Reopening of Assessment of a Dissolved Company is invalid

Summary in Key Points:

Issue: Whether the Assessing Officer (AO) can initiate reassessment proceedings under Section 148 of the Income-tax Act, 1961 against a company that has been dissolved.
Facts: The assessee-company was dissolved in 2011. However, the AO issued a reopening notice under Section 148 in 2019 and completed the assessment, making additions to the income.
Decision: The High Court held that the reopening notice and the assessment order were invalid because the AO cannot initiate reassessment proceedings against a company that is no longer in existence.

Decision:

The High Court ruled in favor of the assessee, setting aside the reopening notice and the consequential assessment order. The court emphasized the following:

Non-Existent Assessee: The assessee-company was dissolved in 2011 and, therefore, was not in existence when the AO initiated the reassessment proceedings in 2019.
Invalid Reopening: The AO cannot issue a reopening notice under Section 148 to a non-existent entity.
Dropping of Proceedings: The AO should have dropped the proceedings and rectified the assessment order upon realizing that the assessee-company was no longer in existence.

Important Note: This case clarifies that reassessment proceedings under Section 148 cannot be initiated against a dissolved company. The AO must verify the existence of the assessee before initiating such proceedings. This decision protects the interests of dissolved companies and prevents unnecessary legal complications.

HIGH COURT OF GUJARAT

Chetan Chandrakant Kothari

Income-tax Officer

BHARGAV D. KARIA and D.N. Ray, JJ.

R/SPECIAL CIVIL APPLICATION NO. 7991 of 2022

NOVEMBER 26, 2024

Hardik V. Vora, Adv. for the Petitioner. Varun K. Patel, Adv. for the Respondent.

ORDER

Bhargav D. Karia, J.- Heard learned advocate Mr. Hardik Vora for the petitioner and learned Senior Standing Counsel Mr. Varun K. Patel for the respondent.

2. Learned advocate Mr. Hardik Vora for the petitioner submitted that the petitioner was an Ex-Director of Manshi Shuttleless Looms Private Limited, which was incorporated on 05.08.2004 and ceased to exist since 07.01.2011 as its name was struck off by the Registrar of the Companies from the Register of Companies.

3. It is pointed out that a notice under Section 148 of the Income Tax Act, 1961 dated 29.03.2019 was issued, which could not have been received by the company which has been dissolved in 2011. It was further submitted that the respondent authority could not have proceeded further with the assessment proceedings of the company which has ceased to exist since 2011.

4. It was further pointed out by the learned advocate Mr. Vora that the respondent authority filed an appeal before the National Company Law Tribunal (NCLT) for restoration of name of the said company. However, the said appeal was also dismissed by order dated 11.11.2020. It was therefore, submitted that the respondent – Assessing Officer ought to have dropped the proceedings and rectified the assessment order, which was passed on 01.12.2019 making addition of Rs. 56,00,000/- for the Assessment Year 2014-15 relevant to previous year 2013-14 when the said company was not in existence since 2011.

5. It was further submitted by the learned advocate Mr. Vora that the petitioner has preferred this petition to challenge the assessment order in the penalty proceedings, as the notices were being issued by the respondent -Assessing Officer from time to time and though the reply was given by the petitioner, the notices were continued to be issued.

6. On the other hand, learned Senior Standing Counsel Mr. Varun K. Patel for the respondent could not controvert the above submissions made by the learned advocate Mr. Hardik Vora for the petitioner. Learned Senior Standing Counsel Mr. Varun K. Patel referred to the following averments made in the affidavitin-reply filed on behalf of the respondents :-

“2.1 It is submitted that Petitioner herein is a former director of Mansi Shuttleless Looms Pvt. Ltd. It is submitted that the said company had not filed its return of income for A. Y. 2014-15 and therefore based on the information received regarding credit entries of Rs. 56,00,000/-during the F.Y. 2013-14 in the bank account of the assessee company, the case of assessee company was reopened by issuing notice u/s. 148 of the Act on 25.03.2019 after taking approval from the competent authority.

2.2 It is further submitted that the assessee company did not comply with the said notice u/s. 148 of the Act. It is further submitted that subsequently various notices were issued including notice u/s. 142(1) of the Act dated 22.10.2019 and it has been served through affixture. It is submitted that the assessee company has not made any submissions in compliance of the said notices. Finally a show cause notice was issued on 22.11.2019 which also remained uncompiled by the assessee.

2.3 It is further submitted that during the course of assessment proceedings, it was noticed that the assessee company has been ‘struck off by the Registrar of Companies, Ahmedabad on 07.01.2011 and therefore Department had preferred a Company Appeal No. 237/252(3)/NCLT/2019 before Ld. National Company Law Tribunal (NCLT) inter alia seeking revival of the assessee company.

2.4 It is submitted that considering the pendency of the Company Appeal for revival of the assessee company and period of limitation to complete assessment proceedings, assessment proceedings were finalized and impugned assessment order u/s. 144 r.w.s. 147 of the Act was passed on 01.12.2019 by determining the total income at Rs. 56,00,000/- for AY 2014-15 and further penalty proceedings u/s. 271F, 271(1)(b) and 271(1)(c) of the Act were initiated.

2.5 It is submitted that during the penalty proceedings u/s. 271(1)(c) of the Act, Petitioner herein has submitted an order dated 11.11.2020 passed by Ld. NCLT whereby Company Appeal No. 237 of 2019 filed by the Department, has been dismissed. It is submitted that accordingly penalty proceedings u/s. 271(1)(c) of the Act for AY 201415 have been dropped in the case of the assessee company on 29.03.2022.

2.6 It is further submitted that no appeal has been preferred by the Department against the said order of Ld. NCLT dated 11.11.2020 whereby Company Appeal seeking revival of company has been dismissed. It is submitted that on the verification of the petition and case record, present Petition is found to be in order as the assessee company has already been ‘Struck Off’ before the issuance of notice u/ s. 148 of the Act.”

7. In view of the above averments made on oath by the respondent, more particularly, when it is stated on oath that the petition is found to be in-order that the assessee company has already been ‘struck off’ before issuance of the notice under Section 148 of the Act, we therefore, quash and set aside the impugned assessment order dated 01.12.2019 passed by the respondent- Assessing Officer under Section 144 read with Section 147 of the Income Tax Act, 1961. As the penalty proceedings are already stated to be have been dropped, no further order is required to be passed. The petition is accordingly disposed of. Notice is discharged.