2025 (4) TMI 1133 - HC - Income Tax

Assessment order passed in the name of non-existing bank/OBC - unexplained investment addition u/s 69 - HELD THAT - As it is apparent that respondent No.1 as well as NFAC Center who has passed the impugned order is without application of mind and without considering the fact that the OBC in whose name impugned assessment order is passed does not exist and therefore no assessment order could have been passed in the name of the OBC. Procedural requirements under the Act including prior approval - On the basis of the Multi Year MNS data which is an abstract phenomenon unknown to anyone nor disclosed in the assessment order as to what type of Multi Year MNS Data is made available to the AO the AO has proceeded to make addition without making any inquiry ignoring the factual submission made by the petitioner-PNB to the effect that the OBC Bank does not exist after 01.04.2020 and therefore there could not have been any assessment order being passed in the name of the said Bank having PAN AAACO7436M . The impugned assessment proceedings have been initiated with prior permission of the higher authorities u/s 151. It appears that the Additional CIT Range-2(1) Vadodra also without application of mind has sanctioned the approval for issuance of the notice u/s 148 of the Act. Decided in favour of assessee.

Summary

The core legal questions considered by the Court in this matter are:

1. Whether the issuance of the notice under section 148 of the Income Tax Act, 1961 (the Act) and the subsequent assessment order dated 30.03.2022 passed in the name of the erstwhile Oriental Bank of Commerce (OBC) with PAN "AAACO7436M" for Assessment Year (A.Y.) 2017-18 is valid, given that the said PAN was requested to be cancelled in 2013 and the OBC ceased to exist after its amalgamation with Punjab National Bank (PNB) w.e.f. 01.04.2020.

2. Whether the respondent Income Tax Officer (ITO) applied proper mind and considered the submissions and documentary evidence filed by the petitioner-PNB regarding the merger and cancellation of PAN before passing the impugned assessment order.

3. Whether the addition of Rs. 393.97 Crore under section 69 of the Act on account of unexplained investment is justified, considering the petitioner's claim that the relevant transactions were already assessed under the correct PAN "AAACO0191M".

4. Whether the procedural requirements under the Act, including prior approval for reopening assessment and proper service of notices, were complied with by the respondent authorities.

5. Whether the penalty notices issued under various provisions of the Act are sustainable in light of the above facts.

Issue-wise Detailed Analysis

Issue 1: Validity of Notice and Assessment Order under Section 148 and 147 of the Act in the Name of Non-Existing Entity and Cancelled PAN

Legal Framework and Precedents: Section 148 of the Act permits reopening of assessment within prescribed time limits upon satisfaction of certain conditions and prior approval from competent authority. The assessment must be made in the name of the correct assessee and valid PAN. The principle of natural justice and due process mandates that notices and assessments be served and passed against the correct legal entity.

Court's Interpretation and Reasoning: The Court found that the PAN "AAACO7436M" was obtained by the Bharuch Branch of OBC solely for TDS compliances and was requested to be cancelled in 2013. The OBC itself was regularly assessed under PAN "AAACO0191M" at New Delhi. Further, OBC ceased to exist after amalgamation with PNB w.e.f. 01.04.2020. Despite these undisputed facts, the respondent issued notice under section 148 and passed assessment order in the name of OBC under PAN "AAACO7436M" for A.Y. 2017-18.

The Court noted that the impugned assessment order was passed without considering these facts and on a non-existing entity and cancelled PAN, thereby rendering the proceedings invalid and void. The respondent's failure to apply mind to these facts amounted to non-application of mind and negligence.

Key Evidence and Findings: The petitioner filed returns under the correct PAN, submitted the request for PAN cancellation in 2013, and informed the respondent of the merger and non-existence of OBC post 2020. The assessment order dated 30.12.2019 under section 143(3) for A.Y. 2017-18 was passed in the name of OBC under the correct PAN. The impugned order ignored these submissions.

Application of Law to Facts: Since the assessment order was passed in the name of a non-existing entity and cancelled PAN, it is contrary to the requirements of the Act and principles of natural justice. The reopening and assessment are therefore invalid.

Treatment of Competing Arguments: The respondent contended that the reopening was valid as it fell within limitation and prior approval was obtained. However, the Court emphasized that procedural compliance alone cannot validate an assessment passed without application of mind to the identity of the assessee and PAN.

Conclusion: The notice and assessment order under section 148 and 147 passed against the non-existing OBC under cancelled PAN are invalid and liable to be quashed.

Issue 2: Application of Mind by Respondent and Consideration of Petitioner's Submissions

Legal Framework: The principle of reasoned decision-making requires that the assessing officer consider all relevant submissions and evidence before passing an order. Non-application of mind is a ground for quashing an order.

Court's Reasoning: The Court observed that the respondent recorded the petitioner's submissions in the assessment order but did not consider them. The petitioner's detailed explanation about merger, PAN cancellation, and prior assessment was ignored. The respondent relied solely on Multi Year MNS Data without inquiry or verification.

Key Evidence: The petitioner's replies, letters, and documentary evidence including the assessment order under correct PAN were on record but disregarded.

Application of Law: The failure to consider material facts and blindly rely on abstract data without investigation amounts to non-application of mind.

Competing Arguments: The respondent justified the order on procedural grounds and non-filing of replies through e-proceedings, but the Court found this insufficient to excuse ignoring substantive submissions.

Conclusion: The impugned order suffers from non-application of mind and is liable to be set aside.

Issue 3: Justification of Addition under Section 69 of the Act on Unexplained Investments

Legal Framework: Section 69 applies when the assessee fails to explain investments or amounts recorded in books. The burden lies on the assessee to prove that investments are recorded and explained.

Court's Reasoning: The petitioner contended that the investment of Rs. 393.97 Crore was accounted for and assessed under the correct PAN for A.Y. 2017-18. The respondent did not verify or inquire into this claim and proceeded to add the amount as unexplained investment based on Multi Year MNS Data.

Key Findings: The petitioner had filed revised returns and assessment order under section 143(3) for the relevant year, which was not challenged or reopened properly. The respondent failed to demonstrate that the investment was unaccounted for.

Application of Law: Without proper inquiry and verification, addition under section 69 is not justified.

Competing Arguments: Respondent argued that no documentary evidence was furnished electronically as required, but the petitioner explained difficulties due to incorrect PAN and merger.

Conclusion: The addition under section 69 is not sustainable as the investment was already assessed and explained under the correct PAN.

Issue 4: Compliance with Procedural Requirements under the Act

Legal Framework: Reopening assessments require prior approval from specified authorities under section 151, issuance of notices within limitation, and proper service of notices.

Court's Reasoning: The respondent obtained prior approval from Additional CIT, Range-2(1), Vadodara, but the Court found that such approval was given without application of mind. Notices were issued on the cancelled PAN and to a non-existing entity, and service was effected on the Bharuch Branch of PNB which was not the correct assessee.

Key Evidence: Notices dated 28.03.2021, 23.08.2021, 11.02.2022, and others were issued under the wrong PAN and to the wrong entity. The petitioner's attempts to comply were frustrated by the respondent's refusal to accept replies physically and insistence on e-filing under a non-existent PAN.

Application of Law: Procedural compliance cannot cure fundamental defects arising from issuing notices and passing orders against a non-existent entity and cancelled PAN.

Competing Arguments: Respondent contended that notices were served properly and within limitation, but the Court emphasized that service on the correct entity and PAN is essential.

Conclusion: Procedural compliance was flawed and did not validate the impugned proceedings.

Issue 5: Validity of Penalty Proceedings Initiated

Legal Framework: Penalty proceedings under sections 271AAC(1), 272A(1)(d), and 271F are consequential to assessment proceedings and require valid assessment orders.

Court's Reasoning: Since the assessment order itself is quashed for non-application of mind and invalidity, penalty proceedings based on the same are also unsustainable.

Conclusion: Penalty notices are not maintainable in the absence of a valid assessment order.

Significant Holdings

"The impugned assessment order is a classic example of non-application of mind on behalf of the respondent-Assessing Officer as inspite of making submissions by the petitioner-Bank which is duly recorded in the assessment order but the same was not considered and ignored for making high-pitched assessment on an entity which does not exist and the PAN number which does not exist for more than Eight years."

"The assessment order dated 30.03.2022 is based upon the non-filing of return in response to the notice under section 148 however, when the petitioner-Bank, in no uncertain and clear language, explained to respondent No.1 that PAN "AAACO7436M" was already surrendered and cancelled in the Year 2013... no assessment could be made in the name of OBC Bank in PAN being AAACO7436M."

"The respondent No.1 as well as NFAC Center who has passed the impugned order is without application of mind and without considering the fact that the OBC in whose name impugned assessment order is passed, does not exist after 01.04.2020 and therefore, no assessment order could have been passed in the name of the OBC having PAN Number "AAACO7436M"."

"The impugned assessment order is hereby quashed and set aside. At this juncture, in the facts of the case it is apparent that the respondents, oblivious of the facts submitted by the petitioner-PNB, has proceeded to pass impugned assessment order resulting into high-pitch assessment of Rs. 393.97 Crore attracting the tax demand of Rs. 648.26 Crore and such high-pitch assessment order could not have been passed against a non-existing OBC under PAN "AAACO7436M" which was already requested to be cancelled since 2013."

The Court imposed an exemplary cost of Rs. 1 Crore on the respondent authorities for passing such a high-pitched assessment order contrary to the facts on record, underscoring the gravity of non-application of mind and negligence.