2023 (5) TMI 689 - AT - Income Tax

Validity of assessment Order passed in the name of amalgamating company - exercises of jurisdiction by the Ld. AO against non-existing company - HELD THAT - AO fallen in error in not taking cognizance of the fact of merger of the assessee company and that it had lost legal existence for the purpose of the Act, still the assessment order was passed against non-existing entity. Such order is void ab initio. Additional grounds are allowed.

Summary

Issues involved:
The issues involved in the judgment are the validity of the assessment order passed u/s 147/143(3) of the Income Tax Act, 1961, the legality of reassessment proceedings, the addition of income from undisclosed sources u/s 68 of the Act, rejection of explanation and evidence by the CIT(A), and the assessment order passed against a non-existent entity.

Validity of Assessment Order:
The appeal was made against the order dated 25.10.2016 of CIT(A)-10, New Delhi, arising from an appeal against the order dated 04.02.2014 passed u/s 147/143(3) of the Income Tax Act, 1961. The appellant raised various grounds challenging the legality of the proceedings and the assessment order. The appellant contended that the initiation of the proceedings under Section 147 was not in compliance with the statutory requirements and that the reasons recorded for issuing the notice under Section 148 were flawed.

Addition of Income from Undisclosed Sources:
The CIT(A) confirmed the action of the AO in making an addition of Rs.85,00,000/- as income from undisclosed sources u/s 68 of the Act. The appellant argued that the addition was made without any adverse material on record and was based on surmises and conjecture. The CIT(A) rejected the explanation and evidence provided by the assessee to prove the identity and creditworthiness of the payer and the genuineness of the transactions.

Assessment Order Against Non-Existent Entity:
The additional grounds raised by the assessee questioned the validity of the assessment order passed u/s 147/143(3) against a non-existent entity. The appellant argued that the assessment order passed in the name of a non-existent entity was illegal and void ab initio. The appellant relied on various judgments to support this argument. The Coordinate Bench had previously decided in favor of the assessee in a similar case where the assessment order against a non-existing entity was quashed.

Judicial Findings:
The Coordinate Bench found that passing an assessment order against a non-existing entity was not sustainable in the eyes of the law and declared the order void ab initio. The Hon'ble Supreme Court's decision in a similar case emphasized that framing an assessment order in the name of a non-existent entity was a fundamental defect that could not be cured. The Bench noted that the appellant company had merged with another entity, and despite being informed of this merger, the AO proceeded with the assessment against the non-existing entity. The Bench concluded that the assessment order against the non-existent entity was void ab initio, and the additional grounds raised by the assessee were allowed.

This summary provides a detailed overview of the judgment, covering the issues involved, the arguments presented, and the judicial findings related to the validity of the assessment order and the addition of income from undisclosed sources.