Satyam Computer Services limited Vs DCIT (ITAT Mumbai)
Admittedly, the Tribunal viz. ITAT “E” Bench, Mumbai, while disposing off the assessee‟s appeal against the order passed by the CIT u/s 263 of the Act, dated 24.10.2017, had vide its order passed in ITA No. 7249/Mum/2017, dated 11.10.2019 for the year under consideration i.e A.Y 2011-12, had held, that as the assessment order was passed by the A.O u/s 143(3) r.w.s 144C(3), dated 25.05.2015 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, the same would thus be non-est in the eyes of law.
In our considered view, as the assessment order passed by the A.O u/s 143(3) r.w.s 144C(3), dated 25.05.2015 for the year under consideration i.e A.Y 2011-12 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, had been held by the Tribunal in its aforesaid order as non-est in the eyes of law, therefore, the same does not survive and on the same terms is quashed.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned cross-appeals filed by the assessee and the revenue are directed against the respective orders passed by the CIT(Appeals)- 58, Mumbai, dated 29.08.2016 and CIT(Appeals)-55, Mumbai, dated 23.03.2017, 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 05.01.2015 AND u/s 143(3) r.w.s 144C(13) of the Act, dated 25.05.2015. 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 — 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( further erred in confirming the disallowance of Rs. 85,10,737/- under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (‘the Rules’).
4) Disallowance of depreciation on Company cars — Rs. 7,76,47,184/-
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 confirming the disallowance of depreciation on cars purchased by the Appellant and provided to its employees for official purposes.
The Appellant craves leave to add, amend, delete, rectify, substitute and modify any of the aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing the appeal.”
On the other hand, the revenue has assailed the impugned order before us by raising the following grounds of appeal :
“On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below:
1. On the facts and the circumstances of the case and in law, the ld. CIT(A) erred in deciding Rs.854 million is unearned income as part of operating income of the current year under consideration.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in justifying in his findings that how unearned income which was not supported by required documents can be treated as operating income.
3. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in rejecting revenue contention on treatment given to M/s Accentia Technologies Ltd being in business of software business whereas assesse himself has submitted that M/s Accentia Technologies Ltd. is in 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 Rs.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 Rs.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 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 ”
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 and in law, the learned A.O has erred in passing the assessment order dated 5 January 2015 in the name of non-existent entity and would thus be non-est in the eyes of law.”
In the course of the hearing of the appeal, it was submitted by the ld. A.R that as the assessee by raising the aforesaid additional ground of appeal, has sought an adjudication of a legal issue the basis of the available on record, therefore, the same may be admitted. In support of his aforesaid contention the ld. A.R had relied on the judgments of the Hon‟ble Supreme Court in the case of viz. (i). Jute Corporation of India Ltd. Vs. CIT & Anr. (1991) 187 ITR 688 (SC); (ii). New India Industries Ltd. Vs. CIT (1994) 207 ITR 1010 (Guj); and (iii). Controller of Estate Duty Vs. R. Brahadeeswaran (1987) 163 ITR 680 (Mad). Relying on the aforesaid judgments, it was submitted by the ld. A.R that in the absence of any statutory provision, the appellate authority is vested with all the plenary powers, which the subordinate authority may have in the matter. Also, support was drawn by the ld. A.R from the judgment of the Hon‟ble Apex Court in the case of National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC). Relying on the said judgment, it was submitted by the ld. A.R that as held by the Hon‟ble Apex Court, the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee, notwithstanding the fact that same was not raised before the lower authorities. In the backdrop of his aforesaid contentions, it was submitted by the ld. A.R that as the adjudication of the aforesaid legal issue was based 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 Vs. Maruti Suzuki India Limited (Civil appeal No. 5409 of 2019, dated 25.07.2019). 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 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 Vs. 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, it was submitted by the ld. A.R that participation by the assessee in the assessment proceedings would not validate the assessment which was framed in the hands of a non-existent entity.
2. We have heard the authorized representatives for both the parties on the issue pertaining to the admission of the aforesaid additional ground of appeal. In our considered view, the assessee by raising the aforesaid additional ground of appeal has sought an adjudication of a legal issue on the basis of the facts already borne on record. In other words, the adjudication of the legal issue raised by the assessee would not require looking into any such fact which is not available on As submitted by the ld. A.R, the Hon‟ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC), had observed, that the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and have a bearing on the tax liability of the assessee, notwithstanding the fact that same was not raised before the lower authorities. Also, as observed by us hereinabove, the Hon‟ble Apex Court in the case of Jute Corporation of India Ltd. Vs. CIT & Anr. (1991) 187 ITR 688 (SC, had held, that in the absence of any statutory provision, the appellate authority is vested with all the plenary powers, which the subordinate authority may have in the matter. As regards the objection of the revenue that now when the assessee had participated in the assessment proceedings, it could thereafter not be permitted to assail the validity of the assessment on a technical issue, and that too after a substantial 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 Vs. 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 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 08.03.2011. 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 24.06.1987, were to undertake design and development of system and application software either for its own use or for export. On 15.07.1991 the company changed its name to M/s Satyam Computers Services Ltd. AS on 07.01.2009 Shri B. Ramalinga Raju, the then chairman of Satyam Computers Services Ltd. addressed a confessional letter to the board of directors and brought certain serious infirmities to their notice (i). inflated (non-existent) cash and bank balance of Rs. 5,040 Crores (as against 5,361 Crores reflected in the books of account; (ii). accrued interest of Rs. 376 Crores which was non-existent; (iii). understatement of liabilities of Rs. 1,230 Crores on account of funds arranged by him; and (iv). overstated debtors of Rs. 490 Crores (as against Rs. 2,651 Crores reflected in the books of accounts). In the backdrop of the aforesaid facts, the Government of India appointed a board to help the company to steer through the crisis. In April, 2009, Venturbay Consultant Pvt. Ltd. i.e a 100% subsidiary of Tech Mahindra merged as a successful bidder in acquisition of Satyam Computers Services Ltd. Subsequently, the assessee viz. Satyam Computers Services Ltd. w.e.f 01.04.2011 merged with M/s Tech Mahindra Ltd. After the said merger, all the proceedings against Satyam Computer Services Ltd. were taken over by Tech Mahindra Ltd.
5. 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 29.01.2014 suggested adjustment of Rs. 24,01,91,345/- to the Arm‟s Length Price (for short “ALP”) of the International transactions carried out by the assessee during the year, as under:
