2024 (1) TMI 1542 - AT - Income Tax

Struck-off company remains liable to tax proceedings; unexplained bank credits were also sustained for lack of source evidence.

A company struck off from the Register of Companies remained amenable to income-tax proceedings because the Companies Act preserves its existence for ... Maintainability of appeal by struck-off company - Validity of reassessment notice to struck-off company - Unexplained cash creditsMaintainability of appeal by struck-off company - Liabilities and obligations of dissolved company - An appeal filed in the name of a company struck off under the Companies Act, 2013 was maintainable, but the revised appeal sought to be pursued by the erstwhile director in his own name was not maintainable. - HELD THAT: - The Tribunal held that under section 250 of the Companies Act, 2013, though a company struck off under section 248 ceases to operate, it is not treated as dissolved for the purpose of realising amounts due to it or for payment or discharge of its liabilities and obligations. Filing and pursuing an appeal in a tax dispute was treated as part of such liability or obligation, and therefore the company could validly maintain the appeal in its original name. The director could not independently claim the status of an assessee for filing the appeal merely by invoking section 179 of the Income-tax Act, in the absence of any material showing initiation of recovery proceedings against him. [Paras 7]The original appeal filed on behalf of the struck-off company was entertained, and the revised Form No. 36 filed in the director's name was rejected as infructuous.Validity of reassessment notice to struck-off company - Continuing liability despite striking off - Notice under section 148 issued after the company had been struck off from the register of companies was valid. - HELD THAT: - The Tribunal held that sections 248(7) and 250 of the Companies Act, 2013 preserve the enforceability of liabilities of a dissolved company and continue the certificate of incorporation for the limited purpose of discharge of the company's liabilities and obligations. Compliance with a notice issued under the Income-tax Act was held to be a statutory liability or obligation of the company. On that construction, striking off did not render the company non-existent for purposes of reassessment proceedings. Relying on CIT- Jaipur vs. Gopal Shri Scrips (P) Ltd. and the Tribunal decision in Dwaraka Portfolia Pvt. Ltd. vs. ACIT-CC 29 , the Tribunal rejected the challenge to the validity of the notice. [Paras 7, 8]The challenge to the notice under section 148 and the consequent reassessment on the ground that it was issued to a non-existent entity was rejected.Unexplained cash credits - Failure to explain bank deposits - The addition made on account of credit entries in the bank account was sustainable as no explanation for the deposits was furnished. - HELD THAT: - The Tribunal found that no explanation regarding the deposits appearing in the bank statement had been furnished either before the lower authorities or before it. In the absence of any material explaining the source of the credits, there was no reason to interfere with the appellate finding sustaining the addition. [Paras 9]The addition under section 68 was upheld.Final Conclusion: The Tribunal held that the appeal by the struck-off company was maintainable, that the reassessment notice issued to it remained legally valid notwithstanding its striking off, and that the addition for unexplained bank credits was liable to be sustained. The appeal was accordingly dismissed. Issues: (i) Whether notice issued under section 148 and the reassessment framed in the name of a company struck off from the Register of Companies were invalid. (ii) Whether the addition under section 68 for unexplained bank credits was sustainable.Issue (i): Whether notice issued under section 148 and the reassessment framed in the name of a company struck off from the Register of Companies were invalid.Analysis: The company had been struck off under the Companies Act, 2013, but the statutory scheme under sections 248 and 250 preserves the company's existence for the purpose of discharging liabilities and obligations. The Tribunal held that responding to tax notices and participating in assessment proceedings are liabilities or obligations within that saving provision. It also noted that restoration under section 252 remained available. Accordingly, the striking off did not render the company non-existent for the purpose of income-tax proceedings, and the notice under section 148 remained valid.Conclusion: The challenge to the validity of the notice and reassessment failed and was decided against the assessee.Issue (ii): Whether the addition under section 68 for unexplained bank credits was sustainable.Analysis: The assessee did not furnish any explanation for the bank deposits before the lower authorities or before the Tribunal. In the absence of any source explanation, the credits remained unexplained and were liable to be assessed under section 68.Conclusion: The addition under section 68 was upheld and was decided against the assessee.Final Conclusion: The reassessment was sustained in law and on merits, and the appeal was dismissed in entirety.Ratio Decidendi: A company struck off from the Register of Companies continues to be amenable to income-tax proceedings for liabilities and obligations saved by the Companies Act, and unexplained bank credits may be added under section 68 when no satisfactory source is proved.