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TMI Blog2020 (7) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... following grounds of appeal before us: "Being aggrieved by the order under section 250 of the Income-tax Act, 1961 ('the Act') passed by the Commissioner of Income-tax (Appeals) - 58, Mumbai (hereinafter referred to as "the CIT(A)" ), the Appellant hereby submits the following grounds of appeal for your sympathetic consideration: (1) Ground No. 1 -Adding reversal of unbilled revenue to the total income - Rs. 1,90,52,225/. 1.1. 0n the facts and in the circumstances of the case and in law, the learned AO erred and the Hon'ble CIT(A) further erred in treating the reversal of unbilled revenue of Rs. 1,90,52,225/-as taxable income, through recognized as revenue in prior years. (2) Disallowance of penalties paid in foreign countries - Rs. 32.60 Lakhs 2.1 On the facts and in the circumstances of the case and in law, the learned AO erred and the Hon'ble CIT(A) further erred in upholding the action of the learned AO of disallowing an amount of Rs. 32.60 lakhs under Explanation 1 to Section 37(1) of the Act. (3) Disallowance under section 14A - 85,10,737/- 3.1 On the facts and circumstances of the case and in law, the learned AO erred and the Hon'ble CIT(A( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and software. 6. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in allowing leasehold land registration 'expenses of Rs. 8,80,000/- as revenue expenditure instead of capital expenditure. 7. On the facts and in the circumstances of the case and in law, the I d. CIT (A) erred in restricting u/s 14A disallowance to the extent of tax exempt income i.e. Rs. 85,10,737/- without considering the fact that Notification 43/2016 dated 2-6-2016 will not apply for the this Assessment year. 8. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred allowing of Rs. Rs. 51,50,00,000/- (gross debit balances' reflected in the balance Sheet) as unexplained cash credit without considering the fact that assessee failed to explain cash credit in his books of account. 9. For these and other grounds that may, Inc urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored." Further, the assessee vide its letter dated 18-11-2019 for A.Y 2010-11, had moved an application seeking admission of an additional ground of appeal, which reads as under: "On facts and circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al was decided in favour of the assessee, then the other grounds of appeal would be rendered as merely academic in nature. Per contra, the ld. Departmental representative (for short "D.R") strongly objected to the admission of the additional ground of appeal as was sought by the assessee. It was submitted by the ld. D.R that as substantial delay was involved on the part of the assessee in seeking admission of the additional ground of appeal, therefore, the same did not merit to be admitted. Apart from that, it was averred by the ld. D.R that now when the assessee had participated in the assessment proceedings, henceforth validity of the same could not be challenged by it. Rebutting the said claim of the ld. D.R, Mr. J.D Mistry, Ld. Senior advocate for the assessee submitted, that the Hon'ble Apex Court in the case of PCIT v. Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC), had observed, that now when the very basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity had ceased to exist upon the approved scheme of amalgamation, the participation in the proceedings by the appellant in the circumstances cannot operate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal issue based on the facts borne from the records may not be admitted. We thus not being persuaded to accept the objection raised by the ld. D.R as regards admission of the aforesaid additional ground of appeal raised by the assessee, admit the same. 3. Briefly stated, M/s Satyam Computers Services Ltd. which was engaged in the business of Software development had e-filed its return of income for A.Y. 2010-11 on 15-10-2010, declaring its total income at Rs. nil under the normal provisions of the Act. The return of income filed by the aforementioned assessee viz. M/s Satyam Computers Services Ltd. was processed as such under Sec. 143(1) of the Act on 8-3-2011. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 4. As is discernible from the records the objects of the assessee company which was incorporated as Satyam Computer Services Pvt. Ltd. at Hyderabad on 24-6-1987, were to undertake design and development of system and application software either for its own use or for export. On 15-7-1991 the company changed its name to M/s Satyam Computers Services Ltd. AS on 7-1-2009 Shri B. Ramalinga Raju, the then chairman of Sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and after making certain additions/disallowances, vide his assessment order passed u/s 143(3) r.w.s 153 r.w.s 144C(4), dated 5-1-2015 assessed its loss at (Rs. 250,86,52,830/-). On appeal, the additions/disallowances made by the A.O were partly vacated by the CIT(A), details as regards which are charted as under: Sr. No. Particular of addition/disallowance made by A.O Amount As per order of CIT(A) 1. TP adjustment as regards receipt of Services from AEs. Rs. 1,84,00,000/- (i). Rejection of CPM as the MAM as per the TPSR was upheld by the CIT(A); 2. TP adjustment as regards provision of Software Development Services to AEs Rs. 43,20,000/- (ii). The exclusion of Rs. 854 million as the operating income of the assessee was set aside by the CIT(A); (iii) The exclusion of M/s Akshay Software Technologies Limited AND M/s Quintegra Solutions as comparables by the TPO was upheld by the CIT(A); (iv). As regards inclusion of M/s Accentia Technologies as a comparable, the TPO was directed by the CIT(A) to exclude the same; (v). The claim of the assessee for use of multiple year data was rejected by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,000/- Addition was confirmed by the CIT(A) (as the assessee had claimed that it had offered the interest income for tax in A.Y 2011-12 i.e at the time of maturity of deposits, therefore, the CIT(A) had directed the A.O to verify the factual position and allow relief to the said extent in the year of maturity of deposits. 8. Disallowance of prior period expenses Rs. 1,51,12,637/- Disallowance was deleted by the CIT(A). 9. Disallowance of amounts paid by the assessee as penalties to (i). Municipal Corporation of Vishakapatnam; (ii). Assistant Registrar of Customs Southern range; and (iii). Foreign authorities. Rs. 34,00,000/- Disallowance was confirmed by the CIT(A). 10. Disallowance of excess depreciation on fixed assets capitalized prior to 1-4-2009. Rs. 1,12,10,000/- Disallowance was deleted by the CIT(A). 11. Interest inadmissible u/s 23 of MSMED. Rs. 6,23,038/- Assessee claiming the same as an inadvertent mistake had not carried the same by way of an appeal before the CIT(A). 12. Disallowance of expenses incurred by the assessee on purchase of software and hardware items wholly and exclusively for the purpose of use/sale as consumables/tools in trade in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R that the A.O despite being well informed of the fact that M/s Satyam Computers Services Ltd. which had w.e.f 1-4-2011 merged with the assessee company, had thus ceased to exist, however, had chosen to frame the assessment in the hands of the said non-existent entity. In order to drive home his aforesaid claim the ld. A.R drew our attention to Page 2 - Para 4 of the assessment order, wherein the A.O had categorically observed that Satyam Computers Services Limited had w.e.f 1-4-2011 merged with M/s Tech Mahindra Ltd. Further, the Ld. A.R in order to buttress his contention that an assessment on a non-existent entity was invalid in the eyes of law, therein relied on the judgment of the Hon'ble Supreme Court in the case of PCIT v. Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC) (copy placed on record). It was thus submitted by the ld. A.R, that the assessment order passed by the A.O under Sec. 143(3) r.w.s 153 r.w.s 144C(4), dated 5-1-2015 in the hands of a non-existent entity was non-est in the eyes of law, and thus was liable to be quashed on the said ground itself. The ld. A.R in order to substantiate his claim that an assessment framed in the hands of a non-existent company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied upon by them. In order to appreciate the nature of the controversy involved in the present appeal, the narration of the facts would be instructive. M/s Satyam Computers Services Ltd. was initially incorporated as Satyam Computers Pvt. Ltd. at Hyderabad on 24-6-1987. Objects of the company were to undertake design and development system and application software either for its own use or for export. On 15-7-1991 the company changed its name to M/s Satyam Computers Services ltd. Subsequently, on 26-8-1991, the company went public and 81.22% shareholding was offered to the public. M/s Satyam Computers Services Ltd. was subsequently merged with the assessee company i.e M/s Tech Mahindra Ltd. i.e w.e.f 1-4-2011. Subsequent to the aforesaid merger, the existing proceedings against Satyam Computers Services Ltd. were taken over by the assessee company. On a perusal of the assessment order, we find that the A.O at Page 2 - Para 4 ,had observed, that Satyam Computers Services Ltd. had w.e.f 1-4-2011 merged with M/s Tech Mahindra Ltd. The observations of the A.O to the said effect are reproduced as under: "4. The assessee, Satyam Computres Services Ltd. (SCSL) has subsequently been merg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to stand transferred to the transferee company without any further act or deed. On 2nd April, 2013, Maruti Suzuki India Ltd. intimated the A.O about the amalgamation. The case was selected for scrutiny and a notice under Sec. 143(2) of the Act was issued on 26-9-2013, followed by a notice under Sec. 142(1) to the amalgamating company. On 22nd January, 2016, the Transfer Pricing Officer passed an order under Sec. 92CA (3) of the Act. On 11th March, 2016, a draft assessment order was passed in the name of Suzuki Powertrain (amalgamated with Maruti Suzuki India ltd.). It is a matter of fact that the assessee viz. Maruti Suzuki India Ltd. had participated in the assessment proceedings of the erstwhile amalgamating entity i.e Suzuki Powertrain India Ltd. through its authorized representatives and officers. On 14th October, 2016, the DRP issued its order in the name of Maruti Suzuki India Ltd. (as successor in interest of erstwhile Suzuki Powertrain India Ltd. since amalgamated). The final assessment order was passed on 31st October, 2016 in the name of Suzuki Powertrain India Ltd. (amalgamated with Maruti Suzuki India Ltd.). On appeal, the Tribunal 'set aside' the final assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 41(1) of the Act. The amalgamation of the two companies was effected under the order of the High Court in proceedings under section 391 read with Section 394 of the Companies Act. The Saraswati Industrial Syndicate. the trans free Company was a subsidiary of the Indian Sugar Company, namely, the transferor Company. Under the scheme of amalgamation the Indian Sugar Company stood dissolved on 29th October, 1962 and it ceased to be in existence thereafter. Though the scheme provided that the transferee Company the Saraswati Industrial Syndicate Ltd. undertook to meet any liability of the Indian Sugar Company which that Company incurred or it could incur, any liability, before the dissolution or not thereafter. 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 Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from adverting to the merits of the case which having been rendered as academic in nature are thus left open. The additional ground of appeal raised by the assessee is allowed. 11. Resultantly, the appeal of the assessee in ITA No. 7319/Mum/2016 is allowed, while for the appeal of the revenue in ITA No. 7156/Mum/2016 is dismissed. ITA No. 4909/Mum/2017 ITA No. 4856/Mum/2017 A.Y.-2011-12 12. We shall now take up the cross-appeals of the assessee and the revenue for A.Y 2011-12. The assessee has assailed the impugned order on the following grounds of appeal before us: "Being aggrieved by the order under section 250 of the Income-tax Act, 1961 ('the Act') passed by the Commissioner of Income-tax (Appeals) - 55, Mumbai (hereinafter referred to as "the CIT(A)"), the Appellant hereby submits the following grounds of appeal for consideration: (1) Ground No. 1 - Transfer Pricing Adjustment of Rs. 4,78,48,414 i. Treating incomes amounting to Rs. 226.7 Crores as non-operating income On the facts and circumstances of the case and in law, Hon'ble CIT (A) erred in upholding the action of the learned TPO/AO by considering operating incomes as non-operating a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al before us : "1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in excluding TPO's selection of cases where high margins were there, citing higher margin as reason wherein higher margin should not e ground alone to rule out comparables and when nothing is established to prove comparables are functionally different or exceptional reasons for high margin normal entity of same industry cannot generate. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deciding that no interest be charged in loan given to AEs which are in liquidation, when in principle has accepted interest to be charged on loans and advances given to other AE's . 3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing expenses incurred Rs. 1,36,35,486/- in relation to computers as revenue expenditure though in earlier assessment years, CIT(A) has ruled that, such expenditure are capital in nature." 13. Briefly stated, the assessee had e-filed its return of income for A.Y. 2011-12 on 30-11-2011, declaring its total income at Rs. nil under the normal provisions of the Act. The return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 comparables. Out of the said 16 comparables, the TPO had rejected 7 comparables. Finally, the TPO had adopted 13 comparables i.e 9 comparables (selected by the assessee) & 4 comparables (selected by the TPO). The CIT(A) was of the view that as the 4 comparables included by the TPO in the final list of comparables, had a high margins ranging from 28.55% to 56.44%, therefore, it would be reasonable if the final list of comparables was restricted to 9 comparables (selected by the assessee) for the purpose of working out the OP/OC ratios under the TNM method. 3. TP adjustment as regards the interest charged on the outstanding loan of GBP 500,000, and additional loan of GBP 250,000 that was advanced by the assessee from its internal accruals to its AE in U.K @7% p.a.. Rs. 29,80,736/- Adjustment made by TPO using Indian PLR was though vacated by CIT(A), but considering the risks involved, and also the exchange and delay in repayment, the CIT(A) directed that interest on the loan be charged @10% p.a. . 4. TP adjustment of notional interest on outstanding loans to AEs Rs. 10,26,18,200/- It was observed by the CIT(A) that as four AE's of the assessee viz. (i). Satyam Compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S certificates and allow credit for the TDS payments to the assessee. 15. Both the assessee and the revenue being aggrieved with the order of the CIT(A) have carried the mater by way of cross-appeals before us. The ld. Authorized Representative (for short 'A.R') for the assessee at the very outset of the hearing of the appeal submitted that a coordinate bench of the Tribunal viz. ITAT "E" Bench, Mumbai, while disposing off the appeal of the assessee against the order passed by the Pr. CIT u/s 263 of the Act, dated 24-10-2017, had vide its order dated 11-10-2019 held that the assessment order passed by the A.O u/s 143(3) r.w.s 144C(3), dated 25-5-2015 in the hands of M/s Satyam Computers Services ltd., i.e an entity that was non-existent on the date on which the assessment order was passed, would thus be non-est in the eyes of law. In order to fortify his aforesaid contention, the ld. A.R took us through the observations recorded by the Tribunal while disposing off the aforesaid appeal of the assessee for the year under consideration. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that the assessment order having been held as non-est by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In fact, a specific mention of the fact that M/s Satyam Computers Services Ltd. had merged with the assessee company on 1-4-2011 and all the existing proceedings against it were taken over by the assessee company finds a specific mention in the assessment order passed by the A.O under Sec. 143(3) r.w.s 144C(3), dated 25-5-2015. However, we find that despite being conversant of the fact that M/s Satyam Computers Services Ltd. having been merged with the assessee company i.e M/s Tech Mahindra Ltd. w.e.f 1-4-2011, was thus no more existing, the A.O had framed the assessment in the name of the said non-existent entity viz. M/s Satyam Computers Services ltd., vide his order passed under Sec. 143(3) r.w.s 144C(3), dated 25-5-2015. As a matter of fact, we find that even the PAN Number stated in the assessment order i.e "AACCS 8639Q" is of the aforesaid amalgamating company i.e M/s Satyam Computers Services Ltd. As is discernible from the records, the Pr. CIT-2, Mumbai, also had thereafter passed the order under Sec. 263 of the Act, dated 24-10-2017 in the name of the non-existent entity viz. "M/s Satyam Computers Services Ltd. (now merged with Tech Mahindra Ltd.)". At this stage, it woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (amalgamated with Maruti Suzuki India ltd.). It is a matter of fact that the assessee viz. Maruti Suzuki India Ltd. had participated in the assessment proceedings of the erstwhile amalgamating entity i.e Suzuki Powertrain India Ltd., through its authorized representatives and officers. On 14thOctober, 2016, the DRP issued its order in the name of Maruti Suzuki India Ltd. (as successor in interest of eartwhile Suzuki Powertrain India Ltd. since amalgamated). The final assessment order was passed on 31st October, 2016 in the name of Suzuki Powertrain India Ltd. (amalgamated with Maruti Suzuki India Ltd.). On appeal, the Tribunal set aside the final assessment order on the ground that it was void ab initio having been passed in the name of the non-existent entity by the A.O. The decision of the Tribunal was affirmed by the Hon'ble High Court of Delhi. On further appeal by the revenue, the Hon'ble Supreme Court dismissed the appeal by observing that though the A.O was aware of the fact that the amalgamating company had ceased to exist as a result of the approved scheme of amalgamation, however, the notice was issued in its name. It was observed by the Hon'ble Court that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Sugar Company which that Company incurred or it could incur, any liability, before the dissolution or not thereafter. 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 carry 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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. Our aforesaid view is fortified by the order of a coordinate bench of the Tribunal i.e ITAT, Mumbai "G" Bench in the case of West Life Development Ltd. v. PCIT-5, Mumbai (2017) 88 taxman.com 439 (Mum). Accordingly, in the backdrop of our aforesaid observations, we are of the considered view that now when the assessment order passed by the A.O under Sec. 143(3) r.w.s 144C(3), dated 25-5-2015 is in itself found to be non-est in the eyes of law, therefore, the Pr. CIT-2, Mumbai could not have revised the same in exercise of the powers vested with him under Sec.263 of the Act. As such, on the basis of our aforesaid deliberations, we are of the considered view that the order passed by the Pr. CIT under Sec. 263, dated 24-10-2017 cannot be sustained on two counts viz. (i) that, the order of revision u/s 263 has been passed by the Pr. CIT in the name of M/s Satyam Computers Services, i.e a company which was non-existent on the date of passing of the order; and (ii) that, the Pr. CIT in exercise of his power under Sec. 263 was divested on his jurisdiction of revising an assessment order which in itself was non-est in the eyes of law. We thus on the basis of our aforesaid observatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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