2023 (5) TMI 547 - HC - Income Tax

Court quashes tax notice for non-existing entity post-merger, upholding jurisdictional requirements

Siemens Limited, Versus The Deputy Commissioner of Income tax-8 (2) (1), Mumbai, The Principal Commissioner of Income tax-8, Mumbai, The Union of India,

The Court allowed the petition, quashing the notice issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2008-09, which was challenged ... Validity of Reopening of assessment u/s 147 - notice against company amalgamated/ non-existing - HELD THAT:- The legality of a notice issued against a non-existing company is no longer res-integra and has been held to be clearly untenable in view of the Apex Court judgment in Saraswati Industrial Syndicate Ltd. [1990 (9) TMI 1 - SUPREME COURT]. In the case of Spice Entertainment Ltd. [2011 (8) TMI 544 - DELHI HIGH COURT] a Division Bench of the Delhi High Court held that once the factum of amalgamation of a company had been brought to the notice of the Assessing Officer, despite which the proceedings are continued and an order of assessment passed in the name of a non-existing company, the order of assessment would not merely be a procedural defect but would render it void. It was also held that participation in the proceedings by the amalgamated company would have no effect since there could be no estoppel against law. Not only had Morgan Construction amalgamated with the petitioner but the factum of such amalgamation had been intimated to the Assessing Officer on 17th September 2012. The company post amalgamation having ceased to exist, the jurisdictional requirement of service of notice as envisaged under section 148 of the Act could never have been fulfilled rendering the proceedings unsustainable in law. Decided in favour of assessee. Issues:Challenge to notice under Section 148 of the Income Tax Act, 1961 for Assessment Year 2008-09 due to issuance in the name of a non-existing entity.Analysis:The Petitioner challenged a notice issued under Section 148 of the Income Tax Act, 1961 for the Assessment Year 2008-09, contending it was issued in the name of a non-existing entity, M/s. Morgan Construction Company (I) Private Limited, which had merged with Siemens Limited. The Petitioner objected to the notice and provided detailed reasons for the objection, emphasizing the merger and the cessation of M/s. Morgan Construction's existence. However, the objections were rejected by the Assessing Officer, who argued that the notice was valid as the company was operational in the relevant financial year and its PAN was still active even after the merger. The Assessing Officer also cited the lack of objection from M/s. Morgan Construction upon receiving the notice as a reason for rejecting the objections.The Petitioner's counsel argued that the Assessing Officer's approach was legally flawed given the merger and the early intimation of amalgamation to the Assessing Officer. Reference was made to the Supreme Court judgment in Principal Commissioner of Income Tax, New Delhi Vs. Maruti Suzuki India Limited [2019] to support the argument. On the other hand, the Respondents reiterated the revenue's stance reflected in the order disposing of the objections raised by the assessee. The Respondents contended that issuing a notice in the name of a non-existing company might not be invalid under Section 292B of the Act, citing the judgment in the case of Skylight Hospitality LLP Vs. Asstt. Commissioner of Income Tax.The Court referred to the legal principles established in the case of Saraswati Industrial Syndicate Ltd. v/s. CIT and subsequent judgments like Spice Entertainment Ltd. V/s. CST to determine the legality of issuing a notice to a non-existing entity post-merger. The Court highlighted that the amalgamated entity ceases to exist upon merger, rendering proceedings against it unsustainable. The Court differentiated the present case from Sky Light Hospitality LLP case, emphasizing the lack of evidence to support the notice being intended for Siemens Limited instead of M/s. Morgan Construction. Ultimately, the Court allowed the petition, quashing the notice and the order disposing of objections.In conclusion, the judgment clarified the legal implications of issuing notices to non-existing entities post-merger and emphasized the importance of fulfilling jurisdictional requirements for such notices to be valid. The Court's decision was based on established legal principles and previous judgments, ensuring the protection of legal rights in cases of corporate amalgamations.