2011 (8) TMI 544 - HC - Income Tax

Whether the assessment in the name of a company which had been amalgamated and had been dissolved with the said amalgamating company will be null and void or whether framing of assessment in the name of such a company is a mere procedural defect which can be cured - Held that - Once it is found that assessment is framed in the name of non-existing entity, it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of Section 292B of the Act. - provisions of Section 292B of the Act are not applicable in such a case. - The framing of assessment against a non-existing entity/person goes to the root of the matter which is not a procedural irregularity but a jurisdictional defect as there cannot be any assessment against a dead person. We may, however, point out that the returns were filed by M/s Spice on the day when it was in existence it would be permissible to carry out the assessment on the basis of those returns after taking the proceedings afresh from the stage of issuance of notice under Section 143 (2) of the Act. In these circumstances, it would be incumbent upon the AO to first substitute the name of the appellant in place of M/s Spice and then issue notice to the appellant. However, such a course of action can be taken by the AO only if it is still permissible as per law and has not become time barred.

Summary

Issues Involved:
1. Validity of assessment in the name of a dissolved company.
2. Applicability of Section 292B of the Income Tax Act to procedural defects versus jurisdictional defects.

Issue-wise Detailed Analysis:

1. Validity of assessment in the name of a dissolved company:

The primary issue revolves around whether the assessment framed in the name of a company that had been amalgamated and dissolved is null and void. The amalgamating company, Spice Corp Ltd., filed its return of income for the assessment year 2002-03. Subsequently, it amalgamated with MCorp Private Limited, effective from 1st July 2003, and was dissolved by a court order dated 11th February 2004. Despite being informed of this amalgamation, the Assessing Officer (AO) issued a notice and framed the assessment in the name of Spice Corp Ltd., a non-existent entity at that time.

The Tribunal initially held that the assessment was valid, considering it a procedural defect under Section 292B, as the amalgamated company participated in the proceedings. However, the High Court found this reasoning flawed, emphasizing that an assessment on a dissolved company is impermissible. The Court cited the Supreme Court's decision in Saraswati Industrial Syndicate Ltd. vs. CIT, which clarified that an amalgamating company ceases to exist post-amalgamation and cannot be assessed.

2. Applicability of Section 292B of the Income Tax Act:

Section 292B states that no return of income, assessment, notice, or other proceedings shall be invalid merely due to any mistake, defect, or omission if they are in substance and effect in conformity with the intent and purpose of the Act. The Tribunal had relied on this section to argue that the omission to mention the name of the amalgamated company was a procedural defect.

The High Court disagreed, stating that framing an assessment against a non-existent entity is a jurisdictional defect, not a procedural one. It referred to several precedents, including CIT vs. Norton Motors and CIT vs. Harjinder Kaur, which clarified that Section 292B cannot cure jurisdictional defects. The Court concluded that the assessment against Spice Corp Ltd. was void ab initio, as the company ceased to exist post-amalgamation.

The High Court emphasized that once a company is dissolved, it becomes a non-existent party, and any action in its name is invalid. The Court further noted that the AO should have substituted the name of the amalgamated company and issued notices accordingly. Participation by the amalgamated company did not validate the assessment, as there is no estoppel against law.

Conclusion:

The High Court concluded that the Tribunal's decision was legally unsustainable. It held that the assessment framed in the name of a non-existent entity was void and not a mere procedural defect. The Court allowed the appeals, deciding the questions of law in favor of the assessee and against the Revenue. It also suggested that the AO could carry out the assessment afresh, substituting the name of the amalgamated company, provided it was still permissible under the law and not time-barred.