Facts and Contentions
Suzuki Powertrain India Limited ("SPIL") is a joint venture between Suzuki Motor Corporation and Maruti Suzuki India Limited ("MSIL"/"the taxpayer") with a shareholding of 70% and 30% respectively. On 29 January 2013, a scheme for amalgamation of SPIL and taxpayer was approved by the High Court with effect from 1 April 2012.
During the course of assessment proceeding, On 22 January 2016, the Transfer Pricing Officer ("TPO") passed an order u/s 92CA(3) of the Income tax Act, 1961, determining the Arm's Length Price ("ALP") of royalty at 3% and thereby making an upward adjustment of INR 78.97 crores in respect of the royalty paid by the SPIL.
On 11 March 2016, Assessing Officer after considering the order of TPO passed a draft assessment order in the name of SPIL (amalgamated with MSIL) wherein the total income of the SPIL has been increased by INR 78.97 to ensure that the international transaction of payment of royalty to its Associated Enterprises is at ALP.
In relation to this, MSIL participated in the assessment proceeding of its erstwhile amalgamating entity i.e. SPIL as an authorized representative and contended that the draft assessment order would be invalid as it was passed in the name of SPIL , which is a non-existing entity, and accordingly, filed an appeal before the Dispute Resolution Panel ("DRP").
Furthermore, DRP also upholds the order of TPO. Aggrieved by the same, the taxpayer filed an appeal before Income Tax Appellant Tribunal ("ITAT"/ "the Tribunal")
The Tribunal after hearing the contentions set aside the final assessment order on the ground that it was void-ab-initio, as it was passed in the name of non-existent entity by the AO.
Further, the decision of tribunal was also affirmed by the High Court in an appeal under Section 260A of the Act. Further, based on the co-ordinate bench ruling in the SPIL's own case for AY 2011-12
Aggrieved by the same, the revenue filed an appeal before the Supreme Court.
Supreme Court's Ruling
Supreme Court ("SC") made the following observations:
SC held that the issuance of jurisdictional notice and the assessment order passed thereafter in the name of non-existing company is a "substantive illegality and not a procedural violation of the nature adverted to in Section 292B of the Act";
Accordingly, SC places reliance in the case of "C.I.T New Delhi vs M/S Spice Enfotainment Ltd. in which Delhi High Court observed that the said issue of challenging the assessment order in the name of amalgamating entity has been void-ab- initio and cannot be held a procedural mistake, defect or omission which is curable under Section 292B of Income Tax Act 1961.
SC further clarifies that the participation in the proceedings by the revenue authority in the circumstances cannot operate as an estoppel against law.
Additionally, SC elucidates that Skylight Hospitality ruling relied on by the Revenue (where holding reassessment notice issued on dissolved company merely a technical error as curable u/s. 292B of the Act) was passed in the"peculiar facts" of the case is not in conflict with the Spice Enfotainment ruling relied on by HC.
Based on the above observations, SC finds no merit in the appeal and accordingly appeal filed by the revenue authorities is dismissed.
The present case highlights the basic legal principle that in case of post-amalgamation assessment, the newly formed entity shall be scrutinized for the pre-merger acts of the amalgamating entities which have ceased to exist. Additionally, it is imperative that the taxpayer intimates the income-tax authorities about the fact of amalgamation, winding up, death of taxpayer, etc., before the income tax authorities pass the assessment order, to succeed in challenging the validity of assessment made upon a non-existent person.
Source: Pr. Commissioner of Income Tax, New Delhi vs Maruti Suzuki India Limited [TS-707-SC-2019-TP]
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