ITO 23 (3)(2), MUMBAI V. SANDHYA ENTERPRISES , MUMBAI

ITA 7723/MUM/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2281 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 15-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Procedural lapse
• Section: 148; 143(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “E"BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NOs. 7723 & 7724/MUM/2019 (A.Y.2007-08 & 2008-09) Income Tax Officer – 23(3)(2) Room No. 119, 1 st Floor Matru Mandir, Tardev Road Mumbai – 400 007 v. M/s. Sandhya Enterprises 107, A-Wing, Rizvi Chamber Hill Road, Bandra (W) Mumbai –400050 PAN: ACHFS3893C (Appellant) (Respondent) C.O.No. 65 & 66/MUM/2021 [ARISING OUT OF ITA NOs. 7723 & 7724/MUM/2019 (A.Y.2007-08 & 2008-09)] M/s. Sandhya Enterprises 107, A-Wing, Rizvi Chamber Hill Road, Bandra (W) Mumbai –400050 PAN: ACHFS3893C v. Income Tax Officer – 23(3)(2) Room No. 119, 1 st Floor Matru Mandir, Tardev Road Mumbai – 400 007 (Appellant) (Respondent) ITA NOs. 7767/MUM/2019 (A.Y.2009-10) M/s. Sankeshwar Enterprises 107, A-Wing, Rizvi Chamber Hill Road, Bandra (W) Mumbai –400050 PAN: ACNFS1957P v. Income Tax Officer – 23(3)(2) 2 nd Floor Matru Mandir, Tardev Road Mumbai – 400 007 (Appellant) (Respondent) 2 ITA NOs. 7723, 7724, 7767 & 7729/MUM/2019 M/s. Sandhya Enterprises & M/s. Sankeshwar Enterprises ITA NOs. 7729/MUM/2019 (A.Y.2009-10) Income Tax Officer – 23(3)(2) Room No. 119, 1 st Floor Matru Mandir, Tardev Road Mumbai – 400 007 v. M/s. Sankeshwar Enterprises 107, A-Wing, Rizvi Chamber Hill Road, Bandra (W) Mumbai –400050 PAN: ACNFS1957P (Appellant) (Respondent) C.O. NO.47/Mum/2020 [ARISING OUT OF ITA NOs. 7729/MUM/2019 (A.Y.2009-10)] M/s. Sankeshwar Enterprises 107, A-Wing, Rizvi Chamber Hill Road, Bandra (W) Mumbai –400050 PAN: ACNFS1957P v. Income Tax Officer – 23(3)(2) Room No. 119, 1 st Floor Matru Mandir, Tardev Road Mumbai – 400 007 (Appellant) (Respondent) Assessee by : Shri Prakash Jhunjhunwala Department by : Shri B.K. Bagchi Date of Hearing : 23.05.2022 Date of Pronouncement : 28.06.2022 O R D E R PER S. RIFAUR RAHMAN (AM) 1. The appeals and cross objections are filed by the revenue and assessee in the case of M/s. Sandhya Enterprises against common order of the Learned Commissioner of Income Tax (Appeals)-34, [hereinafter in 3 ITA NOs. 7723, 7724, 7767 & 7729/MUM/2019 M/s. Sandhya Enterprises & M/s. Sankeshwar Enterprises short “Ld.CIT(A)”] dated 12.09.2019 for the A.Y. 2007-08 and 2008-09. In the case of M/s. Sankeshwar Enterprises, cross appeals are filed by the revenue and assessee; and cross objection is filed by the assessee, against order of the Learned Commissioner of Income Tax (Appeals)-12, Mumbai dated 12.09.2019 for the A.Y. 2009-10. 2. The issue raised by the assessee in the cross objection is legal issue and hence the cross objections were taken up for adjudication first. 3. At the time of hearing, Ld. Ld. AR, brought to our notice that partnership firms in the names of M/s. Sandhya Enterprises and M/s.Sankeshwar Enterprises are run by partners Shri Sushil M. Mehta and Shri Sanjay M. Punamiya, on 13 day of September, 2005, the firm in the name of M/s. Sandhya Enterprises was dissolved and it was taken over by Shri Sanjay M. Punamiya. Similarly, the other partnership firm M/s.Sankeshwar Enterprises was also run by Shri Sushil M. Mehta and Shri Sanjay M. Punamiya was dissolved on 20.01.2006 and which was taken over by Shri Sanjay M. Punamiya and he run both of the above said firms as proprietorship. It was submitted that these firms were dissolved and the business was run as proprietorship from the date of dissolution. Subsequently Assessing Officer has issued notice u/s. 148 of the Act and 4 ITA NOs. 7723, 7724, 7767 & 7729/MUM/2019 M/s. Sandhya Enterprises & M/s. Sankeshwar Enterprises called for information. Assessee submitted that the firms were dissolved and the business was carried on by one of the ex-partner as proprietorship and the Assessing Officer proceeded to complete the assessment in the name of the partnership firm which is non-existent. Therefore, the assessment made in the non-existing firm is bad in law. In this regard he relied on the following case laws: - (i). DCIT v. Mani Square Ltd., [2007] 88 taxmann.com 77 (Kolkata – Trib.) (ii). Jitendra Chandralal Navlani v. Union of India [80 Taxmann.com 107 (Bom-HC)] (iii). ACIT v. DLF Cyber City Developers ltd., [53 taxmann.com 81 (Del. ITAT)] (iv). ACIT v. Neha Enterprises in ITA.No. 3666/Mum/2015 dated 20.12.2017. (v). Teleperformance Global Services Pvt. Ltd., v. ACIT (2021) 127 Taxmann.com 46 (Bom. HC) 4. He further submitted that his issue is rightly appreciated by Ld.CIT(A) and allowed the additional ground raised by the assessee before him. 5. On the other hand, Ld. DR relied on the orders of the lower authorities. 5 ITA NOs. 7723, 7724, 7767 & 7729/MUM/2019 M/s. Sandhya Enterprises & M/s. Sankeshwar Enterprises 6. Considered the rival submissions and material placed on record, we observe that the partnership was dissolved and the Ex-partner Shri Sushil M. Mehta continued the erstwhile business of partnership as proprietorship. The assessee has intimated the same to the Assessing Officer when he reopened the assessment even then Assessing Officer completed the assessment in the name of the erstwhile partnership firm. It is also brought to our notice that the proprietor Shri Sushil M. Mehta has declared the relevant transactions relating to past dissolution of firm and offered the same to taxation in the existing proprietorship business. It amounts to double taxation. Therefore, in the similar situation ITAT Calcutta Bench in the case of DCIT v. Mani Square Ltd., (supra) has passed the order in favour of the assessee, for the sake of clarity it is reproduced below: - “From a reading of the reply of assessee, it is discernible that the Assessing Officer admitted the fact that according to his understanding the action taken by him is correct, as reopening proceedings are being initiated against NPPL and not in the name of the assessee company. The Assessing Officer by doing so, has not understood the legal implication when NPPL has already merged with the assessee company. The Assessing Officer failed to take note that, by merger NPPL has lost its independent identity and from the date of amalgamation, ie, on 01-04-2008 it does not exist in the eyes of law and only the successor company, ie, in this case MSI, that is the assessee-company only exists. It is a trite law that after amalgamation, amalgamating company does not remain in existence and income up to the date of amalgamation should be assessed in the hands of the amalgamated company, ie, successor company in like manner and to the same expenditure as it would have been assessed in the hands of the amalgamating company, [Para 8) 6 ITA NOs. 7723, 7724, 7767 & 7729/MUM/2019 M/s. Sandhya Enterprises & M/s. Sankeshwar Enterprises Where the notice for reopening under section 148 was issued in the name of a person who is not existing in the eyes of law and when undisputedly no notice was issued under section 148 against the successor company before passing the reassessment order, vitiates the entire actions and being per se itself illegal. [Para 12] Where the Assessing Officer issued notice for reopening under section 148 only against the amalgamating company NPPL and not against the assessee-company which was the amalgamated/ successor company, the assessment though made in the name of assessee company is void because, even after the Assessing Officer came to know that NPPL got amalgamated with the assessee company he did not care to issue 148 and 143(2) notices to the assessee company which is sine qua non and, therefore, the omission in following the law clearly goes to the root of the matter and makes the order 'null' in the eyes of law. [Para 15] The main issue of the revenue was as to whether section 2928 comes to the rescue of the Assessing Officer, though the Assessing Officer issued only notice of reopening under section 148 to the amalgamating company NPPL [Para 16] In simple words, section 292B can be relied upon for resisting a challenge to the notice, etc., only if there is a technical defect or omission in it. However, the same cannot be relied upon for curing a jurisdictional defect in the notice. In other words, if the notice, summons or other proceeding initiated by an authority suffers from an inherent lacuna affecting jurisdiction, the same cannot be cured by having resort to section 2928, section 292B can be resorted to only in the case of procedural irregularity and not jurisdictional defect. [Para 16] In the present case, the notice under section 148 was issued in the name of a non-existent company which is clearly a case of jurisdictional defect and not a mere procedural irregularity. [Para 17] 7. Further, we observe that Hon'ble Bombay High Court in the case of Teleperformance Global Services Pvt. Ltd., v. ACIT (supra) held that Assessment Order passed in the name of dissolved entity is bad in law. The relevant decision is reproduced below: - “22. The Supreme Court in the case of Maruti Suzuki India Ltd. (supra) had considered that income, which was subject to be 7 ITA NOs. 7723, 7724, 7767 & 7729/MUM/2019 M/s. Sandhya Enterprises & M/s. Sankeshwar Enterprises charged to tax for the assessment year 2012-13 was the income of erstwhile entity prior to amalgamation. Transferee had assumed liabilities of transferor company, including that of tax. The consequence of approved scheme of amalgamation was that amalgamating company had ceased to exist and on its ceasing to exist, it cannot be regarded as a person against whom assessment proceeding can be initiated. In said case before notice under section 143(2) of the Act was issued on 26-9-2013, the scheme of amalgamation had been approved by the high court with effect from 1-4-2012. It has been observed that assessment order passed for the assessment year 2012-13 in the name of non-existing entity is a substantive illegality and would not be procedural violation of Section 292(b) of the Act. The Supreme Court in its aforesaid decision, has quoted an extract from its decision in Saraswati Industrial Syndicate Ltd v. CIT [1990] 53 Taxman 92/186 ITR 278. The Supreme Court has also referred to decision of Delhi high court in the case of CIT v. Spice Enfotainment Ltd [2018] 12 ITR-OL 134 (SC) and observed that in its decision Delhi high court had held that assessment order passed against non- existing company would be void. Such defect cannot be treated as procedural defect and mere participation of appellant would be of no effect as there is no estoppel against law. Such a defect cannot be cured by invoking provisions under section 292B. The Supreme Court had also taken note of decision in Spice Entertainment Lid (supra) was followed by Delhi high court in matters, viz CITY. Dimension Apparels (P) Ltd. [2014] 52 taxmann.com 356/12015] 370 ITR 288. CIT. Micron Steels (P) Ltd (2015) 59 axitann.com 470/233 Taxman 120/372 ITR 386 (Mas), CIT v. Micra India (P) Ltd (2015) 57 taxmann.com 163/231 Taxman 809 and in CIT v. Intel Technology India Ltd. [2016] 380 UTE 272 Karnataka high court has held, if a statutory notice is issued in the name of non-existing entity, entire assessment would be nullity in the eye of law. It has also been so held by Delhi high court in the case of Pr CIT v. Nokia Solutions & Network India (P) Ltd [2018] 90 taxmann.com 369/253 Taxman 409/402 ITR 21.” 8. Respectfully following the above said decisions, it is fact on record that the order passed by the Assessing Officer in the non-existing firm which is dissolved and the business of the same was carried on by one of the partner in the proprietorship. Therefore, the assessment order passed 8 ITA NOs. 7723, 7724, 7767 & 7729/MUM/2019 M/s. Sandhya Enterprises & M/s. Sankeshwar Enterprises in the non-existing firm is bad in law and we do not see any reason to interfere with the findings of the Ld.CIT(A). Accordingly, the appeals filed by the Revenue are dismissed and appeal/cross objections filed by the assessee are allowed. 9. In the result, appeals filed by the Revenue are dismissed and appeal/cross objections filed by the assessee are allowed. Order pronounced in the open court on 28 th June, 2022 Sd/- Sd/- (ABY T. VARKEY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 28/06/2022 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum