2024 (3) TMI 379 - HC - Income Tax

Validity of reassessment proceedings against non-existent firm - petitioner was a partnership firm and was converted as a Private Limited Company - respondent has submitted that the petitioner had used the old PAN in making the transaction and although the firm was dissolved, the PAN of firm dissolved was utilized for transaction and thereby there was escape of tax by the petitioner. HELD THAT - After the Firm was dissolved on 14.07.2010, a fresh IE Code was issued in the name of petitioner company with the same IEC number. The documents that have been filed by the petitioner in respect of which the proceedings were initiated with the issuance of Notice dated 28.03.2021 u/s 148 for the Assessment Year 2015-2016 pertains to exports made by the petitioner with the same IE Code. Copies of the export shipping bills shows that the PAN Number of the company with the above IE Code has been declared. Similarly, some of the copies of the Bill of Entries filed by the petitioner before this Court also indicate that the Bills of Entry also contain the PAN number of the petitioner company with the same IE Code and not the PAN number of the Partnership Firm which seems to expire with effect from 14.07.2010. The petitioner has also filed Copy of Form 15 CA acknowledgement with respect to Remittance to non-resident or foreign company which also indicate the name of the petitioner Company with the petitioner's PAN number. On the other hand, the impugned order itself has been passed in the name of the non-existing firm based on a notice that was issued in the name of non-existing Firm. All along the petitioner has replied to the Department. Department has failed to take note of the same and has thus confirmed the demand. The consequences in the impugned order is thus unsustainable. That apart for the subsequent Assessment Year, namely the Assessment Year 2016-2017, a notice was issued u/s 148A(b) of the Income Tax Act, 1961, which was issued under the same circumstances. The Assistant Commissioner of Income Tax NON CORP WARD 11(3) CHE has also rightly dropped the proceedings by an order dated 30.03.2023 under Section 148A(d) of the Income Tax Act, 1961. Although the Court would have been justified in referring the petitioner to workout the remedy before the Appellate Commissioner, Court is of the view that this is a fit case for interfering with the order passed by the respondents as it is arbitrary and shows the clear non-application of mind. Impugned Order and the impugned notice u/s 147/148A are set aside. Writ Petition stands allowed.

Summary

Issues Involved:
The issues involved in this case are the quashing of an assessment order passed under Section 147 r/w Section 144 of the Income Tax Act, 1961 for the Assessment Year 2015-2016, based on the conversion of a Partnership Firm into a Private Limited Company and the utilization of the old PAN number for financial transactions.

Summary of Judgment:

Issue 1: Conversion of Partnership Firm to Private Limited Company
The petitioner converted from a Partnership Firm to a Private Limited Company under Chapter IX of the Companies Act, 1956. Despite informing the respondents about this change, proceedings were initiated against the Firm under Section 148 of the Income Tax Act, leading to the impugned order dated 25.03.2022.

Issue 2: Utilization of Old PAN Number
The petitioner's case revolves around the use of the old PAN number of the dissolved Partnership Firm for financial transactions carried out by the petitioner's company. The petitioner asserts that all transactions were conducted under the new PAN number of the company and not the old PAN number of the partnership firm.

Issue 3: Assessment and Response
The impugned assessment order highlighted various financial transactions carried out in the name of the dissolved firm, leading to a demand for tax. The petitioner responded by providing evidence of the change in PAN number and the incorporation of the new company, emphasizing that all transactions were conducted under the new PAN.

Issue 4: Legal Arguments and Precedents
The petitioner's counsel cited various decisions of the High Court and Supreme Court to support the case, emphasizing the correct application of tax laws in similar situations. The respondent argued that the use of the old PAN number by the petitioner led to a tax evasion situation.

Issue 5: Court's Decision
After considering the arguments and documents presented, the Court found that the impugned order was arbitrary and lacked proper application of mind. The Court set aside the assessment order and notice, allowing the Writ Petition and closing the connected Miscellaneous Petitions without costs. The Court noted that the petitioner should have the opportunity to address the matter before the Appellate Commissioner.