Conversion of Company into LLP Deemed Dissolution of Company: ITAT rules Reassessment Cannot Survive [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that when a company converted to LLP is deemed to be dissolved and reassessment proceedings initiated against such enterprise is unsustainable.

The Tribunal ruled that once the company ceased to exist, any notice issued or assessment framed in its name would be void ab initio, thereby rendering the reassessment proceedings invalid.

Mango Infratech Solutions Pvt. Ltd., the respondent-assessee in this case was originally incorporated on 25 May 2010 and later converted into Mango Infratech Solutions LLP on 16 October 2017. The company filed its return for the Assessment Year 2013-14 and declared a loss of ₹93,431.

Later, based on information indicating that the assessee had made investments amounting to ₹11.35 crore, the Assessing Officer issued a notice under Section 148 of the Income Tax Act on 30 March 2019 in the name of the erstwhile company and initiated reassessment proceedings.

During the reassessment, the AO made an addition of ₹7.44 crore as income from other sources and determined the total income at ₹7.43 crore.

The assessee challenged the reassessment before the Commissioner of Income Tax (Appeals) [CIT(A)]. It argued that by the time the notice under Section 148 was issued, the company had already been converted into an LLP and had ceased to exist in the eyes of law.

Therefore, any notice issued in the name of the dissolved company was invalid. Accepting this contention, the CIT(A) held that reassessment proceedings initiated against a non-existent entity were legally untenable.

Before the Tribunal, the assessee’s counsel Adv. Rohit Kapoor submitted that the conversion of the company into an LLP had been communicated to the tax authorities and was also reflected in records maintained by the Ministry of Corporate Affairs.

The appellate tribunal said that as per Section 58(4)(c) of the LLP Act, upon conversion of a company into an LLP, the company shall be deemed to be dissolved and removed from the records of the Registrar of Companies.

“It is evident that in terms of section 58(4)(c) of LLP Act once the company is converted into LLP, it is deemed to be dissolved or removed from the records of the Registrar of the companies. In the instant case, since the company had converted w.e.f. 16.10.2017 into LLP, therefore, from that day

onwards, it deems to be removed from the records of Registrar of Companies and thus, is a non-existent entity thereafter”, observed the bench of Anubhav Sharma ( Judicial member) and Manish Agarwal ( Accountant member).

Accordingly, the notice issued under Section 148 in March 2019 in the name of the erstwhile company was issued to a non-existent entity was unsustainable. The appeal was dismissed.

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