2025 (6) TMI 874 - AT - Income Tax

Company Struck Off Under Companies Act Renders Tax Appeals Null, Blocking Legal Proceedings and Recovery Options

The Income Tax Officer, Ward-1 (1) (1), Vadodara. Versus M/s. Greenspace Infratech Pvt. Ltd. And (Vice-Versa)

SC/Tribunal dismissed both Revenue and assessee appeals due to company's struck-off status under Companies Act, 2013. The dissolved entity was deemed ... Assessment against non existent company/strike off company/dead entity - HELD THAT:- As per Section 250 of the Companies Act, 2013 states that where a company stands dissolved under Section 248 of the Act, it shall on and from the date mentioned in the notice under sub-section (5) of that section cease to operate as a company and the certificate of incorporation issued to it shall be deemed to have been cancelled from such date except for the purpose of realising the amount due to the company and for the payment or discharge of the liabilities or obligations of the company. It is pertinent to note that there is no provision under the Act which provides for ownership of assets of a company dissolved under Section 248 of the Act. As of now the present assessee company’s status stands as strike off company and no party has revived the company status. The fact remains that this will not bar the revenue authorities to recover the tax demand. The strike off company has not been revived by the Revenue till date thus it remains a dead entity for more than 14 years. A company can get revived for a period of 20 years from the date of strike-off. Since the present assessee company has been struck off and no party has revived the company status, as such, the present appeal filed by the Revenue as well as the Cross Appeal filed by the assessee become infructuous and hence both the appeals are dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this matter are:(a) Whether the additions/disallowances made by the Assessing Officer under sections 68 and other provisions of the Income-tax Act, 1961, particularly relating to unexplained cash credits, sundry creditors, and unexplained investments, were justified and sustainable.(b) Whether the relief granted by the Commissioner of Income-Tax (Appeals) in deleting the addition of Rs. 26,49,40,943/- on account of unexplained investment was appropriate.(c) The legal consequences of the company's status as a struck-off entity under the Companies Act, 2013, specifically under sections 248(5) and 250, on the continuation of tax proceedings and recovery of tax demands.(d) Whether the fact that the company has been struck off and not revived affects the maintainability and continuation of appeals filed by both Revenue and the assessee before the Tribunal.2. ISSUE-WISE DETAILED ANALYSISIssue (a) and (b): Validity of additions/disallowances made by Assessing Officer and relief granted by CIT(A)The Assessing Officer had made additions under section 68 of the Income-tax Act, 1961, on account of unexplained cash credits amounting to Rs. 6,56,66,047/-, unexplained sundry creditors of Rs. 77,02,144/-, and unexplained investments of Rs. 26,49,40,943/-. The additions were made on the basis that the assessee failed to satisfactorily explain the source or nature of these credits and investments.Upon appeal, the Commissioner of Income-Tax (Appeals) deleted the addition relating to unexplained investments of Rs. 26,49,40,943/-, thereby granting relief to the assessee, but confirmed the other additions/disallowances. This indicates that CIT(A) found the explanation or evidence provided by the assessee regarding the investments sufficient to negate the addition, while the other additions remained unsubstantiated.The Tribunal did not delve into detailed examination of these additions on merits in the present order, as the subsequent issue relating to the company's struck-off status became determinative.Issue (c): Legal consequences of the company's struck-off status under Companies Act, 2013The Tribunal noted the status of the assessee company as struck off on the Ministry of Corporate Affairs website, indicating that the company had been dissolved under section 248(5) of the Companies Act, 2013. Section 248(5) provides that upon expiry of the notice period without cause shown by the company, the Registrar may strike off the company's name from the register of companies, and upon publication in the Official Gazette, the company stands dissolved.Further, section 250 of the Companies Act, 2013 clarifies that a company dissolved under section 248 ceases to operate as a company from the date mentioned in the notice, and its certificate of incorporation is deemed cancelled, except for limited purposes such as realization of amounts due and payment or discharge of liabilities or obligations.The Tribunal observed that there is no provision under the Companies Act that vests ownership of assets of a dissolved company in any party post dissolution, other than for limited purposes mentioned in section 250.Thus, the legal effect is that the company ceases to exist as a legal entity capable of carrying on business or defending or prosecuting legal proceedings, except for winding up or realization of assets.Issue (d): Effect of struck-off status on continuation of tax appeals and recovery proceedingsThe Tribunal confronted the parties with the fact that the company had been struck off and not revived. It noted that the striking off had occurred more than 14 years prior and that a company can be revived within 20 years from the date of strike-off, but no revival had taken place.In light of this, the Tribunal held that the appeals filed by both the Revenue and the assessee had become infructuous. Since the company no longer existed as a legal entity, the continuation of appeals before the Tribunal was not maintainable. The Tribunal emphasized that the striking off of the company does not bar the Revenue from recovering tax demands, but in the absence of revival, the company cannot pursue or defend appeals.The Tribunal accordingly dismissed both the Revenue's appeal against the relief granted by CIT(A) and the assessee's cross appeal against the confirmed additions.3. SIGNIFICANT HOLDINGSThe Tribunal's key legal reasoning and conclusions are preserved verbatim as follows:'As per Section 248(5) of the Companies Act, 2013, the effect of striking off the name of the company is as follows: ... the company shall stand dissolved.''As per Section 250 of the Companies Act, 2013 states that where a company stands dissolved under Section 248 of the Act, it shall on and from the date mentioned in the notice ... cease to operate as a company and the certificate of incorporation issued to it shall be deemed to have been cancelled from such date except for the purpose of realising the amount due to the company and for the payment or discharge of the liabilities or obligations of the company.''The fact remains that this will not bar the revenue authorities to recover the tax demand. The strike off company has not been revived by the Revenue till date thus it remains a dead entity for more than 14 years. A company can get revived for a period of 20 years from the date of strike-off.''Since the present assessee company has been struck off and no party has revived the company status, as such, the present appeal filed by the Revenue as well as the Cross Appeal filed by the assessee become infructuous and hence both the appeals are dismissed.'Core principles established include the legal effect of striking off a company under the Companies Act, 2013, which dissolves the company and cancels its incorporation certificate, rendering it incapable of pursuing or defending appeals except for limited purposes. The Tribunal also clarified that while striking off does not bar tax recovery, it renders ongoing appeals by the dissolved company infructuous unless the company is revived.Final determinations on issues are:- The addition of Rs. 26,49,40,943/- on account of unexplained investments was rightly deleted by CIT(A), and the other additions were rightly sustained.- The appeals filed by both