Assessment in the name of non-existent entity is void ab initio, legal objection can be raised at any time before higher authorities
Brief of the Case
In the Case of Sapient Consulting Limited vs. DCIT, ITAT Delhi relying upon the order of Jurisdictional High Court held that framing the assessment in the name of non-existent entity is not a procedural irregularity curable u/s 292B of the Act or under any other provision of the Act but it is a jurisdictional defect and hence any order passed in the name of ‘dead person’ is void ab-initio.
Fact of the Case
The appellant company was originally incorporated as Sapient Corporation Pvt. Ltd. (hereinafter referred to as ‘amalgamating company’) on 09.03.2000. The assessee filed its return of income in the name of amalgamating company on 26.09.09 and the Assessing Officer issued notice on 18.8.2010 u/s 143(2) in the name of amalgamating company. On 13.11.2013, a new company in the name of Sapient Consulting Pvt. Ltd. (hereinafter referred to as ‘amalgamated company’) was incorporated and the amalgamating company merged with new amalgamated company under scheme of amalgamation u/s 391 and 394 of the Companies Act 1956 in pursuance to order of Hon’ble Delhi High Court dated 12.10.2011 and 6.1.2012 w.e.f. the appointed date i.e. 1.4.2011. On 27.01.2012, the assessee filed a letter before the Assessing Officer intimating the merger of the company with Sapient Corporation Pvt. Ltd., however, the Assessing Officer on 19.10.12 issued notice u/s 143(2) along with notice dated 142(1) of the Act on the assessee-amalgamating company. After issuing additional questionnaires dated 05.12.12 and 13.02.13 on amalgamating company, the Assessing Officer on 22.03.13 passed draft assessment order u/s 144C of the Act on amalgamating company. Finally, the Assessing Officer passed final assessment order u/s 143(3) r/w section 144C of the Act on amalgamating company on 20.01.2014 in pursuance to the directions of the DRP dated 19.02.13 u/s 144C(5) of the Act. The assessee before the Tribunal raised the legal objection against the validity of impugned assessment orders.
Grounds of Appeal
The assessee proposed the following additional grounds in both the assessment years:-
“1. That on the facts and circumstances of the case, assessment order framed under section 143(3) read with section 144C of the Income Tax Act, 1961 (‘the Act’) is beyond jurisdiction, bad in law and void ab initio.
1.1 That on the facts and circumstances of the case, the assessing officer has erred in framing the assessment on a non-existent entity which was merged with Sapient Consulting Pvt. Ltd. w.e.f. April 1, 2011”
Contention of the assessee
The ld. Senior counsel pointed out that the impugned final assessment order u/s 143(3) r/w section 144C of the Act was passed in the name of amalgamating company which was non-existent entity since it was merged with amalgamated company in pursuance to order of Hon’ble Delhi High Court dated 12.10.2011 and 6.1.2012 and thus said order being void ab initio is liable to be quashed in view of proposition laid down by Hon’ble Jurisdictional Delhi High Court in the case of CIT vs Spice Infotainment Pvt. Ltd. Ld.Counsel also drawn the attention towards section 2(16) of the Act and submitted that from the date of merger the legal existence of amalgamating company as a legal entity or person ceased to exist and order of assessment passed against such non-existing entity or legal person cannot be held as valid and the same should be annulled.
Contention of Revenue
Learned Departmental Representative submitted that if for the sake of argument, it is found that the assessment has been framed against non-existing entity, then the same is rectifiable u/s 292B of the Act and no prejudice has been caused to the assessee who participated in the entire assessment proceedings and explained his stand before the Assessing Officer. It was further contended that the assessee is not seeking waiver of tax liability and the assessee fairly accepts that as per section 2(1B) of the Act, the tax liability is fastened on the amalgamated company and hence the assessee has raised legal objection that the assessment has been framed in the name of non-existent entity on 21.2.14 despite the fact that the assessee by way of letter dated 27.1.12 intimated the Assessing Officer about the merger of assessee company with Sapient Consulting Pvt. Ltd.
Held by Tribunal
The Tribunal noted the dicta laid down by the Hon’ble Jurisdictional High Court of Delhi in the case of Spice Entertainment Ltd vs. CIT dated 3.8.2011 in I.T.A. No. 475-476 of 2011 that the provisions of section 292B of the Act are not applicable in such a case where assessment has been framed in the name of non-existent amalgamated company. The High Court further held that the framing of assessment against non-existent 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 Tribunal also noted that in the said case Hon’ble High Court also pointed out that the returns were filed by M/s Spice on the day when it was in existence. It would be permissible to carry out the assessment on the basis of those returns after taking the proceedings afresh from the stage of issuance of notice u/s 143(2) of the Act. It was also held that in substitute the name of the appellant/amalgamated company in the place of amalgamating company may be given and then notice may be issued as per provisions of the Act.
In the light of the ratio of the judgment of Hon’ble High Court in the case of Spice (supra), the Tribunal observed that undisputedly and admittedly, the return was filed by amalgamating company on 26.9.2009. The Assessing Officer issued notices u/s 143(2) of the Act in the name of amalgamating company on 18.8.2010. Subsequently, letter dated 27.1.2012 was filed before the Assessing Officer, during the course of assessment proceedings, informing the order of the Hon’ble High Court dated 12.10.2011. However, the Assessing Officer issued notices u/s 143(2) and 142(1) of the Act along with questionnaire on the amalgamating company. After issuing said notices, the Assessing Officer issued additional questionnaires on 5.12.2012 and 13.2.2013 on amalgamating company. The Assessing Officer passed draft assessment order u/s 144C of the Act on amalgamating company. Finally, the Assessing Officer passed final assessment order u/s 143(3) r/w section 144C of the Act on amalgamating company in pursuance to the directions of the ld. DRP dated 19.2.2013 u/s 144C(5) of the Act. In the light of above noted facts, the Tribunal observed that the facts of the present case are quite similar to the facts of the case of Spice (supra), wherein their lordships have held that framing of assessment against non-existent entity/person goes to the root of the validity of the assessment which is not a procedural irregularity curable u/s 292B of the Act or under any other provision of the Act but it is a jurisdictional defect because there cannot be framing of any assessment order against a dead person or entity which is non-existent on the date of framing/passing assessment order.
Respectfully following the ratio of order of Hon’ble High Court in the case of Spice Entertainment (supra), the Tribunal found itself inclined to hold that the assessment order dated 20.1.14 in the name of non-existent amalgamating company having jurisdictional defect is not sustainable and therefore, quashed the same.