2024 (11) TMI 703 - HC - Income Tax

Assessment proceedings in changed entity name curable under Section 292B but penalty time-barred under Section 275(1)(c)

Commissioner of Income Tax (TDS) -1 Versus M/s. Adma Solutions Pvt. Ltd. (Formerly Known As M/s. Infovision Information Services Pvt. Ltd.)

The Delhi HC held that issuing assessment proceedings in the name of an entity that had ceased to exist prior to proceedings was a curable defect under ... Assessment against name of an entity which had ceased to exist much prior to the initiation of proceedings - Affect of change of name - whether curable defect u/s 292B - HELD THAT:- As decided in Sky Light Hospitality LLP [2018 (2) TMI 1093 - DELHI HIGH COURT] wherein, the Supreme Court held that the wrong name given in the notice was merely a clerical error which could be corrected under Section 292-B of the Act. As there was no change of entity, there being only change of name of the company, Show Cause Notice issued and the Penalty Order passed in the name of M/s. Infovision Information Services Pvt. Ltd. is not such a defect which cannot be cured and is therefore not fatal. We, accordingly, set aside the finding returned by the ITAT to the aforesaid extent and answer the question of law in favour of the appellant. Penalty order imposed beyond period of limitation - As the survey was conducted in January 2008 to verify whether the TDS has been correctly deducted and deposited timely into Government’s account. The order was passed by the AO on 30.03.2011, holding the assessee to be in default for not paying the relevant TDS and the penalty proceedings were referred to the Additional CIT, Range-50 for levy of penalty. Thus, the last date by which the penalty order could have been passed was 30.09.2011 as the six months from the end of the month from which action for imposition of penalty was initiated, would expire on 30.09.2011. However, in this case, admittedly, penalty order was passed on 29.07.2013, and therefore, ITAT had rightly concluded that the orders were barred by limitation. ITAT was correct in law in deleting penalty levied by the AO on the ground that penalty order dated 29.07.2013 was passed beyond the time period framed by Section 275 (1) (c) of the Act and the same having been passed after the lapse of six months from the end of the month in which the penalty proceedings were initiated by the AO. Decided in favour of assessee. Issues Involved:1. Whether the Income Tax Appellate Tribunal (ITAT) erred in holding that the assessed entity was no longer in existence due to a mere name change, considering Section 292B of the Income Tax Act, 1961.2. Whether the penalty order imposed on the respondent assessee was barred by limitation.Issue-wise Detailed Analysis:Issue 1: Existence of Assessed Entity and Section 292BThe Revenue challenged the ITAT's decision, which held that the penalty order was invalid as it was issued in the name of 'M/s. Infovision Information Services Pvt. Ltd.' after the company had changed its name to 'M/s. Adma Solutions Pvt. Ltd.' The ITAT upheld the Commissioner of Income Tax (Appeals) [CITA]'s view that the penalty order was void ab initio because it was issued to a non-existent entity. The Revenue argued that Section 292B of the Income Tax Act, which allows for rectification of procedural errors, should apply, contending that the misnaming was a curable defect. The respondent conceded that the ITAT's finding was incorrect as only the company's name had changed, not its legal constitution, thus the entity remained the same. The court agreed with this view, referencing precedents where misdescription was deemed curable under Section 292B, and concluded that the penalty order's defect was not fatal. The court set aside ITAT's finding on this issue, ruling in favor of the appellant.Issue 2: Limitation on Penalty OrderThe ITAT found the penalty order unsustainable due to the inordinate delay in issuing the Show Cause Notice (SCN), relying on the precedent that a six-month period is a reasonable timeframe for such actions. The Revenue contended that Section 275(1)(c) of the Act does not prescribe a limitation for issuing an SCN but only limits the time for passing the penalty order to six months from the initiation of penalty proceedings. The Revenue argued that since the SCN was issued on 31.01.2013 and the penalty order was passed on 29.07.2013, it was within the limitation period. However, the respondent argued that the SCN was issued nearly five years after the relevant assessment year, which was unreasonable and prejudicial. The court, considering the principles of reasonable time for initiating proceedings, agreed with the ITAT's conclusion that the delay in issuing the SCN rendered the penalty unsustainable. The court referenced similar cases where a reasonable period for initiating action was considered to be four years, and found that the penalty order was indeed barred by limitation as it was passed beyond the permissible timeframe. The court ruled against the Revenue on this issue, affirming ITAT's decision to delete the penalty.Conclusion:The appeal was dismissed, with the court ruling in favor of the respondent on both issues. The court held that the defect in the penalty order's naming was curable and not fatal, but the penalty order itself was barred by limitation due to unreasonable delay in initiating proceedings.