Reassessment Against a Dissolved Firm Cannot Be Saved by Sections 170 or 189 — ITAT Amritsar
Background and Context
A significant ruling has emerged from the Amritsar Bench of the Income Tax Appellate Tribunal concerning the jurisdictional validity of reassessment proceedings initiated against a partnership firm that had already ceased to exist at the time of the issuance of notice. The Tribunal, in JCIT Vs Ambay Construction Company (ITAT Amritsar), categorically dismissed the Revenue's appeal and affirmed the position adopted by the CIT(A), NFAC, Delhi, that the entire reassessment exercise was void ab initio for want of jurisdiction.
The case pertains to Assessment Year 2012-13 and centers on a foundational question of income tax law: whether a notice issued under Section 148 of the Income Tax Act, 1961 in the name of an entity that had already been dissolved can sustain reassessment proceedings — and whether statutory provisions such as Section 170 and Section 189 can be invoked to rescue such proceedings.
Facts of the Case
The Assessee — A Dissolved Partnership Firm
The assessee, M/s Ambay Construction Company, was a partnership firm (PFAS) constituted under a partnership deed dated 01.04.2009. It carried on business activities encompassing trading in fabrics and civil construction. The firm was dissolved on 31.12.2011, and with effect from 01.01.2012, its entire running business — along with all associated assets and liabilities — was taken over by M/s Ambey Construction Pvt. Ltd., a private limited company.
This transition was characterized as a succession falling within the scope of Section 47(xiii) of the Income Tax Act, 1961. The succession was not a secret arrangement — it was formally documented through a Takeover Agreement and was expressly disclosed by the tax auditor in Form 3CB/Form 3CD (Clause 7(b)), which certified that the firm's balance sheet pertained to the financial year ending 31.12.2011 and that the running business had been taken over by the company with effect from 01.01.2012.
Prior Assessment History
For AY 2012-13, the Assessing Officer had earlier framed a regular assessment under Section 143(3) on 30.03.2015. This was subsequently set aside under Section 263 by the Pr. CIT, Bathinda vide order dated 29.03.2017, following which a fresh assessment under Section 143(3) read with Section 263 was framed on 05.12.2017.
However, the Section 263 order itself was challenged before the Tribunal. The Amritsar Bench, in ITA No. 208/Asr/2017, vide order dated 07.05.2019, quashed both the Section 263 order and the consequential assessment, holding that the notice and order had been issued and passed against a non-existent firm — one that had already been dissolved on 31.12.2011.
A similar finding had also been returned even earlier in the assessee's own case for AY 2011-12 in ITA No. 121/Asr/2017, vide order dated 21.02.2019, where the Tribunal held that a notice under Section 148 dated 13.02.2015, issued in the name of the dissolved firm, rendered the reassessment unsustainable.
The Impugned Reassessment
Notwithstanding this documented history — which was fully available on departmental records — the Assessing Officer once again issued a notice under Section 148 on 18.03.2019 in the name of the dissolved firm, M/s Ambay Construction Company, for AY 2012-13. This was followed by completion of reassessment under Section 143(3) read with Section 147 vide order dated 12.12.2019, determining total income at Rs. 23.59 crores, which included an addition of Rs. 22.21 crores on account of alleged bogus contract expenditure.
Crucially, both the impugned notice dated 18.03.2019 and the assessment dated 12.12.2019 were issued and passed after the Tribunal had already rendered its orders dated 21.02.2019 (in ITA No. 121/Asr/2017) and 07.05.2019 (in ITA No. 208/Asr/2017) — decisions that had themselves invalidated proceedings on the very same ground.
The assessee carried the matter in appeal before the CIT(A), NFAC, Delhi. The CIT(A), vide order dated 30.12.2024, allowed the appeal on the legal ground that the reopening under Section 147 had been initiated and concluded in the name of a non-existent entity, rendering the entire assessment void ab initio. The Revenue thereafter preferred an appeal before ITAT Amritsar.
Revenue's Arguments Before the Tribunal
The Departmental Representative advanced the following principal submissions in support of the Revenue's position:
Reliance on Section 170 and Section 189
Section 170of the Income Tax Act, 1961 governs cases where a business of one person is succeeded by another. The Revenue argued that in cases of succession, reassessment initiated in the name of the predecessor shall be deemed to have been initiated on the successor, thereby validating the notice underSection 148.