2021 (9) TMI 971 - AT - Income Tax

Validity of Revision u/s 263 by CIT - Notice to non existing person. company/ dissolved trust - curable defect u/s 292B - whether the notice issued by the ld. PCIT to a dissolved trust is legally valid or not? - HELD THAT - The order of the ld. PCIT issuing notice to an extinguished trust is illegal and it is not a procedural irregularity which can be cured u/s. 292B. This precise issue had come up for consideration by the Hon'ble Supreme Court in the case of Pr. CIT vs. Maruti Suzuki India Ltd. 2019 (2) TMI 325 - SUPREME COURT non existing company. We find that in the instant case also, the revenue has been duly informed about the dissolution of the trust and still chose to continue the proceeding on the dissoluted entity which was no more in existence. Hence, following the aforesaid ratio and principle laid down by the Hon'ble High Court and the Hon'ble Apex Court, we hold that impugned order passed by the Pr. CIT in the name of Varnika RPG Trust is a substantive illegality and not a procedural violation of the nature adverted to in Section 292B and hence order passed on non-existent entity is a nullity. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the order dated 26.03.2021 under Section 263 of the Income Tax Act issued to a non-existent entity.
2. Jurisdictional preconditions for invoking Section 263 of the Income Tax Act.
3. Examination of the Principal Commissioner of Income Tax's (PCIT) directive to add ?65,24,465/- as unexplained income.

Issue-wise Detailed Analysis:

1. Validity of the Order Issued to a Non-Existent Entity:
The primary issue was whether the impugned order dated 26.03.2021 issued under Section 263 of the Income Tax Act to a non-existent entity, Varnika RPG Trust, was legally valid. The Trust was dissolved on 31.03.2016, and therefore, both the assessment order dated 28.12.2018 and the impugned order dated 26.03.2021 were considered without jurisdiction. The Tribunal referenced the Hon’ble Madhya Pradesh High Court's decision in Princes Usha Trust Vs. CIT, which held that a trust is extinguished when its purpose is completely fulfilled or becomes impossible. Consequently, the Tribunal concluded that the order issued by the PCIT to a dissolved trust was illegal and not a procedural irregularity curable under Section 292B. The Tribunal also cited the Hon’ble Supreme Court's judgment in Pr. CIT vs. Maruti Suzuki India Ltd., which established that any order passed in the name of a non-existent entity is a substantive illegality and a nullity.

2. Jurisdictional Preconditions for Invoking Section 263:
The Tribunal examined whether the PCIT satisfied the statutory preconditions for invoking Section 263. The Tribunal noted that the Assessing Officer (AO) had conducted a thorough examination and made all possible inquiries before accepting the assessee's claim. The PCIT's order was based on a different opinion without establishing that the AO's view was unsustainable. The Tribunal emphasized that the invocation of Section 263 was not justified as it was not a case of "lack of enquiry" or "lack of investigation." The Tribunal further stated that the PCIT could not travel beyond the show cause notice, and findings based on material not referred to in the notice could not be used to assume jurisdiction under Section 263.

3. Examination of the PCIT's Directive to Add ?65,24,465/- as Unexplained Income:
The Tribunal addressed the PCIT's directive to add ?65,24,465/- as unexplained income and deny the exemption under Section 10(38) of the Act. The Tribunal found that the assessee had provided sufficient evidence to support the purchase and sale of shares, and the PCIT's findings were based on speculation and generalized statements without supporting evidence. The Tribunal noted that the shares were sold through a recognized stock exchange after the payment of Securities Transaction Tax (STT), resulting in a long-term capital gain exempt under Section 10(38). The Tribunal concluded that the PCIT's order to add the amount as unexplained income was erroneous and not in accordance with the law.

Conclusion:
The Tribunal held that the impugned order passed by the PCIT in the name of "Varnika RPG Trust" was a substantive illegality and a nullity. Consequently, the order under Section 263 was quashed on jurisdictional grounds. All the appeals of the assessee were allowed.