2014 (12) TMI 671 - AT - Income Tax

Invalidity of Assessment Orders Due to Notice Issued to Non-existent Entity Post-Amalgamation

The Tribunal found that the notice issued under Section 153C to a non-existent entity post-amalgamation was invalid, rendering the assessment order ... Validity of issue of notice u/s 153C – Assessment made on the merging companies – Company has already become non-existent on account of its merger with other company – Whether the issue of notice u/s 153C in the name of M/s P.D. Associates Pvt. Ltd. is a valid notice - Held that:- The erstwhile director of M/s P.D. Associates Pvt. Ltd. promptly informed the AO about the amalgamation of PDA with ARI, enclosed the copy of amalgamation order and also requested for issue of notice in the name of the successor company - the AO did not issue any notice in the name of M/s A.R. Infracon Pvt. Ltd. and completed the assessment in the name of the assessee, of course, after mentioning the factum of merger with A.R. Infracon Pvt. Ltd. - Following the decision in SPICE ENTERTAINMENT LTD. Versus CIT [2011 (8) TMI 544 - DELHI HIGH COURT] - notice u/s 143(2) was sent to the company which was not in existence on the date of issue of the notice - The amalgamated company appeared and brought this fact to the knowledge of the AO – the AO did not substitute the name of the amalgamating company - AO issued notice us/ 153C in the name of M/s P.D. Associates Pvt. Ltd. which was not in existence on that day after its amalgamation with M/s A.R. Infracon Pvt. Ltd. - no contrary decision is brought to our knowledge - the issue of notice u/s 153C in the name of M/s P.D. Associates Pvt. Ltd. which was not in existence at the relevant time was void ab-initio and nullity - Since the notice issued u/s 153C is held to be void ab-initio and nullity, the assessment order completed in pursuance to such notice cannot be sustained – Decided in favour of assessee. Issues Involved:1. Validity of notice issued under Section 153C.2. Validity of assessment completed in pursuance to a notice issued to a non-existent entity.3. Impact of amalgamation on the assessment proceedings.4. Validity of notice issued under Section 143(2) to a non-existent entity.Detailed Analysis:1. Validity of Notice Issued under Section 153C:The primary issue was whether the notice issued under Section 153C to M/s P.D. Associates Pvt. Ltd. (PDA), which had amalgamated with A.R. Infracon Pvt. Ltd. (ARI), was valid. The Tribunal found that the notice dated 23rd September 2010 was issued to PDA, which was non-existent due to its merger with ARI effective from 1st October 2008. The erstwhile director of PDA informed the Assessing Officer (AO) about the amalgamation and requested the notice to be issued in the name of ARI. Despite this, the AO did not issue a new notice to ARI and completed the assessment in the name of PDA. The Tribunal concluded that issuing a notice to a non-existent entity was void ab-initio, citing the Delhi High Court's judgment in CIT-III Vs. Dimension Apparels Pvt. Ltd. and Spice Entertainment Ltd.2. Validity of Assessment Completed in Pursuance to a Notice Issued to a Non-Existent Entity:The Tribunal held that since the notice under Section 153C was void, the subsequent assessment order completed in pursuance to such notice was also invalid. This decision was based on the principle that an assessment order cannot be sustained if the foundational notice itself is invalid. The Tribunal referenced the Delhi High Court's decisions, which emphasized that an assessment order passed in the name of a non-existent entity is void and cannot be rectified by mere participation of the amalgamated company in the proceedings.3. Impact of Amalgamation on the Assessment Proceedings:The Tribunal examined the legal effect of the amalgamation order dated 25th May 2009, which sanctioned the merger of PDA with ARI effective from 1st October 2008. The amalgamation resulted in the transfer of all properties, rights, and liabilities of PDA to ARI. The Tribunal noted that the AO was informed about the amalgamation and provided with the High Court's order, yet failed to issue the notice to ARI. The Tribunal concluded that the AO's failure to recognize the amalgamation and issue the notice to the successor company rendered the assessment proceedings invalid.4. Validity of Notice Issued under Section 143(2) to a Non-Existent Entity:For the assessment year 2009-10, the Tribunal addressed the issue of a notice issued under Section 143(2) to PDA, which was non-existent due to its merger with ARI. The Tribunal reiterated its earlier findings regarding the invalidity of notices issued to non-existent entities and quashed the notice under Section 143(2) as well. Consequently, the assessment order completed in pursuance to such notice was also quashed.Conclusion:The Tribunal allowed the assessee's appeals for the assessment years 2003-04 to 2008-09, quashing the assessment orders due to the invalidity of the notices issued under Section 153C to a non-existent entity. The Tribunal also dismissed the Revenue's appeals for the same years, as the assessment orders had already been quashed. For the assessment year 2009-10, the Tribunal quashed the notice issued under Section 143(2) and the subsequent assessment order, following the same rationale. The decision was pronounced on 12th December 2014.