Punjab National Bank Vs ITO (Gujarat High Court)
Conclusion: An assessment order passed in the name of a non-existent entity, such as a company that has been amalgamated into another, was a fundamental jurisdictional error and was null and void from the beginning. Respondent income tax department was taking corrective proactive steps for resolution of the issues which were raised in this petition pertaining to initiation or proceedings on dead person/amalgamated companies or business and inactive or multiple PANs in the software system of the department.
Held: Assessee-bank, filed a writ petition because the Income Tax Department had passed an assessment order in the name of Oriental Bank of Commerce (OBC). OBC was a non-existent entity at the time the order was passed, as it had already merged with assessee bank. The department had been formally informed about this merger and the subsequent cancellation of OBC’s PAN. The fundamental error occurred because AO blindly followed the information available in the department’s software system without any independent application of mind or basic verification of the facts. High Court, taking a very serious view of this negligence which led to unnecessary litigation, initially issued a notice proposing to impose a heavy cost of ₹1 crore on the revenue department. Revenue department filed an affidavit in which it tendered an unconditional apology, explained the corrective and proactive steps it was taking to update its systems to prevent such errors, and informed the court that administrative action had been initiated against the officer at fault. It was held that the Jurisdictional AO were acting as a tool of the software system to initiate the proceedings rather than taking information as only the basis, without conducting any inquiry or application of mind. Thus the software system had become the master, rather than a helpful tool for the department for implementing the provisions of the Income Tax Act. This was a “classic example” of a case where a little verification by AO would have completely avoided the litigation. However, taking into account the revenue’s unconditional apology, the promise of systemic improvements, and the fact that departmental action was already being taken against the erring officer, the court decided to show leniency. The writ petition was disposed of, and the assessment order was implicitly held to be invalid. The court imposed a reduced, token cost of ₹10,000 on the revenue department, payable to the State Legal Service Authority, instead of the ₹1 crore that it had initially proposed.
