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Income Tax Appellate Tribunal, “D”BENCH, MUMBAI
Before: SHRI SAKTIJIT DEYAND SHRI N.K. PRADHAN
Date of Hearing – 19.07.2019 Date of Order – 31.07.2019
O R D E R PER SAKTIJIT DEY. J.M.
Captioned appeal has been filed by the assessee against the order dated 24th January 2017, passed by the learned Commissioner (Appeals)–2, Mumbai, confirming penalty of ` 96,14,887, imposed under section 271(1)(c) of the Income Tax Act, 1961 (for short "the Act") for the assessment year 2005–06.
2 Ratna Priya Holdings & Estate Pvt. Ltd.
Brief facts are, for the assessment year under dispute the assessee had filed its return of income on 27th October 2005, declaring loss of ` 2,67,94,794. In the course of assessment proceedings, the Assessing Officer, while verifying the computation of income filed along with the return of income, noticed that it has claimed long term capital loss of ` 2,67,88,510 on account of sale of shares of Tanna Builders Pvt. Ltd. After calling for and verifying necessary details, the Assessing Officer was of the view that the transaction relating to sale of shares is a colourable device, hence, void. He observed, the assessee wanted to take possession of a flat, but, ultimately it did not materialize, as the assessee was not able to pay the consideration to the other party. Thus, he held that the assessee had no capital asset in his hands. That being the case, the Assessing Officer concluded that the long term capital loss claimed by the assessee is nothing but a colourable device adopted by the assessee to evade tax. Thus, he disallowed long term capital loss of ` 2,67,88,510. On the basis of such disallowance, the Assessing Officer initiated proceedings for imposition of penalty under section 271(1)(c) of the Act, alleging furnishing of inaccurate particulars of income and ultimately passed an order on 26th March 2014, imposing penalty of ` 96,14,887, under section 271(1)(c) of the Act. Against the penalty order so passed, the assessee preferred appeal before the first appellate authority.
3 Ratna Priya Holdings & Estate Pvt. Ltd.
Before learned Commissioner (Appeals), the assessee challenged the validity of penalty order by raising additional ground that the penalty order has been passed against a non–existent company, hence, invalid. Learned Commissioner (Appeals), after considering the submissions of the assessee in the context of facts and material on record, found that the assessee company had merged with Ratna Priya Holdings And Estate Pvt. Ltd., w.e.f. 15th April 2011. He observed, the fact of merger was also brought to the notice of the Assessing Officer on 26th March 2014, along with a copy of the order passed by the Hon'ble Jurisdictional High Court. Thus, he was of the view that the entity on which the penalty order was passed, viz, M/s. Hillwood Investments Pvt. Ltd., was already merged with the present assessee i.e., Ratna Priya Holdings And Estate Pvt. Ltd., hence, was not in existence. Thus, he held that the penalty order passed against a non– existent entity is a jurisdictional error, which cannot be cured under section 292B of the Act. Therefore, following the decision of the Hon’ble Delhi High Court in CIT v/s Dimension Apparels Pvt. Ltd., [2015] 370 ITR 288 (Del.), learned Commissioner (Appeals) ultimately held that the penalty order passed is not valid and accordingly allowed the additional ground raised by the assessee. The observations of learned Commissioner (Appeals) in this regard, for better appreciation, are reproduced below:–
4 Ratna Priya Holdings & Estate Pvt. Ltd.
“7. The Appellant states that Hillwood Investments Private Limited was merged with Ratna Priya Holdings & Estate Private Limited with effect from 15.04.2011. The issue that is raised on technically is whether penalty order passed on M/s. Hillwood Investments Private Limited is bad in law since the company was merged with one Ratna Priya Holdings & Estates Private Limited. The Appellant had informed the AO vide its letter dated 26.03.2014 at para 3.10 on paperbook page nho.128 the fact about merger of the companies and had also enclosed copy of Order passed by Honourable Bombay High Court. The A.O. has acknowledged receipt of this leter filed by the Appellant, but totally ignored the same. In fact the A.O. has stated in the Penalty order that “the assessee till date and time of passing of penalty order did not attended nor filed any reply”. The fact that the submissions are filed by the Appellant in the course of penalty proceedings and further the Appellant has brought to the notice of the A.O. about merger of companies shows that the penalty order is passed in absolute haste under time barring pressure without proper application of mind. Indeed on merger Hillwood ceased to exist as a separate and independent unit since it was dissolved ceased to exist as a separate and independent unit since it was dissolved and resultant amalgamated company acquires new status and thus it is anomalous in law to say that the two companies jointly own / liable for assets and liabilities. It is held by CIT v/s Dimension Apparels Pvt. Ltd. [2015] 370 ITR 0288 (DEL.) that assessment cannot be carried out on a dead person. The High court observed that section 292B can cure “technical defects” but not “judicial defects”. Framing assessment order against non– existing entity/person is jurisdictional defect. Thus, following Delhi High Court supra I accept the contention of the Appellant and allow the additional grounds of the Appellant. In the result this additional ground is passed in favour of the Appellant.”
Dr. K. Shivaram, the learned Sr. Counsel for the assessee submitted, once learned Commissioner (Appeals) had held that the penalty order passed against the non–existent entity is a jurisdictional defect, he could not have dismissed assessee’s appeal on merits. He submitted, once the penalty order passed is found to be void, it will
5 Ratna Priya Holdings & Estate Pvt. Ltd. have no effect in the eyes of law, hence, cannot be sustained on merits. Thus, he submitted, the penalty order deserves to be quashed.
The learned Departmental Representative relied upon the observations of the Assessing Officer and learned Commissioner (Appeals).
We have considered rival submissions and perused the material on record. As could be seen from the operative part of learned Commissioner (Appeals)’s order on the legal and jurisdictional issue raised by the assessee in the additional ground, he has clearly and categorically held that the penalty order having been passed against a non–existing entity suffers from jurisdictional defect which cannot be cured under section 292B of the Act. In fact, learned Commissioner (Appeals) has allowed the additional ground raised by the assessee. The effect of the aforesaid decision of the learned Commissioner (Appeals) in simple word is, the penalty order passed under section 271(1)(c) of the Act is invalid, hence, void ab initio. Admittedly, against the aforesaid decision of learned Commissioner (Appeals), the Revenue has not filed any appeal before us. In such circumstances, the decision of learned Commissioner (Appeals) on the legal and jurisdictional issue, as raised by the assessee, has attained finality. Thus, once the penalty order passed under section 271(1)(c) of the 6 Ratna Priya Holdings & Estate Pvt. Ltd.
Act is held to be invalid, the merits of the issue becomes redundant. Therefore, there was no occasion for learned Commissioner (Appeals) to dwell upon the merits. Be that as it may, once from the facts on record it is established that the penalty order has been passed against a non–existent entity, as a natural corollary, the penalty order deserves to be quashed. Accordingly, we do so. That being the case, there is no necessity to delve into the other issues raised by the assessee in this appeal.
In the result, assessee’s appeal is allowed in the terms indicated above. Order pronounced in the open Court on 31.07.2019