2015 (4) TMI 917 - AT - Income Tax

Assessment on Non-Existent Company Invalid; Appeals Allowed

The tribunal held that the assessment framed by the AO on the non-existent company was invalid as the initiation of proceedings for assessment was ... Initiation of proceedings u/s 153C of the Income Tax Act, 1961 - Company non-existent on account of its merger - Notice not served to amalgamated company - Held that:- In the present case it is an admitted fact that the assessee company amalgamated with M/s Windchimes Constructions Pvt. Ltd. w.e.f 01.04.2008 vide order dated 16.08.2010 of the Hon’ble Jurisdictional High Court and the assessee informed the AO about this fact vide letter dated 27.08.2010 (copy of which is placed at page no. 3A of the assessee’s paper book) and the letter dated 23.08.2010 filed on 27.08.2010 with the Income Tax Department (copy of which is placed at page no. 3 of the assessee’s paper book). Therefore, this fact was in the knowledge of the AO that the assessee was not inexistence at the time of preparation of the satisfaction note dated 05.07.2010 (copy is placed at page no. 1 of the assessee’s paper book) for issuing notice u/s 153C of the Act. From the above facts, it is clear that the notice u/s 153C of the Act by the AO was not issued to M/s Windchimes Constructions Pvt. Ltd. with which the assessee company i.e. M/s Mevron Projects Pvt. Ltd. amalgamated. Therefore, the assessment framed vide order dated 31.12.2010 u/s 153C/143(3) of the Act on the assessee was not valid. Similar issue had been adjudicated in the case of M/s Micra India Pvt. Ltd. [2013 (11) TMI 679 - ITAT DELHI] and Khurana Engineering Ltd. [2013 (2) TMI 128 - GUJARAT HIGH COURT]. In view of the aforesaid discussion and keeping in view the ratio laid down in the above said judicial pronouncements, we are of the view that for making the assessment, it is absolutely essential that the person so to be assessed should be in existence at the time of making the assessment. In the present case the assessment has been framed by the AO on a date when the present assessee was not in existence and M/s Windchimes Constructions Pvt. Ltd. was fastened with the liability of the assessee but no notice was issued to the said amalgamating company i.e. M/s Windchimes Constructions Pvt. Ltd., therefore, the assessment framed by the AO vide assessment order dated 31.12.2010 was not valid. - Decided in favour of assessee. Issues Involved:1. Validity of initiation of proceedings under Section 153C of the Income Tax Act, 1961.2. Legality of assessment on a non-existent company due to amalgamation.Detailed Analysis:1. Validity of Initiation of Proceedings under Section 153C:The main grievance of the assessee was the initiation of proceedings under Section 153C of the Income Tax Act, 1961. The assessee argued that the initiation of proceedings, issuance of notice, and completion of assessment on a company that had already become non-existent due to its merger with another company was illegal and bad in law. The assessee's counsel highlighted that the assessee company had amalgamated with M/s Windchimes Constructions Pvt. Ltd. with effect from 01.04.2008 as per the order of the Hon'ble Delhi High Court dated 16.08.2010. Despite this, the assessment was conducted on the non-existent company, M/s Mevron Projects Pvt. Ltd.The facts of the case revealed that a Search & Seizure operation under Section 132 was carried out, and certain documents belonging to the assessee were seized, leading to the initiation of proceedings under Section 153C. The assessee filed a return of income declaring Nil income, but the AO framed the assessment at an income of Rs. 32,25,180/-. The CIT(A) dismissed the assessee's contention, noting that the assessee had filed the return of income in response to the notice under Section 153C and had used the letterhead of M/s Mevron Projects Pvt. Ltd. without mentioning the amalgamation until much later.2. Legality of Assessment on a Non-Existent Company:The assessee argued that the assessment framed on a non-existent company was void ab initio. The reliance was placed on several judicial precedents, including the judgment of the Hon'ble Delhi High Court in the case of Spice Entertainment Ltd. Vs CIT and various decisions of the ITAT Delhi Benches. The assessee contended that the defect of not issuing the notice under Section 153C to the amalgamated company, M/s Windchimes Constructions Pvt. Ltd., was not curable, and therefore, the assessment framed on the non-existent company was invalid.The CIT DR supported the order of the CIT(A), arguing that the issuance of notice to the amalgamated company was a procedural defect and curable. It was emphasized that the assessee participated in the assessment proceedings without raising objections, thus validating the assessment framed by the AO.The tribunal considered the submissions of both parties and reviewed the material on record. It was admitted that the assessee company had amalgamated and informed the AO about this fact. The tribunal noted that the AO was aware of the amalgamation at the time of issuing the notice under Section 153C but still issued it to the non-existent company. The tribunal found that the assessment framed on the non-existent company was not valid.The tribunal referred to the case of ACIT Vs M/s Micra India Pvt. Ltd., where a similar issue was adjudicated, and it was held that assessment on a dissolved company is impermissible. The tribunal concurred with the findings that a company ceases to exist upon amalgamation, and thus, assessment on such a company is invalid.The tribunal also referred to various judicial pronouncements, including the Hon'ble Calcutta High Court's judgment in I. K. Agencies Pvt. Ltd. Vs CWT and the Hon'ble Delhi High Court's judgment in CIT Vs Vived Marketing Servicing Pvt. Ltd., which supported the view that assessment on a non-existent company is invalid.Conclusion:The tribunal set aside the order passed by the CIT(A) and held that the assessment framed by the AO on the non-existent company was invalid. The initiation of proceedings for assessment was vitiated for not giving notice to the amalgamated company, M/s Windchimes Constructions Pvt. Ltd. Consequently, the appeals of the assessee were allowed, and the appeals of the department were dismissed.(Order pronounced in the open Court on 20/02/2015).