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Westlife Development Ltd. (Successor to Wespoint Leisureparks Ltd.) Versus Principal Commissioner of Income-Tax

[2016] 49 ITR (Trib) 406 - Revision u/s 263 - assessment against non-existing entity - Held that:- An invalid order cannot give birth to legally valid proceedings. - We find that in this case, the original assessment order passed under section 143(3) dated October 24, 2013, was null and void in the eyes of law as the same was passed upon a non-existing entity and, therefore, the learned Commissioner of Income-tax could not have assumed jurisdiction under the law to make revision of a non est .....

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1. This appeal has been filed by the assessee against the order of the learned Principal Commissioner of Income-tax-5, Mumbai (hereinafter called as "the CIT") passed under section 263 dated December 22, 2015, for the assessment year 2011-12 on the following grounds : "1.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (CIT) erred in initiating proceedings under section 263 of the Income-tax Act, 1961 (the Act), vide show-ca .....

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and in the circumstances of the case and in law, the learned Commissioner of Income-tax erred in holding that the assessment order dated October 24, 2013, passed by the Assessing Officer under section 143(3) of the Act with regard to issue of shares at premium was erroneous and prejudicial to the interests of the Revenue despite the issues raised having been duly considered by the learned Assessing Officer while framing the assessment under section143(3) of the Act. 3. On the facts and in the ci .....

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-tax erred in issuing notice dated April 20, 2015, under section 263 of the Act in the name Westpoint Leisureparks Pvt. Ltd., a company which had already become non- existent on the date of issuance of the said notice on account of its merger with the appellant company (Westlife Development Ltd.) despite the fact regarding amalgamation been specifically brought to notice of the Income-tax Department, vide the appellant's letter dated September 3, 2013. As such, the entire proceedings under s .....

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say, that the original assessment order passed under section 143(3) dated October 24, 2013, which has been sought to be revised by the learned Commissioner of Income-tax was a nullity in the eyes of law, and, therefore, an order, which was a nullity in the eyes of law had no existence in the eyes of law and, therefore, the same could not have been revised by the learned Commissioner of Income-tax, thereby giving fresh life to the proceedings which had no legal existence in the eyes of law. In t .....

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brought to the knowledge of the Assessing Officer ; despite that the Assessing Officer framed the assessment upon a non- existing entity. It was submitted by him that framing of an assessment upon a company which has already been amalgamated by way of an order of the High Court is nullity in the eyes of law and in support of his arguments he placed reliance upon the following judgments : 1. Judgment of the Delhi High Court in the case of Spice Infotainment Ltd. v. CIT [2012] 247 CTR (Delhi) 500 .....

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593, 4748/Mum/2011 order dated March 9, 2016). 7. Order of the Tribunal Kolkata Bench in the case of Emerald Co. Ltd. v. ITO [2016] 46 ITR (Trib) 619 (Kolkata) (I. T. A, No. 428/Ko1/2015 order dated January 13, 2016). 8. Judgment of the Karnataka High Court in the case of CIT v. Intel Technology India P. Ltd. [2016] 380 ITR 272 (Karn) ; [2015] 57 taxmann.com 159 (Karn). 9. Order of the Tribunal Kolkata Bench, in the case of Gestener (India) v. Asst. CIT in (I. T. A. No. 275/Kol/2007, dated 17-2- .....

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eptember 24, (2015) and Steel Strips Ltd. v. Asst. CIT [1995] 53 ITD 553 (Chd). He thus requested that the impugned revision order passed by the learned Commissioner of Income-tax is illegal on this primary jurisdictional ground itself. 5. Per contra, the learned Departmental representative for the Revenue vehemently opposed the arguments of the learned counsel. It was submitted by the learned Commissioner of Income-tax-Departmental representative that even if the original assessment order was f .....

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ase, the learned Commissioner of Income-tax had proper jurisdiction to make revision of the impugned assessment order. 7. We have heard both the parties on this issue and also gone through the orders passed by the lower authorities as well as the judgments relied upon before us. In our view, we need to decide the following issues, before we go into any other issues or the merits of the impugned order : "1. Whether the assessee can challenge the validity of an assessment order during the app .....

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the non est assessment order ?" In our considered view, since these issues are jurisdictional issues and go to the root of the matter, therefore, before dealing with any other issue, we shall first deal with all above three issues one by one, as under : 8. Challenging the jurisdictional defects of the assessment order for assailing the jurisdictional validity of the revision order passed under section 263 : The first issue that arises for our consideration is whether the assessee can challe .....

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with can rest upon. The proceedings initiated under section 263 seeking to revise the original assessment order is off shoot of the primary proceedings and, therefore, these may be termed as "collateral proceedings" in the legal framework. The issue that arises here is whether any illegality/invalidity in the order passed in the "primary proceedings" can be set up in the "collateral proceedings" and if yes, then of what nature ? 8.1. We have analysed this issue care .....

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es, it can be said that the effect of the original assessment order cannot be erased or modified subsequently. In other words, whatever tax liability had been determined in the original assessment order that had already become final and that cannot be sought to be disturbed by the assessee. But the issue that arises here is that if the original assessment order is illegal in terms of its jurisdiction or if the same is null and void in the eyes of law on any jurisdictional grounds then whether it .....

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ore, as per law, the validity of the order passed in the primary (original) proceedings should be allowed to be examined even at the subsequent stages only for the limited purpose of examining whether the collateral (subsequent) proceedings have been initiated on a valid legal platform or not and for examining the validity of assumption of jurisdiction to initiate the collateral proceedings. If it is not so allowed then it may so happen that though the order passed in the original proceedings wa .....

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ourts, and some of them have been discussed by us in followings paragraphs. 8.2. In a matter that came up before the hon'ble Supreme Court in the case of Kiran Singh v. Chaman Paswan [1955] 1 SCR 117 the facts were that the appellant in that case had undervalued the suit at ₹ 2,950 and laid it in the court of the Subordinate Judge, Monghyr, for recovery of possession of the suit lands and mesne profits. The suit was dismissed and on appeal it was confirmed. In the second appeal in the .....

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to the appellant. In considering that contention at page 121, a four-judge Bench of the hon'ble Supreme Court speaking through Venkatarama Ayyar J. held that : "It is a fundamental principle well-established that a decree passed by a court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pe .....

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contested operates as res judicata qua the parties affected by it. The hon'ble apex court, taking support from the aforesaid judgment, observed as under : "In the light of this position in law the question for determination is whether the impugned decree of the civil court can be assailed by the appellant in execution. It is already held that it is the controller under the Act that has exclusive jurisdiction to order ejectment of a tenant from a building in the urban area leased out by .....

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ellant cannot raise the same point once again at the execution." 8.4. Similar view has been taken by the hon'ble Supreme Court by following aforesaid judgments recently in the case of Indian Bank v. Mani lal Govindji Khona reported in [2015] 3 SCC 712. Further, a similar view was emphasised by the hon'ble Bombay High Court (Goa Bench) in the case of Mavany Brothers v. CIT (Tax Appeal No. 8 of 2007 in its order dated April 17, 2015) wherein it was held that an issue of jurisdiction c .....

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her, and the fetter on the jurisdiction is one meant to protect the public on the broader ground of public policy and, therefore, jurisdiction to assess or reassess a person can never be waived or created by consent. This decision shows that the basic principle recognised in Kiran Singh v. Chaman Paswan [1955] 1 SCR 117 is applicable even to revenue statutes such as the Income-tax Act. P. Dasa Muni Reddy v. P. Appa Rao, AIR 1974 SC 2089 is a judgment where the principle of coram non judice was a .....

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arose under the Income-tax Act with reference to the provisions of section 147 dealing with reassessment. The facts were that the assessment was sought to be reopened under section 147 and notice under section 148 was issued. Validity of reopening was not challenged up to the Tribunal and additions were challenged on the merits only. The Tribunal restored the matter to the Assessing Officer with some directions to re-examine the issue on the merits. When the matter came back to the Assessing Of .....

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e plea that the question of jurisdiction to reopen the assessment having been expressly given up by the assessee in the appeal against the reassessment order in the first round, the assessee was debarred from raising that point again before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner was equally wrong in permitting the assessee to raise that point which had become final in the first round and in adjudicating upon the same. The plea of the Revenue impressed the T .....

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to the Tribunal, the assessee having raised the point in the first round and having given it up could not revive it in the second round of proceedings where the issue was limited to the merits of the additions. In this view, the Tribunal accepted the Revenue's plea. The assessee, thereafter, carried the order of the Tribunal in reference before the Gujarat High Court. The High Court after considering various judgments of the Supreme Court on the point of jurisdiction to reopen the assessmen .....

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ng to the hon'ble Gujarat High Court, the rule of res judicata cannot be invoked where the question involved is the competence of the court to assume jurisdiction, either pecuniary or territorial or over the subject matter of the dispute. The hon'ble High Court further held that since neither consent nor waiver can confer jurisdiction upon the Assessing Officer where it did not exist, no importance could be attached to the fact that the assessee, in the first round of proceedings, expres .....

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uld be only a nullity confirmed in further appeals". In this view of the matter, the hon'ble High Court finally answered the reference in favour of the assessee. 8.7. It is further noted that many of these judgments were discussed and followed by the co-ordinate Bench of the Tribunal in the case of Indian Farmers Fertiliser Co-operative Ltd. v. Joint CIT [2008] 296 ITR (AT) 68 (Delhi) ; [2007] 105 ITD 33 (Delhi), wherein a similar issue had arisen. In this case, the issue raised before .....

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on for rectification is sought to be taken on the assumption of the validity of the reassessment order then the assessee has to step in and protect its interests and the liberty to question even the validity of the reassessment proceedings ought to be given to it . . ." (emphasis supplied). 8.8. Similar view was taken in another decision of the Tribunal in the case of Dhiraj Suri v. Addl. CIT [2006] 98 ITD 187 (Delhi). In the said case, an appeal was filed by the assessee before the Tribuna .....

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the case of P. V. Doshi v. CIT [1978] 113 ITR 22 (Guj) and the hon'ble Bombay High Court in the case of Jainarayan Babulal v. CIT [1988] 170 ITR 399 (Bom), the Bench held as that if the block assessment itself is without jurisdiction then there is no question of levy of any penalty under section. 158BFA(2) and, therefore, it is open to the assessee to set up the question of validity of the assessment in the appeal against the levy of penalty. 8.9. We also derive support from another judgment .....

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scussion we can safely hold that as per law, the assessee should be permitted to challenge the validity of the order passed under section 263 on the ground that the impugned assessment order was non est and we hold accordingly. 9. Whether the impugned assessment order passed under section 143(3) dated October 24, 2013, was valid in the eyes of law or a nullity as has been claimed by the assessee on the ground that it was framed in the hands of a non-existing company. 9.1 Now, we proceed to decid .....

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(2) 30-06-2011 Name of the company changed from Westpoint Realtors Pvt. Ltd. to Westpoint Leisureparks Pvt. Ltd. (referred to as WLPL). (3) 23-07-2013 Westpoint Leisureparks Pvt. Ltd., amalgamated with Westlife Development Ltd. (referred to as WDL). (4) 03-09-2013 Assessee intimated to the Assessing Officer the fact of amalgamation. Copy of Scheme as well as High Court order submitted to the Assessing Officer (enclosed at page number 57 of P.B). (5) 24-10-2013 Assessment order passed by the Asse .....

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any WLPL with WDL, copy of which is placed at paper book page 57. It is noted that in the said letter the assessee has brought out complete facts and figures mentioning about the fact of amalgamation. The learned Commissioner of Income-tax-Departmental representative expressed doubts above filing of this letter before the Assessing Officer and, therefore, to clarify all the doubts in this regard, further time was given to him to 9. verify and produce the assessment records. Accordingly, on the n .....

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refund receivable by the erstwhile Westpoint Leisureparks Pvt. Ltd. (WLPL) Ref : PAN No. AAACW7598L allotted to WLPL This is to inform you that pursuant to a composite scheme of arrangement among, inter alia, ourselves and WLPL sanctioned by the Bombay High Court on July 19, 2013, WLPL has amalgamated with our company with effect from July 23, 2013 (the effective date). Consequent upon such amalgamation, all assets and liabilities of WLPL stands transferred to and vested in our company from the .....

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10004794 PAN No.: AAACD0528K Address: 1001, Tower-S, 10th Floor, Indiabulls Finance Centre, Senapati Bapat Marg, Elphinstone Road, Mumbai 400 013 Kindly make a note of the transfer in your records and confirm your having done." 9.3. It is also shown to us that this letter has been duly acknowledged by the office of the Income-tax Officer, Range 5(3)(4) (i.e., the Assessing Officer) on September 6, 2013. Our attention was also drawn on the copy of order of the hon'ble Bombay High Court d .....

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se documentary evidences were shown to bring home the point that the factum of amalgamation was very much in the knowledge of the Assessing Officer and, thus, the Assessing Officer was aware that WLPL was no more in existence. Therefore, by framing the order upon WLPL, a grave error was committed and it was a case of the jurisdictional lapse on the part of the Assessing Officer and thus, the resultant order was nullity in the eyes of law. 9.4. On the other hand, it has been argued by the learned .....

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s of the case and submissions made by both the sides before us. We have also gone through the legal position in this regard. It is noted by us that this issue is no more res integra. All the arguments made by the learned Commissioner of Income- tax-Departmental representative have already been addressed by many courts. The judgments relied upon by learned counsel are directly on this issue and squarely cover these issues. 9.6. In addition to that, it is noted that interestingly, the hon'ble .....

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in existence as it has been dissolved. Consequent thereto, the Assessing Officer has also issued a notice under section 142(1) of the Act to one of the petitioner who was the director of the erstwhile M/s. Addler Security Systems Pvt. Ltd. (since dissolved). In response, the director of the erstwhile M/s. Addler Security Systems Pvt. Ltd., pointed out that the company has already been dissolved and it is no longer in existence. Notwithstanding the above, the Assessing Officer by an order dated M .....

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Registrar of Companies much before its issue. Consequently, the assessment has been framed also in respect of the non-existing entity. This defect in issuing a reopening notice to a non-existing company and framing an assessment consequent thereto is an issue which goes to the root of the jurisdiction of the Assessing Officer to assess the non-existing company. Thus, prima facie, both the impugned notice dated March 24, 2015, and the assessment order dated March 28, 2016, are without jurisdictio .....

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y the Assessing Officer in accordance with law. The jurisdiction to frame the assessment order upon a particular person can be made by the Assessing Officer in accordance with the law only. The jurisdiction to frame an assessment can neither be conferred nor can it be taken away by an assessee or any other person from the Assessing Officer on the basis of their consent or otherwise. If the assessment orders are framed on the basis of consent or objection of the asses see's alone then it woul .....

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ected without the authority of law, as has been clearly laid down in article 265 of our Constitution. 4.9. It is noted by us that all these issues and arguments have already been dealt with and this entire controversy has already been put to rest by various courts in their judgments. The hon'ble Delhi High Court in the case of Spice Infotainment Ltd. v. CIT [2012] 247 CTR (Delhi) 500 held that assessment order passed under such circumstances would be nullity in the eyes of law. The relevant .....

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ating company. However, we do agree with the proposition or ration decided in the various cases relied upon by the learned counsel for the assessee that the assessment made against non-existent person would be invalid and liable to be struck down. But, in the present case, we find that the assessment, in substance and effect, has been made against amalgamated company in respect of assessment of income of amalgamating company for the period prior to amalgamation and mere omission to mention the n .....

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filed the returns in respect of two assessment years in questions. However, before the case could be selected for scrutiny and assessment proceedings could be initiated, M/s. Spice got amalgamated with MCorp Pvt. Ltd. It was the result of the scheme of the amalgamation filed before the company judge of this court which was duly sanctioned vide orders dated February 11, 2004. With this amalgamation made effective from July 1, 2003, M/s. Spice ceased to exist. That is the plain and simple effect i .....

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s per the provisions of the Companies Act. It is trite law that on amalgamation, the amalgamating company ceases to exist in the eyes of law. This position is even accepted by the Tribunal in paragraph 14 of its order extracted above. Having regard to this consequence provided in law, in number of cases, the Supreme Court held that assessment upon a dissolved company is impermissible as there is no provision in Income-tax Act to make an assessment thereupon. In the case of Saraswati Industrial S .....

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e Saraswati Industrial Syndicate, the transferee company was a subsidiary of the Indian Sugar Company, namely, the transferor company. Under the scheme of amalgamation the Indian Sugar Company stood dissolved on October 29, 1962, and it ceased to be in existence thereafter. Though the scheme provided that the transferee company the Saraswati Industrial Syndicate Ltd. undertook to meet any liability of the Indian Sugar Company which that company incurred or it could incur, any liability, before t .....

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each blending company become substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new company, or by the transfer of one or more undertakings to an existing company. Strictly, 'amalgamation' does not cover the mere acquisition by a company of the share capital of the other company which remains in existence and continues its undertaking but the context in which the te .....

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rlier judgment in General Radio and Appliances Co. Ltd. v. M. A. Khader [1986] 60 Comp Cas 1013 (SC). In view of the aforesaid clinching position in law, it is difficult to digest the circuitous route adopted by the Tribunal holding that the assessment was in fact in the name of amalgamated company and there was only a procedural defect. 10. Section 481 of the Companies Act provides for dissolution of the company. The company judge in the High Court can order dissolution of a company on the grou .....

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action in the name of the company after the latter had been dissolved". 11. After the sanction of the scheme on February 11, 2004, the Spice ceases to exit with effect from July 1, 2003. Even if Spice had filed the returns, it became incumbent upon the Income tax authorities to substitute the successor in place of the said "dead person". When notice under section 143(2) was sent, the appellant/amalgamated company appeared and brought this fact to the knowledge of the Assessing Off .....

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f non- existing entity, it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of section 292B of the Act. Section 292B of the Act reads as under : "292B. No return of income, assessment, notice, summons or other proceedings 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 o .....

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makes it clear that a mistake, defect or omission in the return of income, assessment, notice, summons or other proceeding is not sufficient to invalidate an action taken by the competent authority, provided that such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the provisions of the Act. To put it differently, section 292B can be relied upon for resisting a challenge to the notice, etc., only if there is a techn .....

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court in CIT v. Harjinder Kaur [2009] 310 ITR 71 (P&H) ; [2009] 222 CTR (P&H) 254. That was a case where return in question filed by the assessee was neither signed by the assessee nor verified in terms of the mandate of section 140 of the Act. The court was of the opinion that such a return cannot be treated as return even a return filed by the assessee and this inherent defect could not be cured in spite of the deeming effect of section 292B of the Act. Therefore, the return was absolu .....

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d as invalid, if the same "in substance and effect is in conformity with or according to the intent and purpose of this Act". In so far as the return under reference is concerned, in terms of section 140 of the 1961 Act, the same cannot be treated to be even a return filed by the respondent-assessee, as the same does not even bear her signatures and had not even been verified by her. In the aforesaid view of the matter, it is not possible for us to accept that the return allegedly file .....

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B of the 1961 Act." 15. Likewise, in the case of Sri Nath Suresh Chand Ram Naresh v. CIT [2006] 280 ITR 396 (All), the Allahabad High Court held that the issue of notice under section 148 of the Income-tax Act is a condition precedent to the validity of any assessment order to be passed under section 147 of the Act and when such a notice is not issued and assessment made, such a defect cannot be treated as cured under section 292B of the Act. The court observed that this provisions condones .....

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on would be provisions of section 292B of the Act are not applicable in such a case. The framing of assessment against a non-existing entity/person goes to the root of the matter which is not a procedural irregularity but a jurisdictional defect as there cannot be any assessment against a dead person. 17. The order of the Tribunal is, therefore, clearly unsustainable. We, thus, decide the questions of law in favour of the assessee and against the Revenue and allow these appeals.' 4.10. This .....

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the eyes of law. 4.11. In view of all these facts as have brought before us and the judgments brought before us and in the absence of any contrary judgment having been brought before us, we find that impugned assessment order is nullity in the eyes of law and the same is hereby quashed, and thus additional grounds raised by the assessee are allowed. Since we have allowed the appeal of the assessee on the additional grounds, we do not find it necessary to go into grounds raised on merits and, th .....

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ing entity/ person would go to the root of matter and was not mere procedural irregularity, but a jurisdictional defect and there could not be any assessment against a dead person. Thus, apparently, assessment proceedings having been initiated against non-existing company even after amalgamation of the assessee-company with another company were illegal, and, thus, order passed under such proceedings without jurisdiction and null and void. 9.9. During the course of hearing, no contrary judgment w .....

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passed in the hands of WLPL, i.e., a non est entity at the time of passing the said assessment order was null and void in the eyes of law. 10. If the impugned assessment order passed under section 143(3) was illegal or nullity in the eyes of law, then, whether the Commissioner of Income-tax had a valid jurisdiction to pass the impugned order under section 263 to revise the non est assessment order : 10. Having decided the aforesaid two issues, the next issue that is to be decided by us is about .....

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of Tribunal) in the case of Krishan Kumar Saraf v. CIT [2016] 46 ITR (Trib) 387 (Delhi). The relevant part of the order is reproduced below (page 393) : "There is no quarrel with the proposition advanced by the learned Departmental representative that the proceedings under section 263 are for the benefit of the Revenue and not for the assessee. However, under section 263 the learned Commissioner cannot revise a non est order in the eye of law. Since the assessment order was passed in pursua .....

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time before the Tribunal as the same was legal, which went to the root of the matter. While exercising powers under section 263 the learned Commissioner cannot revise an assessment order which is non est in the eye of law because it would prejudice the right of the assessee which has accrued in favour of the assessee on account of its income being determined. If the learned Commissioner revises such an assessment order, then it would imply extending/granting fresh limitation for passing fresh as .....

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