2017 (7) TMI 1044 - AT - Income Tax

Invalid assessment on non-existent entity post-amalgamation; jurisdictional correctness emphasized

The Tribunal held that the assessment order passed on a non-existent entity post-amalgamation was void ab initio and lacked jurisdiction, following ... Sustainability of assessment against non existent company - appellant has since been amalgamated with another company - Held that:- The assessment passed by the Ld. assessing officer is not sustainable, as it has been passed after the amalgamation on the assessee company who was no more in existence. In view of this the additional ground raised by the assessee succeeds. See Spice Enfotainment Ltd. Versus Commissioner of Income Tax [Printed as: SPICE ENTERTAINMENT LTD. Versus COMMISSIONER OF SERVICE TAX] [2011 (8) TMI 544 - DELHI HIGH COURT ] - Decided against revenue Issues Involved:1. Validity of assessment order passed on a non-existent entity post-amalgamation.2. Deletion of additions made under Section 35(1)(ii) and Section 35(1)(iv) of the Income Tax Act.3. Recalculation of disallowance under Section 14A of the Income Tax Act.Issue-Wise Detailed Analysis:1. Validity of Assessment Order on a Non-Existent Entity Post-Amalgamation:The primary issue was whether the assessment order passed by the Assessing Officer (AO) on a non-existent entity due to amalgamation was valid. The appellant company, Dhara Vegetable Oil and Foods Company Limited, amalgamated with Mother Dairy Fruit and Vegetable Private Limited effective from April 1, 2007. This amalgamation was sanctioned by the Hon’ble Delhi High Court on August 30, 2008. Despite being informed of this amalgamation via a letter dated April 6, 2009, the AO passed the assessment order on August 17, 2009, in the name of the non-existent amalgamating company.Referencing the Hon’ble Supreme Court's decision in Saraswati Industrial Syndicate vs. CIT, it was noted that an amalgamating company ceases to exist upon amalgamation. The Delhi High Court in Spice Entertainment Ltd. vs. CIT further clarified that assessments made on non-existent entities are invalid and cannot be treated as procedural defects under Section 292B of the Income Tax Act. The Tribunal, following these precedents, held that the assessment order passed on the non-existent entity was void ab initio and lacked jurisdiction. Consequently, the additional ground raised by the assessee was allowed, rendering the assessment unsustainable.2. Deletion of Additions under Section 35(1)(ii) and Section 35(1)(iv):The revenue challenged the CIT(A)’s decision to delete additions made by the AO under Sections 35(1)(ii) and 35(1)(iv) of the Income Tax Act, amounting to Rs. 1,73,93,390 and Rs. 3,18,141 respectively. The AO had disallowed these expenses on account of scientific research, citing insufficient documentation from the assessee during the assessment proceedings. However, the CIT(A) found in favor of the assessee, leading to the revenue's appeal.Given the Tribunal's decision on the first issue, which invalidated the entire assessment order, the Tribunal did not find it necessary to adjudicate on the merits of these deletions.3. Recalculation of Disallowance under Section 14A:The revenue also contested the CIT(A)’s direction to the AO to recalculate the disallowance under Section 14A by considering an investment of Rs. 2,20,00,520 for earning exempt income instead of Rs. 16,20,90,020 as taken by the AO. The CIT(A) had found the AO’s calculation to be excessive and not in accordance with the actual investments related to exempt income.As with the previous issue, the Tribunal, having already invalidated the assessment order on jurisdictional grounds, did not proceed to address this recalculation matter.Conclusion:The Tribunal concluded that the assessment order passed by the AO was invalid due to the non-existence of the assessee entity post-amalgamation. Therefore, the additional ground raised by the assessee was allowed, and the appeals of both the revenue and the assessee on other grounds were dismissed as moot. The judgment emphasized the importance of jurisdictional correctness in assessment proceedings, especially in cases of corporate restructuring like amalgamations. The order was pronounced in the open court on April 6, 2017.