Madhuban Dealers Pvt. Ltd. Vs PCIT (ITAT Kolkata)
ITAT Kolkata held that revisionary proceedings u/s. 263 initiated in the name of non-existent entity, despite the fact that private limited company was converted into LLP and the conversion was brought to the knowledge of AO, is void ab initio and invalid.
Facts- Assessee filed its return declaring a total loss of Rs.6,04,635/-. The return was originally processed u/s. 143(1) of the Act. Thereafter, the case of the assessee was reopened u/s. 147 of the Act on the basis of information received from Investigation Wing that the assessee is beneficiary of Rs.4,95,00,000/- received from four entities and accordingly, the income has escaped assessment.
Notably, the assessee was converted into LLP w.e.f. 13.04.2015 and the same has been intimated to the AO on 12.02.2018 by registered post and copy of which is placed as annexure in the paper book. Consequently, M/s. Madhuban Dealers Pvt. Ltd. stood wound up and dissolved with a new entity coming into existence as M/s. Madhuban LLP. Thereafter, Pr. CIT issued notice u/s. 263 of the Act on 07.01.2020 in the name of M/s. Madhuban Dealer Pvt. Ltd. a non-existent entity by observing that assessment framed u/s. 144/147 of the Act dated 27.12.2017 is erroneous and prejudicial to the interest of revenue.
Conclusion- Held that the revisionary proceedings u/s. 263 of the Act were initiated by the ld. Pr. CIT, Kolkata vide order-sheet entry dated 03.04.2019 and notice u/s. 263 was issued on 07.01.2020 and the revisionary order was framed on 13.03.2020 which were in the name of non-existent entity despite the fact having been brought to the knowledge of the AO and the fact was very much available in the assessment records. Therefore, the original revisionary order passed u/s. 263 of the Act was itself void ab initio and invalid and consequently notice issued u/s. 263 of the Act dated 15.02.2022 in the set aside proceedings as well as the impugned order dated 23.03.2022 were also rendered invalid and void regardless of the fact that revisionary order dated 13.03.2020 was restored to the Pr. CIT by the tribunal.
Held that when the original revisionary order was itself illegal and without jurisdiction, the same cannot be give rise any valid collateral proceedings in the second round as well. Therefore, the impugned order passed under section 263 dated 23.03.2022 pursuant to such illegal and invalid original revisionary order dated 13.03.2020 deserves to be quashed.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the revision order of Ld. Pr. CIT-13, Kolkata u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”)dated 23.03.2022 for AY 2010-11.
2. The only issue raised by the assessee in the various grounds of appeal is against invalid exercise of jurisdiction u/s. 263 of the Act by Ld. Pr. CIT with the consequence that order passed u/s. 263 of the Act is also invalid.
3. Facts in brief are that assessee filed its return of income for the relevant assessment year on 11.09.2010 declaring total loss of Rs.6,04,635/-. The return was originally processed u/s. 143(1) of the Act. Thereafter, the case of the assessee was reopened u/s. 147 of the Act on the basis of information received from Investigation Wing that assessee is beneficiary of Rs.4,95,00,000/- received from four entities and accordingly, the income has escaped assessment. The assessment was framed u/s. 144/147 of the Act vide order dated 27.12.2017 assessing the total income at nil. The AO examined the issue and came to the conclusion that the information pertained to FY 2010-11 relevant to AY 2011-12 and not to the instant assessment for AY 2010-11 and, therefore, no disallowance was made. Thereafter, the AO reopened the assessment for AY 2011-12 u/s. 147 of the Act by issuing notice u/s. 148 of the Act dated 29.03.20 18 and after looking into the matter, AO noted that transactions were duly recorded in the books of account and there was no undisclosed income and accordingly assessed them at nilvide order dated 20.11.2018. Thereafter, the assessee received a notice u/s. 154 of the Act dated 14.01.2019 in which the AO pointed out the mistake in applying provisions of section 68 of the Act which was replied on 18.03.20 19 in which it was pointed out that the information did not pertain to AY 2010-11 but to AY 11-12. It was also stated before the AO that AY 2011-12 was reopened and after necessary verification, the assessment was framed u/s. 143(3)/147 of the Act for AY 2011-12 making no addition by the AO as these were duly found recorded in the books of accounts. Besides, it was pointed out that impugned issue did not qualify as mistake apparent from record and, therefore, jurisdiction sought to be invoked u/s. 154 of the Act was invalid and unreasonable. The AO did not pass any order u/s. 154 but a proposal was sent to the Ld. Pr. CIT for invoking the revisionary jurisdiction u/s. 263 of the Act on 03.04.2019. In the meanwhile, the assessee was converted into LLP w.e.f. 13.04.2015 and the same has been intimated to the AO on 12.02.20 18 by registered post and copy of which is placed as annexure in the paper book. Consequently, M/s. Madhuban Dealers Pvt. Ltd. stood wound up and dissolved with a new entity coming into existence as M/s. Madhuban LLP. Thereafter, the ld. Pr. CIT issued notice u/s. 263 of the Act on 07.0 1.2020 in the name of M/s. Dadhuban Dealer Pvt. Ltd. a non-existent entity by observing that assessment framed u/s. 144/147 of the Act dated 27.12.2017 is erroneous and prejudicial to the interest of revenue as the AO has failed to make proper enquiries/verification in terms of clause (a) to explanation (2) of section 263 of the Act in respect of receipt of money amounting to Rs.4,95,00,000/- from four entities. The assessee sought an adjournment to reply the said show cause notice, however, the Ld. Pr. CIT proceeded with the framing of revisionary order u/s. 263 of the Act dated 13.03.2020 as ex parte order in the name of Madhuban Dealers Pvt. Ltd., a non-existent entity.
4. Aggrieved assessee, filed an appeal before the Hon’ble ITAT, Kolkata in ITA No. 393/Kol/2020 and the coordinate Bench has set aside the matter back to the file of Ld. Pr CIT vide order dated 25.08.2021 to consider the matter afresh. However the assessee challenged the order passed by Pr. CIT before the tribunal on the ground that a fair hearing was not allowed to the assessee and consequently restored the matter the Pr. CIT to pass fresh order u/s 263 of the Act after allowing fair hearing to the assessee.
5. In the second round of revisionary proceeding, the notice u/s. 263 of the Act dated 03.2023 was issued by Ld. Pr CIT, Kolkata again in the name of a non-existence entity Madhuban Dealers Pvt. Ltd. and in response the appellant filed detailed objections/explanation vide letter dated 07.03.20222 submitting therein as under:
“Notice u/s 148 of the Act dated 29.03.2017 was never validly served upon the assessee and therefore the impugned reopening of assessment and consequent order dated 27.12.2017 was ab initio void. As a consequence, the revisionary action u/s 263 of the Act stands rendered non-est in the eyes of law as well.
Notice u/s 148 of the Act dated 29.03.2017 was issued by the AO without the approval of Jt./Addl. CIT and therefore the reassessment proceedings stood vitiated in law. Hence, as the reassessment order was rendered void, the consequent action u/s. 263 of the Act also deserves to be quashed as being bad in law.
The reasons recorded for reopening of assessment was done in a mechanical manner without application of mind in as much as the concerned information also did not pertain to the relevant year. Hence, since the recorded reasons were invalid, the consequent order dated 27.12.2017 was ab initio void. As a consequence, the revisionary action u/s.263 of the Act stands rendered non-est in the eyes of law as well.
The records available in the ITBA portal suggests that the AO had passed a rectification order u/s 154 of the Act dated 10.04.2019 (although the same is neither served upon the assessee nor is available on the IT portal). If that be so, then the assessment order u/s 144/147 of the Act dated 27.12.2017 stood merged with the order u/s 154 of the Act dated 10.04.2019. In that view of the matter the revisionary jurisdiction u/s. 263 of the Act could not have been validly exercised in relation an original assessment order which had already been rectified u/s 154 of the Act.”
6. The Ld. Pr. CIT rejected all the contentions raised by the assessee and set aside the assessment order dated 27.12.2017 passed u/s. 147 read with section 144 of the Act by directing the AO to conduct proper enquiry and verification of the information received from the Investigation Wing.
7. The Ld. AR vehemently submitted before us that the notice issued u/s. 263 of the Act and consequent order passed u/s. 263 dated 23.03.2022 is invalid and void ab initio on the ground that the original notice 263 of the Act and revisionary dated 13.03.2020 were in the name of non-existent entity. The Ld. AR submitted that M/s. Madhuban Dealers Pvt. Ltd. stood converted into Madhuban Dealer LLP w.e.f. 13.04.2015 and thus ceased to exist. Thereafter, the Ld. AR stated that it was also intimated to the AO on 02.04.2018 much prior to the exercise of revisionary jurisdiction by the Ld. Pr. CIT through registered post. The Ld. AR submitted that it is evident that the notice u/s. 263 of the Act dated 07.0 1.2020 and also from the first revisionary order passed u/s. 263 of the Act dated 13.03.2020 that it was passed in the name of non-existent entity and is non-est in the eyes of law. The Ld. AR submitted that original revisionary order u/s. 263 of the Act was itself void ab initio then the consequent notice issued u/s. 263 of the Act dated 15.03.2022 in the set aside proceedings before Pr. CIT as well as the impugned order dated 23.03.2022 is also bad in law and may be quashed. Ld. AR in defense of his arguments relied on the decision of coordinate bench in the case of M/s. Durga Vinimay Pvt. Ltd. & Ors. In ITA No. 1408-1412/Kol/2019 dated 22.11.2009. The Ld. AR further submitted that if the original revisionary order itself was illegal, without jurisdiction, the same cannot give rise to any valid collateral proceeding in the second round as well. The Ld. AR, therefore, prayed that the impugned order u/s. 263 of the Act dated 23.03.2022 pursuant to the said illegal and invalid original revisionary or u/s. 263 dated 13.03.2020 deserved to be quashed by relying on the decision of Hon’ble Gujarat High Court in the case of P B. Doshi Vs. CIT 11 ITR 22 (Guj).
8. The Ld. AR on his second limb of argument submitted that reassessment order u/s. 144 read with section 147 of the Act dated 27.12.1970 itself suffered from the fundamental infirmity and jurisdiction defect thereby rendering all the consequential action and proceeding including revisionary order u/s. 263 as nonest in the eyes of law. The Ld. AR submitted that in an appeal against the order of 263 of the Act which ceased to revise the order u/s. 147 of the Act, the assessee has a legal right legitimately conferred by the law to challenge the validity of the order so passed u/s. 147 of the Act as well as initiation of proceeding u/s. 147 of the Act. The Ld. AR contended that the original proceeding u/s. 147 were null and void for want of proper jurisdiction and as such the validity can be challenged in the collateral proceeding u/s. 263 of the Act. The ld. AR submitted that if the order passed u/s. 147 of the Act is found to be bad in law then the consequent action u/s. 263 of the Act is also null and void. In defense of his argument, the Ld AR relied on the decision of Hon’ble Apex Court in the case of Kiran Singh Vs. Chaman Paswan AIR 954 SC 340. The Ld. AR stated that following the above decision of the Hon’ble Apex Court, several judicial forums have held that any revisionary action taken u/s. 263 of the Act against the non est or invalid assessment order would also be a nullity. The Ld. AR cited the following decisions:
i) Concord Infra Project Pvt. Ltd. Vs. Pr. CIT (ITA No. 174/Kol/2021 dated 13.10.2021 (ITAT, Kol)
ii) Westlife Development Pvt. Ltd. Vs. Pr. CIT (88 com 349) (ITAT Mum.)
iii) Krishna Kumar Saraf Vs. CIT (83 com 331) (ITAT Del)
iv) Indian Farmers Fertilizers Coop. Ltd. Vs. JCIT (105 ITD 33) (ITAT Del.)
9. The Ld. AR stated that notice u/s. 148 of the Act was issued without obtaining prior approval from JCIT/Addl. CIT in terms of section 151 of the Act and, therefore, the order passed u/s. 147 of the Act is null and void. In defense of his argument, he relied on the following decisions:
i) CIT Vs. SPL Siddhartha Ltd. 345 ITR 223 (Del HC)
ii) CIT Vs. Soyuz Industrial Resources Ltd. (232 Taxman 414) (Del) HC)
iii) Sidhmicro Equities (P) Ltd. Vs. DCIT (150 taxmann.com 460) (Bom HC)
10. The Ld. AR further stated that in AY 2010-11 notice u/s. 148 was issued by ITO, Ward-4(1), Kolkata on 28.03.20 17 after a period of four years but before six year from the end of relevant assessment years and in terms of provision of section 151 of the Act (as it stood then), the ITO was required to obtain prior approval of Addl./Joint CIT, Range-4, Kolkata before issuance of the said notice u/s. 148 of the Act. The Ld. AR stated that the assessee had requested through RTI application dated 26.04.202 1, a copy of which is placed at page 31 of the paper book, to provide the copies of reasons recorded by the AO before initiation of reassessment proceeding u/s. 147 of the Act. In response, the office of the ITO, Ward-4(1), Kolkata had provided the same under the covered letter dated 14.07.202 1. The Ld. AR submitted that on perusal of the sanctioned/approved proforma a copy of which is filed at pages 34 and 35 of the paper book filed by the AO in terms of section 150(1) of the Act. It is noted that no approval was accorded nor reasons were recorded or signed by Addl./Joint CIT, Range-4, Kolkata and consequently, the notice dated 28.03.2017 issued u/s. 148 as well as the order dated 27.12.2017 passed u/s. 144/147 of the Act were rendered null and void. The Ld. AR stated that consequent thereto the present proceeding also stand initiated by the said non-obtaining of approval from a competent authority.
11. On the third limb of argument, the Ld. AR stated that reasons were recorded by the AO on complete non-application of mind and in a mechanical manner by simply following the dictate of Investigation Wing and for realizing that the information supplied by the Investigation Wing did not pertain to relevant AY 2010-11 but AY 2011-12. The Ld. AR further stated that the AO has recorded the reasons that income chargeable to tax has escaped assessment after independent application of mind to the material and information which comes in his possession. Accordingly, reopening at the dictate of higher authority or on borrowed satisfaction or based on information forwarded by the Investigation Wing of the Department or any other agency is bad in law and so far as the assessment framed u/s. 147 read with 144 of the Act, the Ld. AR stated that before forming reason to believe on the basis of such information there has to be application of mind in an objective manner by the AO and only thereafter, there should be formation of belief. In the last of his argument, the Ld. AR relied on the following the decisions:
i) Pr. CIT Vs. Meenakshi Overseas (P) Ltd. (82 taxmann.com 300) (Del. HC);
ii) CIT Vs. Paramjit Kaur (168 com 39);
iii) CIT Vs. RMG Polyvinyl (I) Ltd. (83 taxmann.com 348) (Del. HC)
iv) Cygnus Inv & Fin. Ltd. Vs. ACIT (ITA No. 1 17/Kol/2018)(ITAT Kol)
v) ACIT Vs. Adhunik Cement Ltd. (ITA No. 1375/Kol/17 (ITAT Kol).
12. The ld DR , per contra, vehemently opposed the arguments presented by the ld counsel for the assessee. The ld. AR contended that the arguments made by the ld AR cannot be entertained at this stage when the issue is restored to Pr. CIT by the tribunal and the pleas which are being raised were never raised before the Pr. CIT in the original proceedings. On the issue of revisionary order being passed in the name of non entity , the ld DR argued that the said argument is wrong as the order is passed in the name of new entity beside mentioning the name of the former entity which can not be taken to mean that the order is passed in the name of old non existent entity. Therefore the said arguments of the ld AR is wrong and may be rejected. On the other arguments of the ld AR that the assessment was not validly re-opened and thus order passed was also invalid and the issue can be taken in the collateral proceedings , the ld. DR contended that the argument was neither taken at the time of re-assessment proceedings nor in the original revisionary proceeding and therefore it can not be entertained at this stage. Besides. If the assessee have any novice arguments can be taken before the AO as the assessee would be afforded sufficient opportunity. The ld DR finally prayed that the appeal of the assessee may be dismissed for these reasons as argued.
13. After hearing the rival contentions and perusing the relevant records placed before us, we note that undisputedly the assessee, i.e. M/s. Madhuban Dealers Pvt. Limited has been converted into M/s. Madhuban Dealers LLP with effect from 13th April, 2015 meaning thereby that the assessee-company stood wound up and is no more in existence. We note that the assessee has intimated the said fact to the ld. Assessing Officer vide letter dated 02.04.2018 through Registered Post. We note that the revisionary proceedings under section 263 of the Act were initiated by the ld. Pr. CIT, Kolkata vide order-sheet entry dated 03.04.2019 and notice under section 263 was issued on 07.01.2020 and the revisionary order was framed on 13.03.2020which were in the name of non-existent entity despite the fact having been brought to the knowledge of the ld. Assessing Officer as stated hereinabove and the fact was very much available in the assessment records. Therefore, the original revisionary order passed under section 263 of the Act was itself void ab initio and invalid and consequently notice issued under section 263 of the Act dated 15.02.2022 in the set aside proceedings as well as the impugned order dated 23.03.2022 were also rendered invalid and void regardless of the fact that revisionary order dated 13.03.2020 was restored to the Pr. CIT by the tribunal. The case of the assessee finds support from the decision of the Coordinate Bench of this Tribunal in the case of M/s. Durga Vinimay Pvt. Limited & Others in ITA No. 1408-1412/KOL/2019 dated 22.11.2019, in which the Coordinate Bench has held on the similar facts and circumstances that the revisionary order passed under section 263 on the non-existent company, to be bad-in-law since the said entity was amalgamated/dissolved. The operative part of the said decision reads as under:-
“13. We have heard both the parties and perused the records. We note that M/s. Durja Vinimay Pvt. Ltd. filed the return of income for the year under consideration (AY 2012-13) on 17.09.2012 declaring an income of Rs.560/-. Later, the case of assessee was scrutinized by the AO who was pleased to frame an assessment order dated 25.03.2015 under section 143(3) of the Act determining total income of Rs. 22,36,50,560/-. Thereafter, on 2 7.0 7.2016, the Ld. Pr. CIT issued show cause notice dated 2 7.07.2016 intimating his desire to exercise his revisional jurisdiction u/s. 263 of the Act and thereafter by order dated 2 7.09.2016 Ld. Pr. CIT was pleased to set aside the order of the AO dated 25.03.2015 and directed de novo assessment as well as directing him to carry out proper examination of books of account and bank accounts of assessee as well as investors.
14. Thereafter, the AO records in the reassessment order dated 28.10.2016 [ in the second round of re-assessment ordered by Ld. Pr. CIT] that the Ld. Pr. CIT -4 has also directed that the proceedings should be initiated at the earliest and the same should be completed without waiting for the time barring date. The AO also observes that the Ld. Pr. CIT, Kol-4, Kolkata has also directed him to follow the direction of Ld. Pr. CCIT, Kolkata dated 17.03.2015 in connection with Boards Circular, and office memorandum dated 07.11.2014 of CBDT in respect of steps towards a non adversarial tax Then the AO records the fact that notice u/s. 142(1) dated 07.10.2016 was issued and served upon the assessee through speed post and fixing date of hearing on 17.10.2016 and in response to the notice u/s. 142(1) dated 17.10.2016, Shri Mukesh Kr. Jhyawar, FCA, the authorised representative (hereinafter referred to as AR) of the assessee appeared and filed power of attorney, the details of directors name and address along with PAN, Date of appointment and produced the books of accounts for the AY 2012-13 relevant to FY 2011-12; and the AO acknowledges that the details of 2nd source of fund and also produced the details of bank statement of the assessee company which is maintained from 01.04.2011 to 31.03.2012 and the AO finds that all the transactions were duly reflected in the bank statement and that all the relevant documents were verified by him on test check basis and that there was no adverse inference need to be drawn against the assessee.
15. Thereafter, the AO records that summons u/s. 131 of the Act was issued on 24.10.2016 to the director of the assessee company fixing the date of hearing on 2 7.07.2016. And pursuant to the summons, the Director Shri Rajeev Kumar appeared with photo identity proof, and his statement was recorded by the AO and placed in the records. According to AO (which he records in the reassessment order dated 28.10.2016), that during the course of assessment proceedings u/s 143(3)/263 the following features he noted which are as stated below:- [ Reproduced from reassessment order dated 28.10.2016]
A. Discharge of onus of liability by M/s. Durja Vinimay Pvt. Ltd., as under:
i) Assessee Company furnished all documents as requisitioned earlier.
ii) Information provided by assessee Company later on, turned to be correct one.
iii) Attendance of one of the Present Director of company against Summon issued u/s. 131 and recording his statement is sufficient.
B. Responses of Investors Companies:-
i) Subscribing companies has sufficient capital for investments.
ii) Subscribing companies also invested in equity shares related to other companies.
iii) Reference of cash deposits is not found in the statement of Bank Accounts filed by Investor Companies.
iv) Financial transactions made during financial year 2011-12 between M/s. Durja Vinimay Ltd., and Investors Companies found reported to Revenue.
(v) Notice u/s. 133(6) issued by the predecessor to all the share holder before the assessment proceeding /s. 143(3) and all the share holders reply was received and available in the records.
C. On examination and re-examination of records conclusion as stated above has been made: [by AO]
(i) Subscribing companies had sufficient capital as on 31.03.2012 and investments made was not confined to Assessee Company.
(ii) Books of accounts maintained by those companies were duly audited.
(iii) Investing companies are PAN holders and filed their returns.
(iv) Information as furnished against notices were cross verified and matched.
(vi) Financial transitions were done through bank accounts.
Thereafter the AO concludes and records his finding “in view of facts as stated above financial transactions related to relevant previous year as claimed by Assessee Company appears legally in order. Reports of transactions and parties involved in it are already in the notice of Revenue. All share holder files their returns regularly. In view of the facts as stated above it appears that Assessee Company discharged the burden of proof. All transactions are already in the notice of Revenue. During the course of re-examination of case and inquiry, in consideration of aforesaid facts, no adverse inference could be drawn. Total income, on verification of accounts, inquiries and after providing sufficient opportunity to assessee Company, is considered as under.”
And thereafter, the AO computed the total income on 28.10.2016 at Rs.14,960/-.
17. After the AO has given effect on 28.10.2016 (supra) and framed the reassessment order in the light of the Ld Pr. CIT order dated 2 7.0 7.2016, the assessee company got amalgamated with M/s. Nihon Impex Private Ltd. We note that it was the result of the scheme of amalgamation filed before the Hon’ble NCLT which was duly sanctioned vide order dated 21.12.2018. With this amalgamation made effective from 01.04.2017, the assessee company [M/s. Durja Vinimay Pvt. Ltd.] ceased to exist. That is the plain and simple effect in law as held by the Hon’ble Delhi High Court in M/s. Spice Infotainment Lt.ds Vs. CIT (supra). It is noted that the scheme of amalgamation itself provided for this consequences, in as much as simultaneous with the sanctioning of the scheme, the assessee M/s. Durja Vinimay Pvt. Ltd. stood dissolved by specific order of Hon’ble NCLT. With the dissolution of M/s. Durja Vinimay its name was struck off from the rolls of the companies maintained by the ROC. The Hon’ble Delhi High court in M/s. Spice Infotainment has explained the effect of dissolution of a company “A company incorporated under the Indian companies Act is a juristic person. It takes its birth and gets life with the incorporation. It dies with the dissolution as per the provisions of the Companies Act. It is trite law that on amalgamation the amalgamating company ceases to exist in the eyes of law.” Therefore, the impugned order passed by the Ld. Pr. CIT in the name of M/s. Durja vinimay Pvt. Ltd. i.e, in the name of assessee’s which ceased to exist after the sanction of scheme on 21.12.2018 with effect from 01.04.2017, by the impugned order dated 12.03.209 is void. Since the assessee ’s before us was not an existing entity when the impugned order was passed by the Ld. Pr. CIT and the fact was that the assessee’s had informed their AO ’s about the order of dissolution and sanctioning of scheme by Hon’ble NCLT w.e.f. 01.04.2017 on the following dates:
