By harshita agarwal and raj aryan, third-year and fourth-year students at ms ramaiah college of law, bangalore and llyod law college, respectively
It is well-settled under Section 232(9)(c) of the Companies Act, 2013, that after a merger between two or more entities, all the legal proceedings in the name of blending entities pending or arising before the effective date of the deal will be enforced against the name of the blended entity. Any legal proceedings initiated against the blending entities individually would be considered void ab-initio. Surprisingly, Income Tax Appellate Tribunal, New Delhi (“Delhi ITAT”) recently in the case of Boeing India Pvt. Ltd (Successor v. Acit Circle- 5(1), New Delhi on 17 August 2020 (“Boeing India case”) came across the same issue wherein the Assessing Officer (“AO”) as per above law erred in taking into consideration that after a merger no legal proceedings can be initiated against the name of blending company which have lost its existence after the merger.
In this blog, the authors critically analyse the issue of whether the jurisdictional defects in the later stages of the proceedings can be remedied under the law in the light of the Boeing India case. Further, the authors analyse whether proceedings under Section 144C of the Income Tax Act, 1961 (“the Act”) can be initiated on the ambivalence of jurisdictional validity of the assessment order.
Factual Matrix of the Case
Boeing India Pvt. Ltd.(“BIPL/Appellant”) notified its merger with Boeing International Corporation India Private Limited (“BICIPL”) to the Regional Director. The effective date of this scheme was 15.02.2018. On 10.04.2018 the Appellant apprised the AO that the BICIPL was dissolved and all the legal proceedings after the merger will be initiated or transferred in the name of the BIPL. Further, on 19.10.2018 the Transfer Pricing Officer (“TPO”) under Section 92 CA(3) of the Act drafted an order determining the arm’s length price of the international transaction of BICIPL with its Associated Enterprise in the name of the Appellant. But later the AO issued the draft assessment order in the name of a non-existent company i.e., BICIPL. On appeal to the Dispute Resolution Panel (“DRP”), it turned the deaf ear to the Appellant’s appeal. Aggrieved by the DRP order, the Appellant approached the ITAT Delhi claiming that there exists a jurisdictional defect in the draft assessment order. In this case, the Tribunal strived to discuss whether the jurisdictional defects can be remedied under assessment proceedings of Section 144C of the Act .
Understanding the legal anatomy of Section 144C assessment proceedings
Firstly, while referring to any issue before DRP, the procedure embodied under Section 144C of the Act needs to comply. Under Section 144C(1) of the Act, the AO needs to frame the draft assessment order in the name of the ‘eligible assessee’. The draft assessment order constitutes the foundational structure before inbounding into further procedural aspects under the Act. For better clarity, it is pertinent to note the definition of the eligible assessee. The definition is under Section 144C(15)(b) in accordance to which an ‘eligible assessee’ is any person whose variation of income or expenses arises as a consequence of the TPO’s order passed under Section 92CA(3). As per the definition outlined above, the eligible assessee before the merger was BICIPL. However, after the merger, it is BIPL. In the instant case, the AO defaulted in addressing the concerned person, thereby causing a jurisdictional defect.
The DRP obviated that the defect can be remedied in the further proceedings under the Act. However, the DRP’s order under Section 144C(5) lacked legal standing as firstly, Section 144C(3) specifies that the final assessment order needs to be drafted based on the draft assessment order. Secondly, Section 144C(2) narrows down the order of DRP as according to this sub-section, once the draft assessment order has been framed then the immunity to accept or change it lies in the hands of the assessee only. In other words, the AO’s power to make further changes in the draft assessment order is inhibited. While drawing reference to the above contention, reliance can be placed in the case of Turner International Pvt. Ltd v. DCIT wherein the Hon’ble High Court ruled that failure in complying with Section 144C(1) will make the whole final assessment proceedings void. The act of the AO outbroke the foundational structure of Section 144C, thereby making the entire proceedings null and void.
Remedying the jurisdictional defect under Section 144C
In the second contention of remedying the jurisdictional defect under Section 144C of the Act, it is pertinent to ponder over the question of whether all the procedural mistakes can be remedied under the Act. For this, it is necessary to first understand the comparative analysis of jurisdictional defects between the initial stages and later stages of the proceedings.
To understand the comparative analysis of the jurisdictional defect between the initial stages and later stages of the proceedings under the Act, it is pertinent to canvass the ruling of Sky Light Hospitality LLP v. Acit (“Sky Light Hospitality LLP case”) to distinguish the procedural matter in the beginning and later stages of the proceedings. In this case, the AO committed a mistake by issuing notice under Section 148 of the Act, under the name of the non-existent company. Based on the above facts, the Delhi High Court ruled that the procedural mistakes at the beginning of the proceedings can be cured under Section 292B, as it does not form the root of the matter. The Delhi ITAT in Boeing India case construed that the Sky Light Hospitality LLP case was distinguishable to the instant case as in the above case the procedural defect happened at the initial stages of the proceedings, thereby not affecting the root of the proceeding. However, where the defect occurs at the later stages of the proceedings, the mandatory requirement to complete the assessment proceedings under Section 144C of the Act is contravened, thus vitiating the final proceedings in-toto.
In this case, the draft assessment order has not been treated as a mere irregularity but as incurable illegality . The reference to the above can be drawn from the case of The Asst. Commissioner Of Income v. Vijay Television Private Ltd. wherein the court held: “Section 292B of the Act cannot be read to confer jurisdiction where none exists.” Further, the Circular No.179 dated 30 September, 1975 has limited the scope of Section 292B of the Act to rectify the mistakes of notices, the return of income, assessment, summons, or other proceedings only if they are in substance form and do not deviate from the intent or purpose of the Act. The jurisdictional defect is outside the intent of the Income Tax Act, 1961, thereby excluding such defect from Section 292B of the Act.
In other words, the basis of refusal to remedy the jurisdictional defect lies in the context that Section 292B can be invoked only when there subsists technical irregularity in the order but not in the stance where there exists wrong jurisdiction. Thus, this made it clear that the jurisdictional defect cannot be cured under Section 292B of the Act.
The enforceability of law demands the requisite of valid jurisdiction. To invoke the provisions of any law in India, a person is required to satisfy all the jurisdictional requirements set down by the laws in India. The failure of valid jurisdiction will allow the courts or tribunals to repudiate the validity of any order, plea, petition, or any case. The Delhi ITAT’s stern response to the jurisdictional defect under Section 144C (1) of the Act envisaged that jurisdictional defect cannot be sustained by any court in India. This even implies to all the authorities and regulatory bodies in India. This case had further drawn light on the procedural mistakes in the assessment proceedings that can be cured under Section 292B of the Act and the procedural mistakes in the assessment proceedings that cannot be cured under Section 292B of the Act by differentiating them as procedural mistakes at the initial and later stages of the assessment proceedings.
The second loophole that subsists in this case was the lack of independence of DRP. The DRP, in this case, intentionally supported the Department Representative in the procedural mistake under Section 144C (1) of the Act even after being acquiescent to the fact that there was a jurisdictional defect in the draft assessment order. This connotes that the DRP overlook the procedural irregularities of the case, which can affect the tax adjudication in India. It is a need of an hour that even DRP should look into technical intricacies of the case before adjudicating any dispute.