2016 (4) TMI 501 - AT - Income Tax

Tribunal quashes CIT order under Sec 263, voids assessment against non-existent company

Milestone Tradelinks P. Ltd. Versus ITO, Ward-4 (3), Ahmedabad.

The Tribunal allowed the appeal, quashing the Principal CIT's order under Section 263 of the Income Tax Act. The proceedings against the non-existent ... Revision u/s 263 - notice against non-existent company - Held that:- Jurisdiction should be by virtue of operation of the Act and not by the consent of an assessee. A perusal of section 263 would indicate that before taking any action under section 263, the ld.Commissioner has to pursue record and record would include the communication made by the assessee to the AO on 23.7.2013 intimating about the fact of amalgamation. Therefore, we are of the view that the issue in dispute is squarely covered in favour of the assessee by the decision of Hon’ble Gujarat High Court in the case of Khurana Engineering Ltd. (2013 (2) TMI 128 - GUJARAT HIGH COURT ). Since we have arrived at a conclusion that initiation of proceedings against HEPL is void ab inito, therefore, we do not deem it necessary to adjudicate on other issues on merit. No proceedings under section 263 can be taken up against HEPL after its amalgamation with Milestone Tradelinks Pvt. Ltd. Therefore, we allow the appeal of the assessee and quash the order passed by the ld.Commissioner under section 263 of the Income Tax Act. - Decided in favour of assessee. Issues Involved:1. Validity of notice and order under Section 263 issued to a non-existent company.2. Jurisdiction of the Principal CIT under Section 263.3. Conclusion that the assessment order was erroneous and prejudicial to the interest of the revenue.4. Cancellation of the assessment order and direction for fresh assessment.Issue-wise Detailed Analysis:1. Validity of Notice and Order under Section 263 Issued to a Non-Existent Company:The assessee contended that the order passed by the Principal CIT under Section 263 was void ab initio as it was issued in the name of a non-existent company, Hinduja Exports Pvt. Ltd. (HEPL), which had amalgamated with Milestone Tradelinks Pvt. Ltd. effective from 1.4.2011, as approved by the Gujarat High Court. The assessee argued that any proceedings initiated against a non-existent entity are invalid, citing the Hon'ble Supreme Court's judgment in Marshall Sons & Co. (India) Ltd. vs. ITO. The Tribunal agreed, noting that the notice under Section 263 was issued on 24.12.2014, well after the merger, and therefore, the proceedings were void.2. Jurisdiction of the Principal CIT under Section 263:The assessee argued that the Principal CIT wrongly assumed jurisdiction under Section 263 as the mandatory conditions for assuming such jurisdiction were absent. The Tribunal observed that the assessee had informed the AO about the amalgamation via a letter dated 23.7.2013, which was acknowledged by the AO. The Tribunal emphasized that jurisdiction must be derived from the law and not through consent or actions of the parties involved. Thus, the Principal CIT lacked jurisdiction to initiate proceedings under Section 263 against HEPL post-amalgamation.3. Conclusion that the Assessment Order was Erroneous and Prejudicial to the Interest of the Revenue:The Principal CIT concluded that the assessment order passed by the AO was erroneous and prejudicial to the interest of the revenue. However, the Tribunal did not delve into the merits of this issue, as it had already determined that the proceedings were void ab initio due to being initiated against a non-existent entity.4. Cancellation of the Assessment Order and Direction for Fresh Assessment:The Principal CIT had canceled the assessment order and directed the AO to make a fresh assessment. The Tribunal quashed this order, reiterating that no proceedings could be taken against HEPL after its amalgamation with Milestone Tradelinks Pvt. Ltd. The Tribunal noted that the AO had recognized the amalgamation in subsequent assessment orders, further supporting the conclusion that the proceedings under Section 263 were invalid.Conclusion:The Tribunal allowed the appeal of the assessee, quashing the order passed by the Principal CIT under Section 263 of the Income Tax Act. The initiation of proceedings against HEPL was deemed void ab initio, and as such, no further adjudication on the merits of the case was necessary. The Tribunal emphasized that jurisdiction must be established by law and cannot be conferred by the actions or consent of the parties involved.