) Swastic Textile Company Pvt. Ltd. VS. CIT (1984) 150 ITR 155 (Guj); and (iv) VIP Industries Ltd. Vs. IAC (1991) 36 ITD 70 (Bom) (TM). It was vehemently submitted by the ld. A.R that now when the DRP had accepted that the expenses incurred by the assessee towards commission paid was genuine and was incurred wholly and exclusively for the purpose of the business of the assessee, therefore, there was no reason for him to have disallowed any part of the said expenditure. 10. Per contra, the ld. Departmental Representative (for short "D.R‟) submitted, that no infirmity did emerge from the assessment order passed by the A.O. In fact, it was submitted by the ld. D.R, that the TPO while passing the order under Sec. 92CA(3), dated 26.10.2010, had correctly referred to the assessee viz. M/s Ingram Micro India Ltd. [formerly known as M/s Tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med in the hands of the amalgamating company i.e M/s Ingram Micro India Pvt. Ltd. 12. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and, the material available on record. Admittedly, as per the scheme of amalgamation filed before the Hon‟ble High Courts of Bombay and Karnataka, the assessee company viz. M/s Ingram Micro India Pvt. Ltd. was proposed to be amalgamated into Tech Pacific (India) Ltd. Subsequently, the Hon‟ble High Court of Bombay vide its order dated 10.03.2006, and the Hon‟ble High Court of Karnataka vide its order dated 24.09.2008 had approved the scheme of amalgamation, which as per the aforesaid orders was to be effective from 01.01.2005. Further, the scheme was filed with the registrar of company on 28.10.2008, and the same had became effective from the said date. On 13.05.2009 the amalgamated company viz. Tech Pacific (India) Ltd. had changed its name to Ingram Micro India Ltd. As is discernible from the orders of the lower authorities, we find, that the assessee had vide is letter dated 14.10.2008 submitted before the A.O, that the scheme of amalgamation of the assessee company v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pacific India Ltd.)", holding "PAN No. AABCT1296R", however, the A.O still chose to proceed with and frame the assessment in the hands of the amalgamating company viz. M/s Ingram Micro India Ld. (PAN No. AABCS9516P), wherein the latter as observed by us hereinabove was on the date of passing of the assessment order a non-existent entity. Accordingly, as observed by us hereinabove, the A.O in the case before us cannot claim that the fact that the assessee had amalgamated into Tech Pacific (India) Ltd. was not to his notice. 14. We shall now in the backdrop of the aforesaid facts dwell upon the validity of the assessment framed by the A.O in the hands of the amalgamating company viz. M/s Ingram Micro India Pvt. ltd., which as observed by us hereinabove, was non-existent on the date of framing of the assessment by the A.O. We find that the Hon'ble High Court of Delhi in the case of Spice Entertainment Ltd. Vs. Commissioner of Service Tax (ITA No. 475 & 476 of 2011, dated 03.08.2011) had after extensively deliberating on the aspect as regards the validity of an assessment framed upon the amalgamating/dissolved company, had observed, that on amalgamation, the amalgamating company ceas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after. Generally, where only one Company is involved in change and the rights of the share holders and creditors are varied, it amounts to reconstruction or reorganisation or scheme of arrangement. In amalgamation two or more companies are fused into one by merger or by taking over by another. Reconstruction or amalgamation has no precise legal meaning. The amalgamation is a blending of two or more existing undertakings into one undertaking, the share holders of each blending Company become substantially the share holders in the Company which is to car ry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new Company, or by the transfer of one or more undertakings to an existing Company. Strictly amalgamation does not cover the mere acquisition by a Company of the share capital of other Company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See Halsburys Laws of England 4th Edition Vol. 7 Para 1539. Two companies may join to form a new Company, but there may be absorption or blending of one by the other, both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rating on the validity of a notice issued under Sec. 148 in respect of a non-existing entity and the assessment order framed consequent to the said notice, held that both were without jurisdiction. Apart there from, we find that a similar view had also been taken by the ITAT, Mumbai in certain orders viz. (i) Siemens Technology Services Pvt. Ltd. Vs. ACIT, Mumbai (ITA No. 6313/Mum/2012, dated 16.11.2016); (ii) M/s Instant Holdings Ltd. Vs. ACIT, Circle-6 (1), Mumbai (ITA No. 4593/Mum/2011, dated 09.03.2016); and (iii) M/s West Life Development Ltd. Vs. Pr. Commissioner of Income Tax-5, Mumbai (ITA No. 688/Mum/2016, dated 15.06.2016). In the aforementioned cases, the Tribunal had observed that the assessment in the name of a company which had been amalgamated with the other company would be null and void. 16. We thus in the backdrop of our aforesaid deliberations and, respectfully following the aforesaid judicial pronouncements are of the considered view, that as the assessee in the case before us viz. M/s Ingram Micro India Pvt. ltd., based on the scheme of amalgamation sanctioned by the Hon‟ble High Courts of Bombay and Karnataka, was amalgamated into Tech Pacific (India) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance of staff welfare expenses to 5% of the total expenses booked under the said head of expense. As regards the disallowance of the entire commission expenditure that was proposed by the A.O, the DRP observed viz. (i) that, the commission expenditure was incurred by the assessee wholly and exclusively for the purpose of its business, which was dictated by the business needs and was allowable as deduction in principle; (ii) that, the fact that the assessee had deducted tax at source on the aforesaid commission payments substantiated the genuineness of the said expenditure; (iii) that, the commission paid by the assessee was not high in relation to the sales made during the year; (iv) that, the names and addresses of the parties to whom commission was claimed by the assessee to have been paid was furnished with the A.O; and (v) that, the details along with the PAN Numbers of the parties to whom commission in excess of Rs. 1 lac was paid was furnished by the assessee in the course of the DRP proceedings. Accordingly, in the totality of the facts and the circumstances of the case, it was observed by the DRP, that there was no scope to make any adhoc disallowance of the commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the details of the expenses whose genuineness were being doubted by the A.O is also not discernible from the assessment order. In our considered view, the disallowance that was proposed by the A.O in his draft assessment order passed Sec.153A/143(3) r.w.s 144C(1), dated 30.12.2010 is also not supported by any cogent reasoning which could persuade us to accept the same. In case, the A.O was not satisfied with the veracity of the aforesaid expenses, then he remained under a statutory obligation to have called upon the assessee to place on record the necessary supporting documentary evidence, which we find was never done by him. Apart there from, we find that the A.O has not even pointed out the details of the expenses which the assessee had failed to furnish with him. Further, the DRP loosing sight of the fact that the aforesaid adhoc disallowance of expense proposed by the A.O was not backed by any logical reasoning, had however, straightway transposed the view taken by the CIT(A) in the assesses own case for the preceding years and, restricted the disallowance to 5% of the total staff welfare expenses. Be that as it may, as the aforesaid disallowance made by the A.O/DRP falls sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d above, in respect of those parties whose confirmation was not furnished by the assessee. As the assessee was unable to furnish the confirmations of the parties to whom commission of Rs. 1 lac and above, was paid, therefore, the A.O disallowed commission expenditure of Rs. 1,62,05,703/-. 21. We have perused the orders of the lower authorities in context of the issue under consideration. Our indulgence has been sought by the assessee to adjudicate, as to whether, the A.O is right in law and the facts of the case in disallowing the commission expenditure of Rs. 1,62,05,703/-. We find that the DRP in context of the aforesaid disallowance of commission expenditure, had observed as under : "6.3 DRP has considered the AO‟s observation and findings and the details submissions filed by the assessee. The DRP is of the view that the commission payments are incurred wholly and exclusively for the purpose of business, dictated by business needs and allowable as deduction in principle, as TDS also was made on such payments as application. The commission paid is not high in relation to the sales made during the year. The names and addresses were furnished earlier to the A.O and such det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to whom such commission was paid, as under : Particulars Address Amount (Rs.) TDS A Team Computers S.K.s. Buildings, Perundurai Road, Erod, 110,124 6,178 Acme Digitek Solutions Pvt. Ltd. Rohit Bhawan, II Floor, 4, Sapru Marg, Lucknow-226001 124,237 6,491 Axis Computech & Peripherals G-28, Lajpat Nagar-II, New Deli- 110024 165,472 9,260 C.I. Infotech (P) Ltd. K-33A, Green Park Main, New Delhi- 110003 172,691 8,901 Cinthamani Computers 15/2A, Raja Badhar Street, T. Nagar, Chennai 600017 567,9800 31,859 Computer Marketing & Allied Services 17A Cross, 20th Main, First R Block, West of Chord Road, Rajajinagar, Bangalore - 560010 142,542 7,840 Computer Technologies Pvt. Ltd. C/O Anand Steel Centre, Ghat No. 2347, Ganesh Park Opp. Talera Warehousing, Wagholi, Pune 284,172 14,604 Creative Infotech Solutions Pvt. Ltd. Hirabhai Patel House, Opp. Post Office, Patel Falia, Surat- 395 000 383,128 20,030 Dreamquest Infotech Pvt. ltd. A-1, Live In Style Apts, # 12, Pottery, Richards Town Bangalore-560,005 184,505 9,618 Excelict Consulting B-2, Harsh Bihar, Off Dhole Patil Road, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Udyog Mandir, Off Pitambar, Lane Mahim, Mumbai- 400 016 142, 334 7,295 As can be gathered from the aforesaid information that was furnished by the assessee, we find, that the complete details of the parties to whom commission of Rs. 1 lac and above was paid during the year, along with their respective addresses, amount of commission paid and, the TDS on the said respective payments was furnished by the assessee with the A.O. At this stage, we may herein observe, that the payments made by the assessee to the abovementioned parties for the period ended 31.12.2004, pertained to a period of about 7 years ago in context of the date of passing of the assessment order by the A.O under Sec. 153A/143(3) r.w.s. 144C(13), dated 31.10.2011. Accordingly, we find force in the contention advanced by the ld. A.R, that keeping in view the aforesaid substantial time gap of 7 years, it was practically not possible on its part to have obtained the confirmations of the said parties. In our considered view, now when the assessee had furnished complete details along with income tax credentials viz. PAN Numbers of the aforesaid parties with the lower authorities, therefore, merely for the stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sec.131 to the agents after expiry of a period of 4 years from the date when the transactions were entered by the assessee with them, were returned back by the postal authorities with the remarks "not known‟. On the basis of the aforesaid facts, it was observed by the revenue authorities that the assessee had failed to discharge the onus as regards establishing the identity of the agents to whom the commission was paid. On appeal, it was observed by the Hon‟ble High Court, that in the backdrop of the evidence placed on record by the assessee, it would be unreasonable to hold that the assessee had failed to establish the identity of the commission agents, for the reason, that the said persons were not found available at their respective addresses after an expiry of a period of 4 years from the date of the transactions under consideration. Now, in the case before us, it is an admitted factual position, as is discernible from the order of the DRP and, had not been assailed by the revenue before us viz. (i) that, the commission expenditure was incurred by the assessee wholly and exclusively for the purpose of its business, which was dictated by business needs and was allow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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