2023 (5) TMI 1391 - AT - Income Tax

Reopening of assessment against company non existent - notice issued in the name of amalgamated company - HELD THAT - Hon ble Supreme Court has dealt with similar issue elaborately in the case of PCIT Vs. Maruti Suzuki India Ltd. 2019 (7) TMI 1449 - SUPREME COURT and has categorically observed that the basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon approving of the scheme of amalgamation. Participation in the proceeding by the appellant in the circumstances cannot operate as an estoppels against law. As noted from the reasons to believe recorded by the AO that he already had the knowledge about the amalgamation which had taken place within the GPT group companies since questions were raised while recording statement of certain persons which formed the basis for initiating the proceeding u/s 148 r.w.s.147 of the Act. Further, from the relevant extracts of the order of Hon ble Jurisdictional High Court of Calcutta which approved the Scheme of Amalgamation, it is noted that notices were issued on the Central Government before approving the Scheme of Amalgamation. However, none appeared to represent the Central Government before the Hon ble High Court. Thus, despite having knowledge of the scheme of amalgamation approved by the Hon ble High Court, ld. AO assumed jurisdiction and issued notice u/s. 148 of the Act on a non-existing entity i.e. GVPL who had amalgamated into GSPL with appointed date of 01.04.2011. Such an assumption of jurisdiction by the Ld. AO is held to be an incurable defect in terms of section 292B of the Act in the judicial precedents referred above. Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Jurisdictional Validity of Notice Issued under Section 148 to a Non-Existent Entity.
2. Legality of Reassessment Proceedings and Addition of Rs. 9.55 Crores as Unexplained Cash Credit under Section 68.

Detailed Analysis:

1. Jurisdictional Validity of Notice Issued under Section 148 to a Non-Existent Entity:

The primary issue addressed was whether the notice issued under Section 148 of the Income Tax Act to a non-existent entity due to amalgamation was valid. The entity in question, GPT Ventures Pvt. Ltd. (GVPL), had amalgamated with GPT Sons Pvt. Ltd. (GSPL) prior to the issuance of the notice. The Tribunal examined whether the issuance of the notice to GVPL, which had ceased to exist, constituted a jurisdictional error.

The Tribunal noted that the amalgamation had been sanctioned by the Hon'ble High Court of Calcutta, effective from April 1, 2011. Despite this, the Assessing Officer issued a notice dated March 30, 2018, to GVPL. The Tribunal emphasized that the scheme of amalgamation, once approved, attains statutory force and is binding in rem, not just between the transferor and transferee companies but also against all statutory authorities, including the Income Tax Department.

The Tribunal relied on several judicial precedents, including the Hon'ble Supreme Court's decision in the case of Maruti Suzuki India Ltd., which held that jurisdiction invoked on a non-existent entity is fundamentally flawed. The Tribunal concluded that the issuance of notice under Section 148 to a non-existent entity is a substantive illegality, not a procedural defect curable under Section 292B of the Income Tax Act.

2. Legality of Reassessment Proceedings and Addition of Rs. 9.55 Crores as Unexplained Cash Credit under Section 68:

The second issue pertained to the reassessment proceedings and the addition of Rs. 9.55 Crores as unexplained cash credit under Section 68 of the Income Tax Act. The reassessment was based on information that the assessee had routed back its unaccounted money through accommodation entries provided by a shell entity, Instyle Trading Pvt. Ltd. (ITPL).

The Tribunal observed that the reasons recorded for initiating reassessment proceedings were based on statements obtained during a search operation, which suggested that the funds received by GVPL were its own unaccounted money. However, the Tribunal did not delve into the merits of this addition, as it had already determined that the reassessment proceedings were void ab initio due to the jurisdictional defect.

The Tribunal noted that the Assessing Officer's assumption of jurisdiction was invalid because the notice was issued to a non-existent entity. Consequently, the reassessment order, being founded on an invalid notice, was annulled. The Tribunal did not address the substantive merits of the addition under Section 68, as the jurisdictional issue was dispositive of the appeal.

Conclusion:

The Tribunal allowed the appeal, holding that the reassessment proceedings initiated in the name of a non-existent amalgamated company were without jurisdiction, void ab initio, and liable to be annulled. The Tribunal's decision underscores the legal principle that jurisdictional defects in the issuance of notice cannot be cured and render subsequent proceedings invalid.