Assessment in the name of non-existing person or a dead person is null & void

DCIT Vs R.R. Gold Palace (ITAT Bangalore)

Section 153A based on search conducted on the basis of warrant of authorization issued in the name of non-existent entity is invalid

It is a settled position of law by various courts that assessment in the name of non-existing person or a dead person is null and void. The Hon’ble Supreme Court in the case of Principal CIT Vs. Maruti Suzuki Ltd. (2019) 416 ITR 613(SC) clearly held that initiation of assessment proceedings against an entity which had ceased to exist was void-ab-initio. Further, the Hon’ble Delhi High Court in the case of Spice Infotainment Ltd. (supra) had taken similar view where it was held that 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 section 292B of the Act. The framing of an assessment against a non-existing entity/person goes to the root of the matter, which is not a procedural irregularity, but a jurisdictional defect as there cannot be any assessment against a dead person. A similar view has been expressed by the Hon’ble Karnataka High Court in the case of Intel Technology India Pvt. Ltd. (supra), where it was held that framing of an assessment on a non-existing entity or a person is not a procedural irregularity but a jurisdictional defect, which cannot be cured by invoking the provisions of section 292B of the Act. In this case, there is no doubt of whatsoever with regard to the fact that the firm M/s. R.R. Gold Palace was not existent at the time of search and even at the time of framing assessment u/s 143(3) r.w.s. 153A of the Act. The assessee has informed the A.O. the fact of non-existence of the firm by way of a letter dated 14.8.2014 when the A.O. issued notice u/s 153A of the Act in the name of the assessee for filing return of income and opposed issuance of notice on non-existing entity. Further, although the assessee has filed return in response to notice issued u/s 153A of the Act, but such return has been filed under protest in order to comply with statutory provisions of the Act. Therefore, we are of the considered view that the firm was not in existence and was ceased to exist on the date of search and mere holding a PAN does not alter the legal position that the firm was not in existence and accordingly, the assessment framed u/s 143(3) r.w.s. 153A of the Act is void and ab initio. The CIT(A) after considering the relevant facts has rightly quashed assessment order passed by the A.O. as null and void. We do not find any error or infirmity in the order of the CIT(A) and hence, we are inclined to uphold the findings of the CIT(A) and dismiss the appeal filed by the revenue.

FULL TEXT OF THE ITAT JUDGEMENT

These are 3 appeals filed by the revenue and 3 cross objections filed by the assessee are directed against consolidated order passed by the CIT(A)-11 Bengaluru dated 29.12.2017 and pertains to assessment year 2008­09, 2010-11 & 2011-12. Since, the facts are identical and issues are common, for the sake of convenience these appeals filed by the revenue and cross objections filed by the assessee are being disposed of by this consolidated order.

2. The revenue has more or less raised common grounds of appeal for all assessment years. Therefore, for the sake of brevity, grounds of appeal filed for assessment year 2008-09 are reproduced as under:-

1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in adjudicating only on the specific issue of the jurisdiction in framing the assessment order on the date when the assessee M/s. R. R Gold Palace(Firm) was not in existence, even though, the Ld. CIT(A) has accepted the justification of the AO that the search action u/ s.132 against the assessee firm before it dissolution is valid, since it was carrying on business in the very same premises, and the Ld.CIT(A) has not adjudicated on the said issue?

2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in quashing the assessment based without appreciating the fact that the assessee cannot question the jurisdiction of the Assessing Officer in issuing the notice u/ s. 1 53A, since, the assessee has not complied with the provisions of section 124(3) of the IT Act, wherein the jurisdiction of the Assessing officer can be questioned only within one month from the service of notice?

3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in quashing the assessment based placing reliance on the judicial decisions in the case of Spice Infotainment Limited (DELHI HC) 247 CTR 500 86 in the case of Intel Technology I P Ltd (KAR HC) 380 ITR 272, wherein the facts of the case are different from the present case to the extent that the assessments in those cases were in respect of amalgamated companies and in the present case, the business of the firm is succeeded by a company which continued to carry on the same business?

4: Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in quashing the assessment placing reliance on the judicial decision in the case of Nahar Enterprises (ITAT Mumbai Bench) in ITA No.2583 to 2855/Mum/2015 wherein the facts of the case ai’e that the warrant of authorization of search was issued only on the predecessor firm and the Mumbai ITAT held that the warrant should have been issued in the name of the successor company only, Whereas in the present case, the warrant of authorization of search was issued both in the predecessor and successor’s names?

5. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in not appreciating the fact the provisions of section 170 of the Income Tax Act, 1961 are squarely applicable in the case?

6. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in quashing the assessment which has been passed by the Assessing Officer as per the provisions of section 153A wherein, provisions of section 153A mandates that if there should be a search conducted u/ s 132, in that case the AO has to invariably assess or reassess the total income for the 6 AYs prior to the year in which the search was conducted?

7. Any other grounds that may arise at the time of hearing.

3. The brief facts of the case extracted from ITA No.903/Bang/2018 for assessment year 2008-09 are that the assessee is a partnership firm came into existence on 1.8.2005 and later converted into a Private Limited company namely M/s. R.R. Gold Palace Pvt. Ltd. On 25.10.2011 and engaged in the business of retail trading in gold jewellery and silver articles. A search action u/s 132 of the Income Tax Act, 1961 (in short ‘The Act’) was conducted in the case of M/s. R. R. Gold Palace/R.R. Gold Palace Pvt. Ltd., on 8.2.2013. Consequent to search, the case was centralised and accordingly notice u/s 153A of the Act dated 9.6.2014, was issued, requiring it to file the return of income within 30 days from the date of receipt of notice. In response to notice, the assessee vide letter dated 14.8.2014 submitted that the warrant of authorisation issued in the name of M/s. R.R. Gold Palace, partnership firm is invalid because the firm was not in existence on the date of warrant of authorisation executed by the authorised officer on 8.2.2013. However, the assessee has filed its return of income on 21.9.2014 in response to notice issued u/s 153A of the Act declaring total income of Rs.27,12,931/-, which is the same as that declared in the original return of income filed u/s 139(1) of the Act on 29.9.2008. Further, the assessee has also addressed a letter to the A.O. on 22.9.2014 and reiterated its stand taken on validity of notice and reaffirmed that the return of income so filed is under protest to comply with the notice issued u/s 153A of the Act.

4. The case was selected for scrutiny and during the course of assessment proceedings, the A.O. noted that the assessee firm had indulged in recording bogus purchase from one Shri M.K. Prakash, Proprietor of M/s. Tirumalas on the basis of information received from investigation wing as per which Shri Prakash had admitted that he has issued purchase bills for a commission of 0.25%, however not delivered any materials to the parties. Based on the said information, the A.O. came to the conclusion that the bank transaction of the assessee firm from 12.3.2008 to 17.3.2010 are cash deposits claimed to have been made by M/s. Tirumalas in lieu of the assessee firm was reported to have issued cheques of the same amount with addition of the commission purported to be payable to M/s. Tirumalas. Therefore, the Ld. A.O. came to the conclusion that entire purchases made from M/s. Tirumalas of Rs.1,99,81,344/- is bogus. However, the assessee firm represented before the Ld. A.O. that the purchases made from M/s. Tirumalas was genuine and is supported by necessary bills and also the payments had been made through proper banking channels. The assessee further claimed that the scrutiny of the cash book will reveal that the assessee firm had meticulously recorded cash sales and cash deposits in the bank are supported by the cash withdrawal, therefore, merely on the basis of the information received from investigation wing, which is supported by the statement of third party, no adverse inference can be drawn against the assessee without providing the copies of statements relied upon by the A.O. and the opportunity of cross examining the person who gave the statement. The A.O. was not convinced with the arguments of the assessee and according to him, the purchases claimed to have been made from M/s. Tirumalas is bogus in nature and accordingly completed the assessment u/s 143(3) r.w.s. 153A of the Act, on 27.3.2015 and determined total income of Rs.2,26,94,275/- after making additions of Rs.1,99,81,344/- towards alleged bogus purchases.

5. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the Ld. CIT(A), the assessee has filed petition for admission of additional ground challenging the validity of assessment order passed u/s 143(3) r.w.s. 153A of the Act, for want of requisite jurisdiction and for want of valid initiation of the search and its valid execution. During the course of appellate proceedings, the Ld. CIT(A) has forwarded additional ground raised by the assessee along with evidences to the A.O. for his comments. The A.O. vide his remand report has commented upon additional ground raised by the assessee challenging validity of assessment order and has negated various averments made by the assessee in light of facts gathered during the course of search.

6. The CIT(A) after considering relevant submissions of the assessee and also taken note of remand report of the A.O. has admitted additional ground raised by the assessee challenging validity of assessment order framed u/s 143(3) r.w.s. 153A of the Act. He, further observed that additional grounds of appeal taken by the assessee are pure question of law and no new facts are required to be examined. Therefore, by following the decision of Hon’ble Supreme Court in the case of NTPC Vs. CIT (229 ITR 383) admitted additional grounds of appeal filed by the assessee. As regards the issue challenged by way of additional ground, the Ld. CIT(A) further noted that on perusal of submissions made by the assessee and remand report of the A.O. it was very clear that there was a warrant on authorisation executed in the case of M/s. R.R. Gold Palace/M/s. R.R. Gold Palace Pvt. Ltd. at the premises where the business activity was first carried out by the firm and subsequently taken over by the company M/s. R.R. Gold Palace Pvt. Ltd. He further noted that the partnership firm M/s. R.R. Gold Palace was ceased to exist w.e.f. 25.10.2011 when the firm has been converted into a Private limited company as going concern. Therefore, it is very clear that at the time of issue of warrant of authorisation on 7.2.2013, or its execution on 8.2.2013 and at the time of issue of notice u/s 153A of the Act on 9.6.2014, the firm was not in existence. He further observed that whether the search is conducted against a non-existing firm would be in accordance with the provisions of section 132 of the Act or not, but there is sufficient clarity on the legal issue relating to the assessment order being framed on a non-existing entity and several judgments have been cited by the assessee on this point is very clear on the issue as per which framing of an assessment of a non-existing entity or a person is not a procedural irregularity but a jurisdictional defect, which goes to the root and hence, is invalid and void ab-initio . He had taken support from the decision of Hon’ble Delhi High Court in the case of Spice Infotainment Ltd. Vs. CIT 247 CTR 500 and the decision of Hon’ble Karnataka High Court in the case of Intel Technology India Pvt. Ltd. 380 ITR 272 to come to the conclusion that assessment order in the name of non-existing entity/dead person is void and ab-initio and further it is not a procedural irregularity which can be cured by invoking provisions of section 292B of the Act. Accordingly, he had quashed the assessment order passed by the A.O. for assessment year 2008-09. The relevant findings of the CIT(A) are as under:

“5.5 I have considered the aforesaid submissions made by the appellant and materials on record. It is seen from the stand taken by the A.O. in the remand report that there was a warrant of authorisation executed in the name of “R R Gold Palace Private Limited / M/s. R.R. Gold Palace” at the premises where the business activity was first carried out by the appellant firm and subsequently by the company R.R.Gold Palace Private Limited. Hence, there is a warrant issued against the erstwhile firm which is the appellant before me and it is a person searched. It is also not in dispute that the appellant firm R.R. Gold Palace got converted into a company R.R. Gold Palace Private Limited w. e.f. 25.10.2011 continued the business at the same premises. However, it is clear that the appellant firm was not in existence on 08.02.2013 when the search action was conducted u/s.132 of the Act by the Department.

5.6 Since the appellant firm was not in existence on the date of search conducted by the Department, it is the appellant’s case  that the search conducted in the name of the non-existent firm is bad in law. It has also been pointed out by the appellant that it was not in existence when the notice u/s.153A of the Act was issued calling for the return of income and on the date of completion of assessment proceedings by the impugned order and therefore, the assessment order so passed by the A.O. on the non-existent entity/person is a nullity. However, the A.O. has justified the conduct of the search against the appellant firm pointing out that the appellant firm before its dissolution was carrying on business in the very same premises that was searched and therefore, the search conducted and relevant assessments are in accordance with law. It has been pointed out that the appellant firm had to be assessed for the period it was in existence.

5.7 I do not intend to go into the question of whether the search conducted against a non-existent firm would be in accordance with the provisions of section 132 of the Act or not. However,    I find that there is sufficient clarity on the legal issue relating to the assessment order being framed on a nonexistent entity and several judgements have been cited by the appellant on this point. It has been held by the Hon’ble Delhi High Court in the case of SPICE INFOTAINMENT LIMITED in 247 CTR 500 [Del] as under :

“Held : No doubt, S was an assessee and an incorporated company and was in existence when it filed the returns in respect of two assessment years in question. However, before the case could be selected for scrutiny and assessment proceedings could be initiated, S got amalgamated with MC Ltd. It was the result of the scheme of the amalgamation filed before the Company judge of this court which was duly sanctioned vide orders dt. 11th Feb, 204. With this amalgamation made effective from 1st July, 2003, Seased to exist. That is the plain and simple effect in law. The scheme of amalgamation itself provided for this consequences, inasmuch as simultaneous with the sanctioning of the scheme, S was also stood dissolved by specific order of this Court. With the dissolution of this company, its name was struck from the rolls of the companies maintained by the RoC. A company incorporated under the Indian Companies Act, it is trite law that on amalgamation, the amalgamating company ceases to exist in the eyes of law. In view of the aforesaid clinching position of law, it is difficult to digest the circuitous route adopted by the Tribunal that the assessment was in fact in the name of amalgamated company and there was only a procedural defect. After the sanction of the scheme on 11th Feb, 2004, S ceased to exist w.e.f. 1stJuly, 2003. Even if S had filed the returns, it became incumbent upon the IT authorities to substitute the successor in place of the said ‘dead person. When notice under s. 143[2 was sent, the appellant/amalgamated company appeared and brought this fact to the knowledge of the AO. He however did not substitute the name of the appellant on record. Instead, the AO made the assessment in the name of S which was non-existing entity on that day. In such proceedings an assessment order passed in the name of S would clearly be void. Such a defect cannot be treated as procedural defect. Mere participation by the appellant would be of no effect as there is no estoppels against law – Saraswathi Industrial Syndicate Ltd. vs. CIT [1990] 88 CTR [SC]; [1990] 186 ITR 278 [SC] followed.

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 s.292B. The framing of assessment against a non-existing entity/person goes to the root of the matter which is not a procedural irregularity, but a jurisdictional defect as there cannot be any assessment against a ‘dead person’. The order of the Tribunal is therefore, clearly unsustainable – CIT v. Orton Motors [2006] 200 CTR [P&H] 604; [2005] 275 ITR 595 [P&H], CIT vs. Harjinder Kaur [2009] 222 CTR [P&H] 254; [2009] 19 DTR [P&H] 211 and Sri Nath Suresh Chand Ram Naresh vs. CIT [2005] 196 CTR [All] 416; [2006] 280 ITR 396 [all] relied on”

5.8 I also find that the Hon’ble jurisdictional High Court in the case of INTEL TECHNOLOGY INDIA PVT. LTD., in 380 ITR 272 [Kar] has also taken the same view of the Hon’ble Delhi High Court and has also held that the framing of an assessment on a non-existing entity or a person is not a procedural irregularity but a jurisdictional defect, which goes to the root of the matter. The judgement of the Hon’ble Karnataka High Court is binding upon me and hence, I have no hesitation in coming to the conclusion that the assessment order passed in the name of “R.R.Gold Palace”, a non-existent entity on the date of passing the assessment orders is a jurisdictional defect that goes into the very root of the matter and such orders passed have to be annulled.

5.9 I am fortified in the aforesaid view taken by a recent decision of the Hon’ble ITAT, Mumbai Bench, in the case of NAHAR ENTERPRISES in ITA No.2853 to 2855/Mum/2015 dated 07/04/2017, wherein a similar issue was involved. It is seen that the judgements rendered by the Hon’ble High Court of Delhi in the case of SPICE INFOTAINMENT [supra] and the Hon’ble jurisdictional High Court in the case of INTEL TECHNOLOGY INDIA PVT. LTD., [supra] was in the context of the assessment order passed after the amalgamation of company on the erstwhile company, which was not inexistence. The Hon’ble ITAT, Mumbai Bench in the case of Nahar Enterprises [supra] has applied the ratio of the aforesaid judgements in the context of search action conducted against a partnership firm that was not in existence when the search action was conducted by the department. It has been held by the Tribunal in the case of Nahar Enterprise [supra] as under :-

12. Now, the issue before us for adjudication is as to whether the search warrant was issued in the name of dissolved entity or the existing company and whether the consequent assessments were void ab-initio and non-est. It is an admitted fact and also apparent from the AO in the assessment order Nahar Enterprises, Mumbai vs Dcit (Osd) that the search warrant was issued in the name of the erstwhile firm i.e.Nahar Enterprises and the same is evident from the Punchanama itself. The AO observed that while drawing up the Punchanama some clerical mistake or by over sight the full name was not mentioned but just it was mentioned as Nahar Enterprises. It is the observation of the AO that it is a procedural mistake and no way affects the legality of the search as the warrant is correctly issued according to law. The relevant observations are as under :

” The above allegation is absolutely unfounded, baseless and arbitrary and it seems has been made with a motive to divert attention from the and 5 other appeals M/s Nahar main issue and/ or to dilute the sanctity of search action conducted u/s 132(1) of the Income Tax Act, 1961. In support of your allegation you have taken support of the copy of Panchnama enclosed by you. A per this in Col A it is written as Warrant in the case of Nahar Enterprises. This Panchnama relates to warrant no.9303 and was drawn at Nahar Amrit Shakti (sales office), Chandivali Farm Road, Near Chandivali Studio, Andheri(E), Mumbai-72. While enclosing the said Panchnama, you have conveniently ignored what is written on the Warrant of Authorisation No. 7303 which is the most important document. It states that it is issued to- Nahar Enterprises (now known as Nahar Builders Ltd). Thus the search warrant has been correctly issued and is not in the name of a person or an entity which is not in existence as wrongly alleged by you. While drawing up the Panchnama, there appears to be some clerical mistake or oversight in writing the full name and just Nahar Enterprises has been mentioned. It is a procedural mistake and no way affects the legality of the search as the warrant is correctly issued. The other warrant in your case i.e warrant no. 9302 has also been issued to – Nahar Enterprises (now known as Nahar Builders Ltd) and was drawn on -B-1, Mahalaxmi Chambers, 32, Bhulabhai Desai road, Mahalaxmi, Mumbai-26. There were two Panchnamas drawn here i.e dated 4.2.12 and 23.2.12. In both these Panchnama’s the name has correctly been written as – Nahar Enterprises (now known as Nahar Builders Ltd). Thus there is no mistake either in the warrant or in both the Panchnamas. Copies of both these Panachnamas and the copy of warrant no 9302 and 9303 are enclosed for your reference and record. Thus there is no basis to your allegation and the same is therefore not acceptable and is rejected.”

13. The Id. CIT(A) confirmed the stand of the AO for the reason that both the names of the entities are mentioned on Punchanama, and therefore, the proceedings are valid. We further find that the Panchanama prepared on 27.3.2012 with reference to warrant No.9302, the warrant was issued in the name of Nahar Enterprises and we do not see any mention of Nahar Builders Ltd. However, in the Panchanama prepared on 28.3.2012 with reference to warrant No.9302, there is a mention of assessee firm name “Nahar Enterprises” (Now Known as Nahar Builders Ltd). We further find that the PAN of Nahar Enterprises is AAAFN1599D and the PAN of Nahar Builders Ltd is AADCN8065A. The assessments were completed on Nahar Enterprises with PAN AAAFN1599D.

14. In our opinion, the search action is a strict action taken against the privacy of any person by the investigating and searching the premises of any person with extreme powers bestowed on the department. Search action u/s 132(1) of the Act cannot be allowed to be taken place without proper evidence and information in the hands of the department. The revenue is expected to exercise utmost precaution while exercising these powers as search action is normally conducted after detailed enquiry and investigation by investigating authority after analyzing the background of group companies, partners, and directors, their PAN, residential status, address etc. We are therefore not in agreement with the conclusion of the authorities below that mistake is simply a clerical and procedural mistake of either side in mentioning the full name of the existing entity. Moreover, the appellant has duly informed the department vide its letter dated 1.12.2011 which was acknowledged by the office of the Dy.CIT on 1.12.2011 with reference to the dissolution of the firm. For the sake of convenience, we reproduce the letter dated 30.11.2011 intimating the AO about the dissolution as under

“Udani Mehta and Co,
Chartered Accountants

Tushar D Udani
Com(Hon)LLB(Gen), FCA,
Ref :No: …………Date November 30th, 2011
ACIT/NE/2011-12

To,
The Asstt. CIT,
Circle 16(2),
Mumbai.
Re : M/s Nahar Enterprises, PAN AAAFN1599D, Intimation of dissolution of firm.

With reference to the above and under instructions from our clients and as required u/s 176(3) we have to inform you that consequent to conversion of the firm, M/s Nahar Enterprises, into a company by the name of M/s Nahar Builders Ltd’ under part IX of the companies Act, 1956, the above referred firm has been dissolved w.e.f. end of 20.11.2011. Copy of the Deed of dissolution is enclosed herewith.

Thanking you
Yours faithfully,

(Udani Mehta)
CA

Under these circumstances, when the department has been fully informed about the dissolution of the firm, new company has taken over the business of the old firm before initiation of search proceedings, then the issue of Punchanama in the name of dissolved firm cannot be valid. In our opinion, when the search under section 132 was conducted and to be valid, the warrant and notice should be issued in the name of successor only and the assessment has to be made on the successor but in the present case Punchanama was drawn in the name of M/s Nahar Enterprises on a non-existing entity and so was the case and is nota clerical mistake.

5.10 Observing thus, the Hon’ble ITAT has quashed the assessments made in the aforesaid case by following the judgements of the Hon’ble High Court rendered in the context of the validity of assessment orders passed on the erstwhile company after amalgamation. Respectfully following the aforesaid judicial pronouncements, including the judgment of the Hon’ble Karnataka High Court in the case of INTEL TECHNOLOGY INDIA PVT LTD [supra], I am inclined to hold that the assessment order passed in the name of R.R. GOLD PALACE, a non-existent entity is a nullity. Hence, I have no option but to quash the assessment orders passed and it is ordered accordingly. These additional grounds of appeal so raised by the appellant are therefore allowed.

5.11 Since, I have cancelled the assessment order on the technical issue I do not propose to deal with the other grounds raised by the appellant, which will only be an academic exercise now.”

7. The Ld. D.R. submitted that the Ld. CIT(A) has erred in quashed assessment order passed by the AO u/s 143(3) r.w.s. 153A of the Act, without appreciating the fact that the partnership firm M/s. R.R. Gold Palace was in existence as on the date of search as well as at the time of framing assessment, which is evident from the fact that the PAN number of erstwhile partnership firm was active in the income tax data base and the assessee has filed its return of income on 21.9.2014 in response to notice u/s 153A of the Act, by using same PAN number. The Ld. D.R. further submitted that if you go through the remand report issued by the A.O., it is very clear that even during the course of search proceedings, the assessee has not questioned the validity of search on the non-existing partnership firm and in fact the assessee had made a voluntary disclosure of undisclosed income in the name of the firm. Further, even though the partnership firm was converted into a limited company on 25.10.2011, the assessee continued to hold the PAN in the name of partnership firm even up to the date of completion of assessment on 31.3.2015. From the above, it is clear that the legal ground taken by the assessee challenging validity of assessment proceedings at the stage of appellate proceedings is only an effort to mislead the department to escape from the tax liability. She further submitted that assuming for a moment but not accepting, the firm was not in existence at the time of search proceedings, but fact remains that the firm was very much existent for the relevant assessment years. Therefore, once there is a search u/s 132 of the Act, the A.O. is bound to reassess the total income of an assessee for a period of 6 years immediately preceding the assessment year in which search took place and accordingly, the A.O. has assessed the income for the assessment years where the partnership firm was in existence. In this regard, the Ld. D.R. has relied upon the decision of Hon’ble Delhi High Court in the case of Slokam Investment Pvt Ltd. Vs. CIT 106 ITD 1 (Del.).

8. The Ld. A.R. for the assessee on the other hand, strongly supporting the order of the Ld. CIT(A) submitted that the Ld. CIT(A) has apprised the facts in right perspective of the law in as much as when the warrant of authorisation was issued, or its execution and even when the notice u/s 153A of the Act was served on the assessee, the firm was not in existence, therefore, it is very clear that when a warrant of authorisation was issued in the name of a non-existing entity or a dead person, all subsequent proceedings becomes invalid and void-ab-initio. The Ld. A.R. for the assessee further submitted that the partnership firm was came into existence in the year 2005 and the same was subsequently converted to a private limited company on 25.10.2011 as a going concern and all assets and liabilities including business of the erstwhile partnership firm was taken over by a successor limited company with the same trade name. This fact was known to the department prior to the issuance of notice u/s 153A of the Act and in connection with the course of proceedings for release of seized stock in trade of the successor private limited company, which was found in the premises of its promoter, who incidentally was also a partner of the erstwhile respondent firm prior to take over and hence the very search action conducted by the department in the case of all the erstwhile respondent firm is opposed to law and not in accordance with the provisions of section 132 of the Act, especially with regard to the requirements of section 132(i)(a)(i)(b)(i)(c) of the Act and in the absence of a valid initiation and execution of the search action and issue of a valid notice, the consequential assessment made on the assessee erstwhile firm u/s 153A of the Act is bad in law.

9. The Ld. A.R. for the assessee further referring to the provisions of section 176 & 177 of the Act, submitted that the said provisions contemplate only making an assessment on the firm which is dissolved, but does not authorise issue a warrant of search on a dissolved and defunct firm, therefore even assuming for argument sake that the warrant of authorisation was in the names of the assessee as well as the successor limited company, the search made on the respondent was also ultravires the provisions of section 132(1) r.w.s. 176 & 177 of Act. The ld. A.R. further submitted that the A.O. himself has admitted fact that the firm was not in existence as on the date of issue of notice u/s 153A of the Act, but proceed to frame the assessment on the wrong premises that the assessment in the case of search is needs to be made for six assessment years immediately preceding the assessment year in which search took place even though the assessee has vehemently opposed issue of notice u/s 153A of the Act and filing of return in response to said notice on the ground that notice issued u/s 153A of the Act to a non-existing person or a dead person is invalid in the eyes of law. In this regard, he has relied upon the following judicial precedents:

1. CIT Vs. Rakesh Kumar (2009) 313 ITR 305 (P&H)

2. Spice Infotainment Ltd. Vs. CIT (2012) 247 CTR (Del) 500

3. CIT and another Vs. Intel Technology India Pvt. Ltd. (2016) 380 ITR 272 (Karn)

4. BDR Builders and Developers Pvt. Ltd. ACIT (2017) 397 ITR 529 (Del)

5. Nahar Enterprises, Mumbai Vs. Deputy Commissioner of Income-tax (Osd) ITA Nos.2853 to 2855/Mum/2015 dated 7.4.2017 of ITAT Mumbai “G” Bench.

6. ACIT -17(2), Mumbai Vs. M/s. Neha Enterprises, Mumbai in ITA No.3666/Mum/2015 dated 20.12.2017 of ITAT Mumbai “J” Bench.

7. Principal CIT Vs. Maruti Suzuki India Ltd. (2019) 416 ITR 613 (SC)

10. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below along with case laws cited by the Ld. Counsel for the assessee. The undisputed facts emerge from the orders of the lower authorities are that the assessee M/s. R.R. Gold Palace was formed in 2005 and was subsequently converted to a Private Limited company on 25.10.2011 by name M/s. R.R. Gold Palace Pvt. Ltd. and continued the business as a going concern at the same premises. The assets and liabilities of the erstwhile firm have been taken over by the newly incorporated private limited company. A search action u/s 132 of the Act was conducted on 8.2.2013 and the warrant of authorization dated 7.2.2013 was executed in the name of M/s. R.R. Gold Palace/M/s. R.R. Gold Palace Pvt. Ltd. The punchanamas were drawn on various dates in the name of M/s. R.R. Gold Palace & M/s. R.R. Gold Palace Pvt. Ltd. From the above facts, it is very clear that the department has issued warrant of authorisation on 7-2­2013 in the name of non-existent firm and also conducted search on non-existent person. It was further clear that as on the date of issue of warrant of authorization or date of search on 8.2.2013 and or on the date of issue of notice u/s 153A of the Act dated 21.9.2014, the firm was ceased to exist and the new company came into existence in the same premises. Further, the assessee continued to file return of income from the date of conversion of partnership firm into a private limited company in the name of Successor Company and this fact was very much available with the department at the time of search proceedings.

11. In this factual background, if we examine the legal position in so far as validity of search in the name of non­existing entity is concerned, the various judicial precedents has clearly laid down a principle as per which issue of warrant of authorization in the name of non­existing entity or a dead person and consequent assessment proceedings on non-existent person become null and void and ab initio. This legal position is fortified by the decision of Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Rakesh Kumar (supra) where the Hon’ble Court clearly held that search conducted in the name of a dead person was invalid and void-ab-initio and on the basis of invalid warrant of authorization, no valid assessment could have been made. This legal principle is further strengthened by the decision of ITAT Mumbai Bench decision in the case of M/s. Nahar Enterprises Vs. Deputy Commissioner of Income-tax in ITA No.2853/Mum/2015 dated 7.4.2017 held that search conducted on the basis of warrant of authorization issued in the name of non-existing entity and consequent assessment framed u/s 143(3) r.w.s. 153A of the Act are bad in law being nullity in the eyes of law. In this case, on perusal of facts available on record, it is very clear that on the date of search, the firm was ceased to exist on being converted into a private limited company as a going concern. Although, the assessee continued to hold the PAN in the name of erstwhile firm even up to the date of search and also filed the return of income in the name of firm by using the PAN number, there is no change in legal position in as much as the moment partnership firm was converted into a limited company, the firm ceased to exist. Therefore, we are of the considered view that issue of warrant of authorization and conducting a search in the name of non-existing entity is invalid and consequent assessment proceedings framed u/s 143(3) r.w.s. 153A of the Act are null and void.

12. Coming back to another aspect of the issue. It is a settled position of law by various courts that assessment in the name of non-existing person or a dead person is null and void. The Hon’ble Supreme Court in the case of Principal CIT Vs. Maruti Suzuki Ltd. (2019) 416 ITR 613(SC) clearly held that initiation of assessment proceedings against an entity which had ceased to exist was void-ab-initio. Further, the Hon’ble Delhi High Court in the case of Spice Infotainment Ltd. (supra) had taken similar view where it was held that 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 section 292B of the Act. The framing of an assessment against a non-existing entity/person goes to the root of the matter, which is not a procedural irregularity, but a jurisdictional defect as there cannot be any assessment against a dead person. A similar view has been expressed by the Hon’ble Karnataka High Court in the case of Intel Technology India Pvt. Ltd. (supra), where it was held that framing of an assessment on a non-existing entity or a person is not a procedural irregularity but a jurisdictional defect, which cannot be cured by invoking the provisions of section 292B of the Act. In this case, there is no doubt of whatsoever with regard to the fact that the firm M/s. R.R. Gold Palace was not existent at the time of search and even at the time of framing assessment u/s 143(3) r.w.s. 153A of the Act. The assessee has informed the A.O. the fact of non-existence of the firm by way of a letter dated 14.8.2014 when the A.O. issued notice u/s 153A of the Act in the name of the assessee for filing return of income and opposed issuance of notice on non-existing entity. Further, although the assessee has filed return in response to notice issued u/s 153A of the Act, but such return has been filed under protest in order to comply with statutory provisions of the Act. Therefore, we are of the considered view that the firm was not in existence and was ceased to exist on the date of search and mere holding a PAN does not alter the legal position that the firm was not in existence and accordingly, the assessment framed u/s 143(3) r.w.s. 153A of the Act is void and ab initio. The CIT(A) after considering the relevant facts has rightly quashed assessment order passed by the A.O. as null and void. We do not find any error or infirmity in the order of the CIT(A) and hence, we are inclined to uphold the findings of the CIT(A) and dismiss the appeal filed by the revenue.

13. In the result, the appeal filed by the revenue in ITA No.903/Bang/2018 for the A.Y. 2008-09 is dismissed and the Cross objection filed by the assessee in C.O. No.55/Bng/2018 for the A.Y. 2008-09 is allowed.

Appeals of the revenue for the A.Y. 2010-11 & 2011-12:

10. The facts and issues involved in these appeals filed by the revenue and cross objections filed by the assessee are identical to the facts and issues which we had considered in ITA No.903/Bang/2018 and CO. 55/Bang/2018 for the A.Y. 2008-09. The reasons given by us in preceding paragraph in ITA No.903/Bang/2018 mutatis mutandis shall apply to these appeals and cross objections as well. Therefore, for detailed reasons recorded in preceding paragraphs, we dismiss appeals filed by the revenue for the A.Ys 2010-11 & 2011-12 and allow the cross objections filed by the assessee for the A.Ys 2010-11 & 2011-12.

11. In the result, the appeals filed by the Revenue in ITA Nos.903, 905 & 906/Bang/2018 are dismissed and the cross objections filed by the assessee in C.O. Nos.55, 57 & 58/Bang/2018 are allowed.

Order pronounced in the open court on 31st Aug’20.