Assessment of a dissolved company is illegal

Brief of the case:

In the case of Advance India Projects Ltd. Vs. ACIT Delhi bench of ITAT have held that assessment upon a dissolved company is impermissible as there is no provision in Income-tax Act, 1961 to make an assessment thereupon. ITAT saw that the company, against which notice u/s 148 was issued along with assessee, had amalgamated in the assessee company. Further ITAT observed that there are many error in the issuance of notice and ITAT held that assessment is liable to quash.

Facts of the case:

• The assessee engaged in real estate business had filed its return of income at Rs.9,68,170 which was processed under sec. 143(1).
• Search was conducted on 18.1.2007 and assessment was framed under sec. 153A/143(3) of the Income-tax Act, 1961 on 31.12.2008 on the same income.
• On 30.3.2012, notice under sec. 148 of the Act was issued and reasons recorded were supplied to the assessee on 11.02.2013.
• Notice under sec. 142(1) of the Act was issued on 11.3.2013 along with query regarding investment of Rs.45 lacs and the reassessment was completed on 26.3.2013 under sec. 147/143(3) of the Act.
• In the reassessment, the AO made an addition of Rs.45 lacs under sec. 68 of the Act on account of alleged accommodation entries in respect of investment in the share capital.
• Magpie Projects Pvt. Ltd. was amalgamated w.e.f. 01.04.2011 with Advance India Projects Ltd.
• A notice u/s 148 was also issued against Magpie Projects Pvt. Ltd. on30.3.2012.

Contention of the assessee:

• Notice under sec. 148 was issued on 30.3.2012 i.e. after the expiry of four years from the end of the assessment year 2005-06.
• AO was required to obtain approval from the CIT u/s 151 (1) before issuance of notice under sec. 148 of the Act which was not obtained.
• CIT(A) had called for the assessment record and after examining it, he came to the conclusion that the approval was obtained from Additional CIT. Notice issued under sec. 148 was thus without jurisdiction.
• Reliance was placed on the decision of Hon’ble Bombay High Court in the case of Smt. Suman Waman Chaudhary, ITA No. 398 of 2001 where it was held that the notice issued under sec. 148 was without jurisdiction for want of prior approval of the concerned authority under sec. 151(2) of the Act. Further it was pointed out that SLP preferred by the Revenue against this decision has been rejected by the Hon’ble Supreme Court on 16.3.2009 in SLP(C) No. 6757 of 2009.
• In the reasons recorded, the AO had not indicated that income has escaped assessment by reasons of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment which is a pre-condition as per proviso to section 147 of the Act.
• “Reasons to Belief” based on confession from creditors without naming the assessee cannot lead to reasons to belief that income has escaped in the case of the assessee.
• Once search has been conducted and all the escaped income has been taxed under sec. 153A of the Act, there does not remain any scope for invocation of section 147.
• Perusal of the reasons indicate that notice under sec. 148 has been issued in a mechanical manner on the basis of vague information from Investigation Wing as the information is so vague that it does not even mention the names and addresses of the entities providing the so-called accommodation entries and the purpose for which they were provided i.e. loan, gift, investment etc.
• AO has not mentioned any material which led him to belief that the information received, is based on some relevant material and the income has escaped assessment.
• The reassessment order under sec. 147/143(3) of the Act is illegal as notice under sec. 143(2) was never issued, which is mandatory.
• Magpie Projects Pvt. Ltd. did not exist on the date of issuance of notice u/s 148 as it got amalgamated w.e.f. 20 01.04.2011 with Advance India Projects Ltd.
• Notice issued on non-existent company is illegal.
• Once it is found that assessment is framed in the name of non-existing entity, it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of sec. 292B of the Act.

Contention of the revenue:

• Statement of Mr. S.K. Gupta were recorded during the course of survey based upon which reasons to belief have been formed.
• It cannot be said that the information received by the Assessing Officer from the investigating wing of the department, that the income has escaped assessment, was not vague.
• As per the cited decisions by the assessee, AO has to demonstrate that there was failure on the part of the assessee to disclose fully and truly all the material facts necessary for its assessments and it is not required that the Assessing Officer should write it in specific phraseology that assessee has failed to disclose fully and truly all the material facts necessary for its assessment while recording reasons to belief.

Held by ITAT:

• The approval was obtained from the Additional CIT, has not been rebutted by the revenue.
• As no mandatory approval u/s 151 (1) was taken by AO hence, respectfully following the ratio laid down in the cited decision in the case Smt. Suman Waman Choudhury (supra) hold that the notice u/s 148 of the Act issued in the present case was without jurisdiction hence the assessment framed thereto is void ab inito and is thus quashed.
• AO had issued notice u/s 148 of the Act only on the basis of borrowed satisfaction of the ACIT and not on the basis of his own satisfaction.
• AO did not bother himself to verify the correctness of the information received by him but merely accepted the truth of the information in a mechanical manner.
• AO had issued notice u/s 148 in a mechanical manner on the basis of vague information from the investigation wing of the department. The assessee thus succeeds on this contention as well to arrive at a conclusion that notice issued u/s 148 was not valid.
• It was also observed that no notice u/s 143 (2) was issued in re assessment proceedings hence respectfully following the observation of Hon’ble Supreme Court in the case of ACIT Vs. Hotel Blue Moon (321 ITR 362 (SC)) ITAT concur with the contention of the assessee and hold that in absence of issuance of notice u/s 143(2) of the Act, the assessment in question framed u/s 147/ 143(3) of the Act is void ab initio.
• Notice issued under sec. 148 of the Act on non-existent company was illegal.
• The Hon’ble Supreme Court in the case of Saraswati Industrial Syndicate Ltd. vs. CIT ( 2002 – TIOL – 1048- SC-IT-LB) has been pleased to hold that the Hon’ble High Court was in error in holding that even after amalgamation of two companies, the parent company did not become nonexistent instead it continued its entity in a blended form with the assessee.
• The Hon’ble jurisdictional Delhi High Court in the case of CIT vs. Micron Steels Pvt. Ltd. (ITA No. 19/2014) held that on amalgamation, the company ceases to exist in the eyes of the law.
• Assessment upon a dissolved company is impermissible as there is no provision in Income-tax Act, 1961 to make an assessment thereupon.