Wednesday, December 31, 2014

Defect of framing assessment on non-existent entity couldn't be cured by resorting to sec. 292B


Facts:

a) The assessee-company had been amalgamated with another company under Sections 391(2) and 394 of the Companies Act. Consequently, the assessment order was made on the assessee.

b) Aggrieved by the assessment order, the assessee appealed to the CIT(A). It argued that the assessment order was invalid, because on the date on which order was passed, it had already ceased to exist (having been amalgamated). The CIT(A) held in favour of assessee. 

c) The revenue, being aggrieved by the order of CIT(A) appealed to the ITAT, which upheld the order of CIT(A). Finally the aggrieved revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1) In case of Spice Entertainment Ltd. v. CIT [IT Appeal No. 475 of 2011] the Delhi High court held that:

“it [becomes] incumbent upon the Income Tax Authorities to substitute the successor in place of the said 'dead person'. Such a defect cannot be treated as procedural defect... once it is found that assessment is framed in the name of non-existing entity it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of Section 292B of the Act."

2) In Spice Entertainment Ltd. (supra), this Court expressly classified "the framing of assessment against a non-existing entity/person" as a jurisdictional defect. This had been a consistent position. In case of CIT v. Express Newspapers Ltd. [1960] 40 ITR 38 (Mad), the Madras High Court held that:

“there cannot be an assessment of non-existent person. The assessment in the instant case was made long after the Free Press Company was stuck off from the register of the companies, and it could not be valid."

3) It was clear that all contentions sought to be urged by the revenue were in respect of familiar grounds, which had been ruled upon, against it. Thus, assessment could not be made on amalgamating company even by resorting to Section 292B. – CIT v. Dimension Apparels (P.) Ltd [2014] 52 taxmann.com 356 (Delhi).

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