S.S.S Glass Pvt Ltd Vs ITO (ITAT Delhi)
ITAT Delhi held that reassessment order u/s 147 of the Income Tax Act against a non-existent entity is bad in law and vitiated & nullity.
Facts- AO issued notice u/s. 148 of the Act, on 03.03.2015 and the assessee filed written objection vide dated 27.03.2015 informing AO that the company does not exist on date of issuance of said notice and it has been converted into S.S.S Glass LLP w.e.f 30.1.2015 therefore proceedings against the nonexistent entity may kindly be dropped.
It is contended by the assessee that despite said objection, AO passed impugned reassessment order on 05.08.2015 u/s. 147/143(3) of the Act in the name of S.S.S Glass Pvt. Ltd. which is vitiated and not sustainable.
Conclusion- Held that we reach to a logical conclusion that the conversion of earlier entity i.e. S.S.S Glass Pvt. Ltd. into an LLP had taken place on 30.01.2015 was properly informed to the Assessing Officer by assessee at very first instance raising objection to the issuance of notice u/s. 148 of the Act, against a nonexistent entity and after acknowledging said objection the Assessing Officer proceeded to frame reassessment order on 05.08.2015 by observing in para 2 of assessment order that it is immaterial that the company does not exist as on the date and only for that reason legal proceeding shall not be dropped. These observations are against the ratio of the preposition rendered by Hon’ble jurisdictional High Court in the case of Sony Mobile Communication and earlier judgments of Hon’ble Supreme Court in the cases of Spice Enfotainment and Sky Light Hospitality LLP. Therefore, respectfully following the same the ground of assessee is allowed and notice u/s. 148 of the Act and all consequent proceedings and order including reassessment order u/s. 147/143(3) of the Act are quashed being bad in law and vitiated & nullity.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal has been filed against the order of CIT(A)-31, New Delhi dated 28.09.2018 for AY 2010-11.
2. Ground no. 2 and 3 read as follows:-
2. On the facts and in the circumstances of the case and in law action taken by the Assessing Officer u/s. 147 is invalid, bad in law, void abinito and the CIT(A) was unjustified in holding that such action has been rightly taken.
3. On the facts and in the circumstances of the case and in law the CIT(A) was incorrect and unjustified in confirming and not declaring the assessment invalid even though made on the basis of illegal proceedings initiated u/s. 147/148.
3. The ld. counsel of the assessee submitted that the Assessing Officer issued notice u/s. 148 of the Act, on 03.03.2015 and the assessee filed written objection vide dated 27.03.2015 informing the Assessing Officer that the company does not exist on date of issuance of said notice and it has been converted into S.S.S Glass LLP w.e.f 30.1.2015 therefore proceedings against the nonexistent entity may kindly be dropped. The ld. counsel also submitted that despite said objection the Assessing Officer passed impugned reassessment order on 05.08.2015 under section 147/143(3) of the Act in the name of S.S.S Glass Pvt. Ltd. which is vitiated and not sustainable. The ld. counsel submitted that the Assessing Officer in said order in para 2 noted the factum of objection of assessee but in para 3 wrongly noted that the company does not exist as on the date is in material and only for that reason proceedings cannot be dropped.
4. The ld. counsel further drawing our attention towards various orders of Hon’ble jurisdictional High Court of Delhi as well as co-ordinate benches of Tribunal submitted that the reassessment order in the name of nonexistent entity is not valid and vitiated. The ld. counsel has placed reliance on the judgment of Hon’ble jurisdictional High Court of Delhi dated 02.02.2023 in the case of CIT vs. Sony Mobile Communication Ind. Pvt. in ITA No. 115/2019 and submitted that the Hon’ble High Court after considering the all relevant judgment on the issue including judgment of Hon’ble Supreme Court in the case of PCIT vs. Mahagun Realtors Pvt. Ltd. 2022 SSC Online SC 407, which has been relied by ld. Senior DR, held that when even after information to the Assessing Officer that the noticee entity does not exist on the date of notice then such order passed against nonexistent entity is not valid and such defect is not curable u/s. 292B of the Act.
5. Replying to the above, the ld. Senior DR submitted that the assessee has been consistently withholding the information related to conversion of assessee company into LLP during assessment proceedings with the sole intention to use it as technical ground during appellate proceedings therefore in view of ratio of judgment of Hon’ble Supreme Court in the case of Mahagun Group (supra) the legal contention of the assessee is not
6. First of all, from para 2 of reassessment order dated 05.08.2015 it is clear that the assessee on receipt of notice u/s. 148 of the Act, filed written objection vide dated 03.2015 stating that the company does not exist as it has been converted into LLP with effect from 30.01.2015. Therefore allegation of ld. Senior DR in the written submissions based on the judgment of the Hon’ble Supreme Court in the case of Mahagun Group (supra) are not tenable being devoid on merits.
7. At this juncture, we take respectful cognizance of the judgment of Hon’ble jurisdictional High Court of Delhi in the case of Sony Mobile (supra) wherein their Lordship, adjudicating the identical issue and by referring to the all relevant judgement including judgement of Hon’ble Supreme Court in the cases of Mahagun Realtors (supra) CIT vs. Spice Enfotainment Ltd. [2020] 18 SSC 353 and in the case of Sky Light Hospitality LLP vs. CIT 405 ITR 596 (SC) held that the order passed against nonexistent entity is not valid and sustainable. The relevant observations of Hon’ble jurisdictional High Court are being respectfully reproduced below:-
18.1 Therefore, the position that this Court needs to examine, is to how the AO, thereafter, should have proceeded in the matter. As noticed above by us, despite the fact that the appellant/revenue was informed on 6-12-2013, that amalgamation had occurred, the AO proceeded on the wrong course.
19. As a matter of fact, the DRP, while dealing with the respondent/assessee’s objection, had noticed the change that had been brought about, by virtue of the erstwhile company amalgamating with the respondent/assessee. Despite this fact being brought to the notice of the AO, he continued on the wrong course, and framed the wrong impugned assessment order dated 22-12-2014, in the name of a non-existent company i.e., the erstwhile company.
20. The other aspect, which Mr Kumar has emphasized on, at great length is the applicability of the judgment in Mahagun Realtors (P.) Ltd. (supra). The important aspect required to be noticed, is that both judgments i.e., Maruti Suzuki India Ltd. (supra) and Mahagun Realtors (P.) Ltd. (supra) have been rendered by a bench comprising two judges. What is pertinent, is that in Maruti Suzuki India Ltd. (supra), the Supreme Court considered the earlier judgments rendered by it in the matter of CIT v. Spice Enfotainment Ltd. [2020] 18 SCC 353 and Skylight Hospitality LLP v. Asstt. CIT [2018] 13 SCC 147, which dealt with the issue at hand.
20.1 In Maruti Suzuki India Ltd. (supra), the Supreme Court made the following observations with regard to the aforementioned judgments:
’21. In Spice Entertainment [Spice Entertainment Ltd. v. Commr. of Service Tax, 2011 SCC OnLine Del 3210 : (2012) 280 ELT 43], a Division Bench of the Delhi High Court dealt with the question as to whether an assessment in the name of a company which has been amalgamated and has been dissolved is null and void or, whether the framing of an assessment in the name of such company is merely a procedural defect which can be cured. The High Court held that upon a notice under section 143(2) being addressed, the amalgamated company had brought the fact of the amalgamation to the notice of the assessing officer. Despite this, the assessing officer did not substitute the name of the amalgamated company and proceeded to make an assessment in the name of a non-existent company which renders it void. This, in the view of the High Court, was not merely a procedural defect. Moreover, the participation by the amalgamated company would have no effect since there could be no estoppel against law : (SCC OnLine Del paras 11-12)
