Re-assessment proceedings against dissolved entity is unsustainable

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Pranshu Buildwell LLP Vs ITO (Delhi High Court)

Delhi High Court of the petitioner is that the impugned proceedings for reassessment have been triggered against an entity, which is no longer in existence.

The record shows, that reassessheld that proceedings for reassessment triggered against the private limited company which is dissolved and converted into LLP is unsustainable in law.

Facts- The principal grievance ment proceedings have been triggered against an entity going by the name Pranshu Buildwell Private Limited.
According to the petitioner, this entity was converted into limited liability partnership (LLP).

Conclusion- Held that prima facie, the objection taken by Mr Bhatia, that there was no reference to the fact by the petitioner, that the conversion of the earlier entity i.e., The private limited company into an LLP had taken place, would not come in the way of the petitioner assailing the reassessment proceedings, on the ground that the reassessment proceedings have been triggered by issuing notices to an entity, which is not in existence.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

CM Appl.53651/2022

1. Allowed, subject to just exceptions.

W.P.(C) 16923/2022 & CM Appl.53650/2022 [Application filed on behalf of petitioner seeking interim relief]

2. The principal grievance of the petitioner is that the impugned proceedings for reassessment have been triggered against an entity, which is no longer in existence.

2.1 The record shows, that reassessment proceedings have been triggered against an entity going by the name Pranshu Buildwell Private Limited.

3. According to the petitioner, this entity was converted into limited liability partnership (LLP).

3.1 For this purpose, our attention has been drawn to a certificate of registration issued by the Government of India, Ministry of Corporate Affairs dated 05.08.2015. The certificate of registration on conversion has been issued under the provisions of Section 58(1) of the Limited Liability Partnership Act, 2008.

4. Mr Abhishek Garg, who appears on behalf of the petitioner, says that communication with regard to conversion of the earlier entity into an LLP was sent, under the cover of letter dated 11.04.2018.

5. We are told, that the said communication was received in the office of respondent no.1 on 02.05.2018.

6. Furthermore, Mr Garg says that not only has the erstwhile entity been dissolved, but the new entity i.e., the petitioner has been issued a different Permanent Account Number (PAN).

6.1 It is Mr Garg’s contention, that despite knowledge of the aforesaid circumstances, the reassessment proceedings were initiated qua the dissolved private limited company.

7. Mr Ruchir Bhatia, who appears on behalf of the respondents/revenue says that the petitioner, in response to the notice under Section 148A(b) of the Income Tax Act, 1961 [in short “Act”] did not disclose the factum of conversion.

8. It is also Mr Bhatia’s submission, that this is an error which can be corrected by the respondents/revenue by taking recourse to Section 292(B) of the Act.

8.1 In support of his plea, Mr Bhatia has relied upon the judgment of the coordinate bench of this Court in Skylight Hospitality LLP v. Assistant Commissioner of Income Tax 2018 SCC OnLine Del 7155.

9. It appears, that the judgement in Skylight Hospitality LLP was taken up in appeal by the assessee to the Supreme Court, whereby the stand of the revenue was sustained. [Skylight Hospitality LLP v. CIT, (2018) 13 SCC 147]

10. Mr Garg on the other hand, relied on the judgement of the Supreme Court rendered in Principal Commissioner of Income Tax v. Maruti Suzuki (India) Limited (2020) 18 SCC 331.

10.1 Mr Garg says that the Supreme Court has taken note of both the coordinate bench judgment in Skylight Hospitality LLP as well as its own decision in the said matter.

10.2 In this context, Mr Garg has drawn our attention to the following paragraphs of the judgment rendered in Maruti Suzuki India Ltd.:

“….28. The submission, however, which has been urged on behalf of the Revenue is that a contrary position emerges from the decision of the Delhi High Court in Skylight Hospitality LLP [Skylight Hospitality LLP v. CIT, 2018 SCC OnLine Del 7155 : (2018) 405 ITR 296] which was affirmed on 6-4-2018 [Skylight Hospitality LLP v. CIT, (2018) 13 SCC 147] by a two-Judge Bench of this Court consisting of Hon’ble Mr Justice A.K. Sikri and Hon’ble Mr Justice Ashok Bhushan. In assessing the merits of the above submission, it is necessary to extract the order dated 6-4-2018 [Skylight Hospitality LLP v. CIT, (2018) 13 SCC 147] of this Court : (Skylight Hospitality case [Skylight Hospitality LLP v. CIT, (2018) 13 SCC 147] , SCC p. 147, para 1)

“1. In the peculiar facts of this case, we are convinced that wrong name given in the notice was merely a clerical error which could be corrected under Section 292-B of the Income Tax Act. The special leave petition is dismissed.

Pending applications stand disposed of.”

Now, it is evident from the above extract that it was in the peculiar facts of the case that this Court indicated its agreement that the wrong name given in the notice was merely a clerical error, capable of being corrected under Section 292-B. The “peculiar facts” of Skylight Hospitality emerge from the decision of the Delhi High Court [Skylight Hospitality LLP v. CIT, 2018 SCC OnLine Del 7155 : (2018) 405 ITR 296] . Skylight Hospitality, an LLP, had taken over on 13-5-2016 and acquired the rights and liabilities of Skylight Hospitality Pvt. Ltd. upon conversion under the Limited Liability Partnership Act, 2008 (the LLP Act, 2008). It instituted writ proceedings for challenging a notice under Sections 147/148 of the 1961 Act dated 30-3-2017 for AY 2010-2011. The “reasons to believe” made a reference to a tax evasion report received from the investigation unit of the Income Tax Department. The facts were ascertained by the investigation unit. The reasons to believe referred to the assessment order for AY 2013-2014 and the findings recorded in it. Though the notice under Sections 147/148 was issued in the name of Skylight Hospitality Pvt. Ltd. (which had ceased to exist upon conversion into an LLP), there was, as the Delhi High Court held “substantial and affirmative material and evidence on record” to show that the issuance of the notice in the name of the dissolved company was a mistake. The tax evasion report adverted to the conversion of the private limited company into an LLP. Moreover, the reasons to believe recorded by the assessing officer adverted to the approval of the Principal Commissioner. The PAN number of LLP was also mentioned in some of the documents. The notice under Sections 147/148 was not in conformity with the reasons to believe and the approval of the Principal Commissioner. It was in this background that the Delhi High Court held that the case fell within the purview of Section 292-B for the following reasons : (Skylight Hospitality case [Skylight Hospitality LLP v. CIT, 2018 SCC OnLine Del 7155 : (2018) 405 ITR 296] , SCC OnLine Del para 18)

“18. … There was no doubt and debate that the notice was meant for the petitioner and no one else. Legal error and mistake was made in addressing the notice. Noticeably, the appellant having received the said notice, had filed without prejudice reply/letter dated 11-4-2017. They had objected to the notice being issued in the name of the Company, which had ceased to exist. However, the reading of the said letter indicates that they had understood and were aware, that the notice was for them. It was replied and dealt with by them. The fact that notice was addressed to M/s Skylight Hospitality Pvt. Ltd., a company which had been dissolved, was an error and technical lapse on the part of the respondent. No prejudice was caused.

29. The decision in Spice Entertainment [Spice Entertainment Ltd. v. Commr. of Service Tax, 2011 SCC OnLine Del 3210 : (2012) 280 ELT 43] was distinguished with the following observations : (Skylight Hospitality case [Skylight Hospitality LLP v. CIT, 2018 SCC OnLine Del 7155 : (2018) 405 ITR 296] , SCC OnLine Del para 19)

“19. Petitioner relies on Spice Infotainment v. CIT [ This judgment has also been referred to as Spice Infotainment Ltd. v. CIT, (2012) 247 CTR (Del) 500] . Spice Corp. Ltd., the company that had filed the return, had amalgamated with another company. After notice under Sections 147/148 of the Act was issued and received in the name of Spice Corp. Ltd., the assessing officer was informed about amalgamation but the assessment order was passed in the name of the amalgamated company and not in the name of amalgamating company. In the said situation, the amalgamating company had filed an appeal and issue of validity of assessment order was raised and examined. It was held that the assessment order was invalid. This was not a case wherein notice under Sections 147/148 of the Act was declared to be void and invalid but a case in which assessment order was passed in the name of and against a juristic person which had ceased to exist and stood dissolved as per provisions of the Companies Act. Order was in the name of non-existing person and hence void and illegal.

30. From a reading of the order of this Court dated 6-4-2018 [Skylight Hospitality LLP v. CIT, (2018) 13 SCC 147] in the special leave petition filed by Skylight Hospitality LLP against the judgment of the Delhi High Court rejecting its challenge, it is evident that the peculiar facts of the case weighed with this Court in coming to this conclusion that there was only a clerical mistake within the meaning of Section 292-B. The decision in Skylight Hospitality LLP [Skylight Hospitality LLP v. CIT, 2018 SCC OnLine Del 7155 : (2018) 405 ITR 296] has been distinguished by the Delhi, Gujarat and Madras High Courts in:

(i) Rajender Kumar Sehgal [Rajender Kumar Sehgal v. CIT, 2018 SCC OnLine Del 12890] ;

(ii) Chandreshbhai Jayantibhai Patel [Chandreshbhai Jayantibhai Patel v. CIT, 2018 SCC OnLine Guj 4812] ; and

(iii) Alamelu Veerappan [Alamelu Veerappan v. CIT, 2018 SCC OnLine Mad 13593].

31. There is no conflict between the decisions of this Court in Spice Enfotainment [CIT v. Spice Enfotainment Ltd., (2020) 18 SCC 353] (dated 2-11-2017) and in Skylight Hospitality LLP v. CIT [Skylight Hospitality LLP v. CIT, (2018) 13 SCC 147] (dated 6-4-2018).

32. Mr Zoheb Hossain, learned counsel appearing on behalf of the Revenue urged during the course of his submissions that the notice that was in issue in Skylight Hospitality Pvt. Ltd. was under Sections 147 and 148. Hence, he urged that despite the fact that the notice is of a jurisdictional nature for reopening an assessment, this Court did not find any infirmity in the decision of the Delhi High Court holding that the issuance of a notice to an erstwhile private limited company which had since been dissolved was only a mistake curable under Section 292-B. A close reading of the order of this Court dated 6-4-2018 [Skylight Hospitality LLP v. CIT, (2018) 13 SCC 147] , however indicates that what weighed in the dismissal of the special leave petition were the peculiar facts of the case. Those facts have been noted above. What had weighed with the Delhi High Court was that though the notice to reopen had been issued in the name of the erstwhile entity, all the material on record including the tax evasion report suggested that there was no manner of doubt that the notice was always intended to be issued to the successor entity. Hence, while dismissing the special leave petition this Court observed that it was the peculiar facts of the case which led the Court to accept the finding that the wrong name given in the notice was merely a technical error which could be corrected under Section 292-B. Thus, there is no conflict between the decisions in Spice Enfotainment [CIT v. Spice Enfotainment Ltd., (2020) 18 SCC 353] on the one hand and Skylight Hospitality LLP [Skylight Hospitality LLP v. CIT, (2018) 13 SCC 147] on the other hand. It is of relevance to refer to Section 292-B of the Income Tax Act which reads as follows:

“292-B. Return of income, etc., not to be invalid on certain grounds.—No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.”

In this case, the notice under Section 143(2) under which jurisdiction was assumed by the assessing officer was issued to a non-existent company. The assessment order was issued against the amalgamating company. This is a substantive illegality and not a procedural violation of the nature adverted to in Section 292-B……. ”

11. We may also indicate that prima facie, the objection taken by Mr Bhatia, that there was no reference to the fact by the petitioner, that the conversion of the earlier entity i.e., the private limited company into an LLP had taken place, would not come in the way of the petitioner assailing the reassessment proceedings, on the ground that the reassessment proceedings have been triggered by issuing notices to an entity, which is not in existence.

11.1 This very argument was raised in Maruti Suzuki India Ltd. which was repelled by the Supreme Court [See paragraph 36].

12. Accordingly, issue notice.

12.1 Mr Bhatia accepts notice on behalf of respondents/revenue.

13. Counter-affidavit will be filed within the next four weeks.

13.1 Rejoinder thereto, if any, be filed before the next date of hearing.

14. In the meanwhile, there shall be a stay on the operation of the impugned notice dated 25.07.2022 issued under Section 148 of the Act, and the proceedings initiated thereof.

15. There shall also be a stay on the operation of the order dated 25.07.2022 passed under Section 148A(d) of the Act, and the notice dated 26.05.2022 issued under Section 148A(b) of the Act.

16. List the matter on 21.07.2023.

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