Introduction
Income Tax Appellate Tribunal – Delhi (‘ITAT’) in the case of S.S.S Glass Pv.t Ltd. v. ITO[i], quashed the reassessment order passed against the non-existent entity under s. 147 of the Income-tax Act, 1961 (‘ITA’) and held the reassessment order as legally invalid and vitiated.
Brief Facts
The assessing officer (‘AO’) issued a notice on 03.03.2015 under s. 148 of the ITA to the S.S.S Glass Pv.t Ltd (‘Assessee’). In response, the Assessee submitted a written objection, informing the AO that the company was not in existence at the time the notice was issued and had been converted into an LLP since 30.01.2015 and thus, proceedings against the non-existent entity may be discontinued.
Despite the aforementioned objection, the AO issued the reassessment order on 05.08.2015 under s. 147/143(3) of the ITA against the Assessee which the Assessee argued to be vitiated and not sustainable. However, the AO even after acknowledging the objections, passed the reassessment order against the Assessee and argued that the proceeding cannot be dropped solely on the ground that the Assessee is non-existent at the time of serving the notice.
The Assessee referred to the decision of the Hon’ble High Court of Delhi in CIT v. Sony Mobile Communication Pvt. Ltd.[ii] which relied upon the Hon’ble Supreme Court’s judgement in PCIT v. Mahagun Realtors Pvt. Ltd.[iii], wherein it was observed that the entity against whom notice is issued is not existing at the time notice is served then, any order passed against such a non-existent entity is invalid.
In response to the above, the AO argued that the Assessee deliberately withheld the information regarding the conversion of the company into LLP during the assessment proceeding intending to use it as a technical ground.
Finding of the ITAT
The ITAT passed the order in favour of the Assessee and held as under:
The Hon’ble ITAT observed that the Assessee during the assessment proceeding, upon receiving the notice u/s. 148 duly informed the AO regarding the conversion of the Assessee into an LLP. Despite this, the AO passed the reassessment order. Thus, the allegations made by the AO lacked merit and were deemed invalid.
Furthermore, the ITAT relied on various decisions (supra) thus, aligning with the aforementioned judgments concluded that an order passed against a non-existent entity is not legally valid and sustainable.
In accordance with the above-mentioned reasoning, it was held that the notice under s. 148 of the ITA, along with all subsequent proceedings and the reassessment order under ss. 147/143(3) of the ITA, are deemed invalid, as they are vitiated by law and considered void. Subsequently, the ITAT allowed the appeal in favour of the Assessee.
Conclusion & Analysis
In the present case, the ITAT relied on various precedents and clarified that serving a notice or initiating proceedings against a non-existent entity, after receiving information regarding its non-existence, is legally unsustainable. The decision reinforces the importance of adhering to legal requirements and ensuring that proceedings are valid and sustainable.
The decision promotes fairness and prevents unnecessary legal proceedings against entities that do not exist. This conclusion serves as a reminder that legal proceedings should be conducted against the existing entity only. Overall, the ITAT's ruling safeguards the rights of the Assessee and upholds the principle that legal actions should be based on accurate and valid information which is in the possession of AO before initiating the proceedings.
End Notes
[i] 2023 ITA No. 7614/Del/2018.
[ii] ITA No. 115/2019.
[iii] 2022 SCC OnLine SC 407.
Authored by Purvi Garg, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.
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