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TMI Blog2023 (7) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee at Rs.. 134,10,75,282/-. 3. Ld. Pr.CIT, Mumbai -5 while perusing the assessment records, he observed that the assessee company in the guise of reduction of capital, sold shares held by it in Indus Towers Ltd to P5 Asia Holdings Investments (Mauritius) Ltd for Rs.. 25,41,30,00,000/-. However, Ld.Pr.CIT observed that no capital gain tax was paid on the said transaction. The assessee company has shown the profit on above amount of Rs.. 1380 crores as Other Comprehensive Income but has not credited the same in its profit and loss account, arisen due to the sale of the said shares. The Assessing Officer during assessment has not enquired and examined the said transaction. According to him, it is evident that assessment order passed u/s. 143(3) of the Act dated 05.12.2019, is erroneous in so far as it is prejudicial to the interest of revenue, within the meaning of Section 263 of the Act. Accordingly, he issued notice u/s. 263 of the Act on 01.03.2022 through ITBA, thereby providing assessee the opportunity of being heard. 4. In response to the above notice, the assessee company vide letter dated 07.03.2022 submitted as under: - "We refer to the notice dated 01 March 2022 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) wherein, inter alia, the Assessee has challenged the validity of the assessment order. Copy of the appeal filed is enclosed as Annexure 3. 1.4 During the course of assessment proceedings, the learned AO issued Notice u/s 142(1) of the Act dated 31 January 2019 and the assessee through its submission dated 04 February 2019 filed(sic) details along with the financial statements for the year ended 31 March 2017 - which includes Note 19 on capital reduction along with Note 7 and Note 29 which providing details on non-current investments and its movements. Copy of the financial statements is enclosed as Annexure 4. 1.5 The AO further issued Notice U/s 142(1) of the Act dated 12 October 2019 (copy of Notice is enclosed as Annexure 5) and enquired amongst other items about the capital reduction of equityshares (page no 2 of the Notice dated 12 October 2019). 1.6 The Assessee through its submission dated 11 November 2019 had made detailed submission on the capital reduction of its equity shares and distribution of 4.85% of shares held in Indus Towers Limited ("Indus) to P5 Asia Holdings Investments (Mauritius) Ltd ("PS") (copy enclosed as Annexure 6). The relevant extracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with Note 7 and Note 29 which providing details on non-current investments and its movements (b) Notice dated 12 October 2019 with specific queries and assessee made submission dated 11November 2019 which provides complete details of the court approved capital reduction and thereby distribution of Indus shares to P5 along with movement of non-current investments being shares held in Indus (c) Copy of the Bombay HC Order dated 14 December 2016 It is therefore clear that learned AO has examined the above documents relating to reduction of capital by the company and did not arrive at any adverse conclusions in passing the assessment order dated 05 December 2019 1. in view of the above, the assessee submits that the proceedings u/s 263 of the Act needs to be dropped as i) Twin conditions of assessment order being erroneous so far as it is prejudicial to the interest of the revenue is not satisfied in the present case (ii) Assessment Order in the present case cannot be regarded as erroneous, since the learned AO had done detailed inquiries on the issues sought to be revised us 263 of the Act and there was a proper application of mind on the part of AO (iii) The fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ratio of Supreme Court ruling in the case of CIT Vs. Madurai Mills Co. Ltd. (1973) 89 IT 45 (SC) where the question was whether the distribution of assets of a company in liquidation amounted to a sale, exchange, relinquishment or transfer within the terms of section 128 of the Indian Income-tax Act, 1922, so as to give rise to capital gains to the shareholders of the company therefrom. The Supreme Court held as under "The act of each of the liquidators in distributing the assets of the company which had gone into voluntary liquidation did not result in the creation of new rights. It merely entailed recognition of legal rights which were in existence prior to the distribution. A liquidator is only a trustee in the sense beneficially to the company and passes into his custody, to be applied by him as directed by the statute. When a shareholder receives money representing his share on distribution of the net assets of the company in liquidation, he receives that money in satisfaction of the right which belonged to him by virtue of his holding the shares and not by operation of any transaction which amounts to sale, exchange, relinquishment or transfer. In the circumstances, it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the superintendence of that State and they cannot ignore it, either by initiating or deciding the matters before them. Reliance in this regard is placed on the following precedents * CIT VGM Stainless Steel Pvt. Ltd. 263 ITR 255 (SC); * UOI v Kamlakshi Finance Corporation Ltd AIR 1992 SC 711, * Bank of Baroda v H.C. Shrivastva 122 Taxman 330 (Bombay); * Agarwal Warehouse and leasing Ltd v CIT 257 TR 235 (Madhya Pradesh). * Commissioner of Income-tax, Bhopal vs. Raison Industries Ltd (2007) 207 CTR 201 (SC); * HDFC Bank Ltd. Vs. DCIT (2016) 383 ITR 529 (Bombay) * Reliance Infrastructure Ltd Vs DCIT (2016) 76 taxmann.com: 238 * Bank of Baroda vs. HCShrivatsava(2002) 175 CTR 663 (Bombay) * K Subramanian vs. Siemens India Ltd. (1983) 36 CTR 197 (Bombay), * Kaira District Co-operative Mik Producers Union Ltd, V/S DCIT (2016) 386 ITR 633 (Gujarat). it is submitted that since the above judgment has been rendered by the jurisdictional Bombay High Court it is binding on this issue. B.2.2 In any case, distribution of shares on capital reduction cannot be considered as 'sale' by the Company 5.1.8 Without prejudice to the above, the Notice states that "tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istribution of Indus shares to P5 cannot be subject to levy of capital gains tax in the hands of assessee. Reference could be made to the ratio of the following judicial precedents in support of the above: 1. CIT vs. TexspinEngg&Mfg Works (2003) 263 ITR 345 (Bom HC); 2. Sadanand S. Varde vs. State of Maharashtra 274 IT 609 (Bom HC), 3. Oudh Sugar Mills Limited vs. ITO (1990) 35 ITD 76 (Mum, ITAT), 4. Credit Suisse (International) Holding AG, In re 24 taxmann.com 224 (AAR- New Delhi) 5. Hoechst GmbH, In re (2007) 289 ITR 312 (AAR- New Delhi); 6. Dana Corporation (2010) 321 ITR 178 (AR-New Delhi), 7. Banca SellaSpA, In re (2016] 387 ITR 358 (AAR New Delhi) MENT B.2.4 Erroneous reference to accounting entry in the Notice 5.1.10. Additionally, the notice alleges that the assessee company has shown the above amount of Rs. 1380 crores as Other Comprehensive Income but has not related the same in its profit and loss account, arisen due to the sale of the said shares is completely erroneous In this regard, the assessee submits that the amount recorded in the financial statement at Note 14(d) of IN 1380 crores represent Net fair value gain on the investments in equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P5 Asia Holdings Investments (Mauritius) Ltd, was the shareholder of the Assessee Company and it was holding 30.31% of the equity shares in the Assessee Company. The Assessee Company in turn was holding 16% in Indus Towers Ltd. Thus, P5 Asia Holdings Investments (Mauritius) Limited was holding 4.85% shares in Indus Towers Ltd indirectly through the Assessee Company. He observed that as per Balance-sheet as on 31.3.2017, the Assessee Company has other investments that include mutual funds of Rs.. 7,67,17,22,000/-. As a 'Scheme of Arrangement approved by the Hon'ble High Court, the Assessee Company has cancelled the shares held by P5 Asia Holdings Investments (Mauntius) Ltd and transferred to them 4.85% shares of Indus Towers Ltd. out of its own holdings and also paid Rs.. 455 cores purportedly the value of other assets as per valuation of the Assessee Company proportionately related to the holding of P5 Asia Holdings Investments (Mauritius) Ltd. Ld. Pr.CIT observed that, in effect, the Assessee Company has transferred 4.85% shares out of 16% shares held in Indus Towers Ltd. including the value of other assets and paid Rs.. 455 crores in cash. 6. Further, he observed that ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 u/s. 263 of the Act. 1. 2. 1 On the facts and circumstances of the case and in law, the Hon'ble PCIT has erred in holding that the Order dated 05 December 2019 passed by the Assistant Commissioner of Income-tax 5(2)(2) [ACIT of the "learned AO"] u/s. 143(3) of the Act was erroneous in so far as it is prejudicial to the interests of revenue. 1.2.2 On the facts and circumstances of the case and in law, the Appellant submits that the Order passed by the ACIT is neither erroneous nor prejudicial to the interest of the revenue and hence the revision of the same by the PCIT u/s. 263 of the Act is unwarranted and bad in law. 1.2.3 On the facts and circumstances of the case and in law, the PCIT erred inholding that the learned AO failed to conduct all necessary inquiries as warranted on the facts of the case; Assessment Order in the present case cannot be regarded as erroneous, since the AO had done inquiry on the issues sought to be revised u/s. 263 and there was a proper application of mind on the part of the AO. 1.2.4 The PCIT failed to appreciate the fact that merely because the Order does not discuss this specific issue does not necessarily lead to the conclusion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment Ltd., v. Pr.CIT in Income Tax Appeal No 1168 of 2017. (copy of the same is placed on record). Therefore, he proceeded to make the submissions in Ground No. 1.4 and 1.5 elaborately as under. 10. Ld. AR submitted that the original assessment passed u/s. 143(3) was completed in the erstwhile name of the assessee i.e., M/s. Aditya Birla Telecom Limited which is an non-existing entity at the time of passing of the Assessment Order. In this regard, he brought to our notice Page No. 1 of the Assessment Order to indicate that Assessing Officer has passed the Assessment Order in the name of the erstwhile name of the company. Further, he brought to our notice Page No. 276 of the Paper Book which is the letter addressed by the assessee to the Assessing Officer dated 04.02.2019 in which assessee has informed the Assessing Officer that merger is effective on the 30.11.2018 and the appointed date of the merger is April 1st, 2018. Assessee also enclosed the relevant merger scheme along with the letter addressed to the Assessing Officer. 11. Further, he brought to our notice Page No. 59 of the Paper Book which is notice issued u/s. 142(1) of the Act dated 12.10.2019 in which the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the order passed u/s. 263 of the Act on the ground that the impugned Assessment Order was non-est and we hold accordingly. Further, he brought to our notice that the Coordinate Bench has discussed in details the various aspects of the validity of the Assessment Order passed u/s. 143(3) of the Act and subsequent proceedings initiated u/s. 263 of the Act and finally they held that the impugned order passed u/s. 263 of the Act by the Ld.Pr.CIT is also null in the eyes of law. Therefore, they have quashed the order passed u/s.263 of the Act. 14. Further, he brought to our notice order of the Hon'ble Bombay High Court in which Hon'ble High Court upheld the views of the ITAT in the same case Westlife Development Ltd (supra) and he prayed that facts in the present appeal is exactly similar and the ratio of the above decision should be upheld in the present case also. 15. On the other hand, Ld. DR opposed the submissions of the Ld. AR and submitted that the Assessing Officer has issued notice u/s. 143(2) of the Act prior to the date of amalgamation. Further, he submitted that even the notice u/s. 142(1) was issued by the Assessing Officer considering the fact that he has issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon'ble Bombay High Court in the case of CIT Vs. Ballarpur Industries Ltd.85 taxmann.com 10(Bombay) 53 to 55 10 Article on the tax implications of the reduction of share capital in Bombay Chartered Accountants Society Reference 56 to 60 18. Ld.DR brought to our notice Para No. 20 of the case M/s. Mando Automotive India Pvt. Ltd. (supra) and submitted that it was held the Assessment Order was passed by the Assessing Officer as per law. Similarly, the Hon'ble Supreme Court held that the assessment passed in the erstwhile name of the company is proper. He relied heavily on the above cases and submitted that the order passed by the Assessing Officer is proper, however Assessing Officer has not made proper enquiry and investigation before completing the assessment. He vehemently argued that the revision order passed by the Ld .PCIT is also as per law wherein it was highlighted that the Assessing Officer has not properly investigated the issue highlighted in the Order, it squarely falls within the ambit of Explanation 2(a) of the sec. 263 provisions. 19. In the rejoinder, Ld. AR objected to the submissions of the Ld.DR that the Assessment Order is passed based on the system dri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, he brought to our notice Para No. 33 of the order wherein the Hon'ble High Court has observed that this is an established fact and not in contention, the respondent has relied upon Spice and Maruti Suzuki (supra) to contend that the notice issued in the name of the amalgamating company is void and illegal, the facts of the present case, however, can be distinguished from the facts in Spice and Maruti Suzuki (supra) on the following basis. Wherein they have distinguished the facts in the cases of Spice and Maruti Suzuki (supra) and established that the assessee has misguided the Assessing Officer by filing wrong information in the return of income. He submitted that this case also distinguishable to the facts in the present case. 22. With regard to ACIT v. Vahanvati Consultants (P.) ltd., (supra) he brought to our notice Page No. 33 and pointed that the Hon'ble Bombay High Court has decided the issue in favour of the assessee that the mistake on mentioning erstwhile name of the company cannot be modified by applying section 292BB of the Act. Therefore he submitted that all the cases relied by the Ld.DR are factually distinguishable from the decision of the Pr.CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctually filed the wrong informations in order to misguide the revenue. Accordingly, the Hon'ble Supreme/High Court has decided the issue against the assessee. However, the facts in the present case are not similar to the facts in the case of M/s. Mando Automotive India Pvt. Ltd. (supra) and PCIT vs. Mahagun Realtors (P) Ltd. (supra). Therefore, the ratio in the above said cases cannot be applied in the present case. It clearly indicates that Assessing Officer has passed the Assessment Order in the name of the non-existing entity. Therefore, the Assessment Order passed by the Assessing Officer itself is non-est, void and bad in law. 25. Considering the fact that the original Assessment Order passed by the Assessing Officer is bad in law, whether the collateral proceeding initiation u/s. 263 of the Act also be bad in law. It is brought to our notice that in the case of Westlife Development Ltd., v. Pr.CIT (supra) wherein the Coordinate Bench has addressed this issue and decided as under: - "9.5. We have carefully gone through the facts 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of M/s GenesysWorldeye Ltd in ITA No.473/Mum/2012 order dated 03-06-2016 in which one of us (AM) was a party. The relevant part of this order is reproduced hereunder: "4.8. In our view, this argument of the Ld. DR is also not in accordance with law. The assessment is to be made by the AO in accordance with law. The jurisdiction to frame the assessment order upon a particular person can be made by the AO 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 AO on the basis of their consent or otherwise. If the assessment orders are framed on the basis of consent or objection of the assessee 's alone then it would give rise to a chaotic situation. Thus, it is for the AO to carefully determine his jurisdiction to make an assessment in a lawful manner upon the appropriate person and the obligation to do so rest solely upon the shoulders of the AO which he is obliged to fulfil by following due process of law. There is no estoppel against law. If an assessment order is framed without the authority of law, then, the same would be nullity in the eyes of law, as no tax ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effective from 1st July, 2003, M/s Spice ceased to exist. That is the plain and simple effect in law. The scheme of amalgamation itself provided for this consequence, inasmuch as simultaneous with the sanctioning of the scheme, M/s Spice was also stood dissolved by specific order of this Court. With the dissolution of this company, its name was struck off from the rolls of Companies maintained by the Registrar of Companies. 8. A company incorporated under the Indian Companies Act is a juristic person. It takes its birth and gets life with the incorporation. It dies with the dissolution as 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 para-14 of its order extracted above. Having regard 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 to make an assessment thereupon. In the case of Saraswati Industrial Syndicate Ltd. Vs. CIT, 186 ITR 278 the legal position is explained in the following terms: "The question is wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Case 1013. 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 grounds stated therein. The effect of the dissolution is that the company no more survives. The dissolution puts an end to the existence of the company. It is held in M.H. Smith (Plant Hire) Ltd. Vs. D.L. Mainwaring (T/A Inshore), 1986 BCLC 342 (CA) that "once a company is dissolved it becomes a non-existent party and therefore no action can be brought in its name. Thus an insurance company which was subrogated to the rights of another insured company was held not to be entitled to maintain an action in the name of the company after the latter had been dissolved". 11. After the sanction of the scheme on 11th April, 2004, the Spice ceases to exit w.e.f. 1st July, 2003. Even if Spice had filed the returns, it became incumbent upon the Income tax authorities to substitute the succes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notice, summons or other proceeding taken by an authority suffers from an inherent lacuna affecting his/its jurisdiction, the same cannot be cured by having resort to Section 292B. 14. The issue again cropped up before the Court in CIT Vs. Harjinder Kaur (2009) 222 CTR 254 (P&H). 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 inspite of the deeming effect of Section 292B of the Act. Therefore, the return was absolutely invalid and assessment could not be made on a invalid return. In the process, the Court observed as under:- "Having given our thoughtful consideration to the submission advanced by the learned Counsel for the appellant, we are of the view that the provisions of Section 292B of the 1961 Act do not authorize the AO to ignore a defect of a substantive nature and it is, therefore, that the aforesaid provision categorically records that a return would not be treated as invalid, if the same "in subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue and allow these appeals." 4.10 This judgment was subsequently followed by another detailed judgment by Hon'ble Delhi High Court in the case of CIT v. Dimension Apparels Pvt. Ltd. (supra) wherein all the arguments which have been made before us by the Ld. DR have been dealt with by the Hon'ble High Court and it was held that framing of the assessment order upon a non-existing person was a jurisdictional defect and not merely a curable procedural defect, and thus nullity in 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 herby 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 therefore, these are treated as infructuous." 9.8 It is also noted that Hon'ble Calcutta High Court in the case of I.K. Agencies Pvt Ltd, supra as well as Honble Karnataka High Court in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law. Since the assessment order was passed in pursuance to the notice U/S 143(2), which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the some was non est in the eyes of law. All proceedings subsequent to the said notice are of no consequence. Further, the decision of Hon'ble Madras High Court in the case of CIT Vs. Gitsons Engineering Co. 370 ITR 87 (Mad) clearly holds that the objection in relation to non service of notice could be raised for the first time before the Tribunal as the some was legal, which went to the root of the matter. 19. While exercising powers u/s 263 Id. Commissioner cannot revise an assessment order which is non est in the eye of law because it would prejudice the right of assessee which has accrued in favour of assessee on account of its income being determined. If Id. Commissioner revises such an assessment order, then it would imply extending/ granting fresh limitation for passing fresh assessment order. It is settled law that by the action of the authorities the limitation cannot be extended, because the provisions of limitation are provided in the same. 20. In view of above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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