Assessment started in the name of non existing company and completed in the name of new company resulting from merger was nullity-High Court
ABCAUS Case Law Citation:
ABCAUS 2235 (2018) (03) HC
The Revenue was aggrieved by the order of the ITAT which concluded that the assessment had been made in respect of a company that had ceased to exist.
The assessee was a Pvt. Ltd. company (“the old company”), its return was processed under Section 143(1) of the Income Tax Act, 1961 ( “the Act”). However, the returns were selected for scrutiny and notice was issued under Section 143(2) of the Act. In the meanwhile, pending proceedings of amalgamation before the High Court, an order was made by virtue of which, the old company merged with new company i.e. the respondent company.
The respondent company wrote to Income Tax Authorities for transfer of tax files in the jurisdictional office of the old company to the new company’s jurisdictional officer on account of the merger. In these circumstances, notice was issued to the old company (by then non-existent) under Section 142(1) of the Act. Since international transactions were involved, the AO referred the matter to the Transfer Pricing Officer based on whose report a draft assessment order was made. The dispute resolution panel made its recommendations/returned findings and a final assessment was framed in the name of the old company.
The respondent company preferred an appeal to the ITAT and urged that the assessment was framed in the name of a non-existing entity. The ITAT remitted the matter to the DRP for examination of this ground by its order ( “the remand order”).
Subsequently, the DRP returned a finding that the assessments were framed in the name of the non-existing entity but proceeded to direct the AO to frame the assessment in the name of the respondent company which was complied with and a final assessment order was made in the name of the respondent company.
The respondent company again appealed to the ITAT urging that the ruling of the High Court applied since the proceedings culminating in the assessment order were a nullity and that in the circumstances the DRP’s directions could not have resulted in an order, based upon the proceedings that were a nullity.
The ITAT accepted these arguments holding that the law declared by the High Court squarely applied to the case.
Before the Hon’ble High Court the Revenue argued that the respondent company did not raise any objection when the matter was remitted for consideration by the DRP and that the question of jurisdiction or the order being a nullity was urged before the ITAT, in the first round of proceedings for the first time. In the circumstances, when the DRP considered the facts, it concluded that the assessment originally framed was in respect of a non existing entity. Given the changed circumstances and subsequent development, it could not have directed the framing of an assessment in favour of a non existing company and therefore directed the AO to frame it in the name of the respondent company, which it did.
It is also contended that the DRP rendered express findings that the proceedings before it – in the earlier round before the Tribunal were in continuation of the assessment proceedings and that framing final assessment, after remitting in the name of the respondent ssessee, was justified in law. It was submitted that in these circumstances the facts here are entirely different from the facts that the Court had to consider in case law relied upon by the Tribunal/assessee and all other tests that followed it.
The Revenue also urged that even in the first place when the assessee approached the DRP, the name of the old entity was invoked and that consequently it cannot now say that the assessment was a nullity.
The respondent company urged that the DRP could not have directed assessments to be completed in the manner that it did, given that the remand order of the ITAT was confined to only requiring it to render findings as to whether the assessment originally framed was in respect of a non existing entity. It was submitted that the DRP exceeded its remand and consequently the ITAT was justified in holding that decision of the Hon’ble High Court was applicable to the case.
The Hon’ble High Court observed that in the first instance the assessment was conducted in the name of a non existing entity. The DRP was not directed to to “better” the original incurable illegality and but DRP clearly did that.
The Hon’ble High Court opined that the fact that the matter was remitted at the instance of the assessee who did not question the remand ipso facto does not, in any manner, further the Revenue’s contentions.
The Hon’ble High Court opined that in view of its earlier ruling, if the assessment is concluded in favour of a non existing entity, then notwithstanding the acquiescence under section 292B, the position does not improve. As earlier held, the position taken or urged by the assessee cannot be held against it if the primary jurisdiction does not exist i.e. to conclude an assessment in the name of a non existing entity.
The appeal was dismissed as not giving rise to a question of law.