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April 20, 2022

Reassessment of income tax against a non-existing entity is null and void from the start.

by CA Shivam Jaiswal in Income Tax

Reassessment of income tax against a non-existing entity is null and void from the start.

Facts and Issue of the case

The assessee filed its return of income declaring loss of Rs. 29,290/- on 28.11.2006. The return was processed under section  143(1)  of  the Income Tax Act, 1961 (the “Act”) on 19.07.2007.

The assessee appealed before the Ld. CIT(A) who vide his appellate order dated 05.09.2016 dismissed the appeal of the assessee. Aggrieved, the assessee filed appeal before the Tribunal on 30.11.2016 challenging the appellate order on 14 grounds which read as under :-

  • The order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad, both in the eye of law and on the facts.
  • The  learned  CIT(A)  has erred, both on facts and in law, in rejecting the contention of  the assessee that the initiation of the proceedings under Section 147, read with Section 148, is bad and liable to be quashed as the condition and procedure prescribed under the statute have not been satisfied and complied with.
  • The  learned  CIT(A)  has erred both on facts and in law in rejecting the contention of the assessee that the reassessment proceedings initiated by the learned A.O. are bad in the eye of law as the reasons recorded for the issue  of  notice  under  Section 148  are bad in the eye of law and are contrary to the facts.
  • The learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the order passed by learned A.O. is bad both in the eye of law and on facts as the same has been reopened on the basis of reasons without there being any whisper that the income has escaped due to the failure on part  of  the assessee to disclose fully and truly all material facts necessary for assessment, as the same has been reopened after a period of four years from the end of relevant assessment year and the assessment has already been made under Section 143(3).
  • The learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the order passed by learned A.O. is bad both  in  the  eye of  law and on facts, as the assessee had already disclosed fully and truly all material facts necessary for the assessment under Section 143(3).
  • The learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the order passed by learned A.O. under Section 147 is bad both in the eye of law and on facts, as the same has been passed without service of statutory notice under section 148.
  • The  learned  CIT(A)  has erred both on facts and in law in rejecting the contention of the assessee that the order passed by  AO is bad both in  the eye of  law and  on facts as the same has been passed without receiving statutory notices under section 143(2) of the Act.
  • The learned  CIT(A)  has erred both on facts and in law in confirming the addition of Rs.2,10,00,000/- made by AO on account of share capital under section 68 of the Act.
  • The  learned  CIT(A)  has erred both on facts and in law in rejecting the explanation and  evidences brought on record  by  the  assessee  to prove the  identity  and creditworthiness of the shareholder as well as genuineness of the transaction.
  • The  learned  CIT(A)  has erred both on facts and in law in confirming the addition despite the fact that the same has been made by the AO without bringing any adverse material on record or to point out any defect in the evidences filed by the assessee.
  • The  learned  CIT(A)  has erred both on facts and in law in confirming the addition despite the fact that even after having served the notices under section 133(6) of  the Act, the AO could not bring the investigation to its logical end.
  • The  learned  CIT(A)  has erred both on facts and in law in confirming the addition despite the  same having been made on the basis of material  collected  at  the  back  of  the assessee without giving him an opportunity to rebut the same.
  • The  learned  CIT(A)  has erred both on facts and in law in confirming the addition by rejecting the contention of the assessee  that  no  adverse  inference  can  be  drawn  against the assessee on the basis of some statement recorded without giving assessee an opportunity to cross examine.
  • The appellant craves leave to add, amend or alter any of the grounds of appeal.

The hearing before the Tribunal was fixed  for  11.01.2021.  In  the meantime, by the letter dated 04.01.2021 addressed  to  the  Registrar, ITAT the assessee’s AR submitted that the assessee has been merged with M/s. Shark Packaging (India) Private Limited w.e.f. 01.04.2008 vide order dated 21.01.2011 passed by the Hon’ble Delhi High Court under section 394 of the Companies Act, 1956 and requested that the above fact be taken on record. Revised Form No. 36 and application for admission of additional grounds of appeal stating therein that while filing an appeal on 30.11.2016 the assessee has left out the grounds of appeal on one of the legal  issues pertaining to reopening under section 147 read with section 148 of the Act. It was requested that the additional grounds No. 15 and 16 mentioned below be admitted as these legal grounds go to the root of the matter and all the facts relating thereto are already on record.

  • On the facts and circumstances of the case, the  learned  CIT(A)  has erred, both on facts and in law, in confirming the order passed by the AO u/s 147/143(3), despite the fact that the same being passed in the name of a non existent entity, is illegal and void ab-initio.
  • On the circumstances and facts of the case, the reassessment framed in the name of M/s. Savera Marketing Pvt. Ltd. which had since amalgamated with M/s. Shark Packaging (India) Pvt. Ltd. and had ceased to exist in the eye of law, was non est.

Observation of the court

Court finds that the assessee’s original appeal filed before the Tribunal on 30.11.2016 stands revised and revised Form No. 36 along with additional grounds of appeal has been filed before the Tribunal on 04.01.2021. In the peculiar facts and circumstances of the case, we allowed the appellant assessee to do so. But we refrain from adjudicating the 14 grounds taken by the assessee in the pre revised Form No. 36 filed on 30.11.2016 and dismiss the appeal for statistical purposes. Court now proceeds to deal with the additional grounds taken in  the revised Form No. 36. In the revised Form No. 36, the  name of the  appellant has been modified as “Savera Marketing Pvt. Ltd. (now merged with  M/s. Shark Packaging (India) Pvt. Ltd.)”. The additional grounds no.  15  and  16 have already been reproduced earlier in para 4 above.

After hearing the Ld. Representative of the parties, court admits the additional grounds raised by the assessee agreeing with the submission of the Ld. AR that these grounds are legal grounds going to the  root  of  the matter and all the facts to consider them are already on record. We place reliance on the judgment  of  the Hon’ble  Supreme  Court  in  National Thermal Power Co. Ltd. vs. CIT [(1998) 229 ITR 383 (SC)]  wherein  the Hon’ble Supreme Court observed that undoubtedly, the Tribunal has the discretion to allow or not to allow new ground to be raised. But where the Tribunal is only required to consider a question of law arising from  facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.

The question of law  which emanates from the additional ground is that the impugned reassessment order under section 147/143(3) passed by  the Ld. AO on 10.03.2014 is illegal and ab-initio void as  the  same  has  been passed in the name of M/s. Savera Marketing Pvt. Ltd. a non-existing entity which had since  been amalgamated with M/s. Shark Packaging (India) Pvt. Ltd. and has ceased to exist in the eye of law. The Ld. AR submitted a Paper Book consisting of 48 pages which throw light on the factual matrix  of the case. He also filed a compilation of case laws relied upon by him.

Court has heard the submissions of the parties and have carefully considered their arguments, perused all the  material on  record  and  arrived at the conclusion that the assessee deserves to succeed for the reasons we proceed to record. Let the court recapitulate the facts culled from the material on record. The assessee company submitted its return for the assessment year 2006-07 on 28.11.2006. It was processed under section 143(1) of the Act on 19.07.2007. A very significant development took place when the assessee company got merged with M/s. Shark Packaging (India) Pvt. Ltd. w.e.f. 01.04.2008  under a scheme of amalgamation approved by the Hon’ble High Court of Delhi vide order dated 21.01.2011 under section 394 of the Companies Act, 1956. The legal effect of this event of amalgamation is that the  assessee  company became non-est entity in the eye of law having merged into another legal entity, namely the amalgamated company. Any proceeding initiated and / or taken against a merged non-est entity is illegal and void ab-initio. It  is now well settled principle of law that framing of assessment and / or proceedings against the non existing entity/ person is a jurisdictional defect as  there cannot be any assessment against a non-est entity. 

The facts of the case in hand on the touchstone of the legal position set out above. The  company Savera  Marketing Pvt. Ltd. ceased to exist w.e.f. 01.04.2008 as it was amalgamated with M/s. Shark Packaging (India) Pvt. Ltd. under a scheme of amalgamation approved by the Hon’ble Delhi High Court vide order dated 21.01.2011. It is forthcoming from the records that the amalgamated company namely, M/s. Shark Packaging (India) Pvt. Ltd. vide letter dated  18.06.2011 to  the  Ld. AO  intimated  him that M/s. Savera Marketing Pvt. Ltd. ( the assessee) has merged with M/s. Shark Packaging (India) Pvt. Ltd. pursuant to the  order dated 21.01.2011 of the Hon’ble Delhi High Court and requested him to cancel the PAN allotted to the assessee, M/s.  Savera  Marketing  Pvt.  Ltd.  Despite  this  information the Ld. AO proceeded to issue notice under section 148 dated 25.03.2013 in the name of non existing company and continued the reassessment proceedings by issue  of statutory notices under section 143(2) and 142(1) also in the name of non-existing company culminating in passing of reassessment order under section 147 read with section 143(3) of the Act on 10.03.2014. Relying on the judicial precedents (supra) mentioned in para 11 above, we have no hesitation in holding that Ld. AO was not within his jurisdiction to frame the reassessment in  the  name  of  non-existing  entity and such reassessment order dated 10.03.2014 is nullity and not sustainable in the eye of law. Consequently, the reassessment order dated 10.03.2014 passed by the Ld. AO in the name of M/s. Savera Marketing Pvt. Ltd. and confirmed by the Ld. CIT(A) vide his appellate order dated 05.09.2016 deserve to be quashed.

Conclusion

In the result, the additional grounds of appeal taken by the assessee before us are allowed. The other 14 grounds become infructuous.

Tahura-Enterprise-Vs-Union-of-India-Gujarat-High-Court-1

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