2017 (1) TMI 990 - HC - Income Tax

Validity of reopening of assessment - notice issued to non-existent entity - Held that - In the present case, the Court notices that the impugned notice was issued against a non-existent entity i.e. M/s. Rishi Promoters which had ceased to exist by virtue of order of this Court dated 20.02.2013. The date of its amalgamation was in fact earlier. Apparently, the respondent-revenue was aware of this and despite that it proceeded to issue the impugned notice. The judgment in Spice Entertainment (2011 (8) TMI 544 - DELHI HIGH COURT ) and Dimension Apparels (P) Limited (2014 (11) TMI 181 - DELHI HIGH COURT ), though rendered after the final assessment was completed, are clear that such notice and proceedings emanating from it are unsustainable. Rustagi Engineering Udyog (P) Ltd. (2016 (3) TMI 31 - DELHI HIGH COURT ) takes the logic further and holds that notice issued under section 147 of the Act in respect of an entity which ceases to exist by virtue of amalgamation order under section 394 of the Companies Act, would also be illegal and unsustainable. - Decided in favour of assessee.

Summary

Issues:
Challenge to notice under Section 147/148 of the Income Tax Act, 1961 for Assessment Year 2007-08; Validity of re-assessment notice post ITSC final order; Legality of re-assessment notice issued to a non-existent entity.

Analysis:

1. Challenge to Notice under Section 147/148:
The petitioner challenged a notice under Section 147/148 of the Income Tax Act, 1961 for AY 2007-08. The petitioner contended that the re-assessment notice was unsustainable and void under provisions of Section 245C, 245D(4), and 245-I of the Act. Reference was made to the judgment in Omaxe Limited v. Assistant Commissioner of Income Tax, emphasizing the finality of matters concluded by the Income Tax Settlement Commission (ITSC) and the inability to reopen them under Section 147 of the Act.

2. Validity of Re-assessment Notice Post ITSC Final Order:
The ITSC had issued its final order after considering submissions and materials found during search proceedings. Despite this, a re-assessment notice was issued to M/s. Rishi Promoters Pvt. Ltd. for AY 2007-08. The petitioner argued that the notice was unsustainable as the ITSC's final order should have concluded the matter. The discussion by the ITSC was limited to BDR Builders and Developers Pvt. Ltd., not precluding the issuance of a notice for M/s. Rishi Promoters. However, the petitioner contended that the ITSC's final order did not discuss the declarations made by M/s. Rishi Promoters, making the notice improper.

3. Legality of Re-assessment Notice to Non-Existent Entity:
The impugned notice was issued to M/s. Rishi Promoters Pvt. Ltd., which had been amalgamated with another entity and ceased to exist before the notice was served. The court noted that the notice against a non-existent entity was illegal and unsustainable. Citing precedents like Spice Entertainment Ltd. v. Commissioner of Income Tax and Dimension Apparels (P) Limited v. Commissioner of Income Tax, the court held that such notices and ensuing proceedings were void. The judgment in Rustagi Engineering Udyog (P) Ltd. v. Deputy Commissioner of Income Tax further supported the illegality of a notice issued to an entity that no longer existed.

In conclusion, the court quashed the impugned notice under Section 147/148 of the Income Tax Act, 1961, and declared the proceedings arising from it as void and unsustainable. The judgment highlighted the importance of finality in ITSC orders and the illegality of issuing notices to entities that have ceased to exist.