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BOEING India Pvt. Ltd. Vs. The A.C.I.T. - (Income Tax Appellate Tribunal) (17 Aug 2020)

Draft order framed under Section 144C(1) of the IT Act in the name of a non-existent company is void ab initio

MANU/ID/0653/2020

Direct Taxation

Present appeal by the Assessee is preferred against the order framed under Section 143(3) read with Section 144C(5) of the Income-tax Act, 1961 [IT Act]. The first substantive grievance of the Assessee is that, the Dispute Resolution Panel[DRP] erred in upholding the action of the Assessing Officer in passing draft assessment order in the name of a non-existent Company. The other grievance relates to Transfer Pricing adjustment of Rs. 22.16 lakhs on account of outstanding receivables from Associates Enterprises [AEs] and under Corporate Tax, the Assessee is aggrieved by the disallowance of Rs. 56,58,19,799 for alleged failure in deducting tax under Section 195 of the IT Act by treating the said payments as Fees for Included Services [FIS].

Facts relating to first substantive grievance of the Assessee are that, on 19th January, 2018, the Regional Director, under Section 233 of the Companies Act, 1956 notified a merger of BICIPL with the Appellant from the effective date. On 10th April, 2018, a letter was filed before the Assessing Officer intimating that, BICIPL was dissolved and all proceedings be transferred in the name of the Appellant i.e. BIPL. On 19th October, 2018, the TPO framed an order under Section 92CA(3) of the IT Act in the name of the amalgamated entity i.e. BIPL i.e. the Appellant. However, on 25th December, 2018, the Assessing Officer framed a draft assessment order under Section 144C of the IT Act in the name of a non-existent amalgamated company i.e. BICIPL.

On 25th January, 2019, objections were raised before the DRP that, the Assessing Officer has framed draft assessment order in the name of a non-existent entity. The Assessing Officer filed remand report before the DRP accepting that, the department was aware that the old company has merged into new. However, the DRP directed the Assessing Officer to rectify the mistake and pass final assessment order in the name of amalgamated company BIPL.

The TPO has framed the order under Section 92CA(3) of the IT Act in the name of BIPL, the Appellant and as per the definition of "Eligible assessee" BIPL is the eligible Assessee. However, the Assessing Officer chose to pass the assessment order in the name of the non-existent company BICIPL, which was dissolved on 15th February, 2018.

Section 2, sub-section (31) defines "Person" which includes a company. On the date of issuing draft assessment order, the company BICIPL did not exist. Moreover, as per the Scheme under Section 144C(1) and (3) of IT Act , the Assessing Officer becomes Functus Officio after passing draft assessment order which means that only the Assessee can file objections or accept the said draft assessment order. If the Assessee chose not to file objections, the Assessing Officer cannot alter the assessment. In our understanding of the law, issuance of valid draft order is sine qua non for Section 144C of the Act to apply. Only a valid draft assessment order will trigger further proceedings before the DRP. Meaning thereby, that passing a draft assessment order is a jurisdictional requirement and if the Assessing Officer passes such an order in the name of a non existing person, there can never be a valid draft order in the eyes of law, making thereby the entire proceeding inherently without jurisdiction.

In view of factual matrix and in the light of judicial decisions, it is held that, the draft order framed under Section 144C(1) of the IT Act is in the name of a non-existent company and accordingly, void ab initio, making all subsequent proceedings non- est. First substantive grievance is, accordingly, allowed.

First issue is in respect of TP adjustment of Rs. 22.16 lakhs on account of outstanding receivables. The undisputed fact is that the assessee is a debt free company. It is also not in dispute that no interest was paid to the creditor/supplier nor any interest has been earned from unrelated party. Moreover, being a 100% captive service provider, the revenue of the Assessee is 100% from its AEs. The question of receiving any interest on receivables does not arise. Considering the facts of the assessee in hand, in totality, there is no merit in the TP adjustment of Rs. 22.16 lakhs and the same is, accordingly, directed to be deleted.

The next grievance relates to the disallowance of Rs. 56.58 crores for alleged failure of non-deduction of tax at source. Present Tribunal has perused the TDS certificates, Forms 15CA and 15CB, tax deducted by the Assessee. There is no dispute that, the Assessee has deducted tax at source under Section 192 of the IT Act. On the given facts of the case, present Tribunal is of opinion that the provisions of Section 195 of the IT Act do not apply. Considering the facts of the case in totality, there is no merit in the disallowance made by the Assessing Officer/DRP. Present Tribunal accordingly, direct for deletion of addition of Rs. 56.58 crores. The Assessing Officer is directed to give credit of pre paid tax as per provisions of law. The appeal of the Assessee is allowed.

Tags : DRAFT ASSESSMENT   DISALLOWANCE   LEGALITY  

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