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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
Assessee by : Sh. Kapil Goel, Adv Revenue by: Sh. NK Bansal, Sr. DR Date of Hearing 08/05/2017 Date of pronouncement 25/05/2017 O R D E R PER PRASHANT MAHARISHI, A. M.
These two appeals have similar facts and issues involved, parties have also advanced common arguments and therefore for the sake of brevity both these appeal are disposed off by this common order.
Page 2 of 10 1. This is an appeal filed by the assessee against the order of the ld CIT(A)-27, New Delhi dated 11.03.2016 for the Assessment Year 2004-05, wherein following grounds of appeal have been raised:
“Jurisdictional Ground: Coram Non Judice 1. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in not allowing the Jurisdictional ground that instant assessment made on non existing company is nullity in eyes of law which has been amalgamated by Hon'ble high court order dated 10/10/2013 (appointed date: 1/4/2012) . 1.1 That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in not allowing the Jurisdictional ground that instant assessment made on non existing company is nullity in eyes besides the fact that said fact was duly intimated to LdAO during assessment proceedings and same is also filed to ROC. Merits of the Case 2. That on the facts and in the circumstances of case and in law, the Ld CIT-A erred in sustaining addition u/s 68 amounting to Rs 100,00,000 on account of alleged unexplained credit being genuine share application money, where this is 3rd round of proceedings and ultimate order of Hon'ble ITAT being basis of impugned proceedings is not complied and followed, thus making the entire exercise nonest.
3. That on the facts and in the circumstances of case and in law, the Ld CIT-A erred in sustaining addition u/s 68 amounting to Rs 100,00,000 on account of alleged unexplained credit being genuine share application money, as evident from detailed reply during set aside proceedings & appellate proceedings. PRAYER/Relief Claimed 1. To quash the impugned reopening order u/s 254/143(3) of the Act for assessment on non existing person 2. To delete additions made in violation of ITAT directions; 3. To hold Ld AO wrongly made addition on merits; 4. Any other relief as deemed fit in circumstances of the case.”
The brief facts of the case are that the assessee has filed its return of income on 01.11.2004 declaring income u/s 115JB of the Income Tax Act. On 29.12.2016, Assessment u/s 143(3) of the Act was made at the income of Rs. 10334177/- wherein an addition of Rs. 1 crore was made u/s 68 of the Act in respect of share application money received by the assessee from various subscribers. Against this the assessee preferred an appeal before the ld CIT(A)-21, New Delhi who vide order dated 18.03.2008 confirmed the addition. Aggrieved assessee further carried the Page 3 of 10 matter before the coordinate bench who directed vide order dated 05.03.2009 to the ld Assessing Officer to made assessment de novo. Pursuant to that on 07.12.2009 assessment u/s 143(3) read with section 254 of the Act was passed by the AO confirming the above addition. Subsequently, the assessee preferred an appeal before ld CIT(A) who vide order dated 16.03.2012 who also dismissed the appeal of the assessee. The assessee preferred appeal before the coordinate bench who vide order dated 31.10.2013 once again set aside the matter to the file of the Assessing Officer for re-adjudication vide para No. 8 of the order. Consequent to that once again vide order dated 19.03.2015 the ld AO passed the order made the same addition. The assessee preferred the appeal once again before the ld CIT(A), who also vide order dated 11.03.2016 confirmed the addition of Rs. 1 crore. Therefore, the assessee has preferred an appeal before us.
Interestingly before us, the ld AR submitted that the impugned assessment order passed on the appellant company is invalid in view of the fact that the appellant company did not exist on the date of the passing of the order. He referred to page No. 52 of the paper book which is a letter dated 18.03.2015 submitted before the Assessing Officer wherein, vide para No. 3 it was submitted that appellant was merged with another company vide order dated 10.10.2013 of the Hon'ble Delhi High Court. He stated that the appellant got merged with 9 other companies into another company namely I.P. India Pvt. Ltd. having registered office at A-3, 3A, Green Apartment, Pachim Vihar, New Delhi-63, therefore, he referred to the decision of several courts to submit that assessment order passed on the assessee company is nullity.
The LD DR vehemently objected to this and submitted that the assessee before the Assessing Officer did not raise such plea and hence, same cannot be entertained.
We have carefully considered the rival contentions and noted the relevant facts. On 19.03.2015 the ld Assessing Officer passed order u/s 143(3) read with section 254 of the Income Tax Act wherein, in the first para at page No. 2 it is mentioned as under:- “on 18.12.2014 the assessee submitted that M/s. Xenail Investment Pvt. Ltd, has been merged with M/s. IP India Pvt. Ltd. Further the assessee submitted that the name of M/s. IP India Pvt. Ltd has changed to M/s. Adhunik Technology Private Ltd w.e.f 01.12.2014. Accordingly, the assessment records of M/s Xenail Investment Pvt. Ltd were transferred to the office of ACIT, Central Circle-18, New Delhi on 19.12.2014”
6. From the above it is apparent that ld Assessing Officer who was aware about the fact that assessee company exists no more. We have also examined the relevant Page 4 of 10 assessment order dated 19.03.2015 which has been passed in the name of the appellant company which is no more in existence. The issue is that the assessment order passed on the non existing company is an illegality, which cannot be cured now. Hon'ble Delhi High Court has already decided this issue in CIT Vs. Dimensions Apparels (Pvt) Ltd 370 ITR 288 that notice issued in the name of a non-existent entity when the respondent revenue was aware of the amalgamation of the above company when it sees to exists is illegal and unsustainable. Honourable High court has held as under :- “4. The revenue, in its appeal argues, first of all that by virtue of Sections 170(1) and 170(2) of the Income Tax Act, in cases of succession of business, where the predecessor cannot be found, the assessment that would otherwise have been made upon the predecessor, shall instead be made upon the successor in a like manner. It is secondly contended that the error in the assessment order, if any, is a minor one, at best an irregularity; thus saved by Section 292B of the Act. It was argued lastly that the assessee had itself participated in the proceedings throughout and could not be heard to complain against the assessment order. The revenue relies on the Madras High Court ruling in Marshall Sons & Co. v. ITO [1992] 195 ITR 417.
5. The assessee contends that no question of law arises for consideration. It submits that the text and phraseology of Sections 170 (1) and (2) do not support the revenue's arguments. The assessee further relies on Saraswati Industrial Syndicate Ltd. v. CIT [1990] 186 ITR 278/53 Taxman 92(SC) in support of its contentions and the findings of the tax authorities below, i.e. the CIT (A) and the ITAT. Spice Entertainment Ltd. v. CIT [ITA No. 475 of 2011], decided by a Division Bench of this Court, as well as an earlier decision in CIT v. Vived Marketing Servicing (P.) Ltd. [IT Appeal No. 273 of 2009] were relied on by the assessee as well, in support of its contentions. It was also pointed out that the jurisdictional defect in this case could not be cured under Section 292-B of the Act.
Sections 170(1) and 170(2) of the Act do not assist the revenue in their case. The revenue does not contest that in a case of amalgamation, the predecessor (being a dissolved company) "cannot be found". Consequently, Section 170(2) applies. This provision clarifies that where the predecessor cannot be found, "the assessment of the income of the previous year in which the succession took place up to the date of the succession and of the precious year preceding that year shall be made on the successor in like manner and to the same extent as it would have been made on the predecessor." (Emphasis Supplied) 7. The revenue seems to argue that the assessment is justified because the liabilities of the amalgamating company accrue to the amalgamated (transferee) company. While that is true, the question here is which entity must the assessment be made on. The text of Section 170(2) makes it clear that the assessment must be made on the successor (i.e., the amalgamated company).
8. The Supreme Court, in Saraswati Industrial Syndicate Ltd. (supra) held that "after the amalgamation of the two companies the transferor company ceased to have any entity and the amalgamated company acquired a new status and it was not possible to treat the two companies as partners or jointly liable in respect of their liabilities and assets." (Emphasis Supplied)
Page 5 of 10 9. With respect to the specific issue of assessment, in Vived Marketing Servicing (P.) Ltd. (supra) the Court observed that: "When the Assessing Officer passed the order of assessment against the respondent company, it had already been dissolved and struck off the register of the Registrar of companies u/s 560 of the Companies Act. In these circumstances, the Tribunal rightly held that there could not have been any assessment order passed against the company which was not in existence as on that date in the eyes of law it had already been dissolved." (Emphasis Supplied) 10. Vived Marketing Servicing (P.) Ltd. (supra) also noted that Section 176 of the IT Act, which contains provisions pertaining to a discontinuation of business, does not apply to a case of amalgamation/dissolution. It was also held that Section 159 of the Act, which provides for tax liability to be attached to the legal representatives of a deceased person, is likewise inapplicable. The language of Section 159 evidently only applies to natural persons, and cannot be extended, through a legal fiction, to the dissolution of companies.
11. Marshall Sons and Co. (supra), is relied on by the revenue. It was held in that judgment that "the transferor-company shall, with effect from the transfer date, be deemed to have carried on its business for and on behalf of the transferee-company and, accordingly, the profits and losses of the transferor- company for the period commencing from the transfer date, shall be deemed to be the profits or losses of the transferee-company and shall be available to the transferee-company for disposal in any manner."
That case, however, involved a controversy about the effective date of amalgamation, and not about whether an assessment of income can be made on an amalgamated company. In fact, the logic of the Madras High Court's decision undermines the Appellants' case. The Madras High Court found for the Revenue, because, in its opinion, the effective date of amalgamation came after the date of the assessment. The assessee argued that the date of amalgamation was January 1, 1982, whereas the assessment order was dated November 25, 1984.
The Madras High Court held that— "according to the records maintained pursuant to the provisions of the Companies Act, the subsidiary company had continued to remain in existence up to January 21, 1986, even long after January 1, 1982."
On this basis, it held the Assessee liable. This obviously implies that had the company not been in existence at the time of the assessment order, it would not have been liable.
In Spice Entertainment Ltd. (supra), this Court, after discussing the law declared by the Supreme Court in Saraswati Industrial Syndicate Ltd. (supra) stated that: "9. The Court referred to its earlier judgment in General Radio and Appliances Co. Ltd. v. M.A. Khader [1986] 60 Comp Case 1013. In view of the aforesaid clinching position in law, it is difficult to digest the circuitous route adopted by the Tribunal holding that the assessment was in fact in the name of amalgamated company and there was only a procedural defect.
Section 481 of the Companies Act provides for dissolution of the company. The Company Judge in the High Court can order dissolution of a company on the grounds stated therein. The effect of the dissolution is that the company no more survives. The dissolution puts an end to the existence of the company. It is held in M.H. Smith (Plant Page 6 of 10 Hire) Ltd. v. D.L. Mainwaring (T/A Inshore), 1986 BCLC 342 (CA) that "once a company is dissolved it becomes a non-existent party and therefore no action can be brought in its name. Thus an insurance company which was subrogated to the rights of another insured company was held not to be entitled to maintain an action in the name of the company after the latter had been dissolved.
After the sanction of the scheme on 11th April, 2004, the Spice ceases to exit w.e.f 1st July, 2003. Even if Spice had filed the returns, it became incumbent upon the Income tax authorities to substitute the successor in place of the said "dead person". When notice under Section 143 (2) was sent, the appellant/amalgamated company appeared and brought this fact to the knowledge of the AO. He, however, did not substitute the name of the appellant on record. Instead, the Assessing Officer made the assessment in the name of M/s Spice which was non existing entity on that day In such proceedings and assessment order passed in the name of M/s Spice would clearly be void. Such a defect cannot be treated as procedural defect. Mere participation by the appellant would be of no effect as there is no estoppel against law."
The authority of the above precedent binds us; we see no reason to differ from the logic and reasoning in Spice Entertainment Ltd. (supra).
The other aspect is as to the applicability of Section 292-B of the Act, which reads as follows: "292B. No return of income assessment, notice, summons or other proceedings furnished or made or issue or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reasons of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceedings is in substance and effect in conformity with or according to the intent and purpose of this Act."
The Revenue argues that the assessment was in substance and effect in conformity with the Act, because the Assessing Officer had used correct nomenclature in writing the name of the Assessee, along with the fact that the company had amalgamated, as well as the correct address of the amalgamated company. Consequently, they contend that "the mere omission, if any on the part of the AO to mention the name of the appellant/amalgamated company in place of M/s Dimension Apparel… [is]…therefore a procedural defect."
The question of whether an assessment upon an amalgamated company is a mistake within the meaning of Section 292B was raised and answered by the Delhi High Court in Spice Entertainment Ltd. (supra). In that case, the Tribunal had held that "the assessment in substance and effect has been made against amalgamated company in respect of assessment of income of amalgamating company for the period prior to amalgamation and mere omission to mention the name of amalgamated company alongwith the name of amalgamating company in the body of assessment against the item "name of the assessee" is not fatal to the validity of assessment but is a procedural defect covered by Section 292B of the Act." (Emphasis Supplied) 20. This Court rejected this argument, holding that "it [becomes] incumbent upon the Income Tax Authorities to substitute the successor in place of the said 'dead person'. Such a defect cannot be treated as procedural defect... once it is found that assessment is framed in the name of non-existing entity it Page 7 of 10 does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of Section 292B of the Act." (Emphasis Supplied) 21. In Spice Entertainment Ltd. (supra) the reason for the inapplicability of Section 292-B was additionally premised on the decision of the Punjab & Haryana High Court in CIT v. Norton Motor, [2005] 275 ITR 595/146 Taxman 701, that while Section 292B can cure technical defects, it cannot cure a "jurisdictional defect in the assessment notice."In Spice Entertainment Ltd. (supra), therefore, this Court expressly classified "the framing of assessment against a non-existing entity/person" as a jurisdictional defect. This has been a consistent position. As early as 1960, in CIT v. Express Newspapers Ltd. [1960] 40 ITR 38 (Mad), the Madras High Court held that "there cannot be an assessment of non-existent person. The assessment in the instant case was made long after the Free Press Company was stuck off from the register of the companies, and it could not be valid." (Emphasis Supplied) 22. On the last contention, i.e with respect to participation by the previous assessee, i.e the amalgamating company (which ceases to exist), again Spice Entertainment Ltd. (supra) is categorical; it was ruled on that occasion that such participation by the amalgamated company in proceedings did not cure the defect, because "there can be no estoppel in law." Vived Marketing Servicing (P.) Ltd. (supra) had also reached the same conclusion.
It is thus clear that all contentions sought to be urged by the revenue are in respect of familiar grounds, which have been ruled upon, against it, consistently in two decisions of this court. Therefore, no substantial question of law arises in this appeal.”
In view of above decision of the jurisdictional high court we quash the assessment order passed by the ld Assessing Officer on 19.03.2015 u/s 143(3) of the Act. in the result appeal of the assessee on this ground is allowed.
We may, however, point out that the returns were filed by assessee on the day when it was in existence it would be permissible to carry out the assessment on the basis of those returns after taking the proceedings afresh from the stage of issuance of notice under applicable section of the Act. In these circumstances, it would be incumbent upon the AO to first substitute the name of the appellant in place of M/s Spice and then issue notice to the appellant. However, such a course of action can be taken by the AO only if it is still permissible as per law and has not become time barred. 9. As we have held that assessment order passed is not sustainable we do not decide the issues in the appeal on its merit with respect to the addition of Rs. 1 crore. 10. In the result appeal of the assessee is allowed.
Page 8 of 10 11. This appeal is filed by the assessee against the order of the ld CIT(A)-27, New Delhi dated 12.02.2016 for the Assessment Year 2012-13. 12. The assessee has filed the following grounds of appeal:- “1. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in not allowing the Jurisdictional ground that instant assessment made on non existing company is nullity in eyes of law which has been amalgamated by Hon'ble high court order dated 10/10/2013 (appointed date: 1/4/2012) . 1.1 That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in not allowing the Jurisdictional ground that instant assessment made on non existing company is nullity in eyes besides the fact that said fact was duly intimated to Ld AO during assessment proceedings and same is also filed to ROC.
2. That on the facts and in the circumstances of case and in law, the Ld CIT-A erred in sustaining addition u/s 68 amounting to Rs 10,54,52,000 on account of alleged unexplained credit where Ld AO made addition on mere basis of hearsay and gossip and merely based on conjectures and surmises and also adding credits which pertains to previous years.
3. That on the facts and in the circumstances of case and in law the Ld CIT-A erred in sustaining addition u/s 68 amounting to Rs 10,54,52,000 on account of alleged unexplained credit where Ld AO made addition without meaningful and law bound enquiry and ignoring assessee's self explanatory replies on records.
4. That on the facts and in the circumstances of case and in law, the Ld CIT-A erred in sustaining addition u/s 68 amounting to Rs 10,54,52,000 on account of alleged unexplained credit where Ld AO made addition without making possible enquiry from: 4.1 Available income tax records and co-ordinate officer of said creditor; 4.2 Available bank records of said creditor; 4 3 Available ROC records of said creditor
5. That on the facts and in the circumstances of case and in law, the Ld CIT-A erred in sustaining addition u/s 68 amounting to Rs 10,54,52,000 on account of alleged unexplained credit without appreciating detailed reply filed during assessment & appellate proceedings.
6. That on the facts and in the circumstances of case and in law, the Ld CIT-A erred in not applying some token rate of profit to credits appearing in books as only ultimate beneficiary can be taxed u/s 68 for full credit. PRAYER/Relief Claimed
1. To quash the impugned reopening order u/s 144 of the Act for assessment on non existing person
2. To hold Ld AO wrongly made addition on merits;
3. To set aside the matter for denovo adjudication as principle of natural justice seriously violated;
4. Any other relief as deemed fit in circumstances of the case That the appellant craves leave to add, to, amend, modify, rescind, supplement or alter any of the grounds stated herein above, either before or at the time of hearing of this appeal.”
Page 9 of 10 13. The brief facts of the case is that the assessee is a company who filed its return of income on 04.12.2012 showing nil income. The assessment u/s 144 of the Income Tax Act was passed on 18.03.2015 wherein, total income of the assessee was assessed at Rs. 105452000/-. During the course of assessment proceeding the assessee intimated vide letter dated 12.12.2014 that this company has been amalgamated with M/s. IP India Pvt. Ltd and now the name of the company is also changed to Adhunik Technology Pvt. Ltd. Consequently, by passing the order the ld Assessing Officer mentioned the name of the company as under:- “BMA Capfin Ltd, Though IP India Pvt. Ltd, (now known as Adhunik “Technology Pvt. Ltd)”