THE DCIT, CENTRAL CIRCLE-2(2), AHMEDABAD vs. SHRIMATE INFRASTRUCTURE PVT. LTD , AHMEDABAD

Brief fact of the case that the assessee originally a Private Limited Company engaged in the business of real estate and was then converted into a Limited Liability Partnership (hereinafter referred as 'LLP' in short) on 14-10-2014 that is Financial Year 2014-15 relevant to the Assessment Year 2015-16 under the name and style of M/s. Shrimate Infrastructure LLP. The details of income tax returns filed by the assessee company under section 139(1) of the Act are as under:

Regular assessment proceeding was completed u/s.143(3) of the Act vide order dated 04-12-2015 for Asst Year 2013-14, by the ITO, Ward 4(1)(3), Ahmedabad, wherein no additions was made. Subsequently assessment proceeding for Asst. Year 2014-15 was duly completed vide order passed u/s 143(3) of the Act dated 20- 12-2016 by the ITO, Ward 4(1)(3), Ahmedabad, wherein also no additions have been made.

A search and seizure action under section 132 of the Act was conducted on 06-03-2018 covering the various entities, persons and concerns known as forming part of Satyam Group, Sangani Group and Shaligram Group of entities, inter-alia covering the assessee company as well as the LLP firm being a part of Shaligram Group of persons. Pursuant to the execution of the Search warrants, notices u/s. 153A of the Act were issued in case of the assessee company on 28-01-2019 and also in the case of the LLP firm on 30-01-2019 for the very same Assessment Years 2012-13 to 2017-18. 3. 1. In response to the notices u/s.153A of the Act, the assessee company filed its return of income for Assessment Years 2012-13, 2013-14, 2014-15 and 2015-16. There was no variation in the original returned income filed u/s.139 of the Act vis-a-vis returns filed in response to the notices issued u/s.153A of the Act. Assessee’s case was referred for special audit u/s.142(2A) of the Act, vide direction dated 27-12-2019 and 29-12-2019. The Special Audit report was furnished by the assessee before the AO on 19-06- 2020. 3. 2. In the meanwhile LLP firm also filed its return of income u/s. 153A of the Act detailed as under:

The fact about the conversion of the assessee company from Private Limited into LLP Firm also finds due mention in the Directors Report and Financial Statements of the assessee company for the Financial Year 2014-15 (period ended 13th October 2014) and also been mentioned in the Special Audit report. On furnishing of the audit report, the AO completed the assessment proceedings in the case of the assessee company by framing the assessment orders in the name and PAN of the assessee company u/s.153A r.w.s 143(3) of the Act assessing the total income detailed as under:

Aggrieved against the assessment orders the assessee filed appeals before the Ld CIT[A] claiming that the AO erred in passing assessment orders on non-existing entity, that is the assessee company was NON-EXISTENT by virtue of conversion into a LLP Firm on 14-10-2014. Further it remains an undisputed fact on record that the AO was well aware of the fact that the assessee company was very well NON-EXISTING and thus ought not have passed any order on an NON-EXSISTING entity. The assessee company relied on the decision of ITAT Ahmedabad Bench in the case of M/s. Urmin Marketing Pvt Ltd -Vs- DCIT [2020] 122 Taxmann.com 40 wherein held as follows:

Ld CIT[A] considered all the facts, decisions/judgments of Hon'ble Courts, submission of the assessee and held that the assessment completed by the Ld AO on the non-existing entity is not in accordance with the provisions of law. Even otherwise also it is an undisputed fact that on the date of initiation of the search, no assessment proceedings were pending in these assessment years. Therefore, the proceedings were not abated as mentioned in the second proviso to section 153A (1) of the Act. Thus, that the AO has lost sight of the fact that he was not making an assessment u/s.153A(1) of the Act read with its second proviso. Further there is no indication in the contents of the assessment orders that the additions were made on the basis of any incriminating material found and seized in the course of search at the place of the assessee. Therefore, the action of the AO for making additions are not justified. Accordingly, the additions made in the assessment orders completed u/s. 153A were deleted by observing as follows:

Aggrieved against the common Appellate order, the Revenue is in appeal before us raising the following Grounds of Appeal in IT(SS)A No.191/Ahd/2021 relating to Asst. Year 2012-13:

On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating the decisions of Hon'ble Delhi High court in the case of CIT Vs Anil Kumar Bhatia [211 Taxman 453, 352 ITR (493)] & Kerala High Court in the case of E.N. Gopakumar vs. Commissioner of Income-tax (Central) [2016] 75 Taxmann.com 215 (ker.) wherein Courts held that assessments in a search case can be concluded against interest of assessee including making additions even without any incriminating material being available against assessee in search under section 132. 7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.68,69,73,000/- made on account of unaccounted investment in land.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the assessment completed by the AO on the non-existing entity without appreciating the fact that assessee company viz. Shrimate Infrastructure Pvt Ltd. was converted into a Limited Liability Partnership (LLP) on 14/10/2014 i.e. FY.2014-15 relevant to AY.2015-16 under the name and style of Shrimate Infrastructure LLP. By virtue of such conversion all the assets and liabilities of Shrimate Infrastructure Pvt Ltd. were also transferred to its successor Shrimate Infrastructure LLP. Therefore existing entity Shrimate Infrastructure LLP cannot elude from its obligation on the pretext of being a nonexistent entity at the time when such transactions were being executed.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.

It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.

Revenue is in appeal before us raising the following Grounds of Appeal in IT(SS)A No.192/Ahd/2021 relating to Asst. Year 2013-14:

On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating the decisions of Hon'ble Delhi High court in the case of CIT Vs Anil Kumar Bhatia [211 Taxman 453, 352 ITR (493)] & Kerala High Court in the case of E.N. Gopakumar vs. Commissioner of Income-tax (Central) [2016] 75 Taxmann.com 215 (ker.) wherein Courts held that assessments in a search case can be concluded against interest of assessee including making additions even without any incriminating material being available against assessee in search under section 132. 7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.34,75,55,500/- made on account of disallowance of bogus compensation charges.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.8,23,86,658/- made on account of unexplained Cash credit u/s 68 of the I.T. Act, 1961. 9. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.8,01,58,450/- made on account of accommodation loan u/s 68 of the I.T. Act, 1961. 10. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the assessment completed by the AO on the non-existing entity without appreciating the fact that assessee company viz. Shrimate Infrastructure Pvt Ltd. was converted into a Limited Liability Partnership (LLP) on 14/10/2014 i.e. FY.2014-15 relevant to AY.2015-16 under the name and style of Shrimate Infrastructure LLP. By virtue of such conversion all the assets and liabilities of Shrimate Infrastructure Pvt Ltd. were also transferred to its successor Shrimate Infrastructure LLP. Therefore existing entity Shrimate Infrastructure LLP cannot elude from its obligation on the pretext of being a nonexistent entity at the time when such transactions were being executed.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.

It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.

Revenue is in appeal before us raising the following Grounds of Appeal in IT(SS)A No.193/Ahd/2021 relating to Asst. Year 2014-15:

On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating the decisions of Hon'ble Delhi High court in the case of CIT Vs Anil Kumar Bhatia [211 Taxman 453, 352 ITR (493)] & Kerala High Court in the case of E.N. Gopakumar vs. Commissioner of Income-tax (Central) [2016] 75 Taxmann.com 215 (ker.) wherein Courts held that assessments in a search case can be concluded against interest of assessee including making additions even without any incriminating material being available against assessee in search under section 132. 7. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.3,04,19,939/- made on account of disallowance u/s 36(1)(iii) of I.T. Act, 1961. 8. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.85,00,000/- made on account of accommodation entries u/s 68 of the I.T. Act, 1961. 9. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.18,863/- made on account of disallowance of interest.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.58,73,742/- made on account of unexplained cash credit u/s 68 of the I.T. Act, 1961. 11. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.50,75,030/- made on account of accommodation loan entry u/s 68 of the I.T. Act, 1961. 12. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the assessment completed by the AO on the non-existing entity without appreciating the fact that assessee company viz. Shrimate Infrastructure Pvt Ltd. was converted into a Limited Liability Partnership (LLP) on 14/10/2014 i.e. FY.2014-15 relevant to AY.2015-16 under the name and style of Shrimate Infrastructure LLP. By virtue of such conversion all the assets and liabilities of Shrimate Infrastructure Pvt Ltd. were also transferred to its successor Shrimate Infrastructure LLP. Therefore existing entity Shrimate Infrastructure LLP cannot elude from its obligation on the pretext of being a nonexistent entity at the time when such transactions were being executed.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.

It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.

Ld. CIT-DR Shri Rignesh Das appearing for the Revenue strongly argued that the Ld. CIT(A) is not correct in deleting the addition made by the assessing officer based on seized materials and relied upon Co-ordinate Bench decision in the case of M/s. Sadbhav Engineering Ltd. -Vs.- DCIT in IT(SS)A Nos. 170 to 175/ Ahd/2021 dated 10-01-2025 wherein it was concluded that incriminating material found in the search conducted on the assessee and its sub-contractors, the same were rightly used by the Revenue Authorities for disallowance of sub-contract expenses. Further Ld. CIT(A) is erred in quashing the assessments completed on non-existing entity for the Asst. Years 2012-13 to 2014-15. Thus Ld. CIT-DR requested to reverse the common appellate order passed by Ld. CIT(A).

Per contra Ld. Senior Counsel Mr. S.N. Soparkar appearing for the assessee brought to our attention that the assessee company filed its Return of Income for the Asst. Years 2012-13 to 2014-15 since notices u/s. 153A were issued by the Ld. A.O. Similarly, in the case of Partnership firm M/s. Shrimate Infrastructure LLP also filed Return of Income for the same Asst. Years 2012-13 to 2015-16 declaring Nil income. Whereas the assessing officer completed the assessments u/s. 153A by making additions of Rs. 68.69 crores, Rs. 51.01 crores and 4.98 crores for the Asst. Year 2012-13 on a non-existing company. Further Ld. Sr.

Ld. Senior Counsel also relied upon series of judgments on assessment made on non-existing company : (i) Spice Entertainment Ltd. (2020) 18 SCC 353 (ii) BMA Capfin Ltd. (SC) [2018] 100 taxmann.com 330 (iii) Khurana Engineering Ltd. Vs. DCIT 364 ITR 600 Guj (iv) Kunvarji Fincorp (P.) Ltd. Vs. DCIT 455 ITR 419 Guj (v) Anokhi realty (P.) Ltd. vs. ITO 153 TC 275 Guj (vi) Adani Estate Management P. Ltd. vs. ITO 456 ITR 560 Guj (vii) Inox Wind Energy Ltd. Vs. ACIT 454 ITR 162 Guj

Thus Ld. Senior Counsel submitted that the assessing officer erred in passing assessment orders on non-existing entity. Therefore, the assessments are void ab initio and nullity in the eye of law and the Revenue appeals are liable to be dismissed.

We have given our thoughtful consideration and perused the materials available on record including the Paper Books and Case Law compilation filed by both parties. First, we adjudicate the legal ground of jurisdiction of assessment made in this case of non-existing entity. Undisputedly there were search action u/s.132 of the Act both in the name of the assessee company [Shrimate Infrastructure Pvt. Ltd.] as well as of the LLP Firm [Shrimate Infrastructure LLP.] as can be seen from the copy of the Panchanama filed in Page No. 41 of the Paper Book. It is further seen that the search was conducted on 06-03-2018, on that day the assessee company was not existed since it is converted into LLP Firm with effect from 14-10-2014 itself. This information was very much available with the assessing officer from the Director’s Report and Financial Statements of the assessee company which is reproduced by Ld. CIT(A) in his order as follows:

When the LLP Firm also filed the Return of Income in response to the notices issued u/s. 153A of the Act for the Asst. Years 2012-13 to 2014-15, the Ld A.O. should have continued the assessment in the hands of the LLP Firm and but not in the name of the erstwhile non-existing company M/s.Shrimate Infrastructure Pvt. Ltd. with the PAN No. AAPCS 5841M. It is also on record the present existing LLP Firm M/s. Shrimate Infrastructure LLP is having different PAN No. namely ACRFS 4435J.

Let us look into the provisions of the Limited Liability Partnership Firm Act, 2008 (hereinafter referred as LLP Act) wherein Chapter X deals with conversion into Limited Liability Partnership. Section 56 deals with conversion from Private Company into Limited Liability Partnership. Section 58 deals with the legal effect of conversion and consequential registration as follows: