Assessment order under Section 143(3) on non-existent entity after amalgamation void ab initio due to substantive illegality

ITAT Delhi held that an assessment order passed under Section 143(3) on a non-existent entity following amalgamation constitutes substantive illegality rendering the order void ab initio. The tribunal found that despite repeated notifications of amalgamation acknowledged in prior assessment years, the revenue ignored this fact and proceeded against the amalgamated entity. Citing precedent that assessments on ceased entities are substantive illegalities beyond procedural violations under Section 292B, the tribunal quashed the assessment order and decided in favor of the assessee.

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ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the assessment order passed under Section 143(3) of the Income Tax Act in the name of a non-existent entity, United Bank of India (UBI), is void ab initio.
• Whether the Revenue authorities were aware of the amalgamation of UBI with Punjab National Bank (PNB) and if the assessment should have been made on the successor entity.
• The applicability of Section 170(2) of the Income Tax Act concerning assessments on successor entities.
• Consideration of precedents and their applicability, specifically the Maruti Suzuki case and the Mahagun Realtors case, to determine the validity of the assessment order.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Assessment Order on Non-Existent Entity

Relevant Legal Framework and Precedents: The primary legal framework involves Section 170(2) of the Income Tax Act, which stipulates that assessments should be made on the successor entity when the predecessor ceases to exist. Key precedents include PCIT Vs. Maruti Suzuki India Ltd and Saraswati Industrial Syndicate Ltd vs CIT, which establish that assessments on non-existent entities are void.

Court's Interpretation and Reasoning: The Tribunal found that the assessment order dated 26.08.2021 was issued in the name of UBI, which had ceased to exist post-amalgamation with PNB on 01.04.2020. The Tribunal emphasized that the Revenue was informed of this amalgamation and had acknowledged it in other proceedings.

Key Evidence and Findings: Evidence included notifications and communications from the assessee to the Revenue about the amalgamation. The Tribunal noted that despite these notifications, the assessment was incorrectly made on UBI.

Application of Law to Facts: Applying Section 170(2), the Tribunal concluded that the assessment should have been made on PNB, the successor entity. The failure to do so rendered the assessment void ab initio.

Treatment of Competing Arguments: The Tribunal distinguished the facts from the Mahagun Realtors case, where the assessee failed to disclose material facts. Here, the assessee had duly informed the Revenue, negating any misrepresentation.

Conclusions: The Tribunal held that the assessment order was void ab initio as it was made on a non-existent entity, and thus, it was quashed.

2. Awareness and Acknowledgment of Amalgamation by Revenue

Relevant Legal Framework and Precedents: The Tribunal referred to precedents that emphasize the need for the Revenue to acknowledge amalgamations, such as Spice Infotainment Ltd vs CIT.

Court's Interpretation and Reasoning: The Tribunal noted that the Revenue had acknowledged the amalgamation in proceedings for AY 2012-13, demonstrating awareness.

Key Evidence and Findings: Notices and communications from the Revenue during assessment proceedings for AY 2012-13 and AY 2018-19 were examined, showing acknowledgment of the amalgamation for the former but not the latter.

Application of Law to Facts: The Tribunal found that the Revenue's failure to apply the same acknowledgment for AY 2018-19 was inconsistent and unjustified.

Treatment of Competing Arguments: The Tribunal rejected the Revenue's reliance on procedural errors, emphasizing substantive compliance with legal principles.

Conclusions: The Tribunal concluded that the Revenue's inconsistent acknowledgment of the amalgamation further invalidated the assessment order.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal cited the Maruti Suzuki case: "In the present case, despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued only in its name."

Core Principles Established: Assessments made on non-existent entities are void ab initio. The Revenue must acknowledge and act upon notified amalgamations to ensure assessments are made on the correct entity.

Final Determinations on Each Issue: The Tribunal quashed the assessment order for AY 2018-19, declaring it void ab initio due to it being issued in the name of a non-existent entity, UBI. The Tribunal did not delve into the merits of the case due to the nullity of the assessment order.

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