2020 (12) TMI 814 - AT - Income Tax

Notice u/s 143 to non existing company - scheme or merger adopted - notice in the name of company being merged - HELD THAT - In the present facts of case, notice under section 143(2) was issued to M/s. Serendipity Infolabs Pvt. Ltd., much prior to date of approval of merger by Hon'ble NCLT, and that, the merger was approved during pendency of assessment before Ld.AO. One more fact brought to our notice by Ld. Sr. DR is that, replies to 143(2) notice are filed by assessee much after the date of approval of merger, and assessee never intimated the same to Ld.AO. She submitted that in final reply dated 21/12/2017 in an internal paragraph assessee intimated it the form of passing reference. Assessment order passed is passed within 4 days of filing of reply dated 21/12/2017. We also note that, even when subsequently assessee filed rectification application before Ld.AO, the same has not been brought to the notice of Ld.AO for correcting the name. We fail to understand the reason, why assessee never brought to notice of Ld.AO regarding the merger and non-existence of M/s. Serendipity Infolabs Pvt. Ltd., immediately after 31/07/2017 in accordance with law. We find the assessment order being passed by Ld.AO in the name of M/s. Serendipity Infolabs Pvt. Ltd., is mere irregularity, which is rectifiable under 292B of the Act. Ld.AO is directed to take necessary steps to rectify the same. Addition u/s 56 (2)(viib) - As submitted by Ld.AR that assessee is a venture capital Undertaking receiving monies from other Venture Capital Funds - as assessee is governed by Regulation 2 of the Venture Capital Regulations as per section 10(23FB) and that provisions of section 56(viib) do not apply to assessee as the funds are received from non resident Venture Capital Funds - HELD THAT - Authorities below have not considered the materials available on record to decide the issue on merits. We are therefore remanding the issue back to Ld.AO. Assessee is directed to file all necessary documents and evidences in support of its claim and to establish itself to be a Venture Capital Company. Ld.AO shall then consider the issue afresh in light of evidences/documents filed in accordance with law. Needless to say that, proper opportunity shall be granted to assessee in accordance with law.

Issues Involved:
1. Validity of the assessment order passed on a non-existent entity.
2. Revaluation of the fair market value of shares and its treatment as income under Section 56(2)(viib) of the Income Tax Act.
3. Ignoring the valuation certificate issued by an independent Chartered Accountant.
4. Applicability of CBDT circular No. 52/2012.
5. Applicability of Section 56(2)(viib) to a SEBI registered venture capital fund.
6. Nature of the valuation certificate issued by the Chartered Accountant.

Issue-wise Detailed Analysis:

1. Validity of the assessment order passed on a non-existent entity:
The appellant contended that the assessment order was passed on a non-existent merged entity, M/s. Serendipity Infolabs Pvt. Ltd., which had amalgamated with ANI Technologies Pvt. Ltd. The tribunal admitted this additional ground as it pertained to a legal issue that goes to the root of the assessment. The appellant argued that the assessment order was null and void as it was passed in the name of a non-existent company, citing various judicial precedents. However, the tribunal noted that the intimation of the merger was not promptly communicated to the Assessing Officer (AO), and the assessment proceedings were participated in by the representatives of the non-existent company without objection. The tribunal concluded that the assessment order was a mere irregularity rectifiable under Section 292B of the Act and directed the AO to rectify the same. Thus, the additional ground raised by the appellant was dismissed.

2. Revaluation of the fair market value of shares and its treatment as income under Section 56(2)(viib) of the Income Tax Act:
The appellant challenged the revaluation of the fair market value of shares issued to Multi Sector Seed Fund and the treatment of INR 62,16,077 as income from other sources under Section 56(2)(viib) of the Act. The tribunal noted that the authorities below had not considered the materials available on record to decide the issue on merits. Therefore, the issue was remanded back to the AO for fresh consideration, directing the appellant to file all necessary documents and evidences in support of its claim and to establish itself as a Venture Capital Company.

3. Ignoring the valuation certificate issued by an independent Chartered Accountant:
The appellant argued that the authorities erred by ignoring the valuation certificate issued by an independent Chartered Accountant as per Rule 11UA of the Rules. The tribunal observed that the authorities below had not considered the materials available on record and remanded the issue back to the AO for fresh consideration.

4. Applicability of CBDT circular No. 52/2012:
The appellant contended that the authorities erred in stating that the capital introduction by the Multi Sector Seed Fund was prior to the effective date of CBDT circular No. 52/2012. The tribunal did not specifically address this issue separately but included it in the overall remand to the AO for fresh consideration of the revaluation of shares.

5. Applicability of Section 56(2)(viib) to a SEBI registered venture capital fund:
The appellant argued that the provisions of Section 56(2)(viib) were not applicable as the Multi Sector Seed Fund was a SEBI registered venture capital fund. The tribunal directed the AO to consider this issue afresh in light of the evidences and documents filed by the appellant.

6. Nature of the valuation certificate issued by the Chartered Accountant:
The authorities below had observed that the valuation certificate issued by the Chartered Accountant was based on information provided by the management, making it a self-serving document. The tribunal remanded the issue back to the AO for fresh consideration, directing the appellant to provide all necessary documents and evidences.

Conclusion:
The appeal filed by the appellant was partly allowed for statistical purposes. The tribunal directed the AO to reconsider the revaluation of shares and the applicability of Section 56(2)(viib) afresh, based on the evidences and documents provided by the appellant, ensuring proper opportunity is granted to the appellant in accordance with law.

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