2024 (4) TMI 1218 - AT - Income Tax

Validity of assessment in the name of non-existent entity / amalgamating company which was not in existence at the time of issuance of notice u/s.143(2) - HELD THAT - Once an intimation has been given to the ld. AO that amalgamating company is not in existence and has been amalgamated much prior to the commencement of the proceedings, then no order can be passed in the name of nonexistent entity even if the assessee had participated in the proceedings or not. See Inox Wind Energy Ltd. 2023 (3) TMI 723 - GUJARAT HIGH COURT and Maruti Suzuki India Ltd 2019 (7) TMI 1449 - SUPREME COURT and Mahagun Realtors (P) Ltd. 2022 (4) TMI 347 - SUPREME COURT If intimation has been given, it is the duty of the ld. AO not only to issue notices in the case of amalgamate company to pass the order in the name of the existing entity in which erstwhile company has been amalgamated. Accordingly, the entire assessment order is bad in law because order in the case of non-existing entity cannot be sustained at all. Thus, assessment order is hereby quashed and appeal of the assessee is allowed.

2025 (1) TMI 807 - AT

1. ISSUES PRESENTED and CONSIDERED

The legal judgment from the Appellate Tribunal ITAT Mumbai involves several core legal issues:

Whether the delay in filing the appeal by the assessee should be condoned.
Whether the assessment order passed in the name of a non-existent entity (due to amalgamation) is valid or should be quashed.
Whether the rejection of the books of accounts and the subsequent additions made by the Assessing Officer (A.O.) were justified.
Whether the disallowance under Section 40(a)(ia) of the Income Tax Act was appropriate.
Whether the deduction under Section 80IA was correctly allowed or disallowed by the CIT(A).
Whether the estimation of net profit under Section 44AD was applicable to the assessee's case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Delay in Filing the Appeal

Relevant legal framework and precedents: The Tribunal considered the reasons for the delay and the bona fide nature of the delay.
Court's interpretation and reasoning: The Tribunal found the delay to be bona fide and without any mala fide intention.
Key evidence and findings: The assessee was not aware of the order uploaded by NFAC and filed the appeal after realizing the oversight.
Application of law to facts: The Tribunal applied the principle of condoning delays in cases of genuine oversight.
Treatment of competing arguments: The Tribunal considered the arguments from both parties and found no negligence on the part of the assessee.
Conclusions: The delay of 19 days was condoned.

Issue 2: Validity of the Assessment Order on a Non-Existent Entity

Relevant legal framework and precedents: The Tribunal referred to the judgments of the Supreme Court in Maruti Suzuki India Ltd and Mahagun Realtors (P) Ltd.
Court's interpretation and reasoning: The Tribunal held that once a company is amalgamated, it ceases to exist, and any assessment order in its name is void.
Key evidence and findings: The amalgamation was communicated to the Assessing Officer before the issuance of the notice under Section 143(2).
Application of law to facts: The Tribunal applied the principle that an assessment order on a non-existent entity is null and void.
Treatment of competing arguments: The Tribunal rejected the Revenue's argument that the assessment was valid due to the assessee's participation in the proceedings.
Conclusions: The assessment order was quashed as it was passed in the name of a non-existent entity.

Issue 3: Rejection of Books of Accounts and Additions

Relevant legal framework and precedents: The Tribunal considered the provisions under Section 145(3) for rejecting books of accounts.
Court's interpretation and reasoning: The Tribunal found that the rejection of books and the additions made were not justified.
Key evidence and findings: The transactions with related parties were at arm's length and not disputed in previous years.
Application of law to facts: The Tribunal applied the law to determine that the rejection of books was arbitrary.
Treatment of competing arguments: The Tribunal considered the assessee's argument that the transactions were genuine.
Conclusions: The rejection of books and the additions were not upheld.

Issue 4: Disallowance under Section 40(a)(ia)

Relevant legal framework and precedents: The Tribunal examined the second proviso to Section 40(a)(ia).
Court's interpretation and reasoning: The Tribunal found that the recipients had disclosed the income, and thus the disallowance was not justified.
Key evidence and findings: The recipients of the sub-contracts had offered the income to tax.
Application of law to facts: The Tribunal applied the proviso to Section 40(a)(ia) to the facts.
Treatment of competing arguments: The Tribunal considered the Revenue's argument but found the assessee's position stronger.
Conclusions: The disallowance was not upheld.

Issue 5: Deduction under Section 80IA

Relevant legal framework and precedents: The Tribunal reviewed the conditions for claiming deductions under Section 80IA.
Court's interpretation and reasoning: The Tribunal found that the conditions for claiming the deduction were not fulfilled.
Key evidence and findings: The work involved was rehabilitation and not new infrastructure development.
Application of law to facts: The Tribunal applied the conditions of Section 80IA to the facts.
Treatment of competing arguments: The Tribunal considered both parties' arguments and sided with the Revenue.
Conclusions: The deduction was not allowed.

Issue 6: Estimation of Net Profit under Section 44AD

Relevant legal framework and precedents: The Tribunal examined the applicability of Section 44AD.
Court's interpretation and reasoning: The Tribunal found that Section 44AD was not applicable to the assessee's case.
Key evidence and findings: The assessee's turnover exceeded the threshold for Section 44AD.
Application of law to facts: The Tribunal applied the provisions of Section 44AD to the facts.
Treatment of competing arguments: The Tribunal considered the assessee's argument against the applicability of Section 44AD.
Conclusions: The estimation under Section 44AD was not upheld.

3. SIGNIFICANT HOLDINGS

The Tribunal condoned the delay in filing the appeal, emphasizing the bona fide nature of the delay.
The assessment order passed in the name of a non-existent entity was quashed, following the principles established in Maruti Suzuki India Ltd.
The rejection of books of accounts and the additions made were found to be arbitrary and not justified.
The disallowance under Section 40(a)(ia) was not upheld as the recipients had disclosed the income.
The deduction under Section 80IA was not allowed as the conditions were not fulfilled.
The estimation of net profit under Section 44AD was not applicable to the assessee's case.

Core Principles Established:

"An assessment order passed in the name of a non-existent entity is void ab initio."
"Participation in proceedings by the amalgamated company does not validate an order passed in the name of a non-existent entity."

Final Determinations: