2022 (5) TMI 832 - AT - Income Tax

Reopening of assessment u/s 147 - Notice to non existing entity/company merged - HELD THAT - M/s Saurabh Overseas Pvt. Ltd. ceased to be exist w.e.f. 07/05/2011 on which date the said Company has merged with DBG Leasing and Housing Ltd. pursuant to the order of Hon ble High Court of Delhi dated 21/01/2011. The said fact has been conveyed to the Assessing Officer vide letter dated 18/07/2011 by DBG Leasing and Housing Ltd. which has been acknowledged on 27/07/2011 by the A.O. Despite of the said information of merger of the Company, the Assessing Officer has issued notice u/s 148 on 25/03/2013 and the show cause notice u/s 142(1) of the Act in the name of M/s Saurabh Overseas Pvt. Ltd., The assessment order has been passed u/s on 147/143(3) on 30/03/2014 against M/s Saurabh Overseas Pvt. Ltd., on the which dates M/s Saurabh Overseas Pvt. Ltd. was non existing entity. Therefore, in our considered opinion, passing the assessment order against non existing entity is not sustainable in the eyes of law and the same is void ab initio. Appeal of assessee allowed.

Summary

Issues:
1. Validity of reopening proceedings under Section 147.
2. Legality of assessment order passed against a non-existing entity.
3. Confirmation of addition under Section 68 of the Income Tax Act.
4. Rejection of evidence regarding identity and creditworthiness of shareholder.
5. Confirmation of addition without adverse material or defects in evidence.
6. Failure to conclude investigation despite serving notices.
7. Passing of assessment order without opportunity to rebut collected material.
8. Rejection of contention regarding adverse inference without cross-examination opportunity.

Analysis:
1. The appeal challenged the order passed by the Commissioner of Income-Tax (Appeals) for the assessment year 2006-07, questioning the validity of the proceedings initiated under Section 147. The appellant contended that the conditions and procedures prescribed under the statute were not satisfied, leading to a flawed initiation of proceedings. The CIT(A) dismissed the appeal, prompting the appellant to challenge the decision on legal and factual grounds.

2. Another critical issue addressed in the judgment was the legality of the assessment order passed against a non-existing entity. The appellant argued that M/s Saurabh Overseas Pvt. Ltd. had merged with DBG Leasing and Housing Ltd., rendering the former defunct. Despite this merger, the Assessing Officer proceeded with the assessment against the non-existing entity, leading to a conclusion that the assessment order was void ab initio. The Tribunal, after considering the facts, quashed the assessment order and the CIT(A)'s decision.

3. The judgment also delved into the confirmation of an addition under Section 68 of the Income Tax Act. The appellant raised concerns regarding the rejection of evidence related to the identity and creditworthiness of the shareholder, as well as the genuineness of the transaction. The CIT(A) was criticized for confirming the addition without adverse material or defects in the evidence presented by the appellant.

4. Furthermore, the Tribunal addressed the issue of the failure to conclude the investigation despite serving notices, leading to a lack of opportunity for the appellant to rebut collected material. The judgment highlighted the importance of providing a fair chance for the assessee to respond adequately to the allegations raised during the assessment process.

5. Lastly, the judgment discussed the rejection of contentions regarding adverse inferences drawn without providing an opportunity for cross-examination. The Tribunal emphasized the need for a thorough and fair assessment process that allows for the proper presentation and examination of evidence before reaching conclusions.

In conclusion, the Tribunal allowed the appeal, quashing the assessment order and the CIT(A)'s decision, while dismissing other grounds that had become infructuous. The judgment underscored the significance of procedural fairness and adherence to legal requirements in conducting assessments under the Income Tax Act.