2011 (3) TMI 690 - HC - Wealth-tax

Re-assessment u/s 34 (l) (a) - whether a notice of reopening of the assessment is valid when the notice has not been given to the real assessee or an assessee who was not in existence at the time of issue - While, the authorities below totally overlooked the fact that initiation of the proceedings for reassessment was vitiated for not giving notice under Section 17 of the Wealth Tax Act to the Appellant and the notice issued upon M/s. Abhudey Properties Pvt. Ltd. which was not in existence at that time was insufficient to initiate proceedings against the Appellant who had taken over the liability of M/s. Abhudey Properties Pvt. earlier to the issue of such notice and such fact was also made known to the Revenue - Thus, set aside the reassessment proceedings on that ground alone - In view of our aforesaid finding, there is no necessity of going into the other grounds of appeal on merit.

Issues Involved:
1. Validity of initiation of proceedings under Section 17 of the Wealth Tax Act, 1957.
2. Applicability of Section 42C of the Wealth Tax Act to cure defects in notices.
3. Requirement for reflecting conditions under Section 17(1A)(b)(ii) in the notice.

Issue-wise Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 17 of the Wealth Tax Act, 1957:

A common question of law arises in these appeals regarding whether the initiation of proceedings under Section 17 of the Wealth Tax Act, 1957, describing M/s. Abhudey Properties Pvt. Ltd. as the assessee, was valid given that the company had already been merged with the appellant, M/s. I.K. Agencies Pvt. Ltd., and thus had no existence on the date of initiation.

The facts are undisputed: M/s. Abhudey Properties Pvt. Ltd. was amalgamated with the appellant with effect from April 1, 1995. Despite this, the Assessing Officer issued a notice under Section 17 on January 20, 1997, to the non-existent M/s. Abhudey Properties Pvt. Ltd. directing it to file its Wealth Tax return. The appellant subsequently filed a return showing nil net wealth and contested the validity of the notice, arguing that it was invalid, bad in law, and without jurisdiction since it was addressed to a non-existent entity.

The Assessing Officer, however, completed the assessment under Section 16(3)/17 of the Act. The appellant's appeal to the Commissioner of Wealth Tax (Appeals) was partially successful, but the Income Tax Appellate Tribunal allowed the Department's appeal and dismissed the appellant's cross-objection.

The preliminary point for determination was whether the initiation of proceedings was illegal and without jurisdiction due to the notice being issued to a non-existent entity and whether the satisfaction of the Assessing Officer regarding the escaped revenue exceeding Rs. 2.5 lakh, as required under Section 17(1A)(b)(ii), was reflected in the notice.

2. Applicability of Section 42C of the Wealth Tax Act to Cure Defects in Notices:

The court examined whether Section 42C of the Wealth Tax Act, which states that no notice shall be invalid merely due to any mistake, defect, or omission if it is in substance and effect in conformity with the intent and purpose of the Act, could cure the defect in the notice issued to a non-existent entity.

The court held that Section 42C could not cure a defect where no notice was issued to the real assessee responsible for the tax dues. The jurisdiction to reopen proceedings depends on the service of a valid notice in terms of Section 17 of the Act. A notice issued to a non-existent entity cannot be considered valid, and the law permits the Assessing Officer to issue a fresh notice in conformity with the law.

3. Requirement for Reflecting Conditions under Section 17(1A)(b)(ii) in the Notice:

The court addressed the appellant's contention that the conditions mentioned in Section 17(1A)(b)(ii) should be reflected in the notice for initiation of proceedings. The court referred to the Supreme Court's decision in S. Narayanappa and others vs. The Commissioner of Income-tax, Bangalore, which clarified that there is no requirement for the reasons for initiating action to be communicated to the assessee in the notice.

The court concluded that the authorities below overlooked the fact that the initiation of reassessment proceedings was vitiated due to the notice being issued to a non-existent entity, and this defect went to the root of the jurisdiction to reopen the proceedings.

Conclusion:

The reassessment proceedings were set aside on the ground that the notice under Section 17 of the Wealth Tax Act was issued to a non-existent entity, and thus, the initiation of proceedings was invalid and without jurisdiction. The appeals were allowed on this ground alone, and the reassessment proceedings were quashed. There was no necessity to address the other grounds of appeal on merit. The court did not award any costs.

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