SILVERLINE TRADING COMPANY LIMITED,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX-2, MUMBAI

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ITA 6633/MUM/2017Status: DisposedITAT Mumbai26 February 2018AY 2007-089 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee company was undisputedly dissolved by the Registrar of Companies on March 18, 2011. Since the company was not in existence on the date the assessment order under Section 143(3) read with Section 147 was passed, that order was null and void as no assessment can be made on a non-existent entity. Consequently, the Principal Commissioner of Income Tax could not have assumed jurisdiction under Section 263 to revise an order that was a nullity in the eyes of law. The Tribunal relied on the decisions of the Hon'ble Delhi High Court in CIT vs. Escorts Farms Pvt Ltd, the jurisdictional High Court in Jitendra Chandaralal Navlani & Anr Vs. UOI, and various other High Court and Tribunal decisions cited by the assessee, which held that an assessment order passed on a non-existing entity is void ab initio and cannot be revised. The Tribunal found no merit in the order passed by the PCIT under Section 263 on a company that had no legal existence. Therefore, the appeal of the assessee was allowed, quashing the order passed by the PCIT under Section 263.

What were the facts?

The assessee, M/s. Silverline Trading Company Ltd., is an appellant before the Income Tax Appellate Tribunal (ITAT), Mumbai, challenging an order passed by the Principal Commissioner of Income Tax (PCIT)-2, Mumbai, under Section 263 of the Income Tax Act, 1961, for Assessment Year 2007-08. The assessee company was engaged in trading and acted as a Del credere agent. It filed its return of income declaring Rs. 1,17,901. Subsequently, the company was dissolved by the Registrar of Companies on March 18, 2011. The original return was processed under Section 143(1), and later the case was reopened under Section 148, with an assessment order passed under Section 143(3) read with Section 147 on March 28, 2015, assessing total income at Rs. 11,17,901. The PCIT invoked Section 263, claiming to have issued a notice, but the assessee contended it never received it due to its dissolution. The assessee came to know about the Section 263 order when the Assessing Officer (AO) served a notice giving effect to it.

What were the issues?

1. Whether the Principal Commissioner of Income Tax erred in passing a revision order under Section 263 of the Income Tax Act, 1961, for an assessment order passed under Section 143(3) read with Section 147, without considering the facts and circumstances of the case? 2. Whether the Principal Commissioner of Income Tax erred in passing the revision order under Section 263 without serving a show cause notice and providing sufficient opportunity of being heard to the appellant? 3. Whether the Principal Commissioner of Income Tax erred in passing the revision order under Section 263 for an assessment order passed under Section 143(3) read with Section 147, without considering that the assessee company was dissolved on March 18, 2011, and is no longer in existence? Assessee's Contentions: The assessee argued that the assessment order under Section 143(3) read with Section 147 was null and void because it was passed on a non-existent entity, as the company was dissolved on March 18, 2011. Consequently, the revision order under Section 263, which sought to revise a nullity, was also without jurisdiction and void. Reliance was placed on CIT vs. Escorts Farms Pvt Ltd, Krishna Kumar Saraf vs. CIT, Steel Strips Ltd v. ACIT, Westlife Development Ltd Vs. PCIT, Jitendra Chandaralal Navlani & Anr Vs. UOI, Milestone Tradelink Pvt. Ltd. Vs ITO, CIT Vs. Dimension Apparel Pvt. Ltd, Sapient Consulting Ltd Vs DCIT, DCIT Vs Meridien Industries Ltd, Rainbow Oxygen P Ltd, and Pampasar Distillery Ltd Vs ACIT. The assessee also contended that the PCIT failed to demonstrate how the bank deposit transaction was prejudicial to the revenue. Revenue's Contentions: The Revenue defended the PCIT's order, contending that since no enquiry was made by the AO with respect to the bank deposit transaction, the power under Section 263 was correctly invoked.

Which sections of the Income-tax Act were involved?

Section 263,Section 143(3),Section 147,Section 148,Section 143(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “E”, BENCH MUMBAI

Before: SHRIR.C.SHARMA, AM

Pronounced: 26/02/2018

आदेश / O R D E R PER R.C.SHARMA (A.M):

1.

This is an appeal filed by assessee against the order of PR. CIT-2, Mumbai, dated 18/09/2017 for A.Y.2007-08 in the matter of order passed by CIT u/s.263 of the Income Tax Act, 1961.

2. The following grounds have been taken by assessee:- 1) On the fact and circumstances of the case as well as in Law, the Learned Principal CIT has erred in passing Revision Order u/s.263 of the Income Tax Act, 1961 for the assessment order u/s.143(3) r.w.s 147 of the Act, without considering the facts and circumstances of the case. 2) On the fact and circumstances of the case as well as in Law, the Learned Principal CIT has erred in passing the revision order u/s.263 of the Income Tax Act, 1961, without serving show cause notice and without providing sufficient opportunity of being heard to the appellant.

M/s. Silverline Trading Co.Ltd., 3) On the fact and circumstances of the case as well as in Law, the Learned Principal CIT has erred in passing Revision Order u/s.263 of the Income Tax Act, 1961 for the assessment order u/s.143(3) r.w.s 147 of the Act, without considering the fact that the assessee company was dissolved on 18.03.2011 and is no longer in existence. 4) The appellant craves leave to add, amend, alter or delete the said ground of appeal.

2.

Rival contentions have been heard and record perused.

3.

Facts in brief are that the assessee is a Domestic Company, engaged in the business of trading in ferrous and non-ferrous metal, paper scrap, commodities and Del credere agents. The assessee filed its return of Income for the year under consideration on 19.05.2008, declaring Total income of Rs.1,17,901/-. Later on, the said company was dissolved by the Registrar of Companies as on 18.03.2011. 4. The return so filed was processed u/s.143(1) of the Income Tax Act, 1961. Subsequently the case was reopened by issuing notice u/s. 148 of the Income Tax Act,1961 and assessment order dated 28.03.2015 was passed u/s. 143(3} r.w.s 147 of the Income Tax Act, assessing the total income at Rs.11,17,901/-" 5. Subsequently PCIT invoked provisions of section 263 of the Act. Though in the order U/s 263 Ld PCIT claimed that notice U/s 263 of the Act was issued however the assessee has never received it as the company already dissolved vide order of Registrar of Companies(ROC) dated 18/03/2011. 6. While giving effect to the order passed by CIT u/s.263, notice to this effect was served by AO on assessee through its director, (copy of which placed on page 3 of the paper book, the assessee come to know about M/s. Silverline Trading Co.Ltd., the said order and asked for copy of the said order and the same was provided by AO on 18/09/2017.

7.

Though assessee has taken 3 grounds on the issue of order passed u/s.263, but effectively it is only one ground which is on the validity of order passed U/s 263 of the Act.

8.

It was argued by learned AR that the company was dissolved by the ROC on 18/03/2011, copy of certificate issued by ROC is placed on page 2 of paper book. Since the company was not in existence on the date of order passed U/s 143(3) r.w.s. 147 of the Act, hence the said order itself is null and void as there cannot be any assessment on non-existing entity. Therefore an order, which was a nullity in the eyes of law had no existence in the eyes of law and, therefore, the same could not have been revised by the Ld. PCIT u/s.263, thereby giving fresh life to the proceedings which had no legal existence in the eyes of law. In this regard reliance is placed on the judgment of Hon'ble Delhi High in CIT vs Escorts Farms Pvt Ltd 180 ITR 80 (Del) and upon the decision of the co- ordinate bench in the case of Krishna Kumar Saraf vs CIT dated 24-09-2015, Steel Strips Ltd v ACIT 53 ITD 553 (Chd) and Westlife Development Ltd Vs. PCIT (ITA NO. 688/Mum/20i6) vide order dated 10/06/2016. In this case Mumbai ITAT held as under:- "11. Thus, after taking into account all the facts and circumstances of the case, n this case, the original assessment order passed u/s 143(3) dt 24-10-2013 was null & void in the eyes of law as the same was passed upon a non-existing entity and, therefore, the Ld. CIT could not have assumed jurisdiction under the law to make revision of a non est order and, therefore, the impugned order passed u/s 263 by the Ld.CIT is also nullity in the eyes of law and therefore the same is hereby quashed."

M/s. Silverline Trading Co.Ltd.,

9.

As per learned AR, even otherwise no order U/s 263 can be passed on the assessee company as the company has already been dissolved on 18/03/2011 and this fact was duly intimated to the AO in reassessment proceedings as well as subsequently vide letter dated 10/12/2015, copy of which placed on paper book page 1. For this proposition reliance was placed upon the decision of Jurisdictional High Court in case of Jitendra Chandaralal Navlani & Anr Vs. UOI ( W P No. 1069 of 2016) order dated 08/06/2016, copy of which submitted during the course of hearing, wherein the Hon'ble High Court held that there cannot be any reassessment proceeding on non -existing company.

10.

Similar view was taken by the A'bad ITAT in case of Milestone Tradelink Pvt. Ltd. Vs ITO ( vide order dated 04/03/2016, wherein Bench held as under:

"11. On due consideration of all these arguments, we are of the view that in the Income Tax Act, there is no provision to communicate this fact to the Commissioner. The assessee has already informed the AO. We have extracted the copy of the letter written by the assessee. We have also made reference of the assessment order vide which the AO has taken cognizance of this fact while he issued notice under section 143(2) of the Income Tax Act. In the order of the ITAT, Kolkata Bench itself has observed that legally when a company amalgamates with another, it loses its identity and no proceedings can be taken in its earlier name. The Bench had taken a different view on account of notorious facts available in that case. No such circumstances are before us. Apart from above, we are of the view that even if the assessee gave consent for taking up the proceedings under section 263 against it, that would not infuse jurisdiction in the Id. Commissioner. In other words, this adjournment application, reply to show cause notice would not infuse jurisdiction to Id. Commissioner. Jurisdiction should be by virtue of operation of the Act and not by the M/s. Silverline Trading Co.Ltd., consent of an assessee. A perusal of section 263 would indicate that before taking any action under section 263, Commissioner has to pursue record and record would include the communication made by the assessee to the AO on 23.7.2013 intimating about the fact of amalgamation. Therefore, we are of the view that the issue in dispute is squarely covered in favour of the assessee by the decision of Hon'ble Gujarat High Court in the case of Khurana Engineering Ltd. (supra). Since we have arrived at a conclusion that initiation of proceedings against HEPL is void ab inito, therefore, we do not deem it necessary to adjudicate on other issues on merit. No proceedings under section 263 can be taken up against HEPL after its amalgamation with Milestone Tradelinks Pvt. Ltd. Therefore, we allow the appeal of the assessee and quash the order passed by the Id. Commissioner under section 263 of the Income Tax Act.]

11.

Reliance was also placed by learned AR on the following judicial pronouncements. Case Title / No. Held CIT Vs. Dimension Apparel Pvt. Ltd (89 Assessment made on non-existing CCH0344) (High Court of Delhi) company is not maintainable. [Para 16] In reply to the argument of revenue that the AO has also mentioned name of amalgamated Company in the order and therefore merely mentioning name of amalgamating company is only a procedural defect curable U/s 292B of the Act, the Court while relying on various other decisions, held that Section 292B can cure technical defects, it cannot cure a "jurisdictional defect in the assessment notice." Therefore framing of assessment against a non-existing entity/person is a jurisdictional defect. [Para l8 & 21] Sapient Consulting Ltd Vs DCIT (ITANo. Hon'ble Tribunal admitted this legal 1728/Del/2014 & 1306/Del/2015) ground which was raised first time before (ITAT-New Delhi) them as the same goes to the root of the issue. We are inclined to hold that the assessment order dated 20.1.14 in the name of non-existent amalgamating company having jurisdictional defect is not sustainable and therefore, we quash the same. ACIT Vs. Chankaya Exports P Ltd. (ITA The Hon'ble Bench relying on the decision M/s. Silverline Trading Co.Ltd., No. 539-544/ Del/2012)(ITAT-New Delhi) of Coordinate Bench in case of Dimension Apparels Pvt. Ltd., held that assessment order passed on non-existing entity is not sustainable.

DCIT Vs Meridien Industries Ltd (ITA As on the date of issue of notice 2044/MDS/2012) (ITAT-Chennai) under sec.148 on 3.3.2011, it is a fact on record that the assessee-company was not in existence. This is because, the company has already been dissolved with effect from 1.4.2006. As a result of merger approved by the Hon'ble Madras High Court through their order dated 1.6.2006, the assessee- company did not exist after 1.4.2006. Therefore, no such company is existing as on 3.3.2011 for the Revenue to issue a notice, even if the subject-matter relates to an earlier assessment year 2004-05, in which period the assessee company was existing. It is not possible to ask any question to a dead person even in respect of the matter which occurred, when that person was alive. This reasoning is equally applicable to the present case, as well. In such circumstances, the notice should have issued to the amalgamated company, M/s. Precot Industries Ltd.

Under these circumstances, we have no reason to deviate from the order of the Commissioner of Income tax( Appeals), who has followed the court order on the subject Rainbow Oxygen P Ltd (ITA No. The AO passed order on non-existing 48/Del/2015 (ITAT New Delhi) company therefore considering various decisions such assessment is not sustainable. Pampasar Distillery Ltd Vs ACIT 15 SOT The question is whether the income prior 331 (ITAT Kolkata) to the date of amalgamation can be assessed in the hands of amalgamating company on the date when amalgamating company does not remain in existence or it is to be assessed in the hands of amalgamated company as a representative M/s. Silverline Trading Co.Ltd., of amalgamating company. The provision of s. 170 would be squarely applicable in respect of the case of amalgamation. By the process of amalgamation the business which was being I carried on by the amalgamating company is succeeded by the amalgamated company who continues to carry on the said business. However, after the amalgamation once the amalgamating company is dissolved it does not remain in existence and, therefore, it cannot be found. Once it cannot be found the income up to the date of amalgamation should be assessed in the hands of amalgamated company i.e. the successor company in the like manner and to the same extent as it would have been assessed in the hands of amalgamating company. Assessment made in the hands of non-existent company is nullity

12.

With regard to the merit of the observation made by CIT, it was contended by learned AR that PCIT failed to point out how the transaction of bank deposit was prejudicial to the interest of Revenue in so far as the same was entered into the regular course of assessee’s business. For this purpose, reliance was placed on the decision of Andhra Pradesh High Court in the case of Delhi Airport Metro Pvt. Ltd., dated 05/09/2017.

13.

In view of the above, it was vehemently argued that action of Ld PCIT invoking provisions of section 263 of the Act against a non-existing entity is contrary to the provisions of law and accordingly without jurisdiction.

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