2019 (11) TMI 368 - AT - Income Tax

Assessment framed on a non-existent company - scheme of amalgamation conceived - HELD THAT - Assessment per se has been framed by the ld. AO in the instant case in the hands of amalgamating company which had ceased to exist with effect from 01/10/2012 onwards pursuant to the scheme of merger approved by the Hon ble Bombay High Court. We hold that no assessment could be framed on a non-existent entity. This issue is now well settled by the recent decision of Hon ble Supreme Court in the case of PCIT vs. Maruti Suzuki India Ltd. 2019 (7) TMI 1449 - SUPREME COURT AO was wrong in framing the assessment in the hands of the non-existent entity i.e Churu Trading Company Pvt. Ltd. and accordingly, the entire assessment framed thereon, had to be declared as null and void ab initio . - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the assessment order under section 143(3) framed on a non-existent company due to amalgamation.
2. Disallowance under section 14A of the Income-tax Act read with Rule 8D of the Income-tax Rules, 1962.

Detailed Analysis:

1. Validity of Assessment Order on Non-Existent Company:
The primary issue was whether the assessment order under section 143(3) of the Income Tax Act, 1961, could be considered valid when framed on a company that had ceased to exist due to amalgamation. The company in question, Churu Trading Company Pvt. Ltd., had merged with Sprit Textiles Pvt. Ltd. effective from 01/10/2012, as per the scheme of arrangement approved by the Hon'ble Bombay High Court. The assessee had duly informed the Assessing Officer (AO) about this merger via a letter dated 20/03/2015. Despite this, the AO proceeded to frame the assessment on 31/03/2015 in the name of the amalgamating company, Churu Trading Company Pvt. Ltd.

The Tribunal relied on the Supreme Court decision in PCIT vs. Maruti Suzuki India Ltd. (2019) 107 Taxman.com 375 (SC), which held that no assessment could be framed on a non-existent entity. The Supreme Court had stated that upon the amalgamating company ceasing to exist, it cannot be regarded as a person under Section 2(31) of the Act against whom assessment proceedings can be initiated or an order of assessment passed. The Tribunal concluded that the AO was aware of the merger and still framed the assessment on the non-existent entity, making the assessment null and void ab initio.

2. Disallowance under Section 14A:
The second issue was regarding the disallowance under section 14A of the Income-tax Act read with Rule 8D of the Income-tax Rules, 1962. However, given the Tribunal's decision to quash the entire assessment on the grounds that it was framed on a non-existent entity, this issue became academic. The Tribunal refrained from giving an opinion on the merits of such additions, as the primary issue had rendered the entire assessment invalid.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the assessment order framed on the non-existent entity, Churu Trading Company Pvt. Ltd., and dismissed the appeal of the revenue. The cross-objection of the assessee was also dismissed as it was only supportive of the order of the CIT(A). The order was pronounced in the open court on 06/11/2019.