Penalty on Paper Entity Fails: ITAT Quashes Section 271E Levy on Amalgamated Company

Nilons Enterprises Pvt. Ltd. filed its return for AY 2016-17, declaring nil income. During the pendency of proceedings, Sanghavi Foods Pvt. Ltd. amalgamated into Nilons Enterprises Pvt. Ltd. pursuant to an NCLT order. Notwithstanding the amalgamation, assessment proceedings and a penalty order under Section 271E for alleged violation of Section 269T were passed in the name of Sanghavi Foods Pvt. Ltd.

The assessee’s objection that the penalty was void as it was issued against a non-existent entity was rejected by the CIT(A).

Issue Before Court:
Whether a penalty under Section 271E passed in the name of an amalgamated company that had ceased to exist is valid in law.

ITAT’s Order: The ITAT allowed the appeal and quashed the penalty. It held that once Sanghavi Foods Pvt. Ltd. had amalgamated, it ceased to exist in law, and no proceedings could validly be initiated or continued in its name. The Tribunal noted that the Revenue was fully aware of the amalgamation, as recorded in the assessment order and communicated by the assessee.

Relying on the High Court decision in City Corporation Ltd. v. ACIT, the Tribunal held that issuing an order against a non-existent entity is a substantive illegality not curable under Section 292B. Thus, the penalty order and the appellate order were set aside. The appeal was allowed for statistical purposes.

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