2025 (2) TMI 1232 - AT - Income Tax

Assessment order against non-existent entity is invalid under Section 292B; entire assessment quashed

Man Diesel and Turbo India Pvt. Ltd. (As successor of Man Turbo India P. Ltd.) Versus The ACIT, Circle-2 (1) (2), Vadodara.

The ITAT Ahmedabad held that an assessment order passed against a non-existent entity, which had been amalgamated, is invalid and quashed the entire ... Assessment order passed in the name of non-existent entity/ company amalgamated - HELD THAT:- We have no hesitation in holding that the issue raised in the additional ground by the assessee is squarely covered by the decision of Maruti Suzuki [2019 (7) TMI 1449 - SUPREME COURT] following which, we hold that the assessment order passed in the present case on a non-existent entity is an invalid assessment order, and the entire assessment framed, therefore, is directed to be quashed. Whether order being passed in the name of amalgamated entity despite the AO being aware of the fact of amalgamation, is a mere technical error, which need not be considered as fatal to the assessment framed in terms of section 292B? - As we have noted was raised before the Hon'ble Apex Court also by the Revenue in the case of Maruti Suzuki India Ltd. (supra) and therefore for all purposes, this argument has been considered by the Hon'ble Apex Court and rejected in its order passed in the said case. Since the assessee failed to exercise its option to object to the assessment proceedings in terms of provisions of section 124(3) - We do not find any merit in this argument. The right given to the assessee to object in terms of provisions of section 124(3) of the Act is only vis-à-vis the jurisdiction of the AO to assess. If the assessee is of the view that the AO who has assumed jurisdiction is not the jurisdictional AO, then he has right to object within the period specified in the said section. In the present case, the issue is not about the correct jurisdictional AO having framed the assessment on the assessee. The issue in fact is completely different. It is about the assessment being framed on a non-existent entity. Therefore, the provisions of section 124(3) of the Act do not come into play at all and the contention of the Revenue therefore, needs to be rejected. Assessee appeal allowed. 1. ISSUES PRESENTED and CONSIDERED Validity of assessment framed under section 143(3) of the Income Tax Act, 1961 in the name of a non-existent entity post-amalgamation. Admissibility of additional grounds challenging the validity of assessment notice and order. Whether the assessment framed on a non-existent entity is void ab initio. Interpretation and applicability of section 124(3)(a) regarding objection to jurisdiction after assessment proceedings. Relevance and application of section 292B concerning technical defects in assessment proceedings. Merits of disallowances made under the Income Tax Act relating to: Provision for creditors under section 37; Excess cost of material consumed; Disallowance under section 36(1)(va) regarding employee's contribution to Provident Fund and its allowance under section 43B. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Assessment Framed in the Name of a Non-Existent Entity Post-Amalgamation Relevant Legal Framework and Precedents: Section 143(2) and 143(3) of the Income Tax Act, 1961 govern issuance of notice and framing of assessment. Section 124(3)(a) provides for objection to jurisdiction of assessing officer. Section 292B allows rectification of certain mistakes or defects in proceedings. Supreme Court decision in PCIT v. Maruti Suzuki India Ltd. holds assessment framed on a non-existent entity post-amalgamation is invalid. Supreme Court decision in PCIT v. Mahagun Realtors (P.) Ltd. takes a contrary view but distinguished on facts where no intimation of amalgamation was made. Various jurisdictional High Court decisions have followed Maruti Suzuki ruling where intimation was given. Court's Interpretation and Reasoning: The assessee company was amalgamated into another entity effective 1-1-2013, with the scheme sanctioned by the High Court on 28-3-2014. The amalgamation was intimated to the Assessing Officer on 24-6-2014, prior to issuance of notice under section 143(2) on 4-9-2014 and assessment order dated 9-11-2016. The Assessing Officer was aware of non-existence of the amalgamated company during assessment proceedings, as reflected in the order noting amalgamation and return filed only for nine months. The Supreme Court ruling in Maruti Suzuki India Ltd. was squarely applicable, holding that assessment framed on a non-existent entity is invalid. The contrary Supreme Court ruling in Mahagun Realtors was distinguished on facts, as in the present case intimation was given, unlike Mahagun Realtors. Technical objections regarding the name of the entity in the assessment order are not fatal to the proceedings under section 292B, as held by the Supreme Court in Maruti Suzuki. Contention that the assessee failed to object to jurisdiction under section 124(3)(a) was rejected, as the issue is not about jurisdiction but about validity of assessment on a non-existent entity. Key Evidence and Findings: Effective date of amalgamation: 1-1-2013. High Court sanction of scheme: 28-3-2014. Intimation to AO: 24-6-2014. Notice under section 143(2) issued to non-existent entity: 4-9-2014. Assessment order passed in name of amalgamated entity: 9-11-2016. Assessment order itself acknowledges amalgamation and limited period of return filing. Application of Law to Facts: Since the AO issued notice and framed assessment after intimation of amalgamation, the assessment in the name of the non-existent entity is invalid as per Maruti Suzuki precedent. Section 124(3)(a) does not bar challenge to validity of assessment on grounds other than jurisdiction. Section 292B does not save such an assessment as the defect is not merely technical but fundamental. Treatment of Competing Arguments: Revenue's reliance on section 124(3)(a) and section 292B was rejected as inapplicable to the core issue. Revenue's failure to distinguish Maruti Suzuki ruling or to justify Mahagun Realtors ruling on facts was noted. Conclusion: The assessment framed under section 143(3) in the name of the non-existent amalgamated entity is invalid and liable to be quashed. Issue 2: Admissibility of Additional Grounds Challenging Validity of Assessment Notice and Order Relevant Legal Framework and Precedents: Legal grounds can be raised at any stage as per settled Supreme Court jurisprudence. >NTPC Ltd. v. CIT establishes that legal grounds may be admitted even at appellate stage. Court's Interpretation and Reasoning: The additional ground challenging validity of assessment on non-existent entity was a pure legal question not requiring factual investigation. Following NTPC Ltd. precedent, the Tribunal admitted the additional ground despite it being raised during hearing. Conclusion: Additional legal ground challenging validity of assessment notice and order was admitted for adjudication. Issue 3: Disallowance of Provision for Creditors under Section 37 Relevant Legal Framework and Precedents: Section 37 allows deduction of business expenses not otherwise disallowed. Provisions for expenses are deductible only if they meet criteria of liability and certainty. Court's Interpretation and Reasoning: The Assessing Officer disallowed provision for creditors of Rs. 95,47,837; CIT(A) reduced it to Rs. 16,81,244. The Tribunal did not adjudicate on merits due to quashing of assessment on legal grounds. Conclusion: Merits of disallowance of provision for creditors were not decided due to quashing of assessment order. Issue 4: Disallowance of Excess Cost of Material Consumed Relevant Legal Framework and Precedents: Cost of material consumed is deductible if properly accounted and supported by evidence. Excess consumption or cost requires justification and proof to be allowed. Court's Interpretation and Reasoning: Assessing Officer disallowed Rs. 1,95,45,952 as excess material consumed; CIT(A) reduced to Rs. 74,35,545. Assessee contended books prepared as per generally accepted accounting principles and submitted factual evidence for rise in cost. Tribunal did not rule on merits due to quashing of assessment order. Conclusion: Merits of disallowance of excess cost of material consumed were not adjudicated. Issue 5: Disallowance of Employee's Contribution to Provident Fund under Section 36(1)(va) and Allowance under Section 43B Relevant Legal Framework and Precedents: Section 36(1)(va) disallows deduction for employee contribution to PF not deposited within due date. Section 43B allows deduction on actual payment basis for certain specified expenses including PF contributions. Court's Interpretation and Reasoning: CIT(A) upheld disallowance of Rs. 2,89,581 on employee's PF contribution under section 36(1)(va). Assessee argued for allowance under section 43B. Tribunal did not decide merits due to quashing of assessment order. Conclusion: Disallowance under section 36(1)(va) and claim under section 43B were not adjudicated. Issue 6: Effect of Quashing Assessment on Merits of Additions Court's Interpretation and Reasoning: Since assessment order was quashed on legal ground of invalidity, adjudication on merits of additions became academic. Tribunal declined to deal with merits of disallowances. Conclusion: Merits of disallowances were not considered as assessment order was quashed.