Court Dismisses Appeal in Assessment Case Involving Non-Existing Entity

Case Name:

Principal Commissioner of Income Tax vs. Nokia Solutions & Network India Pvt. Ltd.

Key Takeaways:

1. Assessment originally framed in the name of a non-existing entity.
2. Dispute resolution panel directed the Assessing Officer to frame the assessment in the name of the surviving entity.
3. Court dismissed the appeal, upholding the legal position established by the authorities.

Synopsis:

In this case the assessment of income tax and the validity of assessments framed in the name of a non-existing entity. The case involves the Principal Commissioner of Income Tax vs. Nokia Solutions & Network India Pvt. Ltd. and the interpretation of Section 142 and Section 292B of the Income Tax Act, 1961.

The key points from the case are as follows :

1. Background: M/s Nokia Siemens Network Pvt. Ltd. (referred to as “the old company”) filed its returns for A.Y. 2006-07 on 29.11.2006. However, pending proceedings of amalgamation before the Karnataka High Court, an order was made on 09.01.2009, by virtue of which, the old company merged with Nokia Solutions & Network India Pvt. Ltd. i.e. the respondent in this case.
2. Assessment in the Name of Non-Existing Entity: The assessment was conducted in the name of the old company, which had ceased to exist due to the merger. The dispute resolution panel (DRP) concluded that the assessment originally framed was in respect of a non-existing entity and directed the Assessing Officer (AO) to frame the assessment in the name of the respondent/assessee, which was complied with.
3. Legal Position: The Revenue argued that the assessment was justified as it was a continuation of the assessment proceedings and that the DRP’s directions were valid. However, the respondent/assessee urged that the assessment was a nullity and that the law declared in Spice Entertainment Ltd. case squarely applied.
4. Court’s Decision: The Court dismissed the appeal, stating that the legal position established by the authorities supported the respondent’s arguments and that no question of law arises. Now, let’s delve into the relevant sections of the Income Tax Act, 1961 and the implications of the court’s decision. Section 142 - Inquiry before Assessment Section 142 of the Income Tax Act, 1961 deals with the inquiry before assessment. It empowers the Assessing Officer to serve a notice on any person who has made a return under section 139 or in whose case the time allowed for furnishing the return has expired, requiring them to furnish a return of income or to produce accounts or documents as required. The section also provides for the opportunity of being heard to the assessee in respect of any material gathered on the basis of any inquiry or audit and proposed to be utilized for the purposes of the assessment. Section 292B - Return of Income Not to be Invalid on Certain Grounds Section 292B of the Income Tax Act, 1961 states that no return of income, assessment, notice, summons, or other proceeding furnished or made or issued or taken in pursuance of any of the provisions of the Act shall be invalid merely by reason of any mistake, defect, or omission if such return of income, assessment, notice, summons, or other proceeding is in substance and effect in conformity with or according to the intent and purpose of the Act. Court’s Decision The Court’s decision in this case was based on the interpretation of the law declared in the Spice Entertainment Ltd. case and its applicability to the present case. The Court held that if the assessment is concluded in favor of a non-existing entity, then notwithstanding Section 292B, the position does not improve. It also emphasized that the position taken or urged by the assessee cannot be held against it if the primary jurisdiction does not exist, i.e., to conclude an assessment in the name of a non-existing entity. In conclusion, the Court dismissed the appeal, stating that the legal position established by the authorities supported the respondent’s arguments and that no question of law arises.

(1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 115WD or section 139 or in whose case the time allowed under sub-section (1) of section 139 for furnishing the return has expired a notice requiring him, on a date to be therein specified,—

(i) where such person has not made a return within the time allowed under sub-section (1) of section 139 or before the end of the relevant assessment year to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or :

Provided that where any notice has been served under this sub-section for the purposes of this clause after the end of the relevant assessment year commencing on or after the 1st day of April, 1990 to a person who has not made a return within the time allowed under sub-section (1) of section 139 or before the end of the relevant assessment year, any such notice issued to him shall be deemed to have been served in accordance with the provisions of this sub-section,

(ii) to produce, or cause to be produced, such accounts or documents as the Assessing Officer may require, or

(iii) to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the assessee, whether included in the accounts or not) as the Assessing Officer may require :

Provided that—

(a) the previous approval of the Joint Commissioner shall be obtained before requiring the assessee to furnish a statement of all assets and liabilities not included in the accounts;

(b) the Assessing Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year.

(2) For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary.

(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require :

Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard.

(2B) The provisions of sub-section (2A) shall have effect notwithstanding that the accounts of the assessee have been audited under any other law for the time being in force or otherwise.

(2C) Every report under sub-section (2A) shall be furnished by the assessee to the Assessing Officer within such period as may be specified by the Assessing Officer :

Provided that the Assessing Officer may, suo motu, or on an application made in this behalf by the assessee and for any good and sufficient reason, extend the said period by such further period or periods as he thinks fit; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section (2A) is received by the assessee.

(2D) The expenses of, and incidental to, any audit under sub-section (2A) (including the remuneration of the accountant) shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner (which determination shall be final) and paid by the assessee and in default of such payment, shall be recoverable from the assessee in the manner provided in Chapter XVII-D for the recovery of arrears of tax :

Provided that where any direction for audit under sub-section (2A) is issued by the Assessing Officer on or after the 1st day of June, 2007, the expenses of, and incidental to, such audit (including the remuneration of the Accountant) shall be determined by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with such guidelines as may be prescribed and the expenses so determined shall be paid by the Central Government.

(3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section (2) or any audit under sub-section (2A) and proposed to be utilised for the purposes of the assessment.

(4) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year.