TMI Blog2020 (7) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(Appeals)- 58, Mumbai, dated 29-8-2016 and CIT(Appeals)-55, Mumbai, dated 23-3-2017, for A.Y 2010-11 and A.Y 2011-12, respectively, which in turn arises from the respective assessment orders passed by the A.O u/s 143(3) r.w.s 153 r.w.s 144C(4) of the Act, dated 5-1-2015 AND u/s 143(3) r.w.s 144C(13) of the Act, dated 25-5-2015. As the issues involved in the captioned appeals are inextricably interlinked or in fact interwoven, therefore, the same are being disposed off by way of a common order. We shall first advert to the cross-appeals for A.Y 2010-11. 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) - 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 - ₹ 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 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of software business. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing expenses of ₹ 1,51,12,637/- allegedly as prior year expenses as expenses do not pertains to expenditure where earlier disallowance u/s. 43B of the IT Act. 1961 is made. 5. On the facts and in the circumstances of the case and in law. The Ld. CIT(A) erred allowing expenses incurred ₹ 13,53,40,000/- in relation to computers as capital expenditure as assessee failed to reconcile the software and hardware expenditure with neither reimbursement from client nor milestones of the customer identifying the supply of hardware 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 ₹ 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. ₹ 85,10,737/- without considering the fact that Notification 43/2016 dated 2-6-2016 will not apply for the this Assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on the facts available on record and no further investigation on facts was required, therefore, the same may be admitted. Apart from that, it was averred by the ld. A.R that the said additional ground of appeal was raised by the assessee in the backdrop of the recent order of the Tribunal in the assessee's own case for A.Y 2011-12, ITA No. 7249/Mum/2017, wherein the order passed u/s 263 of the Act was quashed by the Tribunal by following the judgment of the Hon'ble Supreme Court in the case of Pr. CIT, New Delhi v. Maruti Suzuki India Limited (Civil appeal No. 5409 of 2019, dated 25-7-2019). It was further submitted by the ld. A.R, that in case the additional ground of appeal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tantial lapse of time, we are afraid the same does not find favour with us. We find 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 as an estoppel against law. Accordingly, in the totality of the aforesaid facts, we find no reason as to why the additional ground of appeal raised by the assessee, therein seeking adjudication of a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,84,00,000/- 2. Provision of Software Development Services ₹ 43,20,000/- 3. Interest on loan given to AE viz. Citisoft Plc. ₹ 18,31,345/- 4. Interest on outstanding loan to AEs ₹ 8,70,00,000/- 5 Interest on share application money pending allotment ₹ 12,86,40,000/- Total ₹ 24,01,91,345/- Further, in the course of the assessment proceedings the case of the assessee was referred for special audit u/s 142(2A) of the Act. On 18-9-2014 the Special auditors submitted their report. The assessee was thereafter served a draft assessment order dated 14-11-2014 u/s 143(3) r.w.s 144C(1) r.w.s 153 of the Act. In reply, the assessee vide its letter dated 1-12-2014 intimated that it would prefer an appeal before the CIT(A). The A.O thereafter framed the assessment in the case of the assessee and after making certain additions/disallowances, vide his assessment order passed u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt made by TPO using Indian PLR was vacated by CIT(A). 4. TP adjustment of notional interest on outstanding loans to AEs ₹ 8,70,00,000/- The TPO was directed to charge notional interest on the amounts outstanding from the AEs only till the date of write off of the loans or till the initiation of liquidation proceedings, whichever was earlier 5. Interest on share application money pending allotment ₹ 12,86,40,000/- (i). As regards share application money paid by the assessee to two its AEs viz. (a). Satyam Computer Services, Egypt; and (b). Satyam Europe Limited, the CIT(A) observed that in respect of companies which went in for liquidation and were either under liquidation or had been liquidated before the financial year under reference, no interest could be levied on the capital financing done by the assessee. (ii). As regard share application money paid by the assessee to its AE viz. Satyam Computer Services, Belgium, the CIT(A) directed the TPO to treat the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,10,66,257/- Disallowance confirmed by the CIT(A). 13. Disallowance of expenses incurred by the assessee on computers and claimed to have been used in the course of execution of software development projects for its customers, for which it was reimbursed as per the sale agreements. ₹ 13,53,40,000/- Disallowance was deleted by the CIT(A). 14. Disallowance of leasehold registration expenses. ₹ 8,80,000/- Disallowance was deleted by the CIT(A). 15. Disallowance made by the A.O u/s 14A r.w Rule 8D ₹ 6,90,80,000/- Disallowance was restricted by the CIT(A) to the extent of the amount of exempt income of ₹ 85,10,737/-. 16. Addition by the A.O of the gross debit balances reflected in the 'balance sheet'. ₹ 51,50,00,000/- The addition was deleted by the CIT(A) 17. Disallowance of depreciation on cars given by the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 is non-est in law relied on the judgment of the Hon'ble Supreme Court in the case of CIT v. M/s Spice Enfotainment Ltd. (Civil Appeal No. 285 of 2014, dated 2-11-2017). On the basis of his aforesaid contention, it was the claim of the ld. A.R that as the assessment order was in the name of the amalgamating company viz. M/s Satyam Computers Services Ltd, which was non-existent on the date when the said order was passed, therefore, the same was null and void ab initio. It was further submitted by the ld. A.R, that in the backdrop of identical facts the order passed by the Pr.CIT u/s 263 of the Act, dated 24-10-2017 in the assesses own case for the immediately succeeding year i.e A.Y 2011-12 in Tech Mahindra Ltd. v. Pr. CIT-2, Mumbai, ITA No. 7249/Mum/2017 had been quashed by the Tribunal, vide its order dated 11/10/2019. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 merged with M/s Tech Mahindra Ltd. which is being assessed in this charge. The merger has taken place with effect from 1-4-2011. Subsequent to this merger all the existing proceedings against SCSL had been taken by Tech Mahindra. Accordingly, the case was transferred to this office of DCIT-2(3), Mumbai. Accordingly, it can safely be concluded that though the A.O while framing the assessment was well informed about the fact that M/s Satyam Computers Services Limited w.e.f 1-4-2011 having merged with M/s Tech Mahindra Ltd. was thus no more in existence, however, he had vide his assessment order passed under Sec. 143(3) r.w.s 153 r.w.s 144C(4), dated 5-1-2015 chosen to frame the assessment in the hands of the said non-existent entity. As a matter of fact, we find that even the PAN Number stated in the assessment order i.e AA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016, 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 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, the Hon'ble Supreme Court dismissed the appeal of the revenue 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 the basis on which the jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation. Also, it was observed by the Hon'ble Apex Court that participation in the proceedings by the assessee would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 1539. Two companies may join to form a new Company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third Company or one is absorbed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following grounds of appeal for consideration: (1) Ground No. 1 - Transfer Pricing Adjustment of ₹ 4,78,48,414 i. Treating incomes amounting to ₹ 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 and excluding the same from the margin computation of the Appellant. ii. Rejection of external uncontrolled comparable selected by the Appellant On the facts and circumstances of the case and in law, the learned CIT(A) erred in upholding/confirming the action of learned TPO/AO of arbitrarily disregarding the comparable companies selected by the Appellant, which were selected after carrying out systematic and methodological search process , without providing any cogent reasons for the same or pointing out any material deficiencies therein (2) Ground No. 2 - Adjustment in interest on Loans advanced to AEs- ₹ 10,14,579 On the facts and the circumstances of the case and in law, the learned CIT (A) erred in upholding the action of TPO/AO and erroneously rejecting LIBOR interest rates charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) erred in allowing expenses incurred ₹ 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 of income filed by the aforementioned assessee 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. 14. As the assessee had during the year entered into international transactions with its related parties, therefore, a reference was made to the Transfer Pricing Officer (for short TPO ) u/s 92CA(1) of the Act. The TPO vide his order dated 30-1-2015 suggested adjustment of ₹ 30,57,37,251/- to the Arm's Length Price (for short ALP ) of the International transactions carried out by the assessee during the year, as under: Sr. No. Transaction Adjustment proposed 1. Receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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.. ₹ 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 ₹ 10,26,18,200/- It was observed by the CIT(A) that as four AE's of the assessee viz. (i). Satyam Computer Services, Egypt; (ii). Satyam Computer Services, Belgium; (iii). Satyam Europ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance was confirmed by the CIT(A). 8. Not granting of TDS credit (as per 'Form 26AS') ₹ 41,08,88,050/- The CIT(A) directed the A.O to examine he TDS 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. were taken over by the assessee company. 8. Admittedly, as is discernible from the assessment order the fact that M/s Satyam Computers Services Ltd. had been merged with M/s Tech Mahindra Ltd. 1-4-2011 was clearly to the knowledge of the assessing officer. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6-9-2013, 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 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 dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, we are of a strong conviction that an assessment order which in itself is found to be non-est in the eyes of law cannot be revised by the CIT, for the reason, that the same would imply extending/granting fresh limitation to the A.O for passing of a fresh assessment 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-existe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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