ITAT Chennai Quashes Income Tax Assessment on Non-Existent Company

IBS Software Pvt. Ltd Vs ACIT (ITAT Cochin)

ITAT, Chennai: Quashes final assessment order as passed in the name of a non-existing company; follows assessee’s earlier order

Facts:

• The assessee, IBS Software Pvt. Ltd., is engaged in the business of development and sale of computer software. For the Assessment Year 2014–15, the assessee filed its return of income on 28 November 2014 and subsequently filed a revised return on 31 March 2016. The return of income was selected for scrutiny, and during the course of assessment proceedings, it was noticed that the assessee had entered into international transactions with its Associated Enterprises.
• In view of these cross-border dealings, the Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) under section 92CA of the Income Tax Act for the determination of the arm’s length price of such transactions. The TPO after examination, passed an order on 30 October 2017 proposing an upward transfer pricing adjustment of Rs.16.66 crores. This adjustment was incorporated by the AO into the Draft Assessment Order, which was then issued to the assessee.
• Aggrieved by the draft order, the assessee filed its objections before the Dispute Resolution Panel (DRP). The DRP considered the submissions of the assessee and issued its directions on 25 September 2018. Pursuant to these directions, the AO proceeded to pass the Final Assessment Order on 31 October 2018. However, this order was passed in the name of IBS Software Services Pvt. Ltd., the erstwhile amalgamating company.
• It is important to note that IBS Software Services Pvt. Ltd. had already ceased to exist by that time, having been amalgamated into IBS Software Pvt. Ltd. pursuant to the order of the National Company Law Tribunal (NCLT), Chennai, dated 19 March 2018. The assessee had also duly intimated this fact to the AO through a letter dated 28 May 2018. Moreover, the DRP itself had recognized the amalgamation and passed its directions in the name of the amalgamated company, i.e., IBS Software Pvt. Ltd.
• Despite the AO having clear knowledge of the amalgamation through the NCLT order, the assessee’s intimation, and the DRP’s own recognition, the Final Assessment Order was still issued in the name of a non-existent/amalgamating entity.

Issues:

• Whether such a defect can be treated as procedural and cured under Section 292B of the Act or does it render the order void ab initio?
• Whether the final assessment order dated 31.10.2018, passed in the name of a non-existent company/ amalgamated company for FY 2014-15, is valid in law.

Observations:

• The Tribunal first noted that by virtue of the NCLT, Chennai order dated 19 March 2018, IBS Software Services Pvt. Ltd. had merged into IBS Software Pvt. Ltd.. From that date, the amalgamating company had ceased to exist in law. The assessee had also duly informed the Assessing Officer of this development through a letter dated 28 May 2018.
• It was further observed that the Dispute Resolution Panel (DRP) was also aware of the amalgamation and even passed its directions in the name of the amalgamated company. This made it clear that the tax authorities had the relevant information. Despite this knowledge, the AO still proceeded to issue the Final Assessment Order dated 31 October 2018 in the name of the non-existent amalgamating entity.
• The Tribunal stated that this issue was settled by several precedents, including the Supreme Court rulings in PCIT Maruti Suzuki India Ltd. and CIT v. Spice Infotainment Ltd. These decisions clearly hold that an order passed against a company that has ceased to exist due to amalgamation is void ab initio. Such a defect is not procedural but jurisdictional in nature.
• It was also highlighted that participation by the assessee in the proceedings cannot validate such an order. The principle that “there is no estoppel against law” applies squarely—once the entity ceases to exist, any order in its name is a nullity.
• The argument of the Revenue that the AO had used the old name because its PAN was still active was rejected. The Tribunal held that the continuance of a PAN in departmental records cannot override the legal effect of an NCLT-approved amalgamation. This view was supported by the Bombay High Court in Alok Knit Exports Limited Deputy Commissioner of Income Tax.
• Accordingly, the Tribunal concluded that the Final Assessment Order had been passed against a non-existent company, and therefore it could not be sustained in law.

FULL TEXT OF THE ORDER OF ITAT COCHIN