2019 (3) TMI 2064 - AT - Income Tax

Reopening assessment u/s 147 on a non-existing entity - assessment on a dissolved company - curable defect u/s 292B or not? - HELD THAT - As decided BMA Capfin Ltd 2018 (12) TMI 1467 - SC ORDER assessment order cannot be passed in the case of non existing company especially when this has been brought to the knowledge of the department. As decided in Dimension Apparels (P) Ltd. 2014 (11) TMI 181 - DELHI HIGH COURT that order of assessment on a company which cease to exist is not a procedural irregularity which can be cured by section 292B Assessment order cannot be passed in the case of non existing company especially when this has been brought to the knowledge of the department. Decided in favour of assessee.

Summary

Issues:
Validity of assessment on a non-existing entity; Legal basis for assessment on a dissolved company; Procedural irregularities in assessment; Application of section 292B of the Income-tax Act.

Analysis:
The appeal was filed against an order for the quantum of assessment passed u/s 147/143(3) concerning the reopening of assessment and an addition of Rs. 5 lac made u/s. 68 by the Assessing Officer. The key contention was that the assessee company had ceased to exist since November 2013, and any subsequent proceedings on such a non-existing company had no legal basis. The Registrar of the Company had issued notices indicating the dissolution of the company, which were communicated to the Income Tax Department. Despite these communications, the authorities did not address the issue of how an assessment could be passed on a non-existing entity. The legal position was supported by various judgments, including those by the Supreme Court and High Courts, emphasizing that assessments on dissolved or non-existing entities are invalid jurisdictional defects that cannot be cured under section 292B.

The Department argued that the assessment was valid as the company was in existence when it received share application money. However, the Tribunal found that the company had already been dissolved before the initiation of proceedings u/s 147/148, rendering the assessment void ab initio. The Tribunal referred to precedents where assessments on non-existing entities were deemed null and void, emphasizing that such assessments were jurisdictional defects and not mere procedural irregularities. The Tribunal highlighted that the assessment order on a non-existing company had no legal basis and must be quashed.

While a judgment was cited where a notice addressed to a company that had ceased to exist was considered an irregularity, it was distinguished from cases where assessment orders were passed on non-existing entities. The Tribunal concluded that the assessment on a company that was non-existing at the time of the order was invalid. Consequently, the appeal of the assessee was allowed, and the assessment was quashed.