Intas Lifesciences Vs ACIT (ITAT Ahmedabad)
The issue under consideration is whether AO is correct in issuing notice u/s 143(2) in the name of erstwhile partnership firm which was a non-existent entity at that point of time?
ITAT states that coming to the legality of order framed by the AO under section 143(3) read with section 92CA(3) of the Act vide order dated 06-02-2017, in this regard we note that the AO on the first page of his order has mentioned the name of Intas Pharmaceuticals which was a partnership firm. Thus it is clear that the assessment order was framed in the name of non-existent entity (Intas Pharmaceuticals) as the Intas Pharmaceuticals was amalgamated with Intas Pharmaceutical Ltd w.e.f. 01-04-2014 by the order of the Hon’ble Gujarat High Court dated 28-09-2015 and subsequently intimated to the Department vide letter dated 30-10-2015. However, it is undisputed fact that at the time of issue of notice under section 143(2) of the Act, the firm i.e. Intas Pharmaceuticals was not amalgamated but the assessment order was framed after amalgamation in the name of Intas Pharmaceuticals which was not existing at the relevant point of time. ITAT further note that the Department was aware about the amalgamation of the firm before framing the assessment order as the assessee intimated to the department as well as Hon’ble High Court also called the comments from the Department on the proposed scheme of amalgamation. Thus we can say that the provision of section 292B of the Act will not be applicable to the assessee as it is not a curable defect/mistake. Hence assessment framed on erstwhile partnership firm which was a non-existent entity was void ab initio.
FULL TEXT OF THE ITAT JUDGEMENT
Both captioned appeals have been filed at the instance of the assessee against the common order of the Commissioner of Income Tax (Appeals)-5, Ahmedabad (CIT(A) in short) dated 25/03/2019 relevant to Assessment Years (AY) 2013-14 & 2014-15.
2. The assessee has raised the following grounds of appeal:
“1. Grounds pertaining to Transfer Pricing Adjustments.
The Ld. CIT(A) have erred on the facts, in circumstances of the case and in law in confirming an upward transfer pricing adjustment as under:
Transfer pricing adjustment on specified domestic transactions of sale of finished goods undertaken with the AE – Rs 192,84,97,000/-
a) In the facts and circumstances of the case and in law, the CIT(A) has erred in not appreciating that in the facts of present case both appellant and Intas Pharmaceuticals Limited (herein after referred “IPL”) were paying AMT/MAT and therefore in absence of tax arbitrage, the provisions of specified domestic transactions would not apply to transaction of purchase of finished goods from the IP Firm.
b) Assuming but not accepting and without prejudice to Ground No. 1 (a), in the facts and circumstances of the case and in law, the learned CIT(A) ought to have appreciated that IPL, which fulfils the conditions of selection of the tested party as laid down under Rule 10B of the Income Tax Rules and whose data regarding the comparable companies and the comparable uncontrolled transactions were more reliably available should be considered as a tested party
c) That in the facts and circumstances of the case and in law, the learned CIT(A) erred in not appreciating the fact that the AO/TPO has failed to find out appropriate comparable for IP Firm and benchmarked the IP Firm with entities whose Functions, Assets and Risk (‘FAR’) Analysis and business profile was more akin to the appellant company and which were used by the appellant company as comparable entity in its TP documentation.
d) That in the facts and circumstances of the case, the learned CIT(A) wholly erred in incorrectly observing that “it is noted after few years, the appellant merged into the flagship concern, which shows the intention of the appellant. As, the appellant failed to take benefit out of the said scheme of arrangement of claiming deduction in one unit and taking benefit in both units were detected by the revenue, the appellant subsequently merged two entities into one concern.)
e) That in the facts and circumstances of the case and in law, the learned CIT(A) while giving incorrect observation as stated in Ground No. 1 (d) failed to appreciate that the appellant merged with effect from 1st April 2014 into Intas Pharmaceuticals Limited/IPL as per scheme of amalgamation sanction by order passed by Hon’ble Gujarat High Court on 1st October 2015, whereas the first order proposing transfer pricing adjustment was passed by TPO on 31st October 2016. Further, the deduction/tax holiday under section 8QIC/80IE qua undertaking and not qua assessee and therefore post amalgamation o f appellant into IPL, the IPL continued to enjoy the tax holiday and the tax department also allowed benefit of the same in hands of IPL while passing assessment order for AY 2015-16. – 3 –
f) That in the facts and circumstances of the case and in law, the learned CIT(A) further erred in ignoring the fact that under secondary analysis, the appellant and IPL has substantiated the ALP under internal Resale Price Method by benchmarking gross margin earned IPL in reselling the products bought from IP Firm vis a vis the gross margin earned by it in reselling the products bought from third parties.
2. Grounds pertaining to Corporate tax adjustment consequent to upward Transfer Pricing adjustment as per Ground 1.
a) In the facts and circumstances of the case, the learned CIT(A) has erred in confirming the view of the AO erred that due to close connection, the appellant earned more than ordinary profit of Rs.182,95,73,261/- and consequently making upward adjustment of Rs.176,44,41,970/- to the Total Income by recomputing the deductions under section 80IC and 80IE of the Act.
3. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order.
5. In the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming action of the ld. AO in initiating penalty u/s. 271(1)(c) o f the Act. ”
3. The assessee has raised the following additional ground of appeal vide letter dated NIL.
“1. On the facts and in the circumstances of the case, the order passed by the Assessing Officer u/s.143(3) r.w.s. 92CA(4) of the I.T. Act dated 6.2.2017 is bad in law and ab initio void for the reason that the assessment order has been passed in the name of the erstwhile partnership firm M/s. Intas Pharmaceuticals where as on the date of the assessment the said partnership firm had already merged with Intas Pharmaceuticals Ltd. which is a company incorporated under the relevant provisions of the Companies Act.
2. Following from the preceding Ground No.1 the impugned assessment order dated 6.2.2017 deserves to be quashed and vacated.
3. On the facts and in the circumstances of the case, the order dated 25.3.2019 passed by the learned CIT(A) is bad in law and void ab initio for the reason that the said order has been passed in the name of M/s. Intas Lifesciences (previously known as Intas Pharmaceuticals), whereas the said firm was not in existence at the time of passing of the appellate order and it had already merged with Intas Pharmaceuticals Ltd. which is a company incorporated under the relevant provisions of the Companies Act.
4. Following from the preceding Ground No.3, the impugned appellate order also requires to be quashed and vacated. ”
4. First, we take up the additional ground of appeal raised by the assessee challenging the validity of the assessment on the reasoning that it was framed in the name of non-existent company.
5. The facts in brief are that the assessee is a Private Limited Company and the assessee was erstwhile Partnership Firm namely Intas Pharmaceuticals. The assessee is engaged in the business of manufacturing of Pharmaceuticals Products. The assessee was eligible to claim the deduction under section 80IC and 80IE of the Act. The assessee, however, in the year under consideration was subject to scrutiny assessment involving the issue of the determination of the arm’s length price in relation to transactions covered under specified domestic transaction. The assessee in the meantime got amalgamated with Intas Pharmaceuticals Limited which was intimated to the TPO vide letter dated 30-10-2015 by the assessee. However the AO framed the assessment order dated 06-02-2017 under section 143(3) read with section 92CA (3) of the Act in the name of the firm namely M/s Intas Pharmaceuticals which was a nonexistent entity at that point of time. The AO framed the assessment order under section 143(3) read with section 92CA(3) of the Act by making addition to the total income amounting to Rs. 176,44,41,970/- only.
6. The Ld. AR before us has challenged the validity of the assessment order framed by the AO under section 143(3) read with section 92CA(3) of the Act dated 06-02-2017 on the reasoning that it was framed on erstwhile partnership firm which was a non-existent entity at that point of time. The submission of the assessee stands as under:
“1. Appeals against the orders of the learned CIT(A) for the assessment Years 2013-14 and 2014-15 have been filed before this Hon’ble Tribunal which are pending as of now being ITA No. 677/Ahd/2019 for the Assessment Year 201314 and ITA No. 678/Ahd/2019 for the Assessment Year 2014-15. Subsequent to the Filing of the aforesaid appeals the appellant has been advised that an important legal issue was left out inadvertently from the Grounds of Appea l originally raised before this Hon’ble Tribunal. This issue is a purely legal issue and, therefore, additional grounds of appeal are being now filed before this Hon’ble Tribunal with a prayer that the same may kindly be admitted and decided on merits. As per the additional grounds of appeal it has been submitted that the impugned assessment orders as well as the appellate orders have been passed in the name of the erstwhile partnership firm which no more existed on the relevant dates of passing of the relevant orders which means that the said orders have been passed in the names of non-existing entities. It is submitted that for this reason the orders are nullity in the eyes of law and, therefore, these orders deserve to be quashed being bad in law.
2. The relevant facts briefly stated are as under:-
(1) Intas Pharmaceutical (herein after referred as “IP Firm”] was in existence in the form of a partnership firm, dated 1st December 2005, under the provisions of the Indian Partnership Act, 1932.
(ii) Name of “Intas Lifesciences” with effect from 28th February 2015.
(iii) Intas Lifesciences, the said partnership firm has been converted into a private limited company, in the name of Intas Lifesciences Private Limited [herein after referred as “ILPL)”, with effect from 7th May 2015, in compliance with the provisions of Chapter XXI of the Companies Act, 2013.
(iv) The Board of Directors of ILPL and Intas Pharmaceuticals Limited (herein after referred as “IPL”J in their meeting held on 12.3.2015 granted in principle approval for amalgamation of ILPL with IPL.
(v) The scheme of amalgamation was approved by the Board of Directors in their meeting held on 9.7.2015 with appointed date being 1.4.2014.
(vi) Then after the said scheme of amalgamation was filed with Hon’ble Gujarat High Court.
(vii) The Hon’ble High Court on admitting the petition of ILPL and IPL seeking sanctioning of scheme of amalgamation, directed issuance o f notice/serving notice of hearing to Central Government i.e. Regional Director to whom power of Central Government are delegated and Official Liquidator. In terms of General Circular No.l of 2014 dated 15th January 2014 issued by Ministry of Corporate Affairs, Government o f India, invited views/objection/specific comments from the Income Tax Department on the proposed scheme of amalgamation vide his letter dated 14th August 2015.
(viii) The Hon’ble Gujarat High Court sanctioned the scheme o f amalgamation of ILPL with IPL, vide its order dated 28th September 2015, after taking into account the clearance/no objection given by the Regional Director and the Official Liquidator.
(ix) Vide letter dated October 30, 2015, it was intimated to the department that name of M/s Intas Pharmaceuticals [the assessee / partnership firm) was changed to M/s Intas Lifesciences, which was then converted into private limited company as per the provisions of Companies Act, 2013 as M/s Intas Lifesciences Private Limited. Later on the as per the scheme of amalgamation approved by the Hon’ble Gujarat High Court, M/s Intas Lifesciences Private Limited merged / amalgamated with M/s Intas Pharmaceuticals Limited. As per the scheme approved/sanctioned by the Hon’ble Gujarat Hight Court, the appointed date was 1st April 2014. In view of above, the income of M/s Intas Lifesciences Private Limited was merged with the income of M/s Intas Pharmaceuticals Limited w.e.f. 1st April 2014.
3. It may be mentioned that the Hon’ble High Court of Gujarat disposed off the relevant Petition No. 267 of 2015 and the Application No.237 of 2015 with Company Petition No. 268 of 2015 and Application No. 238 of 2015 vide judgement dated 28th September, 2015 and the relevant observations of the Hon’ble High Court are reproduced below for ready reference from para-11 o f the judgement:-
“11. Considering the entire facts and circumstances of the case and on perusal of the Scheme and the proceedings, it appears that the requirements of the provisions of sections 391 to 394 of the Companies Act, 1956 are satisfied. The Scheme is genuine and bona fide and in the interest of the shareholders and creditors. I, therefore, accordingly allow the company Petitions and approve the Scheme. The Scheme is hereby sanctioned. Prayers made in the respective Company Petitions are hereby granted. “
4. From the above, it may kindly be appreciated that from the date of the High Court’s order viz. 28th September, 2015 the earlier entity which was a partnership firm got merged with a limited company and, therefore, it is a legal requirement that any order passed under any of the statutory provisions of the Income-tax Act must be passed in the name of the new entity and if any such order is passed in the name of the non-existent entity such order has to be treated as illegal and ab initio void. The appellant strongly relies on the recent judgement of the Hon’ble Supreme Court in the case of PCIT vs. Maruti Suzuki India Ltd. [2019] 107 com 375 (SC) / [2019] 416 ITR 613 (SC). For ready reference, the facts and the ratio of the aforesaid Apex Court judgement are reproduced below from the Headnote:-
“FACTS
