Assessment framed by AO u/s 143(3) against a non-existent entity despite being informed about merger of assessee company with its holding company is liable to be quashed

Return Return of income, etc., not to be invalid on certain grounds Assessee filed return of income which was selected for scrutiny During assessment proceeding, AO noted that UTVTTL was merged with its ultimate holding company namely UTVSCL w.e.f. 01.04.2013 by an order of High Court under Ss 391 to 394 of Companies Act, 1956—Pursuant to such merger, all assets, liabilities and reserves of transferor company stood transferred to UTVSCL at its book value Assessment was framed u/s 143(3) in favour of a non-existent entity i.e., UTVTTL Assessee filed letter with AO intimating about surrendering of PAN Assessee also requested ITO, 8(3)(4), Mumbai to migrate its PAN to ITO, Ward 11(1)(4) Assessee again intimated to ITO, Ward 8(3)(4), Mumbai about its changed address for communication Said letter was duly submitted on letter head of UTVSCL and it was clearly outlined by authorised signatory that UTVTTL was merged with UTVSCL Accordingly, ITO, Ward 11(1)(4) issued notice u/s 142(1) AO found that there was loss that arose on account of write off of cost of production in respect of TV serial titled “A” Assessee submitted that due to management decision to close business and merge company with UTVSCL, pending production of all serials was completed Further, cost pertaining to a serial ‘A’ was written off as same was abandoned AO noted that pursuant to scheme of arrangement, all assets, liabilities & reserves of transferor companies should be recorded in books of transferee company at their respective book values—There was no reason for written off said expenses as going concern i.e., M/s UTVSCL was also in name line of business and there was every possibility that going concern would complete said alleged production—Purpose for which expenses were incurred could not be fulfilled thus, assessee’s action was premature—CIT(A) called for remand report from AO—AO stated that during entire stretch of FY, assessee had operated as UTVTTL—During period for which assessment was made, amalgamation had not taken place—Present amalgamated company was well aware that assessment was being made against it in assessment of M/s UTVTTL, being represented by assessee, and, therefore, no prejudice was caused to assessee so as to render assessment order as void-ab-initio and bad in law—CIT(A) rejected assessee’s appeal by holding that notice of assessment was issued for period prior to amalgamation—Assessee had participated in assessment proceedings time to time without a whisper on non-maintainability of notice issued by AO—Once same was acted upon by assessee and AR, ease was hit by s. 292BB—Held, AO was fully aware and having knowledge of merger of UTVTTL with UTVSCL—Despite being informed about merger of assessee with UTVSCL by several communications and AO despite being fully aware and having complete knowledge of said merger of UTVTTL with UTVSCL erred in not conducting an enquiry as was contemplated u/s 170 r/w Order 22 Rule 10 of CPC which required a prima facie enquiry for substitution of successor-in-interest although it was a prima facie enquiry and not a very detailed enquiry—Despite voluminous evidences on record filed by assessee before AO intimating about its merger, no prima facie enquiry was conducted by AO to bring on record successor in interest to assessee viz. UTVSCL—Instead AO proceeded to frame an assessment order against a non-existent entity viz. assessee u/s 143(3), which was fatal to sustaining of an assessment framed by AO on a non-existent entity—Assessee on direction of Bench has also filed copies of several compliances made by assessee as were directed by High Court sanctioning scheme of amalgamation of assessee with its ultimate holding company w.e.f. 01.04.2013—All those compliances were completed before end of May 2014 and same were speaking loudly that assessee had discharged its burden while failure to bring on record successor in interest during assessment proceedings was on part of Revenue—AO in its order had admitted to having knowledge of factum of merger of UTVTTL with its ultimate holding company UTVSCL, which was reiterated by AO in his remand report filed on direction of CIT(A) during appellate proceedings—Assessment was framed by AO u/s 143(3) in name of UTVTTL which was an non-existent company as it got merged with its ultimate holding company—AO had not conducted any prima facie enquiry as was contemplated u/s 170 r/w Order 22 Rule 10 of CPC to bring on record successor in interest, despite several intimations given by assessee to AO as to amalgamation during assessment proceedings—Non-conducting of prima-facie enquiry by AO to bring on record successor in interest as was contemplated u/s 170 r/w Order 22 Rule 10 of CPC and framing of an assessment on a non-existent entity was fatal—Hence, said order was liable to be quashed as even provisions of s. 292B could not save it from being quashed as this was a jurisdictional legal infirmity which goes to root of matter—Assessee’s appeal allowed.

 

UTV SOFTWARE COMMUNICATION LTD. vs. INCOME TAX OFFICER

 

(2019) 55 CCH 0407 MumTrib