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TMI Blog2023 (9) TMI 885X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case, the Learned CIT(A) has erred in deleting the addition of Rs. 7,49,50,000/- made by the AO on account of unexplained cash credit u/s. 68 of the I.T. Act, 1961 without appreciating the fact that the assessee received share application money from those entities, who were providing accommodation entries. 2. "On the fact and circumstances of the case, the Learned CIT(A) has erred in deleting the addition of Rs. 7,49,50,000/- made by the AO on account of unexplained cash credit u/s. 68 of the I.T. Act, 1961 without appreciating the fact that the Hon'ble Supreme Court in the case Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC) has held genuineness could validity be tested on the ground or principle of preponderance of human possibilities which form a valid ground or parameter for determining the genuineness." 3. Assessee in ITA no. 6402/Mum/2019 on the following grounds:- 1. On facts and circumstances of the case, the assessment order passed u/s. 143(3) r.w.s. 147 of the Act is void ab initio; invalid, bad in law and grossly in violation of principles of natural justice. 2. (a) The ld. CIT(A) erred in facts and law in confirming the addition of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted at Rs. 15,08,68,860/-. vi. Assessee aggrieved by the assessment order challenged it before the LD CIT (A). vii. After considering the detailed submissions and documents placed on record and various case laws relied upon by the assessee, the ld. CIT(A) partly allowed the appeal by deleting the addition to the tune of Rs. 7,49,50,000/- and confirming the addition to the extent of Rs. 7,59,00,000/- u/s. 68 of the Act. viii. Aggrieved by the decision of the ld. CIT (A), both the parties are in appeal before us. 5. At the very outset, the ld. AR of the appellant argued that i. The assessment order passed u/s. 143(3) r.w.s. 147 of the Act suffers from infirmity, is void ab initio, and therefore needs to be quashed. Accordingly, the ground no. 1 on the validity of the reassessment order may be decided first as it goes to the root of the matter. ii. The ld. AR argued that the notice u/s. 142(1) was served on the appellant without issuing the notice u/s. 148 of the Act. iii. The appellant was not even provided with the reasons recorded for reopening. iv. The appellant had requested for the notice u/s. 148 and reasons for reopening vide letter dated 04.03.2016 and again v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. Copy of reasons recorded for re-opening the case b. Copy of the submission filed objecting the reasons recorded for re-opening the case c. Copy of the Order Disposing the Objections Accordingly, we need some time to make our submission in consideration of above challenging the validity of re-opening of the case." Vide Para no. 6.6, Ld. CIT (A) has also held that "the assessee company had duly participated in the reassessment proceedings through its authorised representative before the AO. Hence, the said contention raised by the Id. AR of the appellant is hereby rejected." Further, on perusal of the assessment order for A.Y. 2008-09, it is also observed that vide Para no. 4 the AO has mentioned that "the case was re-opened by issuing notice u/s. 148 dtd:25.03.2015 by taking prior approval from Addl.CIT Rg. 9, Kolkata." In view of that letters dtd. 27.05.2022 & 14.10.2022 has been sent to the ITO (Wd)-9(2), Kolkata with request to provide the reason recorded for the reopening for relevant assessment year, since the same is not available with this office. The same will be submitted as soon as the records are received from the ITO (Ward) 9(1), Kolkata. 7. In rebuttal to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of reasons for reopening to the assessee till date. Further, during the course of the hearing on 29.11.2022, the Ld. AR of the appellant had also clarified that there was an apparent error in the ld. CIT(A)'s order dated 30.07.2019 as the ld. CIT(A) had reproduced Para 1 of the appellant's submission made before her from the written submissions made by the appellant in respect of another year i.e. A.Y 2009-10 (and not A.Y. 2008-09) wherein the appellant had stated that it could not locate certain documents viz., the copy of reasons of reopening and the order disposing the objections. No such contention was raised by the appellant in respect of A.Y 2008-09 as can be seen from the copy of written submission before CIT(A) for A.Y. 2008-09 placed at page no. 22 of the Paper Book. A separate rectification application u/s. 154 has also been filed by the appellant in this regard with the ld. CIT (A) apart from the clerical errors in mentioning the grounds also in the same order of CIT (A) for A.Y. 2008-09. (Copy of the rectification application is enclosed). 8. Even from the said report of the ld. Assessing Officer dated 10.11.2022 provided by the ld. DR during the last hearing on 29.11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equent year i.e. A.Y. 2009-10 before passing the impugned assessment order for A.Y. 2008-09. iii. Referred to the provisions of The Limited Liability Partnership Act, 2008 and more specifically, section 58 regarding the Registration and Effect of Conversion, wherein in clause 4(c) it is stated that on and from the date of registration specified in the certificate of registration issued, the firm or the company, as the case may be, shall be deemed to have dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be. iv. That since the certificate of registration of LLP is issued on 22.03.2016, from such date, the company is no more in existence and therefore, the assessment order passed on 29.03.2016 in the name of a non-existent company is invalid and bad in law. v. In this regard, reliance is placed on the decisions of :- a) PCIT v. Maruti Suzuki India Ltd. [2019] 107 taxmann.com 375 (SC) b) CIT v. Spice Enfotainment Ltd. [CA no. 285 of 2014] (SC) and Spice Entertainment Ltd. v. CIT [2011-TIOL-971-HC-Del-IT] c) Churu Trading Co. Pvt. Ltd. v. ACIT [ITA no. 5709/Mum/2018] (Mum. ITAT) 10. On this argument, bench raised a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice u/s. 148 of the Act for the relevant A.Y. 2008-09. ii. On the averment of the assessee that reasons recorded have not been supplied, the ld. DR drew our attention to para no. 6.2 of the CIT(A)'s order wherein the submission of the assessee has been reproduced which states that presently, it is not able to locate the reasons recorded and further at para no. 6.6, the ld. CIT(A) has also rightly rejected this argument on the premise that the assessee company had duly participated in the reassessment proceedings through its authorized representative before the Ld. AO. Hence, this contention of the assessee shall also be rejected. iii. As regards the order being issued in the name of a company instead of being converted into LLP at the time of passing the assessment order, that it is just a human error and need not be construed strictly. iv. On the argument that provisions of section 153C ought to have been invoked, instead of u/s 147 and 148 of the Act that provisions of section 153C could not be applied as the conditions therein were not met and all the conditions required for the purpose of forming the belief of income escapement were present and based on that informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment u/s 147 of the Act. ii. As regards the argument that notice u/s. 148 was not served to the assessee and that reasons recorded had not been supplied to the assessee, the assessment records were called for. On perusal of the assessment records, in the course of hearing on 17.10.2022, bench pointed out that the assessment records show that at the fag end of reassessment proceedings, the concerned Ld. AO had requested the predecessor Ld. AO at Kolkata (who issued the notice u/s. 148) regarding the objections taken by the assessee of not receiving any notice u/s. 148 and that no reasons of reopening had been supplied to it. Since, we could not find any proof of service of reasons recorded being supplied to the assessee, ld. DR was asked to respond. Accordingly, the ld. DR submitted the remand report issued by the Ld. AO dated 10.11.2022 wherein he stated that request has been made to the ITO Ward 9(2), Kolkata to provide the reasons recorded for reopening in this case since the same is not available with his office and that the same shall be submitted as soon as the records are received. The ld. DR explained that the case was reopened by the ITO Ward 9(2), Kolkata and case recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idesh Sanchar Nigam Ltd. [2012] 21 Taxmann 53 (Bom.). We are also not convinced with the argument of the ld. DR that since the assessee has participated in the reassessment proceedings, no prejudice is caused. In fact, by not providing the reasons recorded, the assessee has been deprived of fundamental right to know and object on the basis of which jurisdiction has been acquired or assumed by the Ld. AO and is completely in dark about the reasons of reopening against which he could not even file any objections. For these reasons, we quash the reassessment order passed by the Ld. AO for A.Y. 2008-09 as bad in law. iii. On the issue of service of notice u/s 148 of the Act, remand report of the LD AO is categorically saying that AO does not have any proof of service of notice u/s 148 of the Act. Therefore, it cannot be assumed that there is a service of notice u/s 148 of the Act. As the revenue is not in a position to submit the records we do not wish to state that assessee has not been served with the notice. It is also a fact that assessee has participated in the assessment proceedings. Thus, we do not adjudicate the issue with respect to absence of proof of notice u/s 148 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is allowed and the appeal of the LD AO is dismissed. A.Y. 2009-10 17. We shall now take up the appeals for A.Y. 2009-10. The grounds of appeal raised by the ld AO in ITA no. 6127/Mum/2019 are as under:- 1. "On facts and circumstances of the case, the Learned CIT(A) has erred in deleting the addition of Rs. 4,87,06,000/- made by the Ld. AO on account of unexplained cash credit u/s. 68 of the I.T. Act, 1961 without appreciating the fact that the assessee received share application money from those entities, who were providing accommodation entries. 2. "On the fact and circumstances of the case, the Learned CIT(A) has erred in deleting the addition of Rs. 4,87,06,000/- made by the Ld. AO on account of unexplained cash credit u/s. 68 of the I.T. Act, 1961 without appreciating the fact that the Hon'ble Supreme Court in the case Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC) has held genuineness could validity be tested on the ground or principle of preponderance of human possibilities which form a valid ground or parameter for determining the genuineness." 18. Assessee has raised following grounds of appeal in ITA No. 6401/Mum/2019:- 1. On facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A), both the parties are in appeal before us. 22. At the outset, the ld. AR of the assessee submitted that the reassessment order passed by the Ld. AO is grossly void ab initio and needs to be struck down. Since ground no. 1 raised by the assessee goes to the root of the matter, it is taken up first. 23. The ld. AR submitted that:- i. for the year under consideration i.e. A.Y. 2009-10, the Ld. AO had issued the notice u/s. 148 of the Act dated 28.03.2016 in the name of M/s. Bhawana Computers LLP (Formerly known as Bhawana Computers Pvt. Ltd.) for the reason that the erstwhile company had got converted into LLP on 22.03.2016 and was not in existence as on 28.03.2016. ii. issue of the said notice for A.Y. 2009-10 stating that the same is in violation of the provisions of section 170(2) of the Act as no reassessment can be carried out in the hands of the successor beyond the year immediately preceding the year of succession which in the present case is A.Y. 2015-16 only and not prior to that. iii. no proceedings under the law could have been initiated prior to A.Y. 2015-16 in view of sub-section (2) of section 170 of the Act which provides that when the predecessor cannot be f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 will be intimated as soon as the records are traced. However, on perusal of the Ld. CIT(A) order it is seen that vide Para no. 6.1 Ld. CIT(A) held that "...the assessee had filed submission on 21.04.2016 for treating the return of income filed /s.139(1) of the Act as return filed in compliance to notice received u/s 148." It is clear from the Ld. CIT (A) appeals order that the assessee has received the notice u/s. 148 for the A.Y. 2009-10 and submitted its reply accordingly. Hence, contention of the assessee regarding Notice u/s. 148 was not received is not tenable. It is pertinent to mention there that in Ld. CIT(A) order for A.Y. 2009-10, the facts mentioned in Para no. 6.2 itself indicate that the assessee had also received reason for reopening and not able to locate the same. The relevant Para no. 6.2 of Ld. CIT (A) order is provided as under:- "6.2. During the course of appellate proceedings, the Learned Counsel for the appellant company made the following submissions: 2. "Presently, we are not able to locate the following documents as follows:- d. Copy of reasons recorded for re-opening the case e. Copy of the submission filed objecting the reasons recorded for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from 22.03.2016 as per the date of registration in the certificate. Notice u/s. 148 of the Act is issued on 28.03.2016 in the name of the assessee LLP only. The questions therefore arises as to - (i) Whether proceedings of Predecessor Company can be initiated in the hands of successor LLP? (ii) Whether the company once converted into LLP can be treated to have ceased to exist? (iii) Whether erstwhile company can be said to as "cannot be found"? (iv) What is the scope of section 170(2) to assess income in the hands of successor? 28. Since the issue on hand is about the conversion of private limited company into LLP, it is worth noting the relevant provisions of the Limited Liability Partnership Act, 2008 (for short, "LLP Act"). Section 56 of LLP Act: Conversion from private company into limited liability partnership. A private company may convert into a limited liability partnership in accordance with the provisions of this Chapter and the Third Schedule. Section 58 of LLP Act: Registration and effect of conversion (1) The Registrar, on satisfying that a firm, private company or an unlisted public company, as the case may be, has complied with the provisions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm or the company, as the case may be, shall be deemed to be dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be. Third Schedule (See Section 56) : Conversion from private company into Limited Liability Partnership Clause 4: Registration of Conversion On receiving the documents referred to in paragraph 3, the Registrar shall, subject to the provisions of this Act and the rules made thereunder, register the documents and issue a certificate of registration in such form as the Registrar may determine stating that the limited liability partnership is, on and from the date specified in the certificate, registered under this Act: Provided that the limited liability partnership shall, within fifteen days of the date of registration, inform the concerned Registrar of Companies with which it was registered under the provisions of the Companies Act, 2013 about the conversion and of the particulars of the limited liability partnership in such form and manner as the Central Government may prescribe. Clause 6: Effect of registration On and from the date of registration specified in the certificate of registration issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is after 22.03.2016 and therefore for A.Y. 2009-10, it is a case where proceedings are initiated after the date of registration which is 22.03.2016. vii. Therefore, if the proceedings are initiated on the erstwhile company after the date of registration, the assessee LLP cannot be assessed for the erstwhile company as per the LLP Act, 2008. 30. Now, we proceed to examine whether the company deemed to be dissolved and removed from the records of the ROC can be said to have "ceased to exist" and "cannot be found". On conversion into LLP, erstwhile company is deemed to be dissolved and removed from the records of the ROC. 31. In this regard, the decision of Hon'ble Madras High Court in the case of CIT v. Express Newspapers Ltd. [1960] 40 ITR 38 (Mad.) [further affirmed by Hon'ble Apex Court in [1964] 53 ITR 250 (SC)] wherein it held that :- "...A company which is struck off from the register is one which could not be found. The company, unlike a partnership, has a legal existence independent of its shareholder. In the case of a partnership, a dissolution of the firm cannot mean that the assessee could not be found notwithstanding the fact that its members exist. On the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e predecessors could be assessed and was available for assessment, no proceedings could be taken against the successor under section 170 (2). This is so because section 170 (2) can only be invoked in case of succession of business when the predecessor cannot be found. (CIT versus Teclaemit (I) Ltd 64 taxmann 149). But a company which is seized to exist and is struck off the registrar of companies is one which cannot be found (CIT versus express newspapers Ltd 40 ITR 38, on appeal in 53 ITR 250 (SC)." 35. On reading the commentary of Kanga & Palkhiwala's The Law and Practice Of Income Tax 11th Edition (volume II) page number 2810 and 2811 it also identically comments that though it would be incorrect to state that a firm which has been dissolved cannot be found when its partners are alive and their whereabouts unknown. However, company, which seized to exist and is struck off the Registrar Of Companies, is one, which cannot be found. In the case of amalgamation, section 170 (2) makes it clear that the assessment must be on the successor (i.e. the amalgamated company). Section 176 would not apply to amalgamation and section 159, which applies to natural person, would also not ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for the income of the predecessor company for A.Y. 2016-17 (upto 22.03.2016 being date of succession) and a year preceding to the year of succession which is A.Y. 2015-16 in the case at hand. It was stated that that there is no other year, which can be assessed in the hands of successor for the income of the predecessor, and there is no other section which was brought over notice in the Act too, which permits any other year for assessing income of the predecessor. On carefully considering the provisions of section 170(2), years which can be assessed for the income of the predecessor can be the year of succession (upto the date of succession) and the immediately preceding previous year and no other years can be assessed in the hands of the successor. 39. Therefore, in the present case at hand, we are of the view that the Ld. AO could not have acquired jurisdiction to assess the income of the predecessor company for the years prior to A.Y. 2015-16. 40. In view of the above, we hold that the Ld. AO lacks jurisdiction in reopening and assessing the case of the predecessor company for A.Y. 2009-10 in the hands of assessee LLP. 41. Accordingly, we quash the reassessment order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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