In a significant ruling, the Delhi High Court on January 17, 2025, dismissed an appeal by the Principal Commissioner of Income Tax against Vedanta Limited, holding that framing a transfer pricing order against a non-existent entity constitutes a fundamental flaw, not curable under the Income Tax Act, 1961, in confirmation with and conformity to the Maruti Suzuki ruling by the Supreme Court.
The appeal in question arose from an order by the Income Tax Appellate Tribunal ( ITAT ) concerning Vedanta Limited. The issue originated when Cairn India Limited merged with Vedanta on April 1, 2017, creating a new legal entity. Despite this, the Transfer Pricing Officer ( TPO ) issued an order in October 2018 against the dissolved Cairn entity, despite being informed of the merger.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The assessing officer subsequently issued a draft assessment order styled as “M/s Vedanta Limited (formerly known as Cairn India Ltd.)” without recognizing the merged entity’s distinct legal status. Rectification attempts under Sections 154 and 292B of the Income Tax Act were deemed insufficient by the respondent and the court.
The Principal Commissioner argued that the error in naming the entity was clerical, relying on Sky Light Hospitality LLP vs. ACIT. However, Vedanta’s counsel highlighted the inherent illegality in proceeding against a non-existent entity, citing Maruti Suzuki.
The bench noted that, the merger and resultant change in entity status were duly communicated to the tax authorities. Further, framing an assessment order in the name of a dissolved entity, even with rectifications, violates the principles of natural justice and statutory compliance.
It was further noted that unlike Sky Light, where the errors were deemed clerical, this case involved substantive non-compliance.
The court concluded that the mistake could not be rectified under Sections 154 or 292B, as it represented a jurisdictional error. Thus, it dismissed the appeal in favor of Vedanta, reinforcing the precedent that orders against non-existent entities are invalid.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The High Court ruled, framing a firm precedent for entities undergoing mergers or reorganizations, ensuring that tax authorities adhere to the correct legal identity of assesses.
In the recent ruling, the Division Bench of Delhi High Court held that, without any intent to assess the resultant entity, the transfer pricing order could neither have been rectified nor would it be saved by Section 292B of the Income Tax Act, in reference to the transfer pricing order issued against a non-existent entity.
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