Loading judgment…
Facts
The assessee, Nilons Enterprises Pvt. Ltd., was amalgamated with Sanghavi Foods Pvt. Ltd. A penalty order u/s 271E of the IT Act was passed against Sanghavi Foods Pvt. Ltd. by the Joint Commissioner, which was confirmed by the CIT(A). The assessee appealed this order, arguing that the penalty order was invalid as it was passed against a non-existent entity.
Held
The Tribunal held that the penalty order passed against a non-existent entity, despite the revenue's knowledge of the merger, is a substantive illegality. Following the judgment of the Bombay High Court in City Corporation Ltd. vs. ACIT, the Tribunal set aside the penalty order.
Key Issues
Whether a penalty order passed against a merged/non-existent entity, with the knowledge of the revenue, is a substantive illegality and thus void ab initio.
Sections Cited
271E, 269T, 143(1), 142(1), 143(3), 292B, 143(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & SHRI VINAY BHAMORE
ORDER
PER VINAY BHAMORE, JM:
This appeal filed by the assessee is directed against the order dated 20.03.2025 passed u/s 271E of the IT Act by Ld. CIT(A)/NFAC for the assessment year 2016-17.
The appellant has raised the following grounds of appeal :- “1] The learned CIT(A) erred in not appreciating that the penalty order passed in the name of Sanghvi Foods Pvt. Ltd. was invalid in law since the said entity had merged with Nilons Enterprises Pvt. Ltd. and accordingly, the order passed in the name of a non-existent entity is invalid and should have been declared as null and void. 2] The learned CIT(A) erred in confirming levy of penalty u/s 271E of Rs.34,28,538/- on the ground that the assessee had committed a default u/s. 269T and therefore, levy of penalty was justified. 3] The Id. CIT(A) erred in holding that the assessee had repaid loans in cash of Rs. 21,92,811/- and by way of journal entries of Rs. 11,64,971/- to Sanskar Recipes Pvt. Ltd. and hence, the Id A.O. was justified in levying the penalty u/s. 271E. 4] The learned CIT(A) failed to appreciate that there was reasonable cause on the part of the assessee in repaying the loans in violation of the provisions of section 269T and therefore, no penalty u/s 271E was leviable. 5] The learned CIT(A) erred in not appreciating that the transactions between the assessee and Sanskar Recipes Pvt. Ltd. were genuine and duly accounted in the books and since there was a reasonable cause on the part of the appellant while entering into the above transactions with Sanskar Recipes Pvt. Ltd. no penalty u/s 271E was leviable. 6] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal
.”
3. Facts of the case, in brief, are that the assessee is a private limited company furnished its return of income on 17.10.2016 declaring Nil income which was processed u/s 143(1) of the IT Act. Subsequently, the assessee filed revised return of income again declaring Nil income. The case was selected for scrutiny. The statutory notices u/s 142(1) were issued to the assessee on 29.11.2018. The Assessing Officer in his order mentioned the fact that vide order dated 24.07.2018 passed by National Company Law Tribunal the assessee company got amalgamated with Nilons Enterprises Pvt. Ltd. w.e.f. 02.09.2018. However, vide order dated 12.12.2018 the Assessing Officer completed the assessment proceedings u/s 143(3) of the IT Act in the name of Sanghavi Foods Private Limited by determining total income at Rs.Nil. Subsequently, the Joint Commissioner of Income Tax, Range- 2, Pune vide order dated 30-07-2019, imposed penalty u/s 271E of the IT Act of Rs.34,28,538/- for the so called violation of provision of section 269T of the IT Act since the assessee has made repayment of loans/deposits in cash i.e. mode other than by banking channels, however the penalty order was also passed in the name of Sanghavi Foods Private Limited.
Being aggrieved with the above penalty order passed u/s 271E of the IT Act, in the name of Sanghavi Foods Private Limited the assessee Nilons Enterprises Pvt. Ltd. preferred an appeal before Ld. CIT(A)/NFAC. After considering the submissions of the assessee, Ld. CIT(A)/NFAC dismissed the appeal filed by the assessee Nilons Enterprises Pvt. Ltd.
It is the above order against which the assessee is in appeal before this Tribunal.
Ld. AR appearing from the side of the assessee submitted before us that the order passed by Ld. CIT(A)/NFAC is unjustified since he failed to appreciate the fact that the penalty order was passed in the name of a non-existing entity. Ld. AR further submitted that the penalty order dated 30-07-2019 passed in the name of Sanghavi Foods Private Limited was invalid since the said entity had merged with Nilons Enterprises Private Limited on 02-09-2018 and therefore the order dated 30-07-2019 passed in the name of a non-existent entity should be declared null and void. In this regard, Ld. AR relied on the judgement passed by Hon’ble High Court of Bombay in the case of City Corporation Ltd. vs. ACIT, (2025) 171 taxmann.com 301 order dated 29.01.2025.
Ld. AR also submitted that the information of amalgamation/ merger was very well known to the Assessing Officer since the above fact was mentioned in the body of the assessment order dated 12-12-2018 passed for the relevant period under consideration i.e. for Asstt Year 2016-17. In this regard, Ld. AR also furnished copy of letter dated 04.10.2018 which was furnished on 11.10.2018 before the Assistant Commissioner of Income Tax wherein the information of amalgamation was supplied.
Accordingly, it was requested by Ld. AR to declare the penalty order dated 30-07-2019 as null and void ab initio since it was passed in the name of a non-existing company.
Ld. DR appearing from the side of the Revenue relied on the orders passed by the subordinate authorities and requested to confirm the same.
We have heard Ld. counsels from both the sides and perused the material available on record including the case law relied on by the assessee. In this regard, we find that learned Joint Commissioner of Income Tax, Range- 2, Pune imposed penalty u/s 271E of the IT Act for the so called violation of provisions of section 269T of the IT Act since the assessee repaid the loan/deposits in cash that is other than prescribed mode i.e. through banking channel. We further find that the order dated 30.07.2019 imposing penalty u/s 271E was passed in the name of Sanghavi Foods Private Limited, however the appellate order wherein the order dated 30.07.2019 was challenged, was passed in the name of Nilons Enterprises Private Limited.
In this regard, we find that it is the claim of the assessee that vide order dated 24.07.2018 passed by National Law Company Tribunal w.e.f. 02.09.2018 Sanghavi Foods Private Ltd. got amalgamated in Nilons Enterprises Private Limited therefore it became a non-existent company and neither any notice nor any order could be issued in its name rather it should be issued in the name of amalgamating company which is Nilons Enterprises Private Limited. Accordingly, it was the contention of Ld. counsel of the assessee that the penalty order passed in the name of Sanghavi Foods Private Limited is null and void since it was a non-existing entity. In support of this contention, Ld. AR relied on the order passed by Hon’ble High Court of Bombay in the case of City Corporation Ltd. vs. ACIT (supra) wherein Hon’ble Court quashed the impugned notices which were issued in the name of a non-existing company, however Hon’ble Court in para 30 of its order did not put a bar on revenue for issuing a fresh notice if the law otherwise permit it, by observing as under :- “24. Based on the above averments and the arguments, we are afraid we cannot condone the fundamental error in issuing the impugned notices against a non-existing company despite full knowledge of the merger. The impugned notices, which are non-est cannot be treated as "good" as urged on behalf of the Respondents. In Maruti Suzuki (supra), the Hon'ble Supreme Court has held that issuing notice in the name of a non-existing company is a substantive illegality and not a mere procedural violation of the nature adverted to in Section 292B of the IT Act.
Mr Suresh Kumar's contention about the facts in the present case being akin to those in Skylight Hospitality LLP (supra) cannot be accepted. Except for submitting that the facts are similar or comparable, nothing was shown to us based upon which such a submission could be entertained, much less sustained. In any event, the Hon'ble Supreme Court, in the case of Maruti Suzuki (supra), considered the Delhi High Court's decision in Skylight Hospitality LLP (supra) and held that the same was delivered "in the peculiar facts of the case". In fact, even the Delhi High Court had clarified that the decision was in the case's peculiar facts.
In that case, there was substantial and affirmative material and evidence on record to show that issuing the notice in the name of the dissolved company was only a mistake. The Court held that the Special Leave Petition filed by the Skylight Hospitality LLP (supra) against the judgment of the Delhi High Court rejecting its challenge was dismissed in the peculiar facts of the case, which weighed with the Court in concluding that there was merely a clerical mistake within meaning of Section 292B. The Hon'ble Supreme Court held that in Maruti Suzuki (supra) the notice under Section 143(2) under which jurisdiction was assumed by the assessing officer, was issued to a non-existent company. The assessment order was issued against the amalgamating company. "This is a substantive illegality and not a procedural violation of the nature adverted to in Section 292B".
The argument now sought to be raised by Mr Suresh Kumar based on Skylight Hospitality LLP (supra) was considered and rejected by the Gujarat High Court in Anokhi Realty (P.) Ltd. v. Income-tax Officer [2023] 153 taxmann.com 275/295 Taxman 60 (Gujarat). In Adani Wilmar Ltd. v. Assistant Commissioner of Income-tax [2023] 150 taxmann.com 178/292 Taxman 592/456 ITR 551 (Gujarat), another Division Bench of the Gujarat High Court rejected the Revenue's argument based on lack of inter-departmental coordination or non-application of mind when materials relating to amalgamation were already available with the department. The Court held that based upon such grounds, notices could not have been issued to a non-existent company.
The Delhi High Court, in the case of Principal Commissioner of Income Tax -7, Delhi v. Vedanta Limited of 2022 decided on 17 January 2025/[2025] 170 taxmann.com 833 (Delhi) rejected a contention very similar to that raised by Mr Suresh Kumar, relying on Skylight Hospitality LLP (supra). The Delhi High Court noted that the decision of the Supreme Court in Maruti Suzuki (supra), while enunciating the legal position concerning an order being framed in the name of a nonexistent entity, had unequivocally held as being a fatal flaw which could neither be corrected nor rectified. It had held explicitly that such an order cannot be salvaged by taking recourse to Section 292B of the IT Act. The Court also noticed the peculiar facts obtained in Skylight Hospitality LLP (supra), which alone had led to the Supreme Court upholding the assessment made, albeit in the name of an entity that had ceased to exist.
Accordingly, after considering the above facts and circumstances and the law, we are satisfied that the impugned notices deserved to be quashed and set aside. We do so by making the rule absolute in these petitions.
Before we conclude, we need to clarify that nothing in this order would preclude the respondents from issuing a fresh notice to CCL for reassessment, should the law otherwise permit it, and if the circumstances justify it. We have quashed the impugned notices only because they were issued to a nonexisting company or entity despite the respondents' knowledge of its non-existence. All contentions in this regard are left open because we have not addressed them in this order.
The rule is made absolute in each of these petitions without any cost orders.
All concerned should act on an authenticated copy of this order.”
Respectfully following the above judgement passed by Hon’ble High Court of Bombay (supra), we are of the considered opinion that the penalty order passed in the name of a non-existing company is a substantive illegality since the revenue was having knowledge of its non-existence. Accordingly, we set-aside the order passed by Ld. CIT(A)/NFAC confirming the levy of penalty u/s 271E of the IT Act of Rs.34,28,538/-. Thus, the grounds of appeal raised by the assessee are allowed.