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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SMT. BEENA PILLAI, JM
Per: Smt. Beena Pillai, J.M.: Present appeal arises out of order dated 03.03.2021 passed by NFAC, Delhi, for assessment year 2010-11 on the following revised grounds of appeal:
“1. The learned CIT(A) has erred in confirming the validity of notice issued u/s. 148 and consequently the validity of the order passed u/s. 143 (3) r.w.s. 147. Your appellant respectfully submits that the notice u/s. 148 and consequently the order u/s. 143 (3) r.w.s. 147 are invalid and deserves to be annulled
2. The learned CIT(A) has erred in upholding the validity of the order u/s. 143 (3) r.w.s. 147 though it was passed in the name of a company which was struck off and dissolved by the Registrar of Companies and hence was no longer in existence when the order u/s. 143 (3) r.w.s. 147 was passed Your appellant respectfully submits that the order u/s. 143 (3) r.w.s. 147 passed in the name of a non - existent company is bad in law and deserves to be annulled
The learned CIT (A) has erred in confirming the addition of Rs. 48,88,000 even though no addition is made on account of alleged escaped income for which proceedings u/s 147 was initiated Your appellant respectfully submits that some other addition cannot be made in the order u/s. 143 (3) r.w.s. 147 if no addition is made on account of alleged escaped income for which proceedings u/s 147 was initiated The learned CIT (A) has erred in confirming the addition u/s. 69A to the extent of of Rs. 48,88,000 Your appellant respectfully submits that, on facts and in law, the addition of Rs. 48,88,000 is unjustified and should therefore be deleted.”
Brief facts of the case are as under: The assessee is a company and it had not filed any return of income for the year under consideration. When the information received by the Ld.AO that assessee had entered into a transaction to purchase an immoveable property during the period relevant to the assessment year under consideration. Accordingly notice u/s 148 was issued on 31.03.2017 by recording reasons as under: “REASONS FOR RE-OPENING THE ASSESSMENT U/S.147 OF THE I.T. ACT, 1961 The assessee has not filed return of income for the A.Y.2010-11 as per NMS software. On perusal of the AIR_ information generated from the ITD Application it is seen that the assessee has not offered income amounting to Rs.3,53,33,500/^earned during the financial year relevant to A.Y.2010-11. Therefore, I have reason to believe that income to the tune of atleast 3,5 3,33,500/- has escaped assessment for A.Y.2010.11, Hence, it is a fit case for initiation of proceedings u/s. 147 of the Income Tax Act, 1961 by issuing notice u/s. 148 of the Income Tax Act, 1961.” 2.1 In response to the notice assessee did not file any return of income nor filed any correspondence as a result of which various reminder letters were issued to the assessee. Since, none appeared even after issuing many reminders, notice u/s 133(6) was issued to the Sub Registrar calling for copy of the registered agreement of the transaction recorded in AIR 133(6) notice was also issued to the Syndicate Bank Chembur Branch calling for KYC and account details through which the payments were made for purchase of such immoveable property. Even the Registrar of the company were called upon to furnish the details of the annual return filed by the assessee. 2.2 From the information received, the Sub Registrar of the assessee through its director Mr. Subhash C. Jan and Mr. Jabbar Sheikh purchased two properties: i. Plot of land admeasuring 762.9 Sq.m. situated at Chembur village Sai Nagar Road, St. Antony Road Chembur, Mumbai 400078 and ii. Plot of land admeasuring 114.8 Sq.m. also situated at the same address for a sale consideration of Rs.2,10,00,000/- respectively. 2.3 The Ld.AO noted that the cheque details of the amounts paid and the date of payments were available in the agreements accordingly the KYC details were called from the bank along with the statement of account from which the payments were made towards purchase of land. The bank had provided with the bank statement of the assessee as well as the directors. From the details received from the Registrar of the company, the memorandum of association and article of association indicated that the assessee was formed on 20.03.2001. It was informed by the Registrar of the companies that there was no compliance whatsoever manner made by the assessee with the ROC Mumbai. Thereafter, in response to a notice issued on 6.12.2017 authorised representative of the assessee attended and submitted that though the deed of convenient was duly registered. Subsequently, it was found by the assessee that the alleged vendor in the convenience deed was not the real owner and the ownership documents presented by the alleged vendor were not genuine, resulted in the legal hardship of loosing amount of stamp duty of Rs.14,17,750/- paid by the assessee. The assessee on 18/12/2017 filed nil return in response to notice u/s. 148. 2.4 The Ld.AO after considering the submissions of the assessee rejected by observing that there was no compliance made by the assessee towards filing of the income or filing of annual return before the ROC proves that the assessee did not have any resources or funds. 2.5 The Ld.AO after perusing bank statement noted that the assessee incurred expenditure towards stamp duty and registration fees in respect of the two plots amounting to Rs.17,76,750/- however, there was cash deposit of Rs.29,26,000/- prior to such dates. The assessee was called upon to furnish explanation regarding the credit entries appearing in the bank statements which were not provided by the assessee. The Ld.AO thus treated the said amounts to be unexplained investment and made addition to the extent of the amount credited during the year in the accounts of the assessee held with Syndicate Bank u/s 69A of the Act. Aggrieved by order of Ld.AO, the assessee preferred appeal before the Ld.CIT(A) 3. The assessee raised legal issues challenging the validity of notice issued u/s 148 of the Act by submitting that the reasons recorded, reveal that sum of Rs.3,53,33,500/- escaped assessment for the year under consideration. It was submitted that the Ld.AO mechanically recorded reasons for reopening without carrying out any independent inquiry or application of mind. The assessee further argued that agreement of purchase of land was not enforced. It was submitted that the assessee found out that the alleged vendor was bogus and not genuine. It was submitted that, apart from Rs.17,76,750/- paid towards stamp duty and registration, the assessee did not make any further payment and there is no escapement of income as contended in the reasons recorded for reopening of the assessment. The Ld.CIT(A), rejected the legal ground raised by the assessee by observing as under:
“4.3. I have carefully considered the matter. Main arguments put forth in appeal proceedings re that the AIR information based on which the AO initiated proceeding u/s 147 of the Act did not contain any information regarding earning of income to the tune of Rs.3,53,33,500/-. Even when the AO disposed off the objection to reopening, he stated that notice u/s 148 was issued to carry out scrutiny of financial transactions carried out by assessee during the relevant F.Y which was not reported by way of filing return of income. It was argued that for mere verification of transaction, notice u/s 148 cannot be issued on assessee.
4.3.1 As mentioned by the AO, per information in his possession, assessee had entered into an agreement for purchase of property for total sum of Rs.3,53,33,500/-. The existence of documents in this regard is not controverted by appellant. It is also seen that assessee did not file any return of income for the A.Y relevant to the F.Y during which assessee entered into agreement for purchase of property. The agreements entered into was duly registered with the competent authority and even the registration fee to the extent of Rs.14,70,750/- was actually paid. It was a different matter that the purchase consideration was not actually paid by assessee due to some other circumstances/But at the stage of issuance of notice u/s 148 of the Act, the AO was in possession of tangible information to the effect that assessee had entered into a agreement duly registered for purchase of property for a consideration of Rs.3,53^33,500/-. At the stage of reopening of assessment u/s 147 and issuing of notice u/s 148 of the Act the AO need not have watertight case of escapement of income. Existence of a reason to believe that income had escaped assessment is sufficient. In case of present assessee, reason to believe was there because assessee had not filed its return of income wherein the agreement entered into for purchase of property was reflected. The reason to believe might not have been in existence had the AO known that the purchase transaction finally did not fructified and that no money was spent towards the agreement entered into. But at the stage of reopening of assessment, the primary evidence in possession of the AO was that assessee had entered into a registered agreement for purchase of property for Rs.3,53,33,500/-. In absence of evidence to the contrary, at the stage of reopening, and in absence of return of income, the only recourse for the AO was to issue notice u/s 148 of the Act. In the assessment order itself, the AO had dealt with the objection by speaking order. I find no infirmity in the action of the AOT Subsequent facts that came to light-like non-presentation of cheques cannot invalidate the reason to believe that was in existence at the time of issuance of notice u/s 148 of the Act. Therefore, the ground taken is dismissed 3.1 The Ld.CIT(A) on the merits, upheld the addition by observing as under: “6.1 It was argued that the assessee company had not carried out any business in F.Y 009-10 or in any earlier financial year. Under the circumstances, there is no merit in the addition of Rs.48,88,000/-. 6.2 The matter is considered. The AO mentioned that during relevant F.Y., there was total credit of Rs.48,88,000/- in assessee's account with Syndicate Bank. Cash component out of the deposit was Rs.17,76,750/-. In course of assessment proceeding, the assessee was asked to explain the credit entries, but no explanation was given. In course of appeal proceedings too, no explanation regarding the same was given. The Appellant's argument is that assessee not commenced any business to earn any income. This argument of assessee cannot tilt the balance in its favour. Starting or commencing of business is not an issue here. The issue to be decided is explanation regarding the source of money being credited in assessee's bank account. As mentioned earlier, a sum of Rs.48,88,000/- was found to have been deposited in assessee's bank account, Substantial portion came in the form of cash. Part of the money deposited was used in registration of deed for purchase of property. The onus is on assesses to give explanation regarding the source of money that was deposited in its bank account. The only explanation given is that assessee was yet to start any business. This explanation is of no moment because substantial sum of money that was deposited in assessee's account needs to be explained. In view of dearth explanation, the AO was right in treating the sum of Rs.48,88,000/- as unexplained money.”
3.2 Before the Ld.CIT(A), the assessee also argued that the assessment order was passed in the name of company which was not longer in existence and hence was bad in law. The Ld.CIT(A) after considering various submissions of the assessee on the issue relied on the decision of Hon’ble Supreme Court in the case of CIT vs. M/s Gopal Scripts P. Ltd. in Civil Appeal No. 2922 of 2019 arising out of an SLP (C) No. 10639 of 2017 vide order dated 12.03.2019. The Ld.CIT(A) categorically noted the observation of the Hon’ble Supreme Court as under: “[Quote: 7. The short question, which arises for consideration in this appeal, is whether the High Court was justified in dismissing the appeal filed by the Income Tax Department on the ground that it has rendered infructuous.
8. Mr. A.N.S. Nadkarni, learned ASG appeared for the appellant. None appeared for the respondent (assessee) though served.
9. Having heard the learned counsel for the appellant (Income Tax Department) and on perusal of the record of the case, we are constrained to allow the appeal, set aside the impugned order and remand the case to the High Court for deciding the appeal afresh on merits in accordance with law.
10. Mere perusal of the impugned order quoted supra would go to show that the High Court dismissed the appeal on the ground that it has rendered infructuous because it was brought to its notice that the name of the company the respondent assessee has been struck off from the Register of the Company under Section 560(5) of the Companies Act, 1956.
11. In other words, the High Court was of the view that since the respondent Company stands dissolved as a result of the order passed by the Registrar of the Companies under "Section 560 (5) of the Companies Act, the appeal filed against such Company which stands dissolved does not survive fpr its consideration on merits.
12. In our view, the High Court was wrong in dismissing the appeal as having rendered infructuous.
13. The High Court failed to notice Section 506(5) proviso (a) of the Companies Act and further failed to notice Chapter XV of the Income Tax Act which deals with "liability in special cases" and its clause (L) which deals with "discontinuance of business or dissolution".
14. The aforementioned two provisions, namely, one under the Companies Act and the other under the Income Tax Act specifically deal with the cases of the Companies, whose name has been struck off under Section 506 (5) of the Companies Act.
15. These provisions provide as to how and in what manner the liability against such Company arising under the Companies Act and under the Income Tax Act is required to be dealt with.
16. Since the High Court did not decide the appeal keeping in view the aforementioned two relevant provisions, the impugned order is not legally sustainable and has to be set aside.
17. In view of the foregoing discussion, the appeal succeeds and is accordingly allowed. The impugned order is set aside. The case is remanded to the High Court for deciding the appeal afresh on merits in accordance with law keeping in view the relevant provisions of Companies Act and Income Tax Act uninfluenced by any observations made by us on merits.
18. Indeed, having formed an opinion to remand the case for the reasons mentioned above, we refrain ourselves from making any observation on merits of the controversy involved in this appeal. Since the appeal is quite old, we request the High Court to decide the appeal preferably within six months. Unquote.]” In the above judgements, Hon’ble Apex Court held that assessment order in case of defunct company cannot be held to be invalid in view of provisions of section 560(5) proviso (a) of companies Act as well as Chapter XV of Income tax Act. Therefore the argument that the assessment order was invalid because it was passed in the name of company which was no longer in Registrar of MCA cannot be allowed. The Ld. CIT(A) thus rejected this ground of assessee.
Aggrieved by the order of the Ld.CIT(A) the assessee is in appeal before this Tribunal. 4. Before considering the submissions of the Ld.AR on the grounds raised before this Tribunal, it is necessary to lay out the facts leading to the legal issues raised by the assessee in Ground No.1 to 3.
The Ld.AR submitted that, assessment was reopened by issuing notice under section 148 on 31/03/2017 after taking approval from the appropriate authority. The assessee filed return in lieu of the said notice on 18/12/2017 declaring Nil income. The reasons recorded were provided to the assessee along with the AIR information containing the details of purchase of immovable property by the assessee on 19/06/2009. A copy of the said AIR information is placed at page 3 of the paper book filed before this Tribunal. 4.1 The Ld.AR submitted that objections were filed by the assessee vide submissions dated 18/12/2017, 22/12/2017(placed at pages 6-7 of the paper book), against reopening of the assessment by submitting as under: • The reopening of assessment is bad in law as it no where suggests that the assessee has earned any income amounting to Rs.3,53,33,500/- during the relevant year under consideration. The reopening was objected by submitting that it was a wrong assumption of facts that assessee has earned income amounting to Rs. 3,53,33,500/-. • It was submitted that assessee company has been struck off from the records of the Ministry of Company affairs. Ld.AR relied on Company Master data placed at page 15-16 of the paper book showing strike off. • It was submitted that the assessee does not have any past recoeds, based on which P& L account could be drawn and that the assessee did not carry out any business activity. It was submitted that the assessee did not have any asset or liabilities except for balance of Rs.5,052.32/- as on 31/03/2010 in the bank account held with Syndicate Bank at Chembur.
4.2 The Ld.AR submitted that, the assessing officer vide order dated 22/12/2017, rejected the objections raised by the assessee. A copy of the said order is placed at page 8 of the paper book. He submitted that, Ld.AO issued notice under section 143(2) and 142(1) of the act, calling upon the assessee to furnish details regarding investments made in 2 plots at Chembur bearing CTS no.1514 & 1520A. In response, the assesssee filed Deed of Conveyance (placed at page 47 to 56 & 57 to 66 of the paper book respectively), and the property card (placed at pages77 to 83 of the paper book), in respect of both the plots. 4.3 As per the deed of conveyance dated 19/09/2009, in respect of plot bearing CTS no.1514, it is seen that, one Mr.Jabbar Mohmmed Shaikh as the Vendor and assessee as the purchaser, for a lump sum price of Rs.2,00,00,000/-. The receipt of the said amount through two(2) cheques nos.228057 & 228058 dated 18/06/2009 drawn on Syndicate Bank Chembur Branch, is recorded at page 56 of the paper book. Assessee’s name was not recorded in the property card, is evident from page 77 to 79 of the paper book. 4.4 The assessee entered into another Deed of Conveyance dated 19/06/2009 in respect of plot bearing CTS no.1520A. This agreement was entered into between Smt.Sushila W/o. K.Dayanand Rao through her constituted Attorney Mr.Jabbar Mohmmed Shaikh as the Vendor and assessee as the purchaser, for a lump sum price of Rs.10,00,000/-. The receipt of the said amount through one cheque no. 229059 dated 18/06/2009 drawn on Syndicate Bank Chembur Branch, is recorded at page 66 of the paper book. The Bank has issued a certificate stating that above mentioned cheques were not presented for payment. Assessee’s name entered into the property card as is evident from page 82 of the paper book. Both these agreements were registered with the Sub registrar of stamps by paying applicable stamp duty by the assessee.
4.5 The Ld.AR submitted that, the assessee realised about the fraud committed by Mr.Jabbar Mohmmed Shaikh and the directed the bank not to honour the cheques if presented. The Ld.AR submitted that there was a complaint registered by Smt.Sushila W/o. K.Dayanand Rao in the name of Subash Jain, director of assessee, Jabbar Mohammed Shaikh, and Ratan Mahadevan Jagtap with the chamber police station on 03/05/2010. The Ld.AR submitted that Subash Jain director of assessee approached Smt.Sushila W/o. K.Dayanand Rao with a proposal to settle the issue as assessee was not aware about the actual ownership of the plots was not with Jabbar Mohammed Shaikh. The Ld.AR submitted that Smt.Sushila W/o. K.Dayanand Rao wide letter dated 10/09/2010 informed the inspector in charge of police station chamber that she has accepted the offer of Mr Subash Jain subject to complying with the terms and conditions of the settlement agreement to be executed between Mr Harsh Jain and Smt.Sushila W/o. K.Dayanand Rao, pursuant to which she wished to withdraw the fire registered against Subash Jain. Subsequently wide order dated 11/02/2011 passed by Hon’ble Bombay High Court, the complaint was withdrawn against Subash Jain in Criminal Application No.89 of 2011.
Based on the above factual analysis as per the paper book filed before this Tribunal, the grounds raised by the assessee are dealt with as under.
5. Ground No.-1 raised by the assessee is on the argument that mere non filing of return of income will not give jurisdiction to the Ld.AO to reopen the assessment unless the assessee has total income which is assessable under the Act exceeding minimum amount which is not chargeable to tax. He placed reliance on Explanation-2 to section 147 of the Act. The Ld.AR filed paper book consisting of case laws. However, in respect of this ground the reliance was placed on following decisions: i. decision of Hon’ble Bombay High Court in case of General Electoral Trust vs. ITO,Mumbai reported in (2017) 81 taxmann.com 276 ii. decision of Hon’ble Delhi High Court in case of Angelantoni Test Technologies SRL vs. ACIT reported in (2024) 158 taxmann.com 10 iii. decision of Hon’ble Delhi High Court in case of Well Trans Logistics India (P.) Ltd. vs. ACIT reported in (2024) 166 taxmann.com 72 5.1. On the contrary, the Ld.DR submitted that the above decisions are distinguishable on facts. He submitted that, in the above cases, there was no information for the assessing officer to believe that income has escaped assessment. He further submitted that the relevant paras relied by the Ld.AR in case of General Electoral Trust vs. ITO, Mumbai(supra), clearly reveals that, the assessing officer issued notice to reopen the assessment merely because the assessee therein did not file it original return on income for relevant year. The Ld.DR submitted that, in the present facts of the case, there was information received by the Ld.AO, based on which there was a reason to believe that income had escaped assessment, coupled with the fact that the assessee had not filed its original return of income. 5.2. Referring to decision of Hon’ble Delhi High Court in case of Angelantoni Test Technologies SRL vs. ACIT(supra), the Ld.DR submitted that, it was a case of foreign company, that made investment in its Indian subsidiary. He submitted that it was not a case of escapement of income as the transaction was on a capital account. Except for a mere doubt of round tripping transaction, there was no tangible material. The Ld.DR further submitted that a foreign company is not required to file return of income unless there is a PE. He submitted that, it was on these facts that Hon’ble Delhi High Court held that primary condition of escapement of tax was not established. 5.3. Referring to the decision of Hon’ble Delhi High Court in case of Well Trans Logistics India (P.) Ltd. vs. ACIT the Ld.DR submitted that it is factually distinguishable. He submitted that in the facts considered by Hon’ble Delhi High Court, the assessing officer therein received information from the investigating wing. Whereas in the present facts, the assessing officer collected information from the AIR information portal generated from the ITD application. Without the return of income for the year under consideration, the assessing officer did not have any other option but to issue notice under section 148 of the Act, as there was a prima facie reason to believe that, income has escaped assessment He thus supported the view of Ld.CIT(A) on this issue.
I have perused the submission advanced by both sides in light of records placed before this Tribunal.
The statutory provision envisages that the assessing officer must have information in his possession, as a consequence of which, there is a “reason to believe” that, income has escaped assessment. This means that, the realisation that income has escaped assessment should be preceded by “reason to believe”, is to be based on the "information" received by the assessing officer. Admittedly, the assessee did not file its original return of income. Based on AIR information generated on ITD application, there was information that certain alleged income was not offered to tax by the assessee for the relevant year under consideration. The assessing officer under these facts issued notice under section 148 of the Act on 31/03/2017. 6.1. The Ld.DR pointed out starking factual differences in the facts of the decisions relied by the Ld.AR vis-à-vis that of the assessee before this Tribunal which are crucial and cannot be overlooked. The observation of the Ld.CIT(A) on this issue is as under: “4.3. I have carefully considered the matter. Main arguments put forth in appeal proceedings were that the AIR information based on which the AO initiated proceeding u/s 147 of the Act did not contain any information regarding earning of income to the tune of Rs.3,53,33,500/-. Even when the AO disposed off the objection to reopening, he stated that notice u/s 148 was issued to carry out scrutiny of financial transactions carried out by assessee during the relevant F.Y which was not reported by way of filing return of income. It was argued that for mere verification of transaction, notice u/s 148 cannot be issued on assessee.
4.3.1 As mentioned by the AO, per information in his possession, assessee had entered into an agreement for purchase of property for total sum of Rs.3,53,33,500/-, The existence of documents in this regard is not controverted by appellant. It is also seen that assessee did not file any return of income for the A.Y relevant to the F.Y during which assessee entered into agreement for purchase of property. The agreements entered into was duly registered with the competent authority and even the registration fee to the extent of Rs. 14,70,750/- was actually paid. It was a different matter that the purchase consideration was not actually paid by assessee due to some other circumstances/But at the stage of issuance of notice u/s 148 of the Act, the AO was in possession of tangible information to the effect that assessee had entered into a agreement duly registered for purchase of property for a consideration of Rs.3,53,33,500/-. At the stage of reopening of assessment u/s 147 and issuing of notice u/s 148 of the Act, the AO need not have watertight case of escapement of income. Existence of a reason to believe that income had escaped assessment is sufficient. In case of present assessee, reason to believe was there because assessee had not filed its return of income wherein the agreement entered into for purchase of property was reflected. The reason to believe might not have been in existence had the AO known that the purchase transaction finally did not fructified and that no money was spent towards the agreement entered into. But at the stage of reopening of assessment, the primary evidence in possession of the AO was that assessee had entered into a registered agreement for purchase of property for Rs.3,53,33,500/-, In absence of evidence to the contrary, at the stage of reopening, and in absence of return of income, the only recourse for the AO was to issue notice u/s 148 of the Act. In the assessment order itself, the AO had dealt with the objection by a speaking order. I find no infirmity in the action of the AO. Subsequent facts that came to light-like non- presentation of cheques cannot invalidate the reason to believe that was in existence at the time of issuance of notice u/s 148 of the Act. Therefore, the ground taken is dismissed.”
6.2. Based on the peculiar facts in the present case, and the distinguishing features brought out by the Ld.DR in respect of the decisions relied by the Ld.AR, I am of the view that, decisions relied by the Ld.AR are of no assistance to the assessee. The argument of the Ld.AR that notice under section 148 could not be issued unless the assessee has total income assessable under the Act, exceeding minimum amount that is not chargeable to tax, is not acceptable. For the year under consideration, the assessee did not file original return of income. At the threshold, there are no materials available to draw such comparison in the absence of original return of income. It is further noted that, the return filed by the assessee in lieu of notice under section 148, is declaring nil income. I therefore reject this argument of the Ld.AR. Based of the above discussions, I do not find any merit in Ground No.1 raised by the assessee. Accordingly, Ground no.1 raised by the assessee stands dismissed.
Ground No.2 raised by the assessee is against the assessment order passed in the name of a company which was struck off and hence was no longer in existence and therefore is bad in law. At the outset, the Ld.AR brought to the notice that identical issue was considered by coordinate bench of this Tribunal in assessee’s own case for assessment year 2011-12 in vide order dated 24/01/2024. He submitted that this issue is decided against assessee. However the Ld.AR placed strong reliance on decisions in support of his argument that no notice under section 148 can be issued in the name of a non-existent company and no assessment order could be passed under section 143 (3) read with 147 in the name of a non-existent company after the name is struck off by the registrar of companies. 7.2. The Ld.AR made an attempt to distinguish the decision coordinate bench of this Tribunal in assessee’s own case for assessment year 2011-12 and decision of Hon’ble Supreme Court in case of CIT vs Gopalan Shri Scrips Pvt Ltd., in Civil Appeal No.2922 of 2019 arising out of SLP (C ) No. 10639 of 2017, vide order dated 12/03/2019. To support his argument reliance was placed on the decisions of Hon’ble Bombay High Court in case of Jitendra Chandarlal Navlani vs.UOI reported in (2024) 159 taxmann.com 498, Hon’ble Madras High Court in case of Pandian Anbalagan in Writ Petition No.11841 of 2022 vide order dated 03/10/2023. 7.3. It is noted that, in the case law paper book number 4, there are 5 decisions relied by Ld.AR for this proposition. However the Ld.AR emphasised on 2 decisions referred to hereinabove to distinguish the decision of Hon’ble Supreme Court in case of CIT vs Gopalan Shri Scrips Pvt Ltd. (supra). He submitted that, once the company is striked off, it ceases to exist in the eyes of law, and thereafter, it cannot be treated as a person against whom assessment proceedings can be initiated under the act. 7.4. On the contrary, the Ld.DR placed reliance on the orders passed by authorities below. He also placed reliance on the decision of coordinate bench of this Tribunal in assessee’s own case for assessment year 2011-12 (supra).
I have perused the submission advanced by both sides in the light of the records placed before this Tribunal.
The notice of striking off and dissolution of the assessee was issued on 10/07/2017 under sub section 5 of section 248 of Companies Act 2013, read with Rule 9 of the Companies (Removal of names of Companies from the Registrar of Companies) Rules 2016. A copy of the same is placed at page 16 of the paper book. 8.1. On perusal of the decisions relied by the Ld.AR, it is noted that the strike of off companies in both cases were under section 560 of the 1956 Act. On reading the provisions under section 560 of the 1956 Act, more particularly sub section 5, it is clear that, once a company is dissolved under the said section and on publication of the notice in the official gazette, such company is stuck off from the register of the companies and ceases to exist. In contrast, section 250 of 2013 Act, stats that, where a company stands dissolved under section 248, 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. (emphasis supplied) 8.2. Understanding this difference between the provisions of Companies Act 1956 with 2013 in mind, I also refer to the view taken by the coordinate bench of this Tribunal in assessee’s own case for assessment year 2011-12(supra) as under: “7. We have heard rival submissions and perused the relevant material on record. In the case before us first issue is whether the appeal filed on behalf of the company is maintainable or not. The Id Counsel for the assessee submitted that on earlier occasion on being questioned on the maintainability of appeal, the form No. 36 has been revised in the name of Director of the company and claimed that he is entitled to file appeal on behalf of the struck off company in view of provisions of section 179 of the Act as he is liable for paying the demand raised in the case of struck off company, and therefore he should be considered as assessee for the purpose of filing of appeal. However, we find that section 250 of the Companies Act, 2013 has made it clear that the company shall not be deemed as dissolved and certificate of incorporation shall be continued for the purpose of discharge of the liabilities of the Company. For ready reference, Companies Act, 2013 is reproduced as under: “250. Effect of company notified as dissolved. stands dissolved under section 248, it shall on and from the date mentioned in the notice under sub 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. 7.1 Since filing of appeal liability or obligation of the unambiguous and clear provisions of section 250 of Companies Act, 2013, it is not deemed to b incorporation is not an appeal filed on behalf of that Coordinate Bench of the Tribunal in the case of Porfolio P Ltd in held the appeal filed on behalf of the company as maintainable. The relevant finding of the Tribunal (supra) is reproduced as under: 13. When it comes to recovery of tax due from the struck off Company, the Department of Revenue has power either to invoke Section 226(3) of the Income Tax Act or can invoke Section 179 of the Income Tax Act and recover from the Directors after testing whe to any gross neglect misfeasance or breach of duty on the part of Directors. The Department can also invoke both 226(3) and 179 simultaneously for which there is no bar.
Now, the moot question arises as to ‘whether the proceed with the appeal filed by the struck down Company or filed by the Revenue against the struck off Company ?’. In other words, whether the struck off Company can be treated as alive/operative/existing for the purpose of adjudication of the tax arrears and the consequence order by which the recovery proceedings are triggered by which the recovery proceedings are triggered by the Revenue.
If the proceedings pending before the Court or the Tribunal (regarding determination of quantum the tax/liability of paying the tax) is dismissed for having become in or the liability of the assessee to pay such tax in the manner known to the Law and based on the such dismissal of the proceedings, if the Revenue proceeds for the recovery of the ‘such Directors of the Company will be seriously jeopardy and the same will amount to denial of the rights guaranteed under the Law.
In the instant Appeal, if we allow the request of the Revenue dismiss the Appeal as in become in-fructuous on the other hand, the Revenue Department will initiate proceedings under Section 179 of the Income Tax Act and that too without even adjudicating in the manner prescribed under Law on the ‘quantum of actual tax due’ or ‘liability to pay tax’, in such even great in justice will be caused, which cannot be permitted.
17. When the Revenue Department has not forgone the right to recover tax due or Written struck off by the ROC, the right of the assessee to determine the tax liability in due process of law cannot be denied by dismissing the Appeal pending before us.
Further, in a case where the CIT(A) deletes the addition made by the A.O and if Revenue files Appeal before the Tribunal, even in a case where the Revenue is having a water tight case on merit, by dismissing the Appeal for having become in of the actual tax due by the assessee and the Reve actual tax dues from the assessee. In such events, the Department of Revenue will be left with no remedy, which is contrary to the root principal of law ‘Ubi Jus Ibi Remedium’.
The Hon’ble Apex Court while dealing with amalgamate Commissioner of Income Tax Vs. Mahagun Realtors Pvt. Ltd., held that, ‘whether corporate death of an entity upon amalgamation per se invalidates a tax assessment order ordinarily cannot be determined on a bare application of equivalent in the 2013 Act), but would depend on the terms of the amalgamation and the facts of each case. Further it restored the matter to the file of the ITAT and directed to decide the matter on merit. The relevant portion is as under: “42. Before concluding, this Court notes and holds that whether corporate death of an entity upon amalgamation per se invalidates an assessment order ordinarily cannot be determined on a bare application of Section 481 of t (and its equivalent in the 2013 Act), but would depend on the terms of the amalgamation and the facts of each case.
In view of the foregoing discussion and having regard to the facts of this case, this court is of the considered view, that the impugned order of the High Court cannot be sustained; it is set aside. Since the appeal of the revenue against the order of the CIT was not heard on merits, the matter is restored to the file of ITAT, which shall proceed to hear the parties on the merits of the appealas well as the cross objections, on issues, other than the nullity of the assessment order, on merits. The appeal is allowed, in the above terms, without order on costs.” (emphasis supplied) 20. The Hon’ble High Court of Judicature for Rajasthan in the case of Commissioner of Income Tax Vs. Gopal Shri Scrips Pvt. Ltd. in vide order dated 09/08/2016 dismissed the appeal filed by the Revenue for having become in-fructuous since the Company had been struck off from the register of ROC and the said Company dissolved. The operative portion of the Hon’ble High Court is as under:- “On the last date of hearing when the matter came up before the Court on 05.07.2016, counsel for the appellant was directed to seek instructions about the present status of the Respondent assessee (Company) whether it is in existence or has become non operational or defunct by passage of time. Sh. Anuroop Singhi, Adv., appearing for the appellant has placed for our perusal a communication issued from the office of Registrar of Companies dated 07.04.2011 indicating that pursuant to subsection( 5) of Section 560 of the Companies Act, 1956 the name of Gopal Shri Scrips Pvt. Ltd., has been struck off from the register and the said company is dissolved. In the light of the communication placed for our perusal dated 07.04.2011, no purpose is going to be served in examining the substantial question of law which has been raised for consideration in the instant appeal and on account of these change in cir the present appeal has become infructuous and accordingly stands dismissed. However, the appellant is still at liberty to file application if any occasion arises in future.”
The said order of Hon’ble High Court of Judicature for Rajasthan dated 09/08/2016 in has been challenged by the Revenue Department before the Hon’ble Supreme court of India in Civil Appeal No. 2922/2019 (CIT Jaipur Vs. M/s. Gopal Scrips Pvt. Ltd.). The Hon’ble Apex Court vide order dated 12/03/2019 held that, the High Court was wrong in dismissing the appeal as having rendered infructuous and further directed to decide the appeal afresh on merit in accordance with law in view of the relevant provisions of Companies Act and Income Tax Act. The relevant portions are hereunder: “9. Having heard the learned counsel for the appellant (Income Tax Department) and on perusal of the record of the case, we are constrained to allow the appeal, set aside the impugned order and remand the case to the High Court for deciding the appeal afresh on merits in accordance with law.
10. Mere perusal of the impugned order quoted supra would go to show that the High Court dismissed the appeal on the ground that it has rendered infructuous because it was brought to its notice that the name of the company the respondent assessee has been struck off from the Register of the Company under Section 560(5) of the Companies Act, 1956, 11. In other words, the High Court was of the view that since the respondent Company stands dissolved as a result of the order passed by the Registrar of the Companies under Section 560 (5) of the Companies Act, the appeal filed against such Company which stands dissolved does not survive for its consideration on merits.
In our view, the High Court was wrong in dismissing the appeal as having rendered infructuous.
The High Court failed to notice Section 560(5) proviso (a) of the Companies Act and further failed to notice Chapter XV of the Income Tax Act which deals with "liability in special cases" and its clause (L) which deals with "discontinuance of business or dissolution".
14. The aforementioned two provisions, namely, one under the Companies Act and the other under the Income Tax Act specifically deal with the cases of the Companies, whose name has been struck off under Section 560 (5) of the Companies Act.
15. These provisions provide as to how and in what manner the liability against such Company arising under the Companies Act and under the Income Tax Act is required to be dealt with.
16. Since the High Court did not decide the appeal keeping in view the aforementioned two relevant provisions, the impugned order is not legally sustainable and has to be set aside.
In view of the foregoing discussion, the appeal succeeds and is accordingly allowed. The impugned order is set aside. The case is remanded to the High Court for deciding the appeal afresh on merits in accordance with law keeping in view the relevant provisions of Companies Act and the Income tax Act uninfluenced by any observations made by us on merits.
The Hon'ble Supreme Court in the case of M/s. Gopal Scrips Pvt. Ltd (supra) while allowing the Civil Appeal of the Revenue, dealt and relied on Section 560(5) of the Companies Act, 1956 and held that the Appeal filed by the Revenue is maintainable. The identical provisions have been introduced in the Companies Act, 2013 in Sub-Section sub-Sections (6) and (7) of Section 248 of the Companies Act. Therefore, the ratio laid down in the case of Gopal Scrips Pvt. Ltd (supra) is squarely applicable to the issue in hand 23. In the case of M/s. Gopal Seripa Pvt. Ltd (supra), the Department of Revenue was having grievance on the Order of the Hon'ble High Court of Judicature for Rajasthan in dismissing the Appeal (ITA) for having become in fructuous on the ground that the Assessee company was struck off. The Hon'ble Supreme Court has set aside the Order of the Hon'ble High Court of Judicature for Rajasthan and directed to decide the Appeal on merit. Ironically now the very same Department of revenue is seeking before us to dismiss the present Appeal as in-fructuous since the assessee company has been struck off. The Department cannot have such double standard."
7.2 Further, as regards to the contention of the assessee that Hon'ble High Court of Bombay and Madras has admitted the writ petition filed by the Director on behalf of respective companies, so revised form no. 36 filed by the Director should be admitted, we don't agree for the reason that firstly, the Tribunal does not have power of writ jurisdiction and power to entertain appeal are exercised as provided under section 253 the Act. Under section 253(1) of the Act, it is the assessee only, who can prefer appeal before the Tribunal against the orders of Income-tax Authorities listed therein. Secondly, the assessee claimed that the director is assesses for the purpose of filing appeal by dissolved company because he is liable for paying demand in view of section 179 of the Act, but we find that director has not shown any documentary evidence before us indicating that department has initialed any recovery proceedings against the director under section 179 of the Act, so till then director can't claim to be an assessee for the purpose of proceedings against the company under the Act. Therefore, the revised form No. 36 filed by the Director is treated as infructuous and rejected. The appeal filed in original form no. 36 was held to be maintainable and hence taken up for adjudication. 7.3 The main legal issue raised in ground No. 1 of the appeal is whether notice u/s.148 of the Act could be issued on the company which was struck off from the records of the registrar of the companies. Under the provisions of Section 248(1) of the companies Act, 2013, the registrar can strike off or remove the name of the company from the registrar of companies. Under section 248(2), the company may file an application for removing the name from the registrar of companies in case of certain situations. The registrar, after following the due process provided u/s.248(5) of the Act, is authorized to strike off name of company from the registrar of companies. The Section 248(7) however provided that the liability if any of any director or manager or any other officer who were exercising any power of management and any member of the company dissolved in subsection 5 may be enforced as if the company has not been dissolved. Further Section 250 of Companies Act, 2013 prescribe that when a company is dissolved under 248, then it cease to operate and certificate of Incorporation shall be deemed to have been cancelled except firstly, for the purpose of realizing the amount due to the company and for payment or secondly, for discharge of the liabilities or obligation of the company. The section 252(1) gives an option to the company for restoration of the name in the registrar of companies. Similarly, Section 252(3) provides for restoration of the name of the by any member or creditor or workmen thereof.
8. In the instant case before us, the issue in dispute is whether the notice issued u/s.148 of the Act in the case of the company which has been received by the director of the company is invalid. In our opinion, under the provision of Section 248(7) of the Act the liability of the director in respect of the company though it was dissolved was continued even though the company was dissolved under the provisions of Section 248(5) of the Act. Further, the section 250 of the Companies Act, 2013 has made it clear that the company shall not be deemed as dissolved or certificate of incorporation shall be continued for the purpose of discharge of the liabilities or obligation of the Company. Since responding to the notice issued by the Income-tax Department is a statutory liability or obligation of the Company, therefore it is not deemed to be dissolved or the certification of incorporation is not cancelled to that extent, therefore, in such case the notice issued also stands validly issued. 8.1 The Hon'ble Supreme Court in the case of Gopal Shri Scrips (P) Ltd has made this legal position clear which has been further explained by the Tribunal in the case of Dwaraka Portfolia Pvt. Ltd. vs. ACIT-CC 29 in for A.Y.2014-15. In the decisions of Hon'ble Bombay, relied upon by the assessee, the section 560 of the Companies Act, 1956 was in operation, but now in view of clear provision of section 250 of the Companies Act, 2013, which has been explained by the Tribunal in the case of Dwaraka Portfolia Pvt. Ltd. (supra) after following the ratio in the case of Gopal Shri Scrips (P) Ltd (supra), therefore, respectfully following the above decisions, we reject the contention of the Id. Counsel for the assessee challenging the validity of notice u/s.148 of the Act. The ground No.1 in the appeal of the assessee is accordingly dismissed.
9. As far as grounds on merits are concerned, we find that no explanation in respect of deposits in the bank statement is either furnished before the lower authorities or before us and therefore, we uphold the finding of the Id. CIT(A) on the issue in dispute. The ground No.2 of the appeal is also dismissed. 9.1 Before parting, we may like to express that either the director or the member of the company or the Income Tax department as a creditor can move before the National Company Law Tribunal for restoration of the name of the company also under provisions of section 252 of the companies Act, 2013, if so advised.” 8.3. Based on the above discussions and the view taken by coordinate bench of this Tribunal in assessee’s own case for assessment year 2011-12(supra), I do not find any merit in the arguments raised by the Ld.AR. Accordingly ground no.3 raised by the assessee stands dismissed.
In Ground No.3 the assessee submits that, other issue that did not form part of the reasons recorded alleging escapement of income. 9.1. The Ld.AR submitted that, condition precedent to exercise jurisdiction under section 147 of the act is based on the formation of reason to believe that income chargeable to tax has escaped assessment. He submitted that, in the present facts of the case, the reasons for reopening the assessment was that Rs. 3,53,33,500/- escaped assessment. The Ld.AR submitted that the addition was made amounting to Rs. 48,88,000/- under section 69 A of the act, being the unexplained money. He submitted that, the assessing officer made addition of credit entries including cash deposits in the bank account of the assessee, during the financial year relevant to assessment year under consideration. 9.2. The Ld.AR argued that Ld.AO would be bound to examine only such items of income which had constituted the basis for formation of belief that income had escaped assessment. In support he placed reliance on decisions of Hon’ble Bombay High Court in case of CIT vs Jet Airways Ltd., reported in (2010) 195 Taxman 117 and Yashoda Shivappa Nagangoudar vs. ITO reported in (2022) 138 taxmann.com 296, decision of Hon’ble Delhi High Court in case of ATS Infrastrucure Ltd vs. ACIT reported in (2024) 166 taxmann.com 61. 9.3. On the contrary the Ld.DR placed reliance on the orders passed by authorities below. He also placed reliance on the decision of coordinate bench of this Tribunal in assessee’s own case for assessment year 2011-12 (supra). I have perused the submission advanced by both sides in the light of the records placed before this Tribunal.
Admittedly, the assessee had not filed any returns of income under section 139(1) of the Act. The assessee filed a nil return for the first time on receipt of notice under section 148 of the Act. The Ld.AO made addition of the credit entries in the bank account of the assessee as the assessee did not offer any explanation in respect of the same. It is noted that the amount referred to in the reasons recoded is the amount that assessee was supposed to pay to the vendors against the purchase of the plots at chembur. The amount that assessee would have paid to the vendors arise out of the credit entries in the bank account the assessee with Syndicate bank. The stamp duty ant the registration charges paid by the assessee against the deed of conveyance’s were out of the credit entries in the bank account made in cash or otherwise. Thus, the credit entries are linked to the income that is said to have escaped assessment as per the reasons recorded. 10.1. Hon’ble Supreme Court in case of CIT vs. Sun Engineering Ltd reported in (1992) 198 ITR 297 dealt with the provisions of section 147 as they stood prior to the amendment on 01/04/1989. Hon’ble Supreme Court held that, the expression “escaped assessment” includes both “non-assessment” as well as “under assessment”. It was held that, income is said to have escaped assessment within the meaning of section when it has not been charged to the hands of an assessee during the relevant assessment year. Hon’ble Supreme Court also held that, the expression “assess” refers to a situation where, the assessment of the assessee for particular year is for the 1st time made by resorting to the provisions of section 147. Hon’ble Supreme Court in the same breath observed that, the expression “reassess” refers to a situation where an assessment has already been made but the assessing officer has reason to believe that there is under assessment on account of the existence of any of the grounds contemplated in Explanation 1 to section 147.
In the present facts of the admittedly the assessee was subjected to assessment for the first time by resorting to the provisions of section 147 of the act. At the cost of repetition, it is also admitted fact that assessee had not filed original return of income under section 139 (1) of the act. Issue for the facts of the present case are distinguishable from the facts in the decisions referred to by the Ld.AR and do not support the assessee’s case in any manner whatsoever, on this preposition. Accordingly ground no.3 raised by the assessee stands dismissed.
12. Ground No.4 raised by the assessee is on the merits of the additions made by the Ld.AO. It is noted that the assessee has not provided any supporting evidence to prove the creditworthiness and the genuineness of the transaction in respect of the credit entries appearing in the bank account of the assessee before the authorities below. In the interest of justice and remedy this issue back to the Ld. CIT(A) for necessary verification based on the evidences filed by the assessee. The assessee is directed to furnish all relevant documents in support of its claim. The Ld. CIT(A) shall pass a detailed order on merits after verifying the evidences furnished by the assessee in accordance with law. Needless to say that proper opportunity of being hurt must be granted to assessee. Accordingly ground no.4 raised by the assessee stands partly allowed for statistical purposes.
In the result, the appeal filed by the assessee stands partly allowed for statistical purposes. Order pronounced in the open court on 18.02.2025