2025 (7) TMI 1757 - HC - Income Tax

Assessment order against non-existent partnership firm converted to LLP held void under relevant tax provisions

The HC held that the assessment order against the non-existent partnership firm, which had been converted into an LLP, was void ab initio. The AO's ... Assessment against non-existent firm - partnership firm was converted into LLP - HELD THAT:- As recorded by the AO that the partnership firm was converted into LLP on 23.04.2014, it was not accepted only on the ground that the same was not informed to the department and absence of any document showing the copy of KYC submitted by the petitioner to the Bank. AO has completely ignored the submissions made on behalf of the assessee and the documents placed on record at the time of assessment proceedings which clearly shows that the assessee has disclosed all the transaction in the books of accounts of the LLP for which the Return of Income is already filed for the year under consideration. As relying on Maruti Suzuki India Ltd. [2019 (7) TMI 1449 - SUPREME COURT] the impugned Assessment Order is not tenable being passed against the non-existent firm and therefore, the same is void ab-inito. ISSUES: Whether an assessment order passed under Section 147 read with Section 144B of the Income Tax Act, 1961, in the name of a partnership firm that ceased to exist due to conversion into a Limited Liability Partnership (LLP) is valid.Whether the Assessing Officer can proceed with reopening assessment against a non-existent entity after being informed of the conversion of the partnership firm into LLP.Whether the failure to inform the Income Tax Department and Bank about the conversion of the partnership firm into LLP affects the validity of the assessment proceedings.Whether the principles of natural justice were violated by not granting an opportunity of hearing through video conferencing despite a request made by the assessee.Whether unexplained import transactions can be treated as unexplained money under Section 69A of the Income Tax Act, 1961 and added as income.Whether the assessee has an alternative efficacious remedy to challenge the impugned assessment order before the CIT (Appeals) and Appellate Tribunal. RULINGS / HOLDINGS: The assessment order passed in the name of the erstwhile partnership firm, which ceased to exist upon conversion into LLP, is void ab initio and without jurisdiction.The Assessing Officer cannot validly proceed with reopening assessment proceedings against a non-existent entity after being duly informed of the conversion and existence of the LLP.Non-intimation to the Income Tax Department and Bank about the conversion does not validate the assessment order passed against the dissolved partnership firm; the Assessing Officer's reliance on this ground is insufficient to uphold the order.The Assessing Officer's refusal to grant video conference hearing, based on the assessee's failure to choose this option on the system after issuance of show cause notice, does not constitute a violation of natural justice.The unexplained import transactions amounting to Rs. 2,54,53,209/- during the relevant financial year, not satisfactorily explained by the assessee, can be deemed as income under Section 69A of the Income Tax Act, 1961.The petitioner has an alternative efficacious remedy to challenge the assessment order before the CIT (Appeals) and thereafter before the Appellate Tribunal; however, this does not preclude judicial review of jurisdictional errors such as assessment against a non-existent entity. RATIONALE: The legal framework applied includes Sections 147, 148, 144B, 69A, 271(1)(c), and 271F of the Income Tax Act, 1961, and the Limited Liability Partnership Act, 2008.The Court relied on the principle established by the Hon'ble Apex Court that an amalgamating or converted entity ceases to exist in law upon conversion or amalgamation, and thus, assessment orders passed in the name of such non-existent entities are void ab initio.The Court referenced the decision in Principal Commissioner of Income Tax v. Maruti Suzuki India Ltd., emphasizing the 'value which the court must abide by in promoting the interest of certainty in tax litigation' and the necessity for 'consistency and certainty' in tax proceedings.The Court noted that the Assessing Officer ignored documentary evidence and replies filed by the assessee showing the LLP's existence and filing of returns, relying instead on the absence of formal intimation to the department and bank, which was deemed insufficient to uphold the assessment.The Court observed that procedural safeguards under Section 144B were complied with, including issuance of show cause notice, and that the absence of video conference hearing was due to the assessee's failure to select that option on the system, negating claims of natural justice violation.The Court distinguished between jurisdictional errors (assessment against non-existent entity) and mere procedural or appealable errors, holding that jurisdictional errors justify judicial intervention notwithstanding availability of alternative remedies.