RE-OPENING OF ASSESSMENT AGAINST CLOSED COMPANY

[Mr. M. GOVINDARAJAN]

In JITENDRA CHANDRALAL NAVLANI & ANR. VERSUS UNION OF INDIA & ORS. - 2024 (2) TMI 643 - BOMBAY HIGH COURT, Adler Security System Private Limited had applied for striking off its name under Section 560 of the Companies Act, 1956 because the company was inoperative from 2 years and there was no feasible opportunity available to carry on its business.  The said application was uploaded in MCA portal on 26.06.2012.  Objections were invited from the stakeholders for the said application within 30 days to be submitted before the Registrar of Companies.  The said application had been forwarded to SEBI, Income Tax Department, RBI and Indian Banks Association inviting comments on the said application.  Since no objection was received from any of the above authorities the Registrar of Companies considered the said application and notice was issued under section 560(3) of the Companies Act, 1956,  on 21.08.2012 stating that unless cause is shown to the contrary, the name of the company will be struck off from the register.   A notice under Section 560(5) of the Companies Act was also issued on 11.07.2013 and the notice was published in the official gazette of Government of India for the period 08.02.2014 to 14.02.2014.

The Income Tax Department issued a notice on 24.02.2015 under Section 148 of the Income Tax Act, 1961, seeking to re-open the Assessment for A. Y. 2008-09.  The Authorities passed an assessment order on 28.03.2016 under Section 143(3) read with Section 147 of the Act.  The petitioner challenged the notice issued for reassessment and the assessment order passed on the said notice.

The petitioner contended the following before the High Court-

•  The company Addler Security Systems Pvt. Ltd. is no longer in existence as it has been dissolved.
• The Assessing Officer has issued a notice under Section 142(1) of the Act to one of the petitioners who was the Director of erstwhile Addler Security Systems Private Limited, a dissolved company.
• Despite it has been submitted before the Income Tax Authorities the company has been dissolved the Authorities has passed the impugned order framing the assessment in case of  Addler Security Systems Private Limited for Assessment Year 2008- 09.
• Notice has been issued to the income tax department about the dissolution of the company to raise its objections, if any.  But the Department has not raised any objection to this.
• The impugned notice is not a valid one.
• Once a company is dissolved, it ceases to exist in the eyes of law and that company cannot be thereafter regarded as a ‘person’ in terms of Section 2(31) of the Act against whom assessment proceeding can be initiated.
• The jurisdictional notice issued, pursuant to which the Assessing Officer assumed jurisdiction to make an assessment in the name of non-existing entity, was invalid. 
• The initiation of assessment proceeding against a non-existing entity was void ab initio.

The High Court pointed out that the High Court would not have entertained a petition as an alternative remedy to file an appeal is available to the petitioners.  In this case notice has been issued to a non existing company, which has been dissolved and struck off from the Register of Companies.  The defect in issuing a reopening notice to a non-existing company and framing an assessment consequent thereto is an issue which goes to the root of the jurisdiction of the Assessing Officer to assess the non-existing company.   The High Court was of the view that both the impugned notice dated 24.03.2015 and the Assessment Order dated 28.03.2016, are without jurisdiction.  Therefore the High Court entertained the present petition and granted a stay to the assessment order and restrained the department from taking any further proceedings.

The High Court relied on the judgment of Supreme Court in SARASWATI INDUSTRIAL SYNDICATE LIMITED VERSUS COMMISSIONER OF INCOME-TAX, HARYANA HIMACHAL PRADESH AND DELHI III - 1990 (9) TMI 1 - SUPREME COURT   In this case the High Court held that once a company is dissolved it ceases to exist in the eyes of law. Though the case of was involving a scheme of amalgamation that would not change the legal position that once a company is dissolved it ceases to exist in the eyes of law. Thereafter, it cannot be treated as a ‘person’ against whom assessment proceeding can be initiated under the Act.

The High Court held that the notice issued under Section 148 of the Act cannot be a valid.  The High Court also quashed the impugned assessment order.