2019 (9) TMI 688 - AT - Income Tax

Penalty u/s 271(1)(c) - Notice in the name of merged company - curable defect - HELD THAT - Impugned penalty order passed by the AO in the name of M/s. Padampat Gopal Krishna Ramapanti Organization Ltd. (Merged with Gohoi Buildwell Ltd.Now known as V3S Infratech Ltd.) is a substantive illegality and not a procedural violation of the nature adverted to in Section 292B; and hence order passed on amalgamated entity which ceases to exist is a nullity. Such an illegality cannot be cured on the ground that assessee participation in the proceedings as there cannot operate as an estoppel against law. Accordingly impugned penalty order is quashed. - Decided in favour of assessee

Issues Involved:
1. Validity of penalty order passed in the name of an amalgamated company.
2. Applicability of Section 292BB in curing procedural defects.
3. Legality of penalty imposition when the notice under Section 274 did not specify grounds.
4. Penalty imposition on disallowance of deferred revenue expenditure.
5. General principles of natural justice in the context of the appeal.

Detailed Analysis:

1. Validity of Penalty Order Passed in the Name of an Amalgamated Company:
The primary issue revolved around the validity of a penalty order issued in the name of an amalgamated company which had ceased to exist. The assessee argued that the penalty order was invalid as it was passed in the name of the amalgamated company, Padampat Gopal Krishna Ramapati Organisation Ltd., despite the amalgamation with V3S Infratech Ltd. being on record and known to the Assessing Officer (AO). The Tribunal referred to the Supreme Court judgment in Principal Commissioner of Income Tax vs Maruti Suzuki India Ltd., which held that an assessment order passed in the name of a non-existent amalgamated company is a substantive illegality and not a procedural violation curable under Section 292B. The Tribunal concluded that the penalty order was a nullity and quashed it.

2. Applicability of Section 292BB in Curing Procedural Defects:
The Department contended that the mention of the original name prior to the merger was a curable defect under Section 292BB. However, the Tribunal found that the issue was not merely procedural but a substantive illegality. The Supreme Court's ruling in Maruti Suzuki India Ltd. clarified that orders passed in the name of non-existent companies due to amalgamation are not curable under Section 292B. Thus, the Tribunal held that Section 292BB could not rectify the defect in this case.

3. Legality of Penalty Imposition When the Notice Under Section 274 Did Not Specify Grounds:
The assessee argued that the penalty order was invalid as the notice issued under Section 274 did not specify the grounds for which the penalty was to be imposed. The Tribunal did not delve deeply into this issue due to the substantive illegality already established regarding the amalgamated company's non-existence. However, it implicitly acknowledged the procedural lapses highlighted by the assessee.

4. Penalty Imposition on Disallowance of Deferred Revenue Expenditure:
The assessee challenged the penalty imposed on the disallowance of deferred revenue expenditure, arguing that the same were nil in the subsequent year. The Tribunal did not address this issue in detail due to the primary finding of substantive illegality in the penalty order's issuance. The focus remained on the jurisdictional defect rather than the merits of the penalty imposition.

5. General Principles of Natural Justice in the Context of the Appeal:
The assessee contended that the penalty order was contrary to the principles of natural justice. The Tribunal's decision to quash the penalty order was based on the substantive illegality rather than a detailed examination of natural justice principles. However, by quashing the order, the Tribunal indirectly upheld the importance of adhering to legal and procedural norms, aligning with natural justice principles.

Conclusion:
The Tribunal quashed the penalty order, holding it as a substantive illegality due to its issuance in the name of a non-existent amalgamated company. The Tribunal relied heavily on the Supreme Court's judgment in Maruti Suzuki India Ltd., which established that such orders are not curable under Section 292B. Consequently, the appeals of the assessee were allowed, and the penalty order was declared null and void.

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