An assessment order made against a nonexistent corporation is invalid

Fact and issue of the case

This is an appeal filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi, in proceeding u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B vide order dated 25th July, 2022 passed for the assessment year 2017-18.

The assessee has taken the following grounds of appeal:

“Each of the grounds of the appeal are independent and without prejudice to the others: General Ground On the facts and in the circumstances of the case and in law, the Learned Dispute Resolution Panel erred in confirming the addition proposed by the Learned. Assessing Officer (Ld. AO)/ Learned Transfer Pricing Officer (Ld. TPO) of INR 16,93,08,9877- to the income of the- Appellant.

The Appellant prays that the assessment proceedings be held as bad in law and as such deserve to be quashed.

Ground on validity of the order issued in the name of non-existent entity

On the facts and in the circumstances of the case and in law, the TPO erred in issuing the Transfer Pricing Order under section 92CA(3) of the Income-tax Act, 1961 (‘the Act’) on a non-existent company i.e. ‘Allscripts (India) Private Limitedç thus making the order passed by the Ld. TPO null and void.

The Appellant prays that since the order passed by the TPO is bad in law and deserves to be quashed, the Draft Assessment Order u/s 143(3) r.w. section 144C of the Act and the Final Assessment Order u/s 143(3) r.w. section 144C(13) of the Act are also bad in law and ought to be quashed.

On the facts and in the circumstances of the case and in law, the AO erred in issuing the Draft Assessment Order under section 143(3) read with section 144C(1) of the Act on a non-existent company i.e.’ Allscripts (India) Private Limitedç thus making the order passed by the Ld. AO null and void

The Appellant prays that the draft assessment order passed by the Ld. AO be held as bad in law, null and void-ab-initio and accordingly the Final Assessment Order u/s 143(3) r.w. section 144C(13) of the Act passed by the Ld. AO pursuant to the directions of the Ld. DRP is also liable to be quashed.

Transfer Pricing Adjustment in relation to provision of software development services

On the facts and in the circumstances of the case, and in law, Ld. AO/ Ld. Transfer Pricing Officer (TPO’), following the directions of DRP, erred in confirming the addition of INR 1 6,85,57,066/- to the total income of the Appellant by holding that the international transaction in relation to provision of software development services by the Appellant is not at arm’s length price as envisaged under the Act.

The Appellant prays that the Ld. TPO be directed to accept the book value of the aforesaid international transactions as the arm’s length price and accordingly, the Transfer Pricing (‘TP’) adjustment ought to be deleted.

Observation of the court

We have heard the rival contentions and perused the material on record. In the case of FedEx Express Transportation v. DCIT 108 taxmann.com 542 (Mumbai – Trib.), the ITAT held that where draft assessment order under section 144C was passed in name of amalgamating company, which was a non-existent entity in eyes of law on date of passing of such order, it became an illegal order and, thus, entire assessment proceedings based on such an invalid draft assessment order were void ab initio and deserved to be quashed. In the case of Siemens Ltd. v. DCIT 147 taxmann.com 118 (Mumbai – Trib.), the ITAT held that where draft assessment order under section 144C was passed in name of amalgamating company, which was a non-existent entity on date of passing of such order, it became an illegal order and thus, entire assessment proceedings based on such an invalid draft assessment order were void ab initio and deserved to be quashed. In the case of BOEING India (P.) Ltd. v. ACIT 121 taxmann.com 276 (Delhi – Trib.), the ITAT held that where draft assessment order under section 144C was passed in name of amalgamated company which was non-existent company, said order was void ab initio. In the case of PCIT v. Maruti Suzuki India Ltd107 taxmann.com 375 (SC), the Hon’ble Supreme Court held that where assessee company was amalgamated with another company and thereby lost its existence, assessment order passed subsequently in name of said non-existing entity, would be without jurisdiction and was to be set aside. In the case of Dimension Data Asia Pacific PTE Ltd. v. DCIT 96 taxmann.com 182 (Bombay), the Hon’ble High Court held that where in case of foreign assessee, Assessing Officer passed final assessment order under section 144C(13), read with section 143(3) without passing a draft assessment order under section 144C(1), said order being violative of provisions of section 144C(1), deserved to be set aside. In the case of Vedanta Ltd. v. ACIT 126 taxmann.com 283 (Delhi – Trib.), the ITAT held that Draft/final assessment order framed in name of non-existent entity is void ab initio and such order is not curable defect under section 292(b).

Now in the instant facts, we observe that the assessee had filed a formal intimation before the DCIT, Transfer Pricing on 11 September 2019 intimating that AIPL has been converted into LLP w.e.f. 21 March 2017 (copy of the same has been placed on record for our perusal). Further, the assessee had also filed letter dated 12 August 2019 before the ACIT, Circle 1(1)(1), Vadodara intimating him about the conversion of AIPL into LLP (copy of the letter has been placed on record for our perusal). Therefore, we observe that the fact of conversion of AIPL into LLP was intimated to both the Ld. Assessing Officer and the TPO much before passing of their respective orders, yet both the TPO and the Ld. Assessing Officer passed the Transfer Pricing Order and the draft assessment order in the name of a nonexistent entity. In our view, the view of the Courts and Tribunals on this issue is unanimous that once the draft assessment order and Transfer pricing order itself are bad in law, having been passed in the name of a non-existent entity, then the final assessment order based on the above orders is void ab initio as well. In view of the above settled position of law, we are of the view that the final assessment order sought to be appeal against is void and hence liable to be set aside.

In the result, Ground Number 2 of the assessee’s appeal challenging the validity of the order passed in the name of the non-existent entity is allowed.

Since, we have adjudicated the issue in favour of the assessee on the grounds of jurisdiction itself, we are not adjudicating on the other Grounds of Appeal filed by the assessee.

In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 08-05-2023