2022 (3) TMI 717 - AT - Income Tax

Reopening of assessment u/s 147 - scheme of amalgamation conceived - notice in the name of non-existing entity - addition u/s 68 - Undisclosed share application money / share premium - HELD THAT - In spite of the intimation of amalgamation being given to the ld. Assessing officer he failed to consider the same and passed the assessment order on 28.12.2017. It also establishes that there is no force in the contention of the Ld DR, that assessee had not taken the plea at the appropriate stage. Thus, what can be concluded is that at the time of issuance of notice u/s 148 on 25.08.2014, the company petition for scheme of amalgamation was pending before Hon ble Delhi High Court and after issuance of the notice on 25.08.2014 the assessee by letter dated 14.09.2014 had intimated of the amalgamation which was effective from 01.04.2013. Hon ble Delhi High Court in the case of Spice Enfotainment Ltd. vs. CIT 2011 (8) TMI 544 - DELHI HIGH COURT has held that the framing of assessment against non-existing entity / person goes to the root of the matter which is not a procedural irregularity but jurisdictional defect. This order has been upheld by the Hon ble Supreme Court of India in CIT, New Delhi vs. Spice Infotainment Ltd. 2017 (12) TMI 754 - SC ORDER As a matter of fact, in a case reported in NIRVANA LIFESTYLE PVT. LTD. NOW MERGED WITH M/S TTJ IMPEX PVT. LTD. VERSUS THE A.C.I.T., CENTRAL CIRCLE-29, NEW DELHI 2018 (3) TMI 1879 - ITAT DELHI with regard to an assessee company M/s. Nirvana Lifestyle Pvt. Ltd., which had also merged with TTJ Impex Pvt. Ltd and was one of the Co petitioner of present assessee in the Company petition no 644 of 2013, a Coordinate Bench of ITAT, Delhi had set aside re-assessment and assessment holding them to be in the name of non-existing entity. Assessee appeal allowed.

Summary

Issues:
1. Assessment based on non-existing entity
2. Reopening of assessment without complying with statutory conditions
3. Addition of share capital under Section 68 of the Act
4. Enhancement of income by an arbitrary amount
5. Failure to follow due procedure in enhancing income

Analysis:

Issue 1: Assessment based on non-existing entity
The appellant challenged the assessment order on the grounds that it was passed against a non-existing entity, rendering the proceedings void ab initio. The appellant contended that the reassessment initiated against a non-existing entity is a jurisdictional defect. The appellant relied on legal precedents to support this argument. The Tribunal observed that the original return of income was filed by the assessee before the entity's amalgamation with another company. Despite the intimation of amalgamation to the Assessing Officer, the assessment order was passed without considering this crucial information. Citing relevant case laws, the Tribunal held that framing an assessment against a non-existing entity is a jurisdictional defect, not a procedural irregularity. Therefore, the Tribunal upheld the appellant's argument, declaring the assessment void ab initio.

Issue 2: Reopening of assessment without complying with statutory conditions
The appellant raised concerns regarding the reopening of the assessment without complying with the statutory conditions prescribed under Section 147 read with Section 148 of the Act. The Tribunal noted that the reassessment was initiated based on information indicating escaped income. However, the failure to consider the entity's amalgamation and the lack of compliance with statutory conditions were deemed as fatal flaws in the assessment process. The Tribunal's decision to declare the assessment void ab initio encompassed this issue as well.

Issue 3: Addition of share capital under Section 68 of the Act
The Assessing Officer treated the alleged share application money/share premium as unexplained income of the assessee under Section 68 of the Act. The appellant contested this addition, providing detailed explanations and evidence to establish the genuineness of the transactions. However, both the Assessing Officer and the CIT(A) upheld the addition without adequately considering the appellant's submissions. The Tribunal found that the authorities failed to apply their minds independently and solely relied on the investigation report. Consequently, the Tribunal set aside this addition along with the entire assessment order.

Issue 4: Enhancement of income by an arbitrary amount
The CIT(A) enhanced the appellant's income by an arbitrary amount of &8377; 1,40,000 as unexplained expenditure on commission paid. The appellant argued that this enhancement was unjustified and not in accordance with the law. The Tribunal agreed with the appellant, stating that the enhancement lacked due procedure and was not supported by valid reasoning. Therefore, the Tribunal set aside this enhancement as well.

Issue 5: Failure to follow due procedure in enhancing income
The appellant further contended that the enhancement of income by &8377; 1,40,000 was done without following the due procedure as prescribed under the law. The Tribunal acknowledged this argument and concluded that the entire assessment order, including the enhancement of income, was vitiated by jurisdictional defects and procedural irregularities. As a result, the Tribunal allowed the appeal, setting aside the orders of the Assessing Officer and the CIT(A).

In conclusion, the Tribunal ruled in favor of the appellant, declaring the assessment void ab initio due to jurisdictional defects and procedural irregularities. The entire assessment order, including the additions and enhancements, was set aside.