The Surat Bench of the Income Tax Appellate Tribunal ( ITAT ) quashed the revision order passed under Section 263 of the Income Tax Act, 1961 because the entity in question did not exist during the assessment year under review.
Shree Neelkanth Quarry Works LLP was converted from a partnership firm into an LLP on 22.06.2016. The partnership firm filed its return for Assessment Year 2015-16 before conversion. The firm was later converted into an LLP, taking over the assets and liabilities of the firm.
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The reassessment proceedings were initiated based on information received that the firm had received accommodation entries amounting to Rs. 1,55,55,450 from Maruti Enterprises. The assessing officer ( AO ) issued a reassessment order under Section 147 read with Section 144 on the LLP for assessment year 2015-16, assessing the income as “Nil” since the LLP was not in existence during the year under review.
The Principal Commissioner of Income Tax ( PCIT ) set aside the assessment order under Section 263 of the Income Tax Act, 1961, claiming that the AO had not properly verified the accommodation entries.
The assessee challenged the revision order before the Surat Bench of ITAT questioning the validity of the reassessment was questioned as no notice under Section 143(2) was issued, which is a mandatory procedure.
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The assessee’s counsel argued that the LLP was not in existence during the assessment year 2015-16, and hence any reassessment proceedings initiated against it were void. Since no valid assessment was conducted, the PCIT could not invoke Section 263 for revision.
On the contrary, the revenue counsel argued that the partnership firm was converted into an LLP, so the liabilities, including any transactions like accommodation entries, were transferred to the LLP.
The two-member bench comprising Pawan Singh ( Judicial Member ) and Bijayananda Pruseth ( Accountant Member ) observed that the LLP was not in existence during the assessment year 2015-16, so the reopening of the assessment under Section 147 and subsequent reassessment order was invalid and highlighted that no notice under Section 143(2) was issued, making the reassessment invalid. Since the reassessment order was invalid, the revisionary powers of the PCIT under Section 263 could not be exercised. There needs to be a valid order for the PCIT to invoke Section 263 of the Income Tax Act.
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Therefore, the tribunal quashed the revision order passed by the PCIT under Section 263, declaring that the reassessment was invalid. The assessee’s appeal was allowed.
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