Monday, June 8, 2009

Assessment after merger with another company - Company no longer in existence cannot be an assessee by any stretch of imagination: ITAT

BANGALORE, JUNE 08, 2009: THE assessee as well as the Revenue are aggrieved by the decision of CIT( A)'s impugned order on which both the parties preferred these appeals.

M/s Software & Silcon Systems India Pvt. Limited ( SSSIPL ) was in the business of software services. By virtue of a scheme of amalgamation, the SSSIPL along with another company, called, Trillium software systems India Pvt. Ltd had merged with Intel Technology India Pvt. Limited ( ITIPL ), the appointed date being 1.4.2004. SSSIPL , for the AY 2003-04 (for the previous year 1.4.2002 to 31.3.2003), had furnished its return of income on 28.11.2003 admitting a total loss of Rs.28 ,26,310 /- and book profits u/s 115JB of Rs.3,89,211 . After proceeding its return u/s 143(1), the same was subjected to scrutiny and, accordingly, the assessment concluded, resulting in assessable total income of Rs.19,50,84,606 /-.

Aggrieved, the assessee had approached the CIT(A) pleading that since the assessee [ SSSIPL ] had ceased to exist consequent of its amalgamation with the ITIPL w.e.f . 1.4.2004, the impugned order dated 27.3.2006 passed by the AO was without jurisdiction. The jurisdiction to assess the ITIPL was vested with the Ward 11(2), Bangalore and the impugned order passed by the ACIT , C 12(2) who had no jurisdiction to assess the ITIPL and, hence, the impugned order in question was bad in law. After much deliberations, the CIT( A) had concluded.

"3.4......But, other facts of the case are that the appellant having income-tax liability and attendant income-tax implications for the AY under appeal being prior to the AD of the amalgamation is also not disputed by it The appellant had voluntarily furnished its return, in its former name of SSIPL , in respect of which scrutiny proceedings were initiated on 16/2/2004-which was also prior to the AD. The appellant had participated in the scrutiny proceedings without raising any objection. Thus, on the facts of the case, the appellant was assessable to income-tax to determine its tax liability, if any, for the accounting period prior to the AD of amalgamation. Therefore, the AO, who had the jurisdiction to assess the appellant, in its former name of SSIPL , had rightly assumed jurisdiction to assess it Accordingly , the impugned order is valid in law. In such view of the matter, the objection raised by the appellant, challenging the jurisdiction, is found untenable. Besides, the provisions of the section 292-B of the Act are also supportive to the proceedings initiated.........................."

Another effective ground was directed against the assessing of Rs.5 ,311 on the ground that the same representing the negative cash balance. The AO from the verification of the cash book/petty cash book had found deficit cash balance of Rs.5 ,311 as on 31.12.02. After discussions on the importance of cash book and stating that a big organization like that of the assessee's was supposed to keep its cash book in order and, hence, Rs.5 ,311 was added. After considering the rival submissions, the CIT( A) observed that considering the assessee's size of financial transactions and the assessee's own admission that the negative cash balance had arisen due to clerical error inadvertently, the addition was sustained.

With regard to charging of interest u/s 234B and u/s 234D , the ld.CIT(A) was of the view that charging of interest was mandatory and no appeal can lie against an order charging of interest u/s 234B and u/s 234D , if there were incidence, unless such charging is in contravention to the relevant section. However, he directed the AO to charge interest, if chargeable after considering the relief allowed in his impugned order.

The Revenue has raised three effective grounds which are as under:

In respect of treating the expenditure on purchase of application software as capital in nature, the AO had held that such software was used in its business as the assessee was providing software service; as such it was an asset with enduring benefit during the relevant previous year. The CIT( A), by placing reliance on the decision of ITAT, Bangalore Bench in assessee's own case for the AY 02-03 had observed that as the facts of the case are similar to that of the AY 02-03, directed the AO to allow the said expenditure on application software of Rs.20616386 as revenue expenses.

The assessee-company incurred various expenses under the head 'operating and other expenses'. The AO had disallowed 10% of the said expenditure (excluding software expenses) on the ground that most of the expenses debited are expenses paid to M/s. Intel Technology India Pvt. Ltd., Since these expenses are paid to the holding company, 10% of such expenses are treated as incidental to the business. The CIT( A), in his order held that ad hoc disallowance is not sustainable as the AO instead of verifying the genuineness, unreasonableness, excessiveness of the said expenses, has acted arbitrarily and disallowed 10% without any basis or reason.

In deleting the addition on account of disallowance of international relocation expenses, the CIT had reasoned that this disallowance was made with a cryptic observation that the same was incurred on employees of the ITIPL . In view of the AO had failed to substantiate his action in disallowing the said expenses even in his remand report, the CIT(A) went on to delete the disputed disallowance.

Aggrieved by the action of the CIT( A), both parties, the Revenue as well as the assessee have come up with their respective appeals before the Tribunal.

The Tribunal observed, “The Scheme of Amalgamation was in effect from 1st April, 2004. The AO was duly informed by the assessee vide its letter dated 29/6/2004 addressed to the ACIT , Circle 12(2), Bangalore which has been duly acknowledged by the latter. This goes to prove beyond doubt that the AO was well aware of the fact that the assessee was in non-existence as on the dates on which the assessment proceedings have taken place and subsequent order passed. The company which was no longer in existence cannot be an assessee in any stretch of imagination”.

In over all consideration of the facts and circumstances of the issue and respectfully following the decisions, ITAT was of the considered view that the assessment order passed by the AO was null and void and without jurisdiction and, therefore, cancelled.

Since the Tribunal cancelled the assessment order as null and void, Tribunal was not inclined to adjudicate the other grounds raised either by the assessee or by the Revenue as they have become infructuous.

In the result, the assessee's appeal is allowed and the Revenue's appeal is dismissed as infructuous .

(See 2009-TIOL-342-ITAT-BANG in 'Income Tax')

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