Reassessment notices against a non-existent amalgamating company failed for lack of jurisdiction and tangible reopening material.

Reassessment notices addressed to an amalgamating company that had ceased to exist were invalid, because reopening must be initiated against a legally existing assessee and proceedings against a non-existent entity are jurisdictionally void. Reopening was also unsustainable because Section 147 requires tangible material giving rise to a bona fide reason to believe that income escaped assessment; a prior order for another year and a scrutinised transaction did not provide a live link or close nexus with the relevant years. The notices were therefore quashed on both grounds.

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Issues: (i) whether notices issued under Section 148 of the Income-tax Act, 1961 could validly be addressed to an amalgamating company that had ceased to exist on account of amalgamation; (ii) whether the reassessment notices were supported by material giving rise to a reason to believe that income had escaped assessment.

Issue (i): whether notices issued under Section 148 of the Income-tax Act, 1961 could validly be addressed to an amalgamating company that had ceased to exist on account of amalgamation.

Analysis: On the approved scheme of amalgamation under Sections 391 and 394 of the Companies Act, 1956, the amalgamating company stood dissolved with effect from the appointed date. A notice for reopening assessment must be issued to a legally existing assessee. A proceeding initiated against a non-existent entity is not a mere procedural irregularity but goes to jurisdiction.

Conclusion: The notices issued in the name of the dissolved company were invalid and liable to be set aside.

Issue (ii): whether the reassessment notices were supported by material giving rise to a reason to believe that income had escaped assessment.

Analysis: Reopening under Section 147 of the Income-tax Act, 1961 requires reason to believe and not mere suspicion. The material relied upon was a prior assessment order concerning a different year and one transaction that had already been scrutinised and, in any event, was later set aside in appeal. There was no tangible material establishing a live link or close nexus between the material and the belief that income for the relevant years had escaped assessment.

Conclusion: The reassessment notices were also unsustainable for want of the requisite jurisdictional foundation.

Final Conclusion: The impugned reassessment notices were quashed on both grounds, and the petitions were allowed.

Ratio Decidendi: Reassessment cannot be initiated against a non-existent amalgamating company, and reopening under Section 147 must rest on tangible material creating a live link to a bona fide reason to believe that income has escaped assessment.

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