Sky Light Hospitality LLP (Delhi HC) Re-assessment notice on dissolved company, an error curable u/s. 292B


ISSUE

Whether a notice for reassessment issued under section 148 on the basis of tax evasion report received from the Investigation Unit of the Income-tax department can be treated as valid, if such notice has been issued erroneously in the name of the erstwhile company which has now been converted into an LLP? Whether this error and mistake is fatal or protected and shielded u/s 292B?

FACTS:

1.Sky Light Hospitality Pvt. Ltd. (SHPL) was converted into a limited liability partnership i.e., Sky Light Hospitality LLP (SH LLP) (assessee).

2.The return for the relevant assessment year filed by SHPL was processed under section 143(1) and was not subjected to scrutiny assessment.

3.However, upon receipt of a tax evasion report received from the Investigation Unit of the Income Tax Department, a reassessment notice was issued u/s 148 in the name of erstwhile Pvt. Ltd. Co.

4.The assessee-LLP has filed a writ petition to quash the notice and the reassessment proceedings on the ground that impugned notice issued to a dead juristic person was invalid and void in the eyes of law. Assessee argued that Sec. 292B was not applicable, since this was not a case of error, mistake or omission on the part of AO who intentionally issued notice u/s 147/148 to M/s Sky Light Hospitality Pvt. Ltd. and not in the name of Sky Light Hospitality LLP.

PROVISION APPLICABLE

Sec.147 provides that if the A.O has reasons to believe that the income has escaped assessment, he shall assess or re-assess such income or any other income which comes to his notice subsequently during the course of assessment u/s. 147 2.Sec. 292B provides that no assessment, notice, or other proceeding, made or issued in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such assessment, notice or other proceeding if such assessment, notice or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.

ANALYSIS:

1) Reason to believe established a live link with the inference drawn that income had escaped assessment. HC noted that the “reasons to believe” established a live link with the inference drawn that income had escaped assessment. HC remarked that “as long as, there is honest and reasonable opinion formed by the AO and the “reasons to believe” are not mere “reasons to suspect”, the courts should not interject to stop the adjudication process and scrutiny on merits.” HC noted that in the notice for reassessment, reference was made to the tax evasion report received from the Investigation unit of the Income-tax department which stated that the assessee had not been able to satisfactorily explain source of Rs.35 crores. Hence, HC held that there was evidence and material on record to justify issue of notice under section 148 of the Act.

2) Error in mentioning name of erst-while company did not cause any prejudice and would not invalidate assessment proceedings HC noted that there was clear evidence that the notice was erroneously addressed to SHPL instead of SH LLP. HC noted that conversion of the private limited company into a LLP was noticed and mentioned in the tax evasion report, reasons to believe recorded by AO, approval obtained from Pr. CIT and order u/s. 127, however, only the mistake was made in addressing the notice. It noted that when the assessee-LLP received the notice, it filed a letter, without prejudice, objecting to the notice being issued in the name of erst-while SHPL.

3) Terming the serving of notice on a dissolved co. was an irregularity and procedural/technical lapse which can be cured u/s. 292B HC held that Section 292B was enacted to ensure that technical pleas (such as mistake, defect or omission) or procedural irregularities do not invalidate assessment proceedings. Courts have not proceeded on technical trivialities. HC clarified that the notice was addressed to Sky Light Hospitality Pvt. Ltd., a company which was dissolved, was an error and technical lapse on the part of the Revenue and no prejudice was caused.

4) Mere human errors cannot nullify assessment proceedings. HC acknowledged the lapses in the litigation but observes that mere human errors cannot be used to nullify proceedings.

CONCLUSION:
The Delhi High Court held that the notice issued under section 148 on the basis of tax evasion report received from the Investigation unit of the Income-tax department is valid, since there was reason to believe on the basis of the said report that income had escaped assessment, even though the notice was erroneously issued in the name of the erstwhile company which has now been converted into LLP.

NOTE:

SC has dismissed SLP filed against the aforementioned decision of the Delhi High Court by holding that “wrong name given in the notice was merely a clerical error which could be corrected u/s. 292B.” It is pertinent to note that Delhi HC in Spice Entertainment Ltd had held that assessment in the name of non-existing amalgamated company was a 'jurisdictional defect' & not procedural defect which cannot be cured by Sec.292B. However, in this case, assessment order was passed on non-existent entity, whereas in the instant case, notice was issued on the non-existent entity.


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