2023 (3) TMI 723 - HC - Income Tax

Court quashes assessment against non-existent entity for Assessment Year 2018-2019

The court quashed the assessment order, demand notice, and penalty notice issued in the name of the non-existent Inox Renewables Limited for the ... Assessment in name of non-existent entity - scheme of amalgamation/effect of appointed date - jurisdictional validity of notice - doctrine of merger - curability under Section 292BAssessment in name of non-existent entity - scheme of amalgamation/effect of appointed date - jurisdictional validity of notice - curability under Section 292B - doctrine of merger - Validity of assessment proceedings and notices framed in the name of Inox Renewables Limited after it ceased to exist pursuant to a sanction of a composite scheme of arrangement - HELD THAT: - The Court found that the composite scheme sanctioned by the NCLT became effective on 09.02.2021 with appointed date(s) operating retrospectively (including 01.04.2020 for Part II), and that Inox Renewables Limited had ceased to exist with effect from the appointed date. Notices, show-cause and draft/final assessment proceedings continued to be issued and completed in the name of Inox Renewables Limited notwithstanding repeated communications and production of the certified NCLT order informing the department of the scheme. Applying settled precedent (including Khurana Engineering and Maruti Suzuki) and the doctrine of merger, the Court held that where an entity has ceased to exist pursuant to a sanctioned scheme of amalgamation/demerger, assessment proceedings and jurisdictional notices addressed to that non-existent entity are void; such defect is substantive and not a mere procedural irregularity curable under Section 292B. Participation by the successor/transferee in the proceedings did not operate as an estoppel against law where jurisdiction itself was invoked against a non-existing entity. Given these facts and authorities, the assessment framed in the name of the non-existent transferor was held to be without jurisdiction and liable to be quashed. The Court observed that quashment of the invalid assessment does not preclude the Revenue from initiating proceedings, if permissible in law, against the amalgamated/transferee entity. [Paras 21, 22, 23, 24, 25]Impugned assessment order dated 29.09.2021 and the related notice and penalty notices issued in the name of Inox Renewables Limited are quashed and set aside; authorities remain free to take action, if permissible by law, against the amalgamated/amalgamating successor entity.Final Conclusion: Writ petition allowed; assessment and notices issued in the name of the non-existent Inox Renewables Limited are quashed for want of jurisdiction, with liberty to the Revenue to proceed, if legally permissible, against the successor/amalgamated company. Issues Involved:1. Validity of assessment proceedings against a non-existent entity post-amalgamation.2. Applicability of Section 292B of the Income Tax Act to procedural defects.3. Impact of prior intimation of amalgamation on assessment proceedings.4. Jurisdictional errors in issuing notices and assessment orders.5. Legal consequences of participation by the amalgamated entity in assessment proceedings.Detailed Analysis:1. Validity of Assessment Proceedings Against a Non-Existent Entity Post-Amalgamation:The petitioner challenged the assessment order passed by the respondent under Section 143(3) read with Section 144B of the Income Tax Act, 1961, assessing the income in the name of Inox Renewables Limited for the Assessment Year 2018-2019. The petitioner contended that Inox Renewables Limited ceased to exist from 01.04.2020 due to a composite scheme of arrangement approved by the National Company Law Tribunal (NCLT), and all its businesses, certificates, licenses, and approvals got transferred to GFL Limited. Despite this, the respondent continued the assessment proceedings against the non-existent Inox Renewables Limited, which the petitioner argued was unlawful and invalid.2. Applicability of Section 292B of the Income Tax Act to Procedural Defects:The respondent argued that the assessment order, even if issued in the name of a non-existent entity, was a procedural defect curable under Section 292B of the Act. However, the court referred to the Supreme Court's decision in Maruti Suzuki India Ltd., which held that the assessment order passed in the name of a non-existent entity is a substantive illegality and not a mere procedural defect. The court emphasized that such defects cannot be cured under Section 292B.3. Impact of Prior Intimation of Amalgamation on Assessment Proceedings:The petitioner had informed the Jurisdictional Assessing Officer about the scheme of arrangement and the merger of Inox Renewables Limited into GFL Limited through multiple communications, including an email on 10.03.2021. Despite these intimations, the respondent continued to issue notices and framed the assessment in the name of the non-existent Inox Renewables Limited. The court noted that the respondent's failure to substitute the name of the amalgamated company and continued proceedings against the non-existent entity was a fundamental error.4. Jurisdictional Errors in Issuing Notices and Assessment Orders:The court extensively reviewed the legal precedents, including the cases of Khurana Engineering Ltd. and Maruti Suzuki India Ltd., which established that assessment orders issued in the name of non-existent entities are void ab initio. The court reiterated that the jurisdiction to assess and the validity of the assessment proceedings are fundamentally affected when notices are issued to non-existent entities, rendering the entire proceedings null and void.5. Legal Consequences of Participation by the Amalgamated Entity in Assessment Proceedings:The respondent argued that the participation of the amalgamated entity in the assessment proceedings should validate the assessment order. However, the court held that mere participation does not cure the jurisdictional defect of issuing notices and passing orders in the name of a non-existent entity. The court emphasized that there is no estoppel against law, and participation by the amalgamated entity cannot validate an otherwise void assessment order.Conclusion:The court quashed the impugned assessment order dated 29.09.2021, the demand notice, and the penalty notice, all issued in the name of the non-existent Inox Renewables Limited. The court held that the assessment framed in the name of a non-existent entity is invalid and cannot be cured under Section 292B of the Income Tax Act. The court also allowed the authorities to initiate actions against the amalgamated company, if permissible under the law.