2015 (2) TMI 580 - AT - Income Tax

Reopening of assessment - validity of issue of notice under Section 148 to non-existent person - Held that - It is a settled law that the partnership firm and the company are separate juridical persons. Under the Income-tax Act also, they are assessed separately. Chapter IX of the Companies Act permits the conversion of the partnership firm into company and, on such conversion, the partnership firm ceases to exist and the company comes into existence. This incident has taken place on 1st March, 2006 and therefore, from 2nd March, 2006, DLF Cyber City firm is no more in existence. Notice under Section 148 was issued on 18th August, 2008, i.e., the date on which the partnership firm was not in existence. Thus assessment in the hands of dead person would be clearly void. The aforesaid observation would be squarely for the issue of notice under Section 148 in the name of dead person. Therefore, respectfully following the above decision, we hold that the issue of notice under Section 148 in the name of a dead person is void. - assessment in the name of the erstwhile firm is bad in law, void ab-initio and non-est - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income-tax Act, 1961.
2. Consequent assessment in the name of a non-existent entity.
3. Legal implications of the conversion of a partnership firm into a company.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The primary issue addressed was the validity of the notice issued under Section 148 of the Income-tax Act, 1961. The notice was issued on 18th August 2008 to DLF Cyber City, a partnership firm that had ceased to exist after its conversion into a company on 2nd March 2006. The assessee argued that the notice issued to a non-existent entity is "void ab-initio" and the assessment completed in the name of a non-existent entity is also void. The Revenue contended that the return for the year was filed in the name of the partnership firm and not the successor company, and the assessee did not properly notify the Revenue about the dissolution of the firm.

2. Consequent Assessment in the Name of a Non-Existent Entity:
The Tribunal noted that the partnership firm ceased to exist from 2nd March 2006 after its conversion into a company. The notice under Section 148 was issued on 18th August 2008, targeting a non-existent entity. The Tribunal referred to the decision of the Hon'ble Delhi High Court in Spice Infotainment Ltd. vs. CIT, which held that an assessment order passed in the name of a non-existent entity is void. The Tribunal concluded that the notice under Section 148 and the subsequent assessment order were invalid.

3. Legal Implications of the Conversion of a Partnership Firm into a Company:
The Tribunal emphasized that the partnership firm and the company are separate juridical persons, and under the Income-tax Act, they are assessed separately. The conversion of the partnership firm into a company under Chapter IX of the Companies Act resulted in the dissolution of the firm and the creation of a new entity. The Tribunal held that the assessment in the name of the dissolved partnership firm was void, and any procedural defects could not be rectified under Section 292B of the Act.

Conclusion:
The Tribunal quashed the notice under Section 148 and the assessment order passed in pursuance of the notice, following the decision of the Hon'ble Jurisdictional High Court in Spice Infotainment Ltd. The Tribunal also noted that the Revenue could take appropriate action in accordance with the law against the successor company, as per the observations of the Hon'ble High Court. Consequently, the appeal of the assessee was allowed, and the appeal of the Revenue was deemed to be dismissed.

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