R. S. Securities and Labour Services Pvt. Ltd vs. ITO, New Delhi, ITA No. 3308 & 3309/Del/2024, ITAT Delhi
In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, quashed the income tax assessment orders passed against a company whose name had already been struck off from the Ministry of Corporate Affairs (MCA) records. The case involved R. S. Securities and Labour Services Pvt. Ltd, which had been dissolved under Section 248(5) of the Companies Act, 2013, and subsequently struck off on 21st August 2017.
Background
The assessee, R. S. Securities and Labour Services Pvt. Ltd, filed appeals against the assessment orders passed under section 147 r.w.s. 144 of the Income Tax Act, 1961. The crux of the issue was whether the Income Tax authorities were justified in initiating assessments and penalty proceedings against a company that no longer existed in the eyes of the law.
The company’s name had been struck off from the MCA’s records as of 1st September 2017, and under the law, the company had ceased to exist from that date. Despite this dissolution, the Income Tax Department proceeded with the assessment, and the National Faceless Appeal Centre (NFAC) passed an order in May 2024 confirming the action.
Tribunal’s Ruling
After hearing both parties, the ITAT observed that no action had been taken by the Income Tax Department to restore the company’s name in the MCA records as required under CBDT Notification dated 29th December 2017. As the company stood dissolved, the Tribunal held that any actions taken by the authorities—such as the assessment orders and penalty proceedings—were based on a non-existent entity. Therefore, the orders were quashed.
Outcome
The Tribunal allowed the appeal in favor of the assessee, quashing the assessment order. Furthermore, since the assessment had been invalidated, the penalty proceedings were also deemed void. This decision emphasizes the importance of a company’s legal existence in proceedings under the Income Tax Act.
Conclusion
This ruling serves as an important reminder for both taxpayers and the authorities that legal dissolution of a company must be recognized before initiating any proceedings under the Income Tax Act. In cases where a company is struck off the MCA records, any tax-related actions must be carefully reconsidered to avoid legal complications.