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Facts
The assessee, MTIPL, which was engaged in repairs of turbo machinery, merged with MAN INDIA effective January 1, 2013. The amalgamation was approved by the Bombay High Court on March 28, 2014, and intimated to the AO on June 24, 2014. Despite this, the AO issued a notice under Section 143(2) and framed the assessment order in the name of MTIPL, a non-existent entity, on November 9, 2016.
Held
The Tribunal held that the assessment order was passed on a non-existent entity, which is invalid, following the Supreme Court's decision in PCIT Vs. Maruti Suzuki India Ltd. The additional ground raised by the assessee regarding the invalidity of the assessment was admitted and allowed. Consequently, the assessment order was directed to be quashed.
Key Issues
Whether an assessment order passed in the name of a non-existent entity, post amalgamation, is invalid. Whether the assessee is barred from raising this objection due to provisions like Section 124(3) or Section 292B of the Income Tax Act.
Sections Cited
143(3), 36(1)(va), 43B, 143(2), 292B, 124(3), 250(6)
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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SMT.ANNAPURNA GUPTA & MS. SUCHITRA RAGHUNATH KAMBLE
PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER
The above appeal is filed by the assessee against order passed by the ld.Commissioner of Income (Appeal)-2, Vadodara dated 08.03.2018 under section 250(6) of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short] for the assessment year 2013-14.
It was pointed out that assessment in the present case was framed in the case and name of of Man Turbo India Pvt. Ltd. (“MTIPL”) and the present appeal before us has been filed by its successor i.e. Man Diesel & Turbo India Ltd.(“MAN-INDIA”) as a result of amalgamation of “MTIPL”and “MAN-INDIA”.
2 3. Brief facts of the case are that the assessee MTIPL was engaged in the business of repairs and refurbishment of turbo machinery and related auxiliary parts and activities relating to erection and commissioning of the same. MTIPL merged into MAN INDIA by way of amalgamation w.e.f. 1-1-2013 pursuant to Hon’ble Bombay High Court order dated 28.3.2014 approving the scheme of amalgamation. The assets and liabilities of MTIPL were transferred and vested in MAN India with effect from 01-01-2013. MTIPL originally filed return of income for the 12 month period ending 31-03-2013, on 29-11-2013, declaring an income of Rs.16.28 crores. Subsequently, the return was revised on 31-03-2015, on approval of scheme of amalgamation vide court order dated 28-03-14, and the income declared for nine months upto 31-12-2012 as the amalgamation was effective from 01-01-2013, of Rs.11.04 crores. The same was scrutinized in terms of provisions of section 143(3) of the Act and various additions made to the income of the assessee on account of following: i) Disallowance relating to the provisions of expenses of Rs.95,47,837/-; ii) Disallowance relating to the excess material consumed of Rs.1,95,45,952/-; iii) And disallowance under section 36(1)(va) of the Act of Rs.2,89,581/-.
4. The additions so made were challenged before the ld.CIT(A) who reduced the disallowance relating to the provisions of expenses to Rs.16,81,244/- and that on account of excess cost of material consumed to Rs.74,35,545/-. The disallowance made under section 36(1)(va) was upheld by him.
Aggrieved by the said order of the ld.CIT(A), the assessee has come up in appeal before us raising the following grounds.
Disallowance of provision for creditors
1. On the facts and in circumstances of the case and in law, the Hon'ble Commissioner of Income-tax (Appeals) - 2, Vadodara ['CIT(A)'] has erred in confirming the disallowance Rs.16,81,244 on account of provision for creditors under Section 37 of the Income-tax Act, 1961 ('the Act').
Disallowance of cost of material consumed
2. On facts and in circumstances of the case and in law, the CIT(A) has erred in confirming the disallowance of Rs. 74,35,545 being cost of material consumed while computing taxable income under the Act.
On facts and in circumstances of the case and in law, the CIT(A) has erred in not considering the books of account prepared as per the generally accepted accounting principle.
On facts and in circumstances of the case and in law, the CIT(A) has erred in not considering the factual evidences submitted by the Appellant demonstrating the rise of cost of material consumed.
5. On the facts and in circumstances of the case and in law, the CIT(A) has erred in treating Rs. 74,35,545 as excessive cost of material consumed claimed by the Appellant.
Disallowance of employee's contribution to Provident Fund ('PF')
6. On facts and in circumstances of the case and in law, the CIT(A) has erred in confirming the disallowance of Rs.2,89,581 on account employee's contribution to PF under Section 36(1 )(va) read with Section 2(24) of the Act and not allowing the same under Section 43B of the Act.
During the course of hearing before us, the assessee filed additional grounds of appeal vide letter dated 7.8.2024, which read as under:
“7. Validity of the notice issued under section 143(2) of the Income-Tax Act, 1961 and assessment order passed in the name of a non-existent entity On the facts and in the circumstances of the case, and in law, the Learned Assessing Officer [hereinafter referred to as Id. AO'] has erred in issuing notice under section 143(2) of the Income-Tax Act, 1961 in the name of Man Turbo India Private Limited, an entity that was not in existence on the date of issue of impugned notice due to its amalgamation with the Appellant and Ld. AO 4 has also erred in passing impugned assessment order in the name of non- existing entity The Appellant prays that the notice and order passed in the name of a non- existing person are bad in law, null and void-ab-initio, and accordingly be deserved to be quashed. The Appellant craves leave to add, alter, amend, substitute or withdraw all or any of the Grounds of Appeal.
7. It was contended that the grounds are crucial for deciding the case on hand, and being legal ground, and the law being well-settled that legal grounds can be raised at any time, as per the ratio of the decision of the Hon’ble Supreme Court in the case of NTPC Ltd. Vs. CIT, 229 ITR 383 (SC), he pleaded admission of the additional grounds for adjudication. On the other hand, the ld.DR vehemently objected to the admission of the additional grounds.
8. Considering the submissions of the ld.counsel for the assessee, and noting that the additional ground sought to be admitted by the assessee is a legal ground, challenging the validity of the assessment framed, which goes to the root of the case and the adjudication of which does not require investigation/ verification of facts, therefore, following the decision of the Hon’ble Supreme Court in the case of NTPC Ltd. (supra), we admit the additional ground, and proceed to dispose of the appeal of the assessee.
9. We shall first deal with the additional ground raised by the assessee, since it challenges the validity of the assessment framed. The arguments of the ld.counsel for the assessee are that the assessment had been framed in the present case on an entity which was not in existence, despite the fact of non-existence of the entity being communicated to the AO. His contention therefore was that the assessment framed was invalid, and the issue was squarely covered
With regard to the facts of the issue, he pointed out that the assessee i.e. MTIPL had merged into MAN-INDIA by way of amalgamation w.e.f. 1-1-2013 pursuant to the order of the Hon’ble Bombay High Court dated 28.3.2014; that the factum of amalgamation of MTIPL had been intimated to the AO on 24.6.2014; that despite so, the AO had proceeded to issue notice under section 143(2) addressed to MTIPL on 4.9.2014 and gone on to frame assessment in the name of MTIPL under section 143(3) of the Act vide order dated 9.11.2016. The entire factual matrix was presented to us in a tabular form as under:
The ld.counsel for the assessee pointed out that even the contents of the assessment order reveal the fact of the AO being aware during assessment proceedings of the assessee having amalgamated in MAN India and thus no longer existing, since the order repeatedly notes the fact of amalgamation of the assessee company MTIPL into MAN-INDIA, noting also the fact that the assessee having furnished the return for the income for the period of only 9 months when it was in existence upto 31-12-2012.
The ld.DR per contra filed his contentions against this plea of the assessee in writing, stating that, returns and books of accounts were all filed in the name of MTIPL, assessee participated in assessment proceedings and no challenge as to the assumption of jurisdiction by the AO in the name of MTIPL was ever raised by the assessee. That therefore by virtue of the provisions of section 124(3)(a), the assessee was now debarred from raising any objection to the jurisdiction assumed by the AO in the present case . In this regard he referred to the decision of the jurisdictional High Court in the case of Bhupendra Bhikalal Desai Vs. ITO, (2021) 130 taxmann.com 196 (Guj), and (iii) Inox Wind Energy Ltd. Vs. ACIT, (2023) 149 taxmann.com 289 (Guj).
He further contended that in terms of provisions of section 292B of the Act, the objection of the assessee of the assessment order not being made in the name of the amalgamated company, MAN-INDIA, was only a technical objection, and would not come in the way of assessment proceedings when there is effective compliance and the intent and purpose is clearly communicated to the assessee. He referred to the decision of the Hon’ble jurisdictional High Court in the case of (i) CIT Vs. Jagat Novel Exhibitors P.Ltd., (2012) 18 taxmann.com 138 for the said purpose.
We have heard contentions of both the parties and carefully considered the facts of the case and also the decisions referred to by both the parties before us.
The contention of the ld.counsel for the assessee before us was that the assessment order in the present case, has been framed on MTIPL which was not in existence, having amalgamated into MAN- 7 INDIA, and this fact was duly communicated, even prior to the initiation of the assessment proceedings to the AO; that therefore the assessment order having been framed on non-existent entity was an invalid assessment order; that the facts of the present case are pari materia to that in the case of Pr.CIT Vs. Maruti Suzuki India Ltd. (supra) wherein the Hon’ble Apex Court had held the assessment order framed on a non-existing entity to be invalid.
The fact that the assessee MTIPL stood amalgamated in MAN India and the AO was intimated the said fact prior to amalgamation is not disputed before us. That the AO was aware of the non-existence of MTIPL is evident from the facts recorded in the assessment order regarding amalgamation of the assessee company and the assessee, MTIPL , furnishing return for only nine months upto the effective date of amalgamation. The facts in the case of Maruti Suzuki (supra), it has been pointed out to us was pari materia. The ld.DR has not in any way, either on facts or law, distinguished the said decision of the Hon’ble apex court before us.
However, being aware about the decision of the Hon’ble Apex Court in a subsequent decision in the case of PCIT v. Mahagun Realtors (P.) Ltd. [2022] 443 ITR 194 (SC) wherein the Apex Court has taken a contrary view on the issue, the same was confronted to both the parties during the course of hearing. To which, the ld.counsel for the assessee pointed out that the decision did not over-rule the earlier decision of the Hon’ble Apex Court in the case of Maruti Suzuki India Ltd. (supra), but in fact taking note of the said decision, in Mahagun Realtors P.Ltd.(supra) the Hon’ble apex court had distinguished the facts in the case before it, and thereafter taken a contrary view as opposed to that taken in Maruti Suzuki India Ltd. (supra). The 8 ld.counsel for the assessee pointed out that the Apex Court in the case of Mahagun Realtors (Supra) noted that the assessee had not intimated the department of the fact of amalgamation, and therefore, noting that in the case of Maruti Suzuki India Ltd. (supra), the assessee had intimated the fact of amalgamation to the AO, the Hon’ble Apex Court went on to take a contrary view in the case of Mahagun Realtors P.Ltd. Our attention was also drawn to various decisions of the jurisdictional High Court wherein the decision of the Apex court in Mahagun Realtors(supra) was distinguished on the ground that intimation of amalgamation was made to the assessing officer and therefore Hon’ble High quashed notice/order passed in the name of non-existent entity : Kunvarji Fincorp vs DCIT (SCA No.903 of 2022)(Guj HC) Adani Wilmar Ltd. vs ACIT(2023) 150 taxmann.com 178 (Gujarat)
Inox Wind Energy Ltd. vs ACIT (2023) 148 taxmann.com289(Guj)
Anokhi Reality (P) Ltd.vs ITO (2023) 153 taxmann.com 275 (Guj)
The ld.DR was unable to controvert the contentions of the ld.counsel of the assessee nor was he able to demonstrate before us as to how the decision of the Apex Court in the case of Mahagun Realtors P.Ld. (supra) could be of any assistance to the Revenue.
In the light of the same, we have no hesitation in holding that the issue raised in the additional ground by the assessee is squarely covered by the decision of the Hon’ble Apex Court in the case of Maruti Suzuki (supra) following which, we hold that the assessment order passed in the present case on a non-existent entity is an invalid
We further add that arguments of the ld.DR before us merit no consideration for the reason that the issue is noted to be squarely covered by the decision of the Hon’ble Apex Court in the case of Maruti Suzuki India Ltd. (supra). Even otherwise, the contentions raised by the ld.DR about the order being passed in the name of amalgamated entity despite the AO being aware of the fact of amalgamation, is a mere technical error, which need not be considered as fatal to the assessment framed in terms of section 292B of the Act., we have noted was raised before the Hon’ble Apex Court also by the Revenue in the case of Maruti Suzuki India Ltd. (supra) and therefore for all purposes, this argument has been considered by the Hon’ble Apex Court and rejected in its order passed in the said case.
Other contentions of the ld.DR that since the assessee failed to exercise its option to object to the assessment proceedings in terms of provisions of section 124(3) of the Act, we do not find any merit in this argument. The right given to the assessee to object in terms of provisions of section 124(3) of the Act is only vis-à-vis the jurisdiction of the AO to assess. If the assessee is of the view that the AO who has assumed jurisdiction is not the jurisdictional AO, then he has right to object within the period specified in the said section. In the present case, the issue is not about the correct jurisdictional AO having framed the assessment on the assessee. The issue in fact is completely different. It is about the assessment being framed on a non-existent entity. Therefore, the provisions of section 124(3) of the Act do not come into play at all and the contention of the Revenue therefore, needs to be rejected.
In view of the above the additional ground raised by the assessee is allowed, and the assessment order is directed to be quashed.
Since we have quashed the assessment order itself on the legal issue, the adjudication on merits of the additions is a mere academic exercise and is therefore not being dealt with by us.
In the result, the appeal of the assessee is allowed in above terms.
Order pronounced in the Court on 12th February, 2025 at Ahmedabad.